NC Newsline By Greg Childress

Two North Carolina congresswomen are calling for a federal investigation into a 2008 housing crisis-era program that allowed institutional investors to buy large portfolios of foreclosed homes at significant discounts on the condition that buyers rent them out.

Triangle-area Democrats Valerie Foushee and Deborah Ross contend the “Real Estate-Owned to Rental” (REO) program has led to a “surge” in institutional investments in single-family homes, which has priced many families out of the housing market.

“It is imperative that we explore whether federal programs, such as the REO-to-Rental program and others that promote institutional investor participation, have disproportionately benefited large financial institutions at the expense of working families and first-time homebuyers,” Foushee and Ross wrote in a letter to Sandra Thompson, director of the Federal Housing Finance Agency (FHFA), which oversees REO and Rohit Chopra, director of the Consumer Financial Protection Bureau requesting investigations.

The two lawmakers added that programs such as the Low-Income Housing Tax Credit (LIHTC), while designed to promote affordable housing development, can end up benefiting institutional investors who dominate the application process and enjoy easy access to capital markets.

“We write to request an investigation into the effects of these federal programs and the broader impacts of institutional participation in residential real estate, especially as rising housing and rental costs continue to price out many North Carolinians,” Foushee and Ross wrote. “We are concerned that the policies designed to allow institutions to acquire large numbers of properties have had unintended and harmful effects on working families, first-time homebuyers, and renters alike.”

Similarly, Foushee and Ross said, Fannie Mae and Freddie Mac’s multifamily loan initiative has incentivized large investors to purchase multifamily rental properties, which sometimes lead to higher rents that push out long-time residents. The congresswomen are also concerned about Section 8 Housing Choice Vouchers, which are meant to provide stability for low-income renters.

“Institutional investors are increasingly acquiring properties that cater to voucher holders, knowing that the federal government guarantees a portion of the rent, they said. “This creates an incentive to overcharge both the government and the tenants while offering substandard living conditions.”

Corporate investments in single-family homes over the past decade increased from 15% in 2021 to nearly a quarter of all purchases by 2021, Foushee and Ross noted.

The congresswomen noted the “significant increase” in housing prices that has occurred in the Research Triangle. From 2020 to 2023, median home prices increased by over 25% in Raleigh, Cary, Chapel Hill, and Durham, they said, citing a recent 24/7 Wall St., article.

“Wake County has seen an increasing share of properties purchased by institutional investors, with reports estimating that nearly 18% of all homes purchased in 2022 in the region were bought by such investors,” they said. “These large firms, often backed by Wall Street capital, are able to outbid middle- and low-income buyers, leaving them with few options.”

Foushee and Ross ask that the investigation include evaluation of:

• federal programs that provide incentives to institutional real estate interests, and recommendations to strengthen these programs so that they will serve their intended purpose

• the impact of institutional ownership on home prices and rental rates, regardless of participation in federal housing programs

• how investor-driven practices, such as rent inflation, are contributing to the displacement of middle- and low-income families

• exploitative business models of certain investors and their effects on tenants’ rights, living conditions, and financial well-being

The letter comes a day after Ross joined a groundbreaking ceremony in Cary to announce $1 million in federal funding for construction of the Maynard Road Multifamily Housing Development. The award was secured by Ross as part of the 2023 government funding package. It will be used to construct a 126-unit housing development to provide affordable, mixed-income rental units at below-market rents.