In light of the unprecedented volume of distressed properties currently available in the U.S. housing market, investors are demonstrating considerable interest in single-family rentals as an emerging asset class. Government programs are giving investors the opportunity to purchase pools of foreclosed single-family real estate owned (REO) properties for conversion into rentals. Whether the REO bulk sales transactions are being offered by Fannie Mae, Freddie Mac or the Federal Housing Administration, which control large amounts of REO, or private sector actors, investors must consider a wide range of issues before participating in the REO-to-rental movement. As REO-to-rental strategies develop, market participants must take into account factors such as the form such transactions will take, the availability and terms of financing, the ability to rate the asset, and the potential use of securitization as an exit strategy.

FHFA Pilot REO-to-Rental Program -

On February 1, 2012, the Federal Housing Finance Agency (FHFA), the conservator of Freddie Mac and Fannie Mae (together, the GSEs), announced the launch of a pilot Real Estate Owned initiative. The program, which we have previously written about, provides the opportunity for private capital to invest in the distressed U.S. housing market by offering qualified investors the opportunity to bid on pools of GSE-owned single family properties. The winning bidders are then required to convert the REO properties to rentals, which must be rented for a specified number of years. The program focuses on foreclosed properties in struggling markets such as Atlanta, Las Vegas, Phoenix and parts of Florida.