Homes for Rent, $208 a Month: A Plan to Save Fannie Big Money

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Bank owned foreclosureA recent Federal Housing Finance Agency report on Fannie Mae and Freddie Mac confirms that the two government-sponsored enterprises now own some 200,000 single-family homes.

Originally designed to be facilitators of the national mortgage market, these companies came by their massive real estate portfolio by foreclosing on properties whose owners had fallen behind on their mortgages.

But they're not thrilled about it, and you shouldn't be, either.

The Obama administration is working to get Fannie and Freddie to unload their real estate holdings on the market tout de suite, but so far, they aren't having much luck. While the companies have succeeded in selling off hundreds of thousands of homes, every month they end up with thousands of newly foreclosed properties.

Simply put, the boat has a hole in it -- no sooner do Fannie and Freddie bail one bucket of homes back out into the market, than another few thousand new foreclosures flow right back onto its balance sheet.

A Million Here, a Billion There (and Look Over There -- a Trillion!)

As a result, Fannie and Freddie -- two companies that have already cost taxpayers $170 billion in direct bailouts, and nearly a trillion dollars more in Federal Reserve purchases of mortgage-backed securities -- are continuing to siphon away millions more in taxpayer funds due to the cost of maintaining the foreclosed-upon properties they own.

According to ABC's Power Players, the cost of simply keeping the lawns mowed runs upward of $40 million annually across Fannie and Freddie's vast real estate empire. And that's just the start of it. Add in the expense of keeping these properties maintained -- painting walls, maintaining the plumbing, and planting perennials in the garden to keep "curb appeal" up -- exceeds $500 million a year.

Defending the expenditures, Fannie Mae argues that the spending is necessary to keep its houses maintained and competitive in the housing market so that they can sell quickly. Ultimately, the company says, all this spending will end up saving taxpayers money by helping to fetch higher prices when the houses do finally sell. In the meantime, however, taxpayers are getting stuck with $2,500 a year per house in maintenance expenses (that's $500 million divided by 200,000 homes).

Jobs R Us

There are any number of ways to view this story. For example, spending $40 million on lawn maintenance, and another $460 million and change on associated home upkeep, sounds like a pretty sizable jobs program the government has got running here.

Homebuilders, on the other hand, are likely less sanguine. Companies such as Pulte (PHM), Toll (TOL), and Ryland (RYL) would probably prefer the government let its 200,000 house inventory rot, making their own offerings of new-built construction look the more attractive by comparison.

Uncle Sam: A Lousy Landlord?

For taxpayers, though, the question is simply this: Why are we spending $500 million a year to maintain these houses, and just hoping that the higher resale values will help us to recapture the cost... eventually? Why aren't we making some attempt to cover the cost today?

Consider: The $2,500 annual cost of maintaining one of these properties breaks down to about $208 a month. Meanwhile, real estate market analyst Reis estimates that the monthly cost of renting even a small apartment in America averages $986 a month nationally. This appears to leave at least $700 worth of wiggle room between what it costs the government to maintain a home prior to sale, and the rent the feds could charge to keep a home occupied and maintained (partly at the renter's own expense) up until sale.

Rather than sinking half a billion dollars annually into a national money pit, the smarter move -- and one that could help a lot of foreclosed-upon former homeowners put a roof back over their heads -- is to rent these properties out. Charge $208, $308, anything up to the market rate, and use the rent to cover Fannie's and Freddie's maintenance costs.

Side benefit? The renters can mow the lawns for free.

Motley Fool contributor Rich Smith holds no position in any company mentioned.


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158 Comments

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tv22mac

How to print article on rental homes owned by govern agencies and who and how to contact them. Purpose to help them and me

May 25 2012 at 4:57 PM Report abuse +1 rate up rate down Reply
tv22mac

How to print article on rental homes owned by govern agencies and who and how to contact them. Purpose to help them and me

May 25 2012 at 4:57 PM Report abuse rate up rate down Reply
Keishypoo

Don't you sometimes wish the government would do the logical thing and bail themselves out once in a while? Such a great idea especially in today's market; now we all cross our fingers and hope the FHFA does the smart thing.

http://propertymortgageinvestment.com/foreclosed-homes-more-renters/

April 30 2012 at 12:53 PM Report abuse rate up rate down Reply
Debbie

LAURA, YOU ARE SO RIGHT ON! IS THEIR A CONSPIRACY /WAR BEING WAGED ON HOMEOWNERS? WHY WOULD MORTGAGE COMPANIES NOT TRY TO KEEP THE HOMEOWNER IN HIS HOME? AND THE TAXPAYER ONCE AGAIN PAYS FOR THEIR STUPIDITY! GOD SAVE US FROM THESE BLOODSUCKING LEECHES!

April 13 2012 at 5:24 PM Report abuse +1 rate up rate down Reply
Sandy

Unfortunately, the government bureaucrats will be unable to see the logic in this, and will continue to throw away millions of our dollars. With rent prices through the roof this idea is a No Brainer!

April 13 2012 at 2:50 PM Report abuse +2 rate up rate down Reply
deadelephant2

Wow, as an overall analysis this article is incredibly weak. To begin with, there are cities that REQUIRE the entity owning a property to maintain it in decent condition, maintaining the yards, making sure swimming pools are empty and/or secure, and doing what's necessary to avoid area property values from being damaged any further. Renting a house (in Southern California) for $308 a month? What woud that do to an area rental market other than possiby sink it further? Could someone owning a rental possibly lose THEIR property because they couldn't feasibly reduce their rent to the $308 level? Absolutely they could, which could wipe them out financially. Who manages the rental properties, and at what cost? This is one of the poorest articles I have ever read by a Motley Fool contributor.

April 13 2012 at 2:47 PM Report abuse +1 rate up rate down Reply
LAURA

Wow, another example of the governments stupidity. How about not forclosing on the homeowners and instead refinancing the mortgage which would keep people in their homes and paying significantly more then 200-300 a month back towards what they owe and maintaining pride in ownership of the home. Everyone knows that renters don't take the best of care of properties and they expect landlords to fix appliances and HVAC units and roofs etc. So take away a families home and give it to someone for 200 dollars a month--yup, that really makes good sense. What a messed up way of thinking our government agencies have.

April 13 2012 at 2:46 PM Report abuse +3 rate up rate down Reply
oystrahi

Time to take the wrecking ball to these surplus homes!

April 13 2012 at 2:33 PM Report abuse rate up rate down Reply
luv2rlax761

When I read what you right wing nutjobs have to say about the President of the United States of America, It makes me ashamed to be an American. As for the elections, time will tell..!!

April 13 2012 at 2:02 PM Report abuse rate up rate down Reply
hickersonappsvc

THERE WE GO MORE GOV GIVE AWAYS. LET PEOPLE HAVE CHEAP RENT AND SCREW THE REST OF US THAT OWN RENTALS. THAT WAY IF WE CANNOT RENT OUR PROPERTIES WE CAN GIVE THEM BACK ALSO. WHY FORECLOSE IN THE FIRST PLACE. GET THE STRUGGLING PEOPLE A PAYMENT THEY CAN AFFORD AND DO A RENT TO OWN OPTION ON THE HOUSE. THEY WOULD SAVE SO MUCH MONEY IF THEY FIGURED A WAY TO KEEP THE PEOPLE IN THE HOUSE AND STOPPED FORCLOSING!!!!

April 13 2012 at 1:51 PM Report abuse +3 rate up rate down Reply
2 replies to hickersonappsvc's comment
LAURA

You make a great argument but our government programs are run by complete idiots--not to mention that this is a great way for the government to continue to control people and takeover another huge area of our lives. Government will have housing, healthcare, jobs--hmmm doesn't sound like the America I grew up in.

April 13 2012 at 2:49 PM Report abuse +1 rate up rate down Reply
Sandy

Landlords always hope to make big bucks by screwing over the poor renters with their overinflated prices. This article offers an excellent solution to improve the economy, by lowering the price of rent for those who cannot afford to buy right now. Maybe then the renters will have a few more bucks at the end of the month to buy a few more things besides gas and food. Definitely an answer to jumpstarting the economy and bringing down inflated rental prices.

April 13 2012 at 2:56 PM Report abuse rate up rate down Reply