WASHINGTON — For sale or rent by motivated owner: 248,000 foreclosed homes.
The federal government, which has become the nation's biggest owner of residential properties, is looking for ways to reduce and manage its huge inventory without swamping the real estate market or exposing federal agencies to enormous losses.
Government-run Fannie Mae, Freddie Mac and the Federal Housing Administration now own about a third of the country's nearly 800,000 foreclosed properties. With that inventory predicted to grow, they are looking for new ways to cope.
In a joint public appeal last month, the agencies invited the public to send in suggestions for managing the inventory, particularly ideas for turning foreclosed homes into rentals.
Karen Petrou, managing partner of Federal Financial Analytics Inc., said the unusual appeal is a sign the agencies recognize the backlog of distressed properties has grown so large that it can't be sold off without inundating the market and depressing prices.
"They're stuck," said Petrou. "All sorts of people are demanding they do something. They don't know what to do but they have to do something."
The government's housing inventory is just one challenge facing President Barack Obama as he prepares to run for re-election next year. The administration also is exploring ways to help hard-hit neighborhoods, unemployed homeowners and underwater borrowers whose houses are worth less than what they owe — many of them concentrated in battleground states including Florida, Ohio and Nevada.
Current low interest rates offer an opportunity, with 30- year-fixed loans hovering just above 4 percent. The administration is weighing ways to allow distressed or underwater borrowers to refinance into a lower-rate mortgage, freeing up billions of dollars to boost consumer spending.
The complexity of mortgage finance promises to make any housing fix difficult to implement, as the administration discovered when it launched a mosaic of loan-modification programs three years ago.
Since the 2008 financial collapse, Obama and his aides have focused housing efforts on extricating borrowers from high-cost loans, aiding delinquent homeowners, and stabilizing neighborhoods. Now the most pressing problem has shifted to what to do with properties left by borrowers who couldn't be helped.
Mark Wiseman, a lawyer and former director of Cleveland's foreclosure-prevention program, said the new call for ideas is a sign the agencies are overwhelmed by the repossessions, commonly known as real-estate-owned properties or REO.
"It's almost like having the captain of the Titanic go on the public address system and say, 'Does anybody have an idea?'" Wiseman said. "It's not a confidence builder."
Fannie Mae, Freddie Mac and FHA already are working to shrink the property glut by selling homes to individuals, donating vacant properties to cities for demolition and auctioning off hard-hit blocks to investors.
All the same, foreclosed properties on the agencies' books ballooned to 295,000 in December, nearly four times the number just three years earlier. According to RealtyTrac Inc., a housing data provider, that was about 30 percent of the 980,711 foreclosed properties listed nationwide that month.
Fannie Mae, Freddie Mac and the FHA made progress selling off the backlog in the first half of 2011, dropping to about 248,000 in June, according to data from the Department of Housing and Urban Development. Still, with the pace of foreclosures slowed by flawed documentation, total inventory of repossessed properties has dropped to 817,567 in June and 798,659 in July, and the agencies' proportion remains just about the same: about 30 percent.
With settlements in the works on the documentation problem, foreclosures are expected to pick up, said Thomas Lawler, founder of Lawler Economic & Housing Consulting, who tracks trends in government-owned foreclosures.
"You wouldn't say everything's great or wonderful," Lawler said. "There's still a substantial number of loans in the foreclosure process."
Foreclosed properties made up 22 percent of the 3.65 million homes that were for sale at the end of July, according to RealtyTrac. With about 50,000 REOs sold each month, the market has a 15-month supply, the firm said.
Buffering the broader housing market from a glut of government-owned inventory by turning them into rentals might be good for homeowners and the economy. That's not necessarily so for taxpayers, whose dollars are at risk when government- guaranteed loans go bad and who are footing the bill for maintaining the REOs.3 comments on this story
Moreover, it remains to be seen whether converting REO to rental will work. Leasing requires money to bring properties up to code, adds to liability costs and requires an infrastructure to manage the inventory. It also delays the government's ability to recover anything from their repossessed properties, said FHA Acting Commissioner Carol Galante.
"It isn't necessarily our preference that FHA is going to itself continue to hold these properties," Galante said in an interview. "We want to move homes through the system so we can recover."
At the same time, the agency can't maximize returns if it sells too many houses at once.
"If you're putting too much through that system you are helping to drive down prices," Galante said. "If there's some siphoning off of some of that stock, it can help stabilize the prices. We could be better off. The proof will be in the pudding."