Jim Warren: The Road From REO To Rental

Written by Phil Hall
on February 28, 2012 No Comments
Categories : Person Of The Week

11006_jim_warren Jim Warren: The Road From REO To Rental PERSON OF THE WEEK: With the Federal Reserve recently offering a white paper that advocated for the use of real estate owned (REO) property as rental properties, the government seemed to be taking a different route away from its traditional championing of homeownership. To discuss the challenges of the REO-into-rental strategy, MortgageOrb spoke with Jim Warren, senior vice president of PropertyAccess, an Austin, Texas-based property management services company.


Q: Federal Reserve Chairman Ben Bernanke has proposed a plan to create a nationwide REO rental program. Is this a good idea or a bad idea?

Warren: This is a fantastic idea, and one that has been raised frequently in the past six months with a report from the U.S. Government Accountability Office, letters from 33 senators to President Obama, the Federal Housing Finance Agency's request for information, and private-sector and academic reports. The message is being heard. It is motivating the institutional investor community to take notice of this new asset class with anticipated pools becoming available this spring from the government-sponsored enterprises (GSEs).

Vacant housing in the U.S. is leaving its mark on banks, the GSEs and the taxpayers who have to carry the added expense and maintenance. Furthermore, vacancies are causing depreciation to neighborhoods where they sit. The infrastructure exists and is in place on a national scale to enable national rental programs to exist. This national approach can ensure standards in reporting, licensing, insurance and landlord/tenant laws right down to the local level by encouraging central oversight but local execution. There just needs to be sufficient access to larger asset pools.

Q: The multifamily housing sector has seen significant growth since the housing crisis began. If the Bernanke plan is put into effect, what impact will it have on the multifamily housing sector?

Warren: There would be minimal impact to the multifamily sector. Studies show that the majority of families that have lost their homes are moving into single-family residences. Additionally, this market has been underdeveloped, leaving an exceptional demand exceeding inventory, as evidenced by the record-low vacancy rates and increasing rental rates. I think there is plenty to go around for both the multifamily and single-family sectors for quite some time.

Q: Different data sources have produced conflicting reports on the volume of REO properties. Why is it that no one has been able to put forth a definite count on the REO inventory?

Warren: The lack of clear data isn't just affecting the REO inventory numbers; it is everywhere in the single-family rental sector. One of the biggest challenges the investors are struggling with – besides access to large quantities of assets – is the fact that this new asset class doesn't have much analytics available at the national or regional level for them to create investment models that illustrate a confident cash-on-cash yield.

As far as the REO inventory, I suspect that the state attorneys general inquiries and the Office of the Comptroller of the Currency audits have influenced previously foreclosed loans, re-entering the delinquent bucket – and vice versa – which has ‘muddied up the water’ of accurate reporting. But that is just speculation, and probably only one of the factors.


Q: Going forward, what do you see as the state of the REO market?

Warren: I think 2012 will be the ‘year of the investor,’ with a lot of focus on driving REO-to-rental pilots. There are several reasons that factor into this prediction.Â

First, due to a lack of data, many investors are not confident in their models. So, to prove out their models, they are going to start with 250 to 1000 assets in very specific metropolitan statistical areas. Second, unless a greater number of larger pools become available, there won't be enough assets available to meet the goals of the investors.

I am seeing, hearing and reading a lot of activity that leads me to believe there will be more pools available this year than last. I hope this is true for everyone who is touched by this market, because it will result in fewer vacant homes causing blight in communities and greater rental housing becoming available to those who need it.

Register here to receive our Latest Headlines email newsletter




Leave a Comment