Center for American Progress

Scoring of Fannie Mae’s ‘Rehab-to-Rent’ Pilots Gets Better

Scoring of Fannie Mae’s ‘Rehab-to-Rent’ Pilots Gets Better

Monitoring Looks Promising

Alon Cohen updates CAP’s scorecard for Fannie Mae’s pilot program to convert foreclosed homes to rental properties.

It appears that the Federal Housing Finance Agency and mortgage finance giant Fannie Mae are set to conclude the auction of nearly 2,500 units for their first “Rehab-to-Rent” pilot program. The program would convert foreclosed homes in Fannie’s inventory—known as real estate owned properties, or REO—into rental properties. For a detailed discussion of the “Rehab-to-Rent” program see our January 2012 paper, “Rehab-to-Rent Can Help Hard-Hit Communities and Our Economy,” but briefly we proposed that Fannie Mae, Freddie Mac, and the Federal Housing Administration rent out some of the approximately 200,000 foreclosed homes in their inventories. These homes—many of them vacant and deteriorating—could instead become affordable workforce rental housing, revitalize neighborhoods, and stabilize home prices by reducing supply and meeting increased demand for rentals. 

Fannie Mae announced a pilot for such a plan in February 2012 via the Federal Housing Finance Agency—which now oversees the mortgage giant as its conservator. We’ve been monitoring the pilot closely and were heartened to see that—before the pilot participants were named—Fannie announced it would be putting in place substantial monitoring. We included benchmarks for the “Rehab-to-Rent” program in our original paper with monitoring our sixth benchmark.

In March we scored the pilot program and set benchmark #6—monitoring—to “pending” because there was simply no information. Now we are updating it to “good” given Fannie’s announcement that it plans to put in place substantial monitoring of every aspect of the pilot programs. For the pilot, this monitoring will help the Federal Housing Finance Agency and Fannie determine not just whether “Rehab-to-Rent” works but also exactly where and how it can be improved. Going forward, monitoring will ensure that landlords comply with program requirements. Here is our updated scorecard: 

Scoring the Rehab-to-Rent pilot program

Making sure we can monitor program compliance

We noted in March that we expected the pilot programs to include substantial monitoring because Fannie, the Federal Housing Finance Agency, and others would require data at all levels of each transaction starting with bidder qualification and extending through assessment of the auction process, property transfer, operations, and management. Fannie and its conservator, the Federal Housing Finance Agency, must balance the need for a good return on these assets with the need to support the general health and well-being of the housing market. Thus, it is not enough that there be bidders willing to take foreclosed homes off of Fannie’s hands; Fannie has to determine for itself that the resulting single-family rentals are a viable business and produce stable, affordable homes. 

Last week Meg Burns, senior associate director of housing policy for Federal Housing Finance Agency, told Housingwire that the agency and Fannie would determine how much monitoring is necessary for the eventual “Rehab-to-Rent” program as part of the pilot. Monitoring decisions will get close scrutiny as will every other part of the transaction.

In our original proposal, we noted that monitoring was crucial to a successful program because—at the very least—it ensured that landlords were actually renting the properties instead of flipping them. Monitoring also would ensure standards for habitability, affordability, and efficient retrofitting. In addition:

  • Bidders should bear the expenses for monitoring, and monitors themselves should leverage existing state and local resources such as housing and building authorities for their expertise in conducting inspections for compliance with state and local housing laws.
  • There should be consequences for not complying with the terms of the “Rehab-to-Rent” program up to and including the bidder surrendering the property. But monitoring must be in place for any of that to happen.
  • And, of course, there has to be a balance of the cost and extent of the monitoring. Burns noted the need to balance costs and program effectiveness when she told Housingwire, “At a certain point the benefit of the sale is chipped away at by the cost of ongoing monitoring. We’re trying to balance our concerns with ensuring the communities are ultimately in better condition as part of this initiative."

In the pilot, we expect monitoring to be tighter to collect solid data. The pilot includes monitoring and metamonitoring—both monitoring whether the new landlords are complying with program requirements and monitoring the program as a whole to see what works and what doesn’t. In the eventual program, cost will become a more significant concern and we expect that monitoring will focus primarily on landlord compliance.


Even though the pilot program has been in bidding for months, it is really just about to start now that winning bids are going to be announced. Once winners of the auction are announced, Fannie and the Federal Housing Finance Agency will finally have a sense of potential pricing and transaction types (sales, joint ventures), and the program will be ready to begin the ultimate test—whether “Rehab-to-Rent” works in practice and at scale. Given the importance of these questions—the relatively small footprint of the pilots and the commitment Fannie has shown to monitoring their progress—we think the pilot deserves full-throated support from all sides.

Alon Cohen is a Consultant at the Center for American Progress.

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Alon Cohen