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Banking

Real estate: Will banks jump on REO speedwagon?

US Fed to incentivize investors; Single-family homes new asset class

Colin Wiel, Waypoint

In its January white paper on the US housing market, the Federal Reserve laid out its proposal for a solution to the foreclosure backlog plaguing banks and the government-sponsored entities (GSEs) – tax incentives to investors to buy up portfolios of REOs (real estate owned – properties that have been foreclosed upon and are now owned by the banks or the GSEs) and turn them into rental properties. Regarded by some in the housing market as the Fed over-stepping its authority by involving the taxpayer in solving the issues of the GSEs and banks, the paper nonetheless has highlighted a solution to the high number of foreclosures on balance sheets.

There are an estimated 500,000 REOs in the US, and that is likely to increase during the next few months as legal impediments to foreclosure, resulting from investigations into robo-signing and foreclosure practices, are worked through. In total, there are 1.9 million units in the US in a state of foreclosure.

One analyst says he expects the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, to start issuing investor programmes within months.

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