Connect with us

Opinion Editorials

The potentially devastating pitfalls of turning REOs into rentals



A common misconception

First, let’s clear up a misconception.  Foreclosure is a process, usually involving a court of some kind; the process can vary depending on the state.  REO means Real Estate Owned; it is what a house becomes after a foreclosure, when a bank or government entity purchases a home back.  It actually comes from the term, OREO, meaning Other Real Estate Owned, meaning a non-performing asset on the banks books.  The two terms are not interchangeable, and do not mean the same thing.  With that being sorted out, let’s get down to business.

The government, as in the Treasury Dept, and the Federal Housing Finance Agency, has issued a Request for Information  on how to deal with all the REOs that Fannie, Freddie, and FHA have on their books.  There is a fairly big push coming from The Obama Administration, and Sen. Reed who wrote a letter to the FHFA director earlier this month, encouraging the government sponsored entities (GSEs) to start renting out their REOs.  They are asking for either outright purchases, in bulk, or possible joint ventures with the GSEs, to maybe even some other kind of partnership.  The public and other entities have until September 15th to comment.

Over 250,000 REOs between FHA, Fannie & Freddie

These are the ones that have actually completed the foreclosure process, some are currently listed, about 77,000, and some are pending, waiting to close, about 22,000, according to DSnews.  Shadow inventory, the ones in the pipeline, the homes that have received a NOD, the ones that are still going through the foreclosure process, in other words, are not mentioned.  Because of the way notes have been sold, and resold, there may not be way to determine how many are actually out there waiting down the line.  We really are looking a lot of houses potentially flooding the market, just from the GSEs.

It’s no secret that the GSEs have been losing money.  A lot of money.  Part of the push for converting REOs into rentals may be coming from the idea that non-performing assets could generate cash flow, if as above, some of these were done as a partnership with the GSEs.  We are talking about rentals en mass, here.  Not 3-10 at a pop, but entire geographical areas.  In theory, this should stabilize housing by not selling crappy REOs at a discount, it’ll also make rent more affordable in some areas, it could also create jobs since many will need rehabbed.

Theories usually suck though.  We have to look no further than The Washington Post’s investigation into HUD’s HOME program.  What had transpired were many incomplete projects, lost money, money that didn’t get used, money that came from the government and was dedicated to these projects no less, and projects that were completed, but sitting vacant.  Some things were done correctly, yes, but not a lot compared to what was screwed up.  The potential for the same types of things going awry with a rental program is huge.  What is the Government going to do, make investors sign a piece of paper saying “I promise to be a good landlord, treat tenants right, rehab all the properties according to code, not be a jerk and defraud anyone?”  Uh-huh.  Sure.

Katie Cosner, occasionally known as Kathleen, or KT, is a Realtor® with Cutler Real Estate and is active in her local Board of Realtors® on the Equal Opportunity & Professional Development Committee. She has been floating around online for a number of years, and is on facebook as well as twitter. While Katie has a few hardcore beliefs, three in the Real Estate World to live and die by are; education, ethics, and the law - insert random quote from “A Few Good Men” here. Katie is also an avid Cleveland Indians fan, which really explains quite a bit of her… quirks.

Continue Reading


  1. Sig

    August 12, 2011 at 7:42 am

    On the surface this "Theory" looks good. BUT. The journey between a good Government "Theory" and putting said "theory" into action always seems to be easier done if private industry does it. Look at the last time Government put "Theory" into action in the late 1980's and early 1990's via the infamous Resolution Trust fiasco. What a mess that turned out to be. It was a good 'theory" but very bad practice. Government needs to sell those homes to private companies who know how to rehab, and rent them. Government can help guarantee the financing and back the renters if they like but that should be the extent of Government involvement.

  2. Roberta Murphy

    August 12, 2011 at 9:35 am

    Another lovely example of government inserting it$elf into private lives and enterprise. For the sake of all, get those foreclosed homes onto the open market and allow them to be bought by both by both homebuyers and private investors. This lessens chance and opportunity for graft and fraud, and will directly benefit local contractors, suppliers and allow for pride of ownership in blighted neighborhoods.

    This is also a case of government competing against the private investor–and perhaps gaining a political/voting edge from those who benefit from government rentals.

    Do not trust this government grab!

    • Kathleen Cosner

      August 12, 2011 at 11:14 am

      Roberta, Bingo! Seriously, if you haven't, read the Washington Post piece. It's a totally in-depth look at what can happen when there's zero accountability.

  3. CJ Johnson

    August 12, 2011 at 9:47 am

    Who will pay for the property taxes, maintenance, collection of rent, insurance, etc? We will! Who will benefit when the rent is not paid? Evection attorneys! Who will pay to replace the stollen appliances, broken windows, and other damage tenants cause? You got it the taxpayers. Add to this all the neat new government jobs that will be created to administer this program. Can you say stupid idea?

    • Kathleen Cosner

      August 12, 2011 at 11:17 am

      CJ, excellent points, and probably ones no one is thinking about!

  4. Liz Benitez

    August 12, 2011 at 11:20 am

    Such a bad bad bad idea.

  5. ShortWoman

    August 12, 2011 at 11:31 am

    There are so many problems with the proposal that I don't even know where to start.

  6. Gena Riede

    August 12, 2011 at 1:39 pm

    Fannie, Freddie, Banks and the Government have no business in the business of rentals. The minute I heard this, my first thought was that of socialism and Russia. These properties should be sold and purchased by home buyers and investors.

    There is another caviat to this where Fannie has been soliciating a back door entry into MLS systems statewide on the premise that if they have access to the MLS Fannie will offer access to their "Help Desk" for short sales.

    This backdoor entrance into our MLS systems throughout the US and the prospect of them going into the rental business is NOT a good scenario for real estate.

    If Fannie is allowed full access into our MLS systems, where does this stop? Are the banks next. Any MLS that agrees to this in my opinion is opening up Pandora's Box and we are on the way to a much different real estate platform that scares me.

    • Kathleen Cosner

      August 12, 2011 at 3:24 pm

      Gena, Agree. Investors with credit & cash to do so, or owner occs should be the ones to purchase, not some crazy mass buy.

      Haven't heard of any MLS access thing in regards to Fannie. Is this a smaller MLS?

  7. Gena Riede

    August 12, 2011 at 4:49 pm

    Oh, no Fannie Mae wants access to ALL MLS system. They want each MLS to provide a Fannie Mae Help button on the current MLS system where they supposedly the Short Sale agent will have access to help. However, I see this as an opportunity for Fannie Mae to have access to all the listings and as we know, it won't stop there.

    The VP of Fannie Mae was interviewed on CDPE about a month ago where this was discussed and I called our MLS here in Sacramento who has NO INTENTION of providing access or a button for Fannie Mae. But, I have heard that there are states and areas who have done so.

    I see a lot of issues… and there not good ones!

    • Kathleen Cosner

      August 14, 2011 at 4:49 am

      That's about one of the craziest things I've heard of in a while! Wouldn't most MLSs have to re-write their rules in order for that to happen? Not sure they're set up for that kind of thing, a whole 3rd party access deal.

  8. Manhattan Beach Realtor

    August 14, 2011 at 12:59 pm

    What we're seeing is the initial phase of another bailout for GSE's; the feds need a good marketing pitch to the public of why they are going to transfer billions more. Stabilizing housing, making rent more affordable for low income, etc. it's all a nice way to dressing up the fact that billions, if not tens of billions, are soon to land into the accounts of GSE's.


    Flooding rental market with "affordable" rentals will drive rental rates, and returns, down for landlords across the country. Worse, is that this will occur in severely distressed regions that need capital. Low ROI will drive much needed capital out of these areas.

  9. sfvrealestate

    August 15, 2011 at 12:37 pm

    I agree that this is a bad idea for the Feds to get involved. I can see a limited role for a limited amount of properties through some kind of local city government (perhaps partnered with individual investors) situation. It would be kind of like Section 8 is now.

Leave a Reply

Your email address will not be published. Required fields are marked *

Opinion Editorials

Your business model doesn’t have to be a unicorn or a camel to succeed

(OPINION / EDITORIAL) It’s not unusual for people to suggest a new business model analogy, but this latest “camel” suggestion isn’t new or helpful.



Camels walking in desert, not the best business model.

This year in 2020 I’ve seen a great deal of unique takes on how our system works. From 45 all the way down to children instructing adults on how to wear masks properly. However, after reading this new article published by the Harvard Business Review, I don’t think I’ve ever seen something so out of touch with the rest of the business world. Here’s a brief synopsis on this article on business model.

The author has decided that now of all times it’s drastically important for startups and entrepreneurs to switch their business tactics. Changing from a heavy front-end investment or “startups worth over a billion dollars” colloquially called “Unicorns” to a more financially reserved business model. One he has tried to coin as the “Camel”, using references to the animal’s ability to survive “long periods of time without sustenance, withstand the scorching desert heat, and adapt to extreme variations in climate.”

The author then goes on to outline best practices for this new business plan: “Balance instead of burn”, “Camels are built for the long haul”, “Breadth and depth for resilience”.

Now I will admit that he’s not wrong on his take. It’s a well thought-out adjustment to a very short-term solution. You want to know why I’m sure of that? Because people figured this out decades ago.

The only place that a “Unicorn” system worked was in something like the Silicon Valley software companies. Where people can start with their billions of dollars and expect “blitzscaling” (a rapid building-up tactic) to actually succeed. The rest of the world knows that a slow and resilient pace is better suited for long term investments and growth. This ‘new’ business realization is almost as outdated as the 2000 Olympics.

The other reason I’m not thrilled with this analogy is that they’ve chosen an animal that doesn’t really work well. Camels are temperamental creatures that actually need a great deal of sustenance to survive those conditions they’ve mentioned. It’s water that they don’t need for long periods, once they stock up. They have to have many other resources up front to survive those harsh conditions the article writer mentioned. So by this analogy, it’s not that different than Silicon Valley’s strongly backed “startups.”

If he wanted to actually use the correct animal for this analogy, then he should call it a tortoise business plan. Actually, any type of reptile or shark would work. It would probably be a better comparison in temperament as well, if we’re talking ‘slow and steady wins the race.’ Whatever you do, consider your angle, and settle in for the long haul.

Continue Reading

Opinion Editorials

10 tips for anyone looking to up their professional game

(OPINION / EDITORIAL) It’s easy to get bogged down by the details, procrastinate, and feel unproductive. Here are a few tips to help you stay on track and crush your professional goals.



work productivity

Self-reflection is critical to a growth mindset, which you must have if you want to grow and improve. If you are ready to take your professional game to the next level, here are some stories and tips to help you remain focused on killing your goals.

1. Don’t compare yourself to others. Comparison is the thief of joy, as the quote goes. And, in the workplace it’s bound to make you second guess yourself and your abilities. This story explains when comparison can be useful, when to avoid it, and how to change your focus if it’s sucking the life out of you.

2. Burnout is real and the harder you work, the less productive you are. It’s an inverse relationship. But, there are ways to work smarter and have better life balance. Here are some tips to prioritize your workload and find more ease.

3. Stop procrastinating and start getting sh@t done. The reason we procrastinate may be less about not wanting to do something and more about the emotions underlying the task. Ready to get going and stop hemming and hawing, you got this and here’s the way to push through.

4. Perfection is impossible and if you seek this in your work and life, it’s likely you are very frustrated. Let that desire go and learn to be happy with excellence over perfection.

5. If you think you’re really awesome and seriously deserve more money, more responsibility, more of anything and are ready to drop the knowledge on your supervisor or boss, you may want to check this story out to see if your spinning in the right direction.

6. Technology makes it so easy to get answers so quickly, it’s hard to wait around for things to happen. We like instant gratification. Yet, that is another reason procrastination is a problem for some of us, but every person has a different way/reason for procrastinating. Learn what’s up with that.

7. Making choices can be a challenge for some of us (me included) who worry we are making the wrong choice. If you’ve ever struggled with decision making, you know it can be paralyzing and then you either make no decision or choose the safest option. What we have here is the Ambiguity Effect and it can be a real time suck. Kick ambiguity to the curb.

8. If you are having trouble interacting with colleagues or wondering why you don’t hear back from contacts it could be you are creeping folks out unintentionally (we hope). Here’s how to #belesscreepy.

9. In the social media era building your brand and marketing are critical, yet, if you’re posting to the usual suspects and seeing very little engagement, you’ve got a problem. Wharton Business School even did a study on how to fix the situation and be more shareable.

10. Every time you do a presentation that one co-worker butts in and calls you out. Dang. If you aren’t earning respect on the job, you will be limited in your ability to get to the next level. Respect is critical to any leadership position, as well as to making a difference in any role you may have within an organization, but actions can be misconstrued. There are ways to take what may be negative situations and use them to your advantage, building mutual respect.

You have the tools you need, now get out there, work hard, play hard and make sh*t happen. Oh, and remember, growth requires continual reflection and action, but you got this.

Continue Reading

Opinion Editorials

Why soft skills are even more essential in online era

(OPINION / EDITORIAL) Since many of us aren’t seeing our co-workers in person these days, our soft skills are even more important in the online working space.



Skype video chat with person writing in notebook. Soft skills are critical online.

When did we start thinking of “soft” as bad? I mean, we’ve got soft serve (excellent), softball (good exercise), fabric soft-ener (another industry I’m enjoying killing as a millennial). And we’ve got soft skills.

Or at least… I hope we do.

The shift to non-optional remote working has been difficult for a lot of us, especially for everyone who forgets to press mute before making sure the kids behave. But it’ll take more than being hot-mic savvy to make it through the foreseeable future. Brush up on these soft skills while we’re waiting on a vaccine, and it’ll make the coming months (years?) much easier.

1. Tone mastery

Do you know the difference between “Hey, Brenda, can we have a 1:1 at 12:30pm to go over the laser-equipped yoga pants presentation details?” and “Brenda, we need to talk…”?

If not, you might not have a great grasp on how to say with your typey-words what you can no longer say with your facial expressions. You don’t need to throw an emoji or exclamation point into every sentence to get your points across, but you do have the power to keep your coworkers’ heart rates in a safe range by explaining what exactly you need from them in your initial messages.

Use that power wisely.

2. Checking in

There’s no water cooler talk if there’s no water cooler, right?

Making and maintaining connections is more important now than ever, natural introversion be damned. You wanna be a star, don’tcha? Keep up relationships with public shoutouts, inquiries, and reaction images, and you’ll keep up morale while maintaining and boosting your potential for growth in the company.

Even if you’re not a small-talk kind of person, just a drop in for updates, meeting minutes, or sharing a relevant article via appropriate chatrooms and DMs can help hone your soft skills.

“Karen, this MLM article reminded me of your anti-Scentsy tangent you forgot we could all hear, maybe send this to your pushy ex-friend.”

“Hey, Ravindra, how’s the new laptop working out? All good? No ‘Kill all Humans’ protocols like the last one?”

Simple blips like this can add up like couch change. If you’re an admin, make a general chats section, and work in enough time in meetings to allow everyone to have a bit of a chat before getting down to business.

3. Make yourself available

This was important before the pandemic, honestly, but it bears repeating now, especially for everyone in a leadership position. If you’re not making time for check-ins, constantly cancelling meetings, or just generally enjoying being gone when people need you…figure out a way to not. Delegate what you can, bring on a VA, shorten that vacation, whatever you have to do. Everyone’s struggling, and being captain means your crew is looking to you. Don’t let the general air of desperation lull you into thinking a metaphorical keelhauling is out of the question—that extra power still comes with extra responsibility.

Keep yourself from double-bookings, cancellations, and absences as much as possible, and things will continue to improve internally… Even if they don’t in the outside world.

Aesop had a fable about an oak tree and a little river reed. When a storm came, the hardened oak tree fell and died, while the flexible reed bent with the wind and lived. We’re in the storm now, and everyone’s doing their best not to break. Keep yourself rooted friends, but the moral here is to soften up.

Continue Reading

Our Great Partners

American Genius
news neatly in your inbox

Subscribe to our mailing list for news sent straight to your email inbox.

Emerging Stories

Get The American Genius
neatly in your inbox

Subscribe to get business and tech updates, breaking stories, and more!