Morgan Stanley’s Thoughts on How to Fix the Housing Industry

by Chicago Agent

America’s real estate market could be on an “unsustainable path,” faced with an oversupply of homes inaccessible to either renters or buyers. That’s what three Morgan Stanley analysts argue in a recent paper that outlines steps that can be taken to fix the sputtering housing market.

Is renting foreclosures the way to fix the housing industry?

The Obama administration announced it was seeking such ideas from investors for possible ways of managing the large number of foreclosed properties that are on the books of mortgage titans Fannie Mae and Freddie Mac. Selling foreclosed homes in bulk to investors who would then rent them out was one idea that the administration floated –- which is also part of the proposal by Morgan Stanley analysts.

Mortgage credit remains tight, therefore, home buying is difficult, while rents are rising quickly, according to Morgan Stanley analysts. In addition, thousands of borrowers are losing their homes to foreclosure every month.

According to an article in the LA Times, the result of these situations is “an oversupply of homes with nobody to purchase them,” a situation that is already starting to emerge, according to the research paper by the Morgan Stanley analysts, Oliver Chang, Vishwanath Tirupattur and James Egan. The three experts argue that tackling the backlog of so-called distressed properties is crucial.

A big part of the plan is helping investors who would rent out those properties. They argue that in exchange for various incentives and access to the huge glut of foreclosed homes on the balance sheets of major financial institutions, investors must agree to upgrade those homes and offer flexible terms to renters, including lease-to-own programs. The analysts also argue that tax incentives could be used to subsidize rents for lower-income renters.

However, renting out foreclosures is widely debated and industry professionals aren’t sure if this is easily manageable, according to experts interviewed by the Wall Street Journal. It seems the reaction to this plan is mixed.

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