WASHINGTON — Federal officials sought Monday to tamp down expectations about a government program to convert foreclosed properties into rental units through the use of bulk sales to investors.
At a congressional field hearing in Chicago, Meg Burns, a senior official at the Federal Housing Finance Agency, stated that the pilot program is not intended to increase the nation's supply of affordable rental housing, or to improve the energy efficiency of homes, as some have advocated.
Rather, the goal is to simply determine whether bulk sales, conducted in a way that stabilizes neighborhoods, will help clear markets that have more housing supply than demand, she said.
"The goals of this pilot are fairly limited, particularly relative to public perception," Burns said in written testimony.
Also testifying at Monday's hearing was Michael Stegman, an advisor on housing finance policy to Treasury Secretary Timothy Geithner. His testimony was somewhat more upbeat about the potential of a program that has the keen interest of investors.
Stegman argued that the program can help fill what's expected to be a shortfall in demand for owner-occupied housing as millions more properties enter the foreclosure pipeline over the next several years.
"Ultimately, we hope that if this pilot is successful, it can serve as a model for private market participants," Stegman said in written testimony. "While Fannie Mae and Freddie Mac own approximately 200,000 distressed loans, other financial institutions own over 400,000 nonperforming mortgages."
The test program involves only the sale of properties owned by Fannie Mae. The first transaction — a group of about 2,500 properties located primarily in Sun Belt states that have been affected most severely by the foreclosure crisis — is expected to be completed in the next few months.
The hearing was convened by Rep. Scott Garrett, a New Jersey Republican who chairs the House subcommittee that oversees Fannie and Freddie.
He said that the program has promise but also carries the potential to increase the risk to U.S. taxpayers who are on the hook for Fannie's obligations.
"How do you maximize the value of the property and receive market value when selling in bulk?" Garrett asked in his opening remarks. "It is critical that we begin to reduce some of the shadow inventory that currently exists, but we must do so in a way that maximizes value for the American taxpayers and doesn't subject them to additional risk."