The Broader Market

by David Min, Jordan Eizenga and John Griffith

The announcement yesterday that the Obama administration will consider proposals to sell off large numbers of government-owned foreclosed homes is an important step toward a new system of U.S. housing finance. If designed well, this initiative could generate much-needed revenue for the government, expand the quantity of energy efficient, affordable housing to thousands of American families, and create well-paying jobs.

Government-supported entities own hundreds of thousands of foreclosed homes, mostly from mortgages insured before the housing bubble burst. These owners include the Federal Housing Administration, Fannie Mae, and Freddie Mac. Most of these so-called “real-estate owned” or “REO” properties are currently unoccupied and losing value as they deteriorate.

The White House addressed this issue yesterday by releasing a public solicitation for proposals on how to deal with this growing stock of REO properties. Their goal is to reduce the number of foreclosed homes in a way that minimizes taxpayer losses, expands affordable housing, and addresses property repair and rehabilitation needs.

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