The government's bulk sale initiative to turn foreclosed properties into rentals could be "counterproductive" in certain states, according to the National Association of Realtors (NAR)which is demanding the initiative be scaled back.

"We are concerned the REO-to-rent programs are not necessary in some areas and could even hinder the recovery," said NAR president Moe Veissi.

NAR research shows that bulk sales could be beneficial in states where judicial proceedings are required to foreclose on a property – but not in "non-judicial" states such as California, Arizona and Nevada where court intervention is not needed to foreclose on a property.

The Realtors point out that foreclosure inventories are 2.5-times larger in judicial states than in non-judicial states, while foreclosure sales are four-times higher in non-judicial states than in judicial states.

"The government REO-to-rental plan could work in areas where buyers are not quickly absorbing the shadow inventory," said NAR chief economist Lawrence Yun.

The Realtors want a national advisory board created to provide input to HUD and the Federal Housing Finance Agency (FHFA) on where the REO bulk sales would be beneficial while not disrupting local markets.

FHFA recently unveiled the first bulk GSE sale, which includes 2,490 REO properties. The sale of Fannie Mae REO includes 341 properties in Phoenix, Ariz., 484 properties in Los Angeles/Riverside, Calif., and 219 properties in Las Vegas, Nev.

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