Bloomberg News

Fed Outlines Guidelines for Rental of Foreclosed Properties

April 05, 2012

The Federal Reserve outlined the rules it expects banks to follow in renting out properties acquired through foreclosure.

The statement is aimed at “reiterating that statutes and Federal Reserve regulations permit rental of residential properties acquired in foreclosure as part of an orderly disposition strategy,” the Fed said today in a release in Washington.

Converting foreclosed properties into rentals was a strategy advocated by Chairman Ben S. Bernanke in a study the Fed sent to Congress in January on proposals to aid the housing recovery. In a cover letter to the paper, Bernanke said that “restoring the health of the housing market is a necessary part of a broader strategy of economic recovery.”

“The general policy of the Federal Reserve is that banking organizations should make good faith efforts to dispose of foreclosed properties” at the earliest possible date, the Fed statement said.

‘In light of the extraordinary market conditions that currently prevail,” the Fed said that banks may rent out foreclosed properties “without demonstrating continuous active marketing of the property for sale, provided that suitable policies and procedures are followed.”

The central bank noted in the statement that the flow of foreclosures onto the market would “continue to weigh on house prices for some time.”

Fulfill Obligations

The Fed said that renting out foreclosed properties may help banks fulfill obligations toward community development under the Community Reinvestment Act. Banks with 50 or more properties available for rent must document how they meet supervisory expectations with their rental program.

Last year, Fed Governor Elizabeth Duke called for government efforts to promote the rental of foreclosed homes, saying a recovery in the U.S. housing market hinges on clearing the backlog of such properties.

“We need to deal with the unprecedented number of loans in or still entering the foreclosure pipeline, the disposition of properties acquired through foreclosure, and the effect of a high percentage of distressed sales on home prices,” Duke said on Sept. 1.

“We, as a nation, currently have a housing market that is so severely out of balance that it is hampering our economic recovery,” she said.

To contact the reporter on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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