HUD asked for Suggestions What do you think?

Question

Earlier I was reading and interesting article today. Basically explaining how HUD is sitting on over 240,000 REO's and does not know what to do with them since conventional lending will not loan to distressed housing. They simply asked for suggestions on what to do. So hear was my advise I want to know what you guys think of this.

I recommended these be turned into rental homes. This would help accomplish many things such as creating jobs for the blue collar working there would tremendous amount of money that would go in to renovations and this would require professional carpenters, plumbers, electricians, hvac, landscapers, etc... to get everything up to date I recommended the supervision be outsourced to property managers. 
  And I also recommended that the rental leases on these homes be at lease 5 year leases in exchange for this long term agreement, if the renter is paying on time they have this reported to the credit burial. This way homes are guaranteed to be occupied for several years, renters have motivation to stay in them, inventory is freed up and, renters credit scores increase giving them a better chance to to qualify for a loan. Since HUD does section 8 I suggested that instead of paying there rent to others section 8 tenants be given these rentals homes at a discount rent instead of paying out the money.

In the article they said they had many options to consider but what every the decide they realize that     real estate investors are going to be the key to solving this problem.  Any other suggestions or opinions I know I am missing many angles to this but I am at a blank.

Jon Holdman · Answer

Interesting question.  If they're concerned about pushing up housing prices (which seems to be the overriding concern), the answer is simple - bulldoze them.  I'm totally serious.  Prices are just a matter of supply and demand.  During the boom, demand went nuts with all the loose money easily available for anyone and their brother to buy a house.  As it always does, supply rose to meet the demand.  Now demand has plumtted.  Supply is still too high in many areas.  I drove around Kansas City last week looking at properties and some areas have one or two houses on every block that are boarded up.  I was date spray painted on some of the boarding from 2008.  Doze these babys and supply will get in line with demand.

Kevin Yeats · Answer

@Marc

Your food analogy is not entirely accurate.  When a grocery store deems some food unsellable and throws it in the dumpster, it cannot be used for any purpose.

A house that is vacant can be rehabilitated and used as housing and thus represents "competition" for existing homes.  If that vacant house is bulldozed, the land is still available on which to build another house but it represents less competition to the other existing houses.

Would you like to own the only house available for sale or be the O/O of a home on a street with 5 or more vacant homes?

Reference: See building restrictions in many big cities like San Francisco, Seattle and Boston and the values of existing houses in those cities.

Manny Cirino · Answer

Interesting thoughts from everyone! I should of posted the article sooner here it is for your enjoyment.

http://www.msnbc.msn.com/id/44375023/ns/business-us_business/

Marc Freislinger · Answer

I'm not sure this would solve anything. The homes they are trying to do something with are the homes that nobody wants. Eliminating supply that has no value doesn't increase the demand on the rest of the supply. It's like a store throwing out expired food, it doesn't make the rest of the food any more valuable.

Don't worry though Jon, I disagree with the OP as well. I think turning over anything like this to the government is just begging to waste our tax money. Maybe I read the suggestion wrong, but if he intended to say that HUD should renovate these homes, then rent them out (for free), then I think I want to cry.

The government has no incentive to keep costs down. They will hire whatever company claims to be able to do the work they want, and pay outrageous amounts of money for it. They would put in all this money to get the home to pass a section 8 inspection (mind you, no easy feat for some of these homes), then give it to a section 8 renter who is paying nothing or next to nothing? What incentive do they have to keep the place up? I don't buy the opinion that people would appreciate the opportunity to better their credit. Most low-income (section 8) renters don't give a damn about their credit.

Unfortunately, I don't have an all encompassing solution to help rid them of this burden, but I have a couple of suggestions:

1) List a property at a reasonable price. I've spoken with agent who have done nothing more than drive by the home and snap a photo of the exterior. I've even seen REOs listed with a screenshot of Google Street View as the listing photo. Agents need to understand the condition of the home and list appropriately.

2) Eliminate the bureaucracy. It is hard to buy a HUD home. You have to be registered for their site (or make your broker do it). You have to fill out a dozen addenda, and you have to wait until the "owner occupant" period expires. All of this just increases the odds that a buyer will just say "forget it" and go on to the next house.

The market will correct itself over time. I think that when they add all these artificial rules such as the owner-occupant period, they are only hurting themselves. If they can't even sell these homes properly, I don't want to see what they'd do as landlords.

Kevin Yeats · Answer

The RTC (remember them) 'dozed mostly overbuilt multifamity in Texas in the early 90s.  My casual observation told me that after the 90s "dip" in Texas, housing continued the same upward growth rate.

HUD asked for Suggestions What do you think?

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