Big Banks May Benefit from Fannie (NYSE: C),(NYSE: BAC),(NYSE: WFC)

As Fannie Mae moves to start a program to lease homes back to homeowners near foreclosure, banks like Citigroup Inc. (NYSE:C), Bank of America Corporation (NYSE:BAC) and Wells Fargo & Company (NYSE:WFC) will benefit.  At least that is what Morgan Housel suggests. 

Here’s how they would benefit…

Housel says that troubled homeowners that are dumping homes at distressed prices isn't beneficial for the sellers if they have other options. And by renting homes out, Fannie Mae does provide them with another option. 

Plus, by staving off a wave of actual cash sales rather than automatic deed transfers, supply is kept off the open market. This bolsters prices, blowing life back into the market. That wouldn't just benefit Fannie Mae, but banks like Bank of America Corporation (NYSE: BAC), and Wells Fargo & Company (NYSE: WFC) and  Citigroup Inc. (NYSE:C).

There is a catch that Housel then points out.  Unless Fannie wants to become the nation's permanent landlord, it's going to need to sell these homes someday. When it chooses to do so, what do you think will happen to home prices? Unless it waits for another epic housing bubble to sell into, prices will simply fall anew.

And so the leaseback program could end up creating a false bottom, delaying a real recovery until Fannie finally decides to sell the homes into the open market. That false bottom could end up making the problem worse…

Read the whole story here, (it’s long though).