Solving Foreclosure Crisis, a Rental at a Time

VIDEO: Creative housing idea transforms foreclosures into rental properties.
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Turning foreclosures into rentals: Could this be a solution to the foreclosure crisis in America?

On Wednesday, the Obama administration announced it is soliciting ideas for ways to turn a half million foreclosed homes into affordable rental properties.

The Home Affordable Modification Program hopes it can be the ticket to boosting falling home prices and transforming thousands of government-owned foreclosures into homes with families.

Officials say they'll be listening for ideas until Sept 15.

Dayne Francis, an investor in Atlanta, said he has plenty to share. He and his family have bought eight foreclosed homes already this year for pennies on the dollar and transformed them into rentals. In June, they bought their latest foreclosure for $22,000. After $15,000 in upgrades, they expect to have the home rented to a family next week.

His sister-in-law, Candis Francis, the realtor of the family, said the family would buy up even more foreclosures, but getting loans is tough, and they usually play cash. With better access to credit, she said, more investors would put "more skin in the game."

"If the government would get involved and offer more affordable finance options for investors, it will make things a lot easier," she said.

Dayne Francis, who runs the money end of the business, told us these new ideas "would probably take 50 to 75 percent of the properties off the market within a year or two, tops."

In addition to easier financing, experts say, the government could help by tweaking a few rules -– giving tax breaks to investors who can't collect enough in rent to pay the mortgage on their newly purchased foreclosed home.

There's talk of encouraging more investors to buy the homes of distressed families, allowing the family to remain in the home and charging them an affordable rent.

Foreclosures Into Rentals: Immediate Impact?

It worked for JR Klimach and his partner, John McKay.

They were struggling to pay an $1,100 mortgage. Then, an investor stepped in, paid cash for their home, and charged them $850 a month in rent.

Their investor, Rob Davidson, said that the foreclosure-to-rental solution is more than a smart economic decision.

"We've helped a lot of families," Davidson said. "You can't put a dollar value on what it does inside for you."

Someday, he'll make his money when he sells the home, he said, and he hopes to sell it back to Klimach and McKay.

However, critics worry the seemingly good ideas could lead to more absentee landlords who buy distressed homes and leave them in despair.

Nevertheless, some experts, including Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities and a former chief economist to Vice President Joe Biden, said the solution could have a huge immediate impact on blighted neighborhoods.

"I wouldn't bet that this program is going to lead to big changes right away in national housing prices," said Bernstein. "But I do think that it will help in neighborhoods, particularly those with high concentration of foreclosed homes. If you could move some of those foreclosed properties off the residential market and into the rental market, that should slow the decline in housing prices in those areas."

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