August 10, 2011, 9:48 AM EDT

By Bloomberg

(Adds detail in first paragraph that foreclosed properties are owned by government-backed entities, background on housing market beginning in fourth paragraph.)

By Roger Runningen and Julianna Goldman

Aug. 10 (Bloomberg) — The Obama administration is seeking ideas from investors on how to convert thousands of foreclosed properties owned by government-backed entities into rental homes, administration officials said.

The Federal Housing Finance Agency, the regulator of Fannie Mae and Freddie Mac, will be joined by the Treasury Department and the Department of Housing and Urban Development in soliciting proposals, said the officials, who requested anonymity because they were not authorized to speak publicly in advance of an announcement planned for later today.

The goal is to reduce the number of foreclosed properties and ease the price pressure on the housing industry, according to a report published earlier by the Wall Street Journal and confirmed by administration officials.

Freddie Mac, of McLean, Virginia, and its larger rival, Washington-based Fannie Mae, have survived on government aid since September 2008, when they were seized amid crippling losses tied to subprime loans.

The Federal Housing Finance Agency is pursuing the quest because of expectations that housing prices will continue to fall if delinquent properties end in foreclosure, rather than being converted to some type of income-producing arrangement.

Last month the Treasury Department began exploring a plan that could help 1 million or more homeowners avoid foreclosure, according to housing market executives.

The proposal is aimed at promoting modifications of delinquent or defaulted home loans, including writedowns of principal, by bringing fresh private capital into the market.

It would apply to mortgages that are bundled into mortgage- backed securities not issued by government agencies.

Morgan Stanley Report

Encouraging investors to buy foreclosed homes in bulk would help shrink the U.S. housing surplus, stabilize property prices and provide affordable rentals, Morgan Stanley housing analysts said in a report Aug. 8.

The collapse of the U.S. residential real estate market triggered the recession in 2007 and has stifled an economic recovery, according to the Morgan Stanley study. Incentives such as tax breaks and eased lending terms are needed to encourage more investors to purchase repossessed homes, repair them, and rent the properties at affordable rates to people who can’t afford to buy a house, analysts led by Oliver Chang wrote.

“What’s important to do is help clear the backlog as quickly as possible with as little detriment to home prices as possible,” Chang, head of housing strategy in Morgan Stanley’s research division, said in a telephone interview Aug. 8. “The goal here isn’t to help investors. The goal is to provide quality affordable housing.”

Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks are the government-sponsored enterprises that provide more than $5.7 trillion in funding for the U.S. mortgage markets and financial institutions, according to the agency’s website.

–With assistance from John Gittelsohn in New York and Richard Miller in Washington. Editors: Leslie Hoffecker, Mark Silva

To contact the reporters on this story: Roger Runningen in Washington at rrunningen@bloomberg.net; Julianna Goldman in Washington at jgoldman6@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net