The real estate owned-to-rental niche currently may be "the world's biggest $0 billion industry," as Rick Sharga of Carrington Mortgage Services said at the recent SourceMedia Mortgage Servicing Conference in Dallas, but it should start to grow.

There is "some logic" that the niche should grow, as shown by the fact that in 28 of the last 29 quarters, the industry has foreclosed on more properties than it has sold as REO, Carrington said.

With home prices at or near the bottom of their long decline, there is increased rental demand, the Carrington executive vice president said. Unemployment will contain the key to the vigorousness of the home buying market, with high employment cutting it and low unemployment buttressing it.

Carrington sees the percentage of homeowners dropping in the next several years, and possibly going as low as 63%, which would be the lowest in a decade. That would increase rental demand as well.

Renter-occupied units will continue to go up in the near term, he said, and could approach 50 million units. Vacancy rates are at a historic low now, he said.

Capital is available for rental initiatives now, he said, and the industry is looking on that favorably.

In addition, a wide range of other participants is interested: state and federal governments, private investors and nonprofits.

But there are challenges as well. Lack of available inventory is one. A Federal Housing Administration REO-to-rental pilot has not taken off. Lender portfolios of these properties are not plentiful, and there are accounting issues as well.

Sharga said the National Association of Realtors is opposed to the REO-to-rental initiative, and some consumer advocates have expressed concern.

And there may be some political concern about the underserved and affordable housing categories.

In the end, though, he thinks the idea is a win-win, as homes are provided to people that need them and the pool of vacant properties is reduced. It should also benefit portfolio sales and help officials understand the true values of assets and absorption rates.

And of course, having REO units occupied should lessen vandalism costs for their lender-owners, and better-maintained units should allow neighborhood home values to stay higher. So that $0 billion industry may eventually reach $1 billion, or even more

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