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Will The Rental Boom Cause Spike In Foreclosures?

USDA loan alternative to rental: Mike in Tucson, AZ mortgage lenderWill the rental boom cause a spike in foreclosures by the banks who hold the paper?

There's a storm clould on the horizon for homeowners who are hoping to work out a loan modification with the banks who hold their paper. 

It's the rental market.

Three things are driving rental prices higher, and the banks who hold non-performing mortgages are taking notice.

1.  Available Credit Contraction for low-FICO buyers.  As the recession has continued, I've seen a decline in FICO scores among loan applicants for a variety of reasons, including late payment on mortgages and Home Equity loans.

2.  Tightening Guidelines for USDA and FHA Loans.  At the same time, guidelines for government-guaranteed programs such as USDA loans and FHA loans have established FICO score floors.  These programs were not credit driven previously.  The result is that many more people are forced out of the purchase market and into the rental market.

2.  Demand for 3 and 4 bedroom rentals.  The success of the housing market during the boom years resulted in little growth in the traditional rental market for multi-family properties.  The biggest share of apartments in multi-family properties have only two bedrooms.  This won't work for families who need three and four bedroom housing.

From Mom & Pop to High Tech

Single family rentals used to belong to Mom & Pop ventures.  No more.  Private equity ventures such as Waypoint Real Estate Group llc and Landsmith LP are using cloud computing and Apple iPads to bring efficiencies to play in the acquisition and disposition of foreclosed properties.

Rent vs. Own analysis shows that the cost of renting has reached an all-time high when compared with the cost of buying a home currently.  (That's good news only if you can get a mortgage.)

Banks who have been faced with the protracted loan modification process are looking at current events with an eye toward the balance-sheet benefits of foreclosure.

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Comment balloon 12 commentsMike Jones • March 16 2012 05:49AM
Will The Rental Boom Cause Spike In Foreclosures?
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