Californians Say No to REO-to-Rental: Is this Good News for RE Agents?

Throughout 2013 we saw investors out in record numbers. In fact, almost 40% of all home purchases were made using all-cash – virtually the same amount of homes purchased using a mortgage. While investor activity has slowed since then, the concern over homebuyers being forced out of the market is still high among many advocates, a concern which agents and brokers share as well.
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Recently, many lenders have been converting their once for sale properties into rental ones, a process known as REO-to-rental. Not only does this practice limit the listings available to agents and brokers, it raises many concerns for the people residing in these neighborhoods.

Today there are over 78 organization asking federal regulators to take action against first-time homebuyers being outbid, tenants being displaced, and neighborhoods undergoing extreme changes as private equity and investor cash continue to flood local housing markets. What’s worse is that these problems which are intensified as banks withhold these REO properties from the market and agencies continue to conduct bulk sales of foreclosed homes and distressed mortgages.

Kevin Stein, the associate director of the California Reinvestment Coalition, commented on the matter saying, “There are some eerie parallels between what’s happening now and the mortgage meltdown. In both cases, the overarching similarity is a drive for higher and higher profits without regard for harmful impacts on families and communities. That’s why we’re ringing the alarm bell now and asking regulators to act.”

So what are some of the concerns that advocates are expressing to regulators? While ranging anywhere from reasonable to ridiculous, the most common include:

• Banks not providing equal access to mortgage modifications and failing to maintain REO properties, problems which are particularly harmful to low income borrowers and neighborhoods of color
• First-time homebuyers being forced out of the market buy all-cash paying investors and banks artificially inflating home values by withholding REO properties from the market
• A lack of regulatory oversight for new investor landlords
• Government housing agencies conducting bulk sales of properties which favor large investors over homeowners and long-term tenants, further destabilizing the communities which they reside in

While it is still uncertain what effect these practices have had on housing prices, if the advocates demands are met there would be a great reduction if not a complete halt in REO-to-rental properties.

What are your thoughts? We’d like to hear from you.

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