Lawmakers are being tapped by the Federal Reserve (Fed) to beef up housing market recovery efforts of which an REO rental program is being considered.

The program would rent out single-family homes presently in a state of foreclosure, even going so far as to allow the former residents to rent out their formerly foreclosed property. While an REO program may come at a cost to bond investors and mortgage servicers, the promise of quicker economic recovery makes it a viable option.

In their 26-page “white paper” report, the Fed stated “Some actions that cause greater losses to be sustained by the GSE in the near term might be in the interest of the taxpayers…” The REO rental program could result in a more palatable loss recovery than a government sponsored entity (GSE) like Fannie Mae simply selling off foreclosed properties. The Fed is also suggesting an easing of mortgage lending standards to allow more recovery leeway for the real estate market thus providing more people the chance at home ownership.

The Fed cautions “the adjustment process will take longer and incur more deadweight losses, pushing house prices lower and thereby prolonging the downward pressure on the wealth of current homeowners and the resultant drag on the economy at large.

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