Is Foreclosure Relief Finally on the Way?

The government could finally have plans for dealing with the nation's enormous foreclosure inventory.

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The staggering number of foreclosures on the market has been a big stumbling block for the housing market and has played a huge role in depressing home prices across the country.

But plans to contain the venom of foreclosures are in the works, according to CNBC's Diana Olick. The Obama administration together with government mortgage giants Fannie Mae and Freddie Mac are on the verge of announcing a pilot program to bundle government-owned properties and sell them in bulk to investors as rentals.

The Federal Reserve recently floated the idea around in a white paper delivered to Congress last week, and the general notion of packaging distressed properties in lots to convert into rentals has been tossed around before.

Supporters say such a program could go a long way in helping clear out the inventory of foreclosed properties—now as many as 250,000 between the two government-sponsored enterprises and the Federal Housing Finance Agency—which is expected to swell in coming months as foreclosure proceedings that were delayed by legal issues are re-started.

Still smarting from losses racked up in the last wave of foreclosures to hit the market, the government hopes to keep properties in neighborhoods across the nation from sitting on their books and staying vacant, which would drive their value down.

"There's a lot of friction in the housing sector and there's a lot of real-estate owned [REO properties] actually sitting vacant," says New York Federal Reserve President and CEO William Dudley, who came out in support of a foreclosure-to-rental program in a speech last week. "A more efficient outcome would be to get [foreclosures] out and rented up."

But a ton of impediments stand in the way of starting such a program, Dudley says, including rules that limit the number of loans Fannie Mae and Freddie Mac will make to any one borrower. Tax benefits could also go a long way in encouraging investors to scoop up distressed properties on the government's books, he says.

"The housing market doesn't have one set of outcomes," Dudley says. "It has many potential outcomes depending on the policies we pick and if we pick policies that are appropriate ones, we can generate a much better outcome in terms of stimulating housing demand that can actually generate a sturdier economic recovery."

mhandley@usnews.com