Reduce, Refinance, and Rent? The Economic Incentives, Risks, and Ramifications of Housing Market Policy Options

The Federal Housing Finance Agency (FHFA), the regulator and conservator of Fannie Mae and Freddie Mac, has started a pilot project to convert GSE foreclosed homes into rentals. Congressional proposals in the 112th Congress to allow for renting foreclosed properties include H.R. 1548, the Right to Rent Act of 2011 (Representative Raúl Grijalva et al.); H.R. 2636, the Neighborhood Preservation Act of 2011 (Representative Gary Miller et al.); and S. 2080, the Keeping Families in their Home Act of 2012 (Senator Dean Heller). These initiatives are discussed more fully in "Renting Foreclosed Homes." Table 1 summarizes the potential impact of these policies on three categories of households: delinquent borrowers, borrowers who are paying on time, and renters. Table 2 summarizes the likely impacts on house prices, financial institutions' balance sheets, and the broader economy.The remainder of this report will further analyze principal reduction, refinance, and rental proposals. First, however, the next section provides one estimate of the size of the housing market problem.


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