Freddie Mac is rumored to have a term sheet circulating the Street outlining its own REO-to-rent initiative, according to a Reuters report.

However, it's not likely that Freddie will push its own version ahead of the recently announced Federal Housing Finance Agency (FHFA)  Real Estate Owned (REO) initiative, as the agency first requires FHFA approval for any initiative it launches.

It could be that the GSE is simply testing out ideas for how to package its own REOs, market sources said, and has created a misunderstanding in the process.

"Our understanding (as of yesterday) is that Freddie Mac is putting the infrastructure in place so that it can execute an REO-to-rent program when the time comes, but that it needs approval from FHFA before it does anything, said Rick Sharga, executive vice president at Carrington Mortgage Holdings. "And it appears that FHFA isn't going to approve anything until after it executes the Fannie Mae pilot program,"

One securitization portfolio manager said that there has been a lot of appetite from the industry for an REO-to-rent program. However, the main problem has been how to turn these investments into securities.

"Fix up the houses and get them rented and sell it as bonds to investors and lever them 50%," the portfolio manager said. "In other words, if the house is worth $100,000 you lend me half and I'll pay half, and  the returns are something that would be attractive to the investors. After three to five years, based on the borrower's credit record with Freddie of Fannie would offer a 100% LTV loan so that they could buy the house."

However, the industry source said that the scenario really only works from the point of view of that there still remains a large pool of U.S. houses to sell.

"Fannie and Freddie only have 200,000 to 300,000 houses to sell and they will be more than happy to lose them through the different organizations that are currently in this process," the manager said.

To be sure, a Morgan Stanley report stated that investors have already raised at least $2 billion in the last six weeks in anticipation of the FHFA program.

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