Real Estate| Federal Reserve suggests foreclosure rental program

The Federal Reserve called on banks and loan servicers to consider renting properties they foreclosed on to keep prices from falling further and help meet rental demand, in a paper it issued this week.

While the demand for housing is low, the number of homes on the market is high, in part because of the large number of properties being held by banks and services after foreclosure, according to the white paper.

“The combination of weak demand and elevated supply has put substantial downward pressure on house prices, and the continued flow of new REO [real estate, or bank, owned] properties--perhaps as high as 1 million properties per year in 2012 and 2013--will continue to weigh on house prices for some time,” the paper said.

Rental demand is also picking up, in part because families that have lost their home to foreclosure are becoming renters, according to the paper.

Fannie Mae, Freddie Mac and the Federal Housing Administration have about half of the REO properties, some of which could be rented. About two-fifths of the properties Fannie Mae has would have a capitalization rate, the expected cash flow from renting the property, above 8 percent, which is high enough that the service may be better off renting the property than selling it, the report said.

There are some potential challenges to a rental program, but certain changes to policies or types of financing could be made available to make it a viable option, according to the paper.

The Federal Reserve is also considering issuing guidance to banks and banking regulatory to clarify expectations about the rentals of REOs and the length of time that a lender can rent a property, the paper said.

Foreclosures rose in Horry County in November, the most recent month for which data is available, according to Realty Trac, a company that tracks foreclosures nationwide. Those foreclosures continue to drive prices downward and prevent the market from stabilizing, Tom Maeser, a research analyst for the Coastal Carolinas Association of Realtors, has said. Until those foreclosures will all be sold and out of the market, prices won’t stabilize or start to make significant gains, he has said.

Pawleys Island land purchased

A North Carolina company has bought several acres in Pawleys Island along U.S. 17 where it may eventually build a new building materials distribution center.

Lyndale Apartments Ltd. bought 4.6 acres next to the Bi-Lo Center in North Litchfield last month, according to Thomas Otis, a senior broker at NAI Avant.

Ross Lampe, an owner of Lyndale, is also an owner of Guy C. Lee Building materials, which intends to eventually build the distribution center, Otis said.

The property was bought under the Lyndale name for tax purposes, he said.

“They’re going to wait and sort of gauge the market conditions,” Otis said. “I don’t expect them to do anything with it for the next year or more.”