The Fair Housing Act Implications of the Emerging REO-to-Rental Housing Market

Abstract

Private-equity firms, hedge funds and other Wall Street investors are seeking to develop a REO-to-Rental Securitization Market with the blessing of the FED and FHFA. A year ago, the Federal Reserve Board issued a policy statement on rental of REO held by the banks it supervises and allowed the banks to rent REO properties without requiring them to demonstrate continuous efforts to market the properties. Last fall, FHFA initiated a “pilot” REO bulk sale program in urban markets across the nation. This munificence by the federal regulators towards Wall Street may change the course of America’s future and signals the abandonment of homeownership as a pathway to prosperity. Single-family rental properties, primarily Real Estate Owned (REO) properties resulting from foreclosure, have attracted more than $10 billion from equity firms, hedge funds, REITs and institutional investors. According to Goldman Sachs Group Inc., this market may attract a total of $2.8 trillion in capital investments in the not-so-distant future. The government’s encouragement of this new housing market is fraught with potential societal and economic risks to the long-term health of our neighborhoods and our nation. As a fair housing professional, I am concerned that this behavior will allow Wall Street to once again prey upon urban and inner-ring suburban communities across the country. These new investors in this emerging single-family rental housing market may not be aware that they are covered by the Federal Fair Housing Act and its implementing regulations . This paper will examine the federal government’s role in the formation of this new market and whether the agencies adequately addressed their duty to affirmatively further fair housing by ensuring that the participants and purchasers of these properties are aware of their duties and responsibilities under the Fair Housing Act. Further, it will identify the relevant sections of the Federal Fair Housing Act and the potential legal and reputational challenges that will impact this emerging industry.