WASHINGTON — What seems like a no-brainer — turning the hundreds of thousands of vacant, foreclosed homes controlled by the federal government into rental units — is going to be tough to accomplish.

The logic behind the idea is compelling. Across the country today, the federal government controls around 250,000 foreclosed homes, through Fannie Mae, Freddie Mac, and the Federal Housing Administration. More than a million more are in the foreclosure pipeline, with homeowners having fallen well behind on their mortgage payments.

Vacant homes deteriorate quickly. And the government is selling these homes individually at what some consider fire-sale prices, often to cash-paying investors, because it is hard to get financing to buy them.

At the same time, rental housing is becoming scarcer. The nationwide rental vacancy rate is currently 9.2%, its lowest level since 2002.

"You have people thrown out of their homes who are now finding it very difficult to afford to rent a modest place just to put their family," Sen. Jack Reed, D-R.I., said in a recent speech.

So the Obama administration is looking for a way to turn the real estated-owned homes, or REOs, that it controls into rental housing.

"I would argue that this approach can create value if done carefully and diligently, not just minimizing losses," said Reed, a longtime champion of the idea. "The other way to look at it is: if five years from now, nothing's done, those houses are going to be, you know, it's a ghost town. The pipes will be gone. The roofs will be broken. The lawns won't be cut. And then try to sell them."

But while there is broad agreement that a rental strategy makes sense, it faces enormous operational obstacles, including disagreement over the appropriate policy goals and questions about how to account for local nature of real estate across the United States.

It now falls to the Federal Housing Finance Agency, which oversees Fannie and Freddie, to build a rental program that can make a real dent in the foreclosure inventory.

But several large challenges remain including:

• Specifying the program's goals. Last month, FHFA asked housing market participants, community groups and others to provide suggestions on how the government might facilitate the sale of the REOs it currently controls in ways that are less costly to taxpayers than its current retail sales strategy, and also help to stabilize neighborhoods and home values.

The agency made clear that these are its primary goals and that its strategy for selling off foreclosed properties will not always involve turning it into rental housing. For some homes, demolition may be a possibility.

Meg Burns, who heads the housing and regulatory policy team at FHFA, said during an appearance last week that she estimates that fewer than half of the government-controlled homes in foreclosure will end up as rental properties.

"I believe that right now our expectation is that it will not be the majority, that the dynamics in enough markets nationwide are such that moving a large number of these properties into a rental arrangement will be difficult and maybe won't make sense from a financial perspective," Burns said.

But the FHFA will have to decide whether to pursue other goals as well.

For example, many community groups would like the agency to provide support for affordable housing as part of its plan. FHFA has signaled that it is open to the idea, but not necessarily committed to pursuing it.

An effort to promote affordable housing could be structured in different ways, but one option would be for for-profit investors to partner with non-profit organizations under deals that would make some of the homes available at affordable rents.

"As an incentive, partnerships with a sufficiently large affordable component could be provided access to preferred pricing or financing," the Center for American Progress suggested in its comments to the agency.

The Center for American Progress is also promoting the idea that the government should promote greater energy efficiency during the renovations that will be necessary to turn vacant homes into rental housing, and furthermore, that such an approach would create jobs.

"We are saying there are a lot of places where these other factors of greening a home or selling them with an affordability component would be the best strategy," David Abramowitz, a senior fellow at the Center for American Progress, said in an interview.

But Tom Eggleston, whose firm, Real Property Management, manages more than 50,000 properties nationwide, has studied the inventory of foreclosed homes that the government controls, and he is skeptical that the goals of improving energy efficiency and expanding affordable housing will be compatible.

"To be candid, the age of this housing stock is challenging to make cost-effective investment in green and energy efficiency," Eggleston said during Wednesday's event at the Center for American Progress. "And it becomes challenging to maintain affordable rent with the kind of investment that green and energy efficiency would require, just to be honest."

Hours before Thursday's deadline for comments, FHFA had already received more than 3,500 responses, according to an agency spokesperson. The various interested parties have very different goals. In contrast to community groups that hope to advance social goals, large investors likely will be seeking to ensure that they can earn profits of more than 10%. It will be up to FHFA to balance those aims.

In describing FHFA's approach, Burns said that "there are social objectives that we want to achieve, but how do we balance out those social objectives against the need to bring in that private capital and private expertise?"

Others are more skeptical that it makes sense to include affordable housing or energy efficiency as goals for a rental-housing program.

"There's a price for everything," Laurie Goodman, senior managing director at Amherst Securities, said in an interview. "So realistically, if there are a lot of other constraints, the home will sell for cheaper. Ultimately at the end of the day, it has to be a viable business proposition. And that's not to say that the goals aren't noble, it's just they're not without cost."

• Determining the program's structure. This, too, will be tricky, because a foreclosure-to-rental program could be structured in many different ways.

One key question involves whether the government will hire contractors to renovate the foreclosed properties and then find tenants for the units before selling them. This approach would cost more upfront, but would also yield higher sales prices, since the homes would be occupied and in better condition.

Alternatively, the government could sell the properties sooner and more cheaply under the condition that the new owner will renovate them. In between these two models is a structure where the government would enter into a joint venture with the buyer, and potentially share in any price appreciation.

Under any of these arrangements, the buyer would be required to maintain the home as rental housing for a specified period of time, perhaps five years or so. The longer this time period lasts, the lower sales prices will be. At the same time, requiring homes to remain as rental housing for a longer period of time would prevent rapid flipping. This could help stabilize the value of nearby homes, which in turn would bolster the bottom line of Fannie, Freddie and FHA.

It appears likely that the government will auction off foreclosed properties in bulk, but officials will need to think about how to structure the sales so that investors cannot cherry-pick the best properties, leaving the government with the least desirable homes.

"You can't take the treasure and leave us with the trash. You've got to take all the property," explained Alon Cohen of the Center for American Progress.

Another idea being discussed would give tenants the option to buy the home after a specified period of time.

Finally, FHFA has been seeking out suggestions for how to turn the government program into one that private owners of foreclosed properties, such as banks, could also use.

Describing FHFA's hopes for the program, Burns said, "The private capital, it has been brought to bear. There's private expertise in terms of property management. And suddenly there's sort of a model that's working for all. Not just FHA and Fannie and Freddie properties, but all of these bank-owned properties within a community."

• Ensuring that buyers have the necessary expertise. There are apparently a number of large institutional investors that are waiting on the sidelines for an opportunity to buy foreclosed homes. If these buyers don't understand the local markets where they're purchasing, the results could be problematic.

"We're dealing with a very localized business, down to the ZIP code," said Ivy Zelman, the chief executive of Zelman & Associates.

As a result, it may make sense for large investors to partner in their bids with smaller companies or non-profit organizations that have on-the-ground knowledge and experience.

Some of the biggest opportunities will come in the Atlanta, Phoenix, San Bernardino, and Las Vegas areas, according to data made public by FHFA. As of July 2011, those areas had the largest number of foreclosed properties owned by Fannie, Freddie and FHA.

Just as important as an understanding of local real-estate markets will be expertise in managing vacant properties.

"When a property goes into REO, somebody has to go out there and you know, change the locks, board up the windows, drain the pool," Andrew Jakabovics of Enterprise Community Partners said during Wednesday's event. "I think it's going to be absolutely critical to ensure that whoever is acquiring these properties can demonstrate going in that there is good asset management capacity in place. Because otherwise for all of the best of intentions, we know that execution can often be a challenge."

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