WASHINGTON (MarketWatch) — Struggling to clear its inventory of foreclosed properties, the Obama administration said Wednesday it’s looking for investor ideas for converting more than 92,000 foreclosed properties owned by the U.S. government into rental units, a sign of the depths to which the U.S. housing market has sunk.

“Exploring new options for selling these foreclosed properties will help expand access to affordable rental housing, promote private investment in local housing markets and support neighborhood and home-price stability,” Treasury Secretary Timothy Geithner said in a statement.

The Obama administration is working with the Federal Housing Finance Agency, the regulator for government-seized housing giants Fannie Mae and Freddie Mac, to come up with new options for selling single-family foreclosed properties owned by the two mortgage giants to buyers that would rent out the properties.

Foreclosure next door now for rent

Analysts say clearing such foreclosed properties is critical to improve the depressed housing market and drive an economic recovery.

One approach under consideration would be to find private investors to buy foreclosed properties that could be rented out and managed by private management companies.

The administration estimates that there are about 92,000 foreclosed properties that are owned by Fannie, Freddie and the Federal Housing Administration and available for sale. But a Treasury official added that there are “a number more” that are close to being available but aren’t ready yet, because they are stuck in an eviction process or they are being appraised and prepared for marketing.

As of June 30, Freddie Mac had roughly 60,000 foreclosed units in its inventory with a value of $6 billion, of which 16,000 are listed for sale, according to FHFA’s Corinne Russell. Fannie Mae has 135,000 foreclosed units on its books with a value of $12.5 billion, and of those 37,000 units are listed for sale, she said.

The government agencies are hoping a wide variety of market participants — such as financial institutions, hedge funds, buyout shops and even municipalities, nonprofits and community groups — will provide ideas and scenarios in which they would be interested in buying packages of foreclosed homes owned by the U.S. government’s Fannie and Freddie in “significant transactions.”

The regulators then plan to issue specific requests for business proposals from potential investors interested in buying pools of foreclosed properties. One goal, the Treasury Department indicated, is to help stabilize neighborhoods struggling with foreclosed properties. The agencies hope to develop several programs that address specific issues in particular geographic areas particularly hit hard by foreclosures, such as Arizona or Florida.

A legislative aide for Sen. Jack Reed, Democrat of Rhode Island, said one approach would be for Fannie and Freddie to find private-investor partners that would renovate vacant foreclosed homes to make them attractive to potential renters. He added that such a program could attract investors by providing them a bigger piece of the subsequent rental payments to cover their renovation costs.

“This is a call for innovation and an opportunity for businesses to not only make money and create jobs, but also provide affordable rental housing for those who need it and strengthen our communities at the same time,” said Reed.

Markets Hub: Banks under pressure

Henry Sommer, director at the National Association of Consumer Bankruptcy Attorneys, said that many vacant properties, particularly those that have been empty for a long time, need some renovations and that this could be an approach to make the houses attractive for renters. Sommer pointed out there are major costs to taxpayers from vacant Fannie and Freddie properties, such as property taxes and maintenance fees, and that getting renters in those homes would be a major savings for taxpayers.

However, Sommer added that he hoped that each deal involves some community groups and not just financial institutions. “I am afraid this is going to be another boondoggle where the losers will be the tenants and the communities and the hedge funds will make more money.”

Dean Baker, co-director of the Center for Economic and Policy Research in Washington, said he hopes that the administration also will package properties in serious states of delinquency for sale at a discount, and that the investors set up a system so that troubled homeowners can convert into a renter of the property they used to own.

Baker added that he believed that there would be investors interested in participating in the program. Community groups that want to be involved would be key, he continued, because they can focus on stabilizing neighborhoods that are falling apart. Over the course of a year, Baker said, there could be 300,000 or 400,000 foreclosed properties owned by Fannie and Freddie available for sale.

In a conference call, administration officials said that in some circumstances local jurisdictions have talked about seeking to have certain properties owned by the U.S. government be demolished, because they are dangerous and a blight on communities. They added that they are seeking proposals from investors that would assist in these efforts.

Once a home is vacant for years, according to Sommer, it may be better for Fannie and Freddie to demolish the home, limiting costs of upkeep and eliminating the need for renovations, and then try to sell the vacant property to investors.

The programs are intended to complement other administration efforts for housing, including an oft-criticized program that seeks to modify mortgages for troubled homeowners.

Fannie Mae and Freddie Mac were taken over by the government in 2008 as mortgage losses expanded. Taxpayers have funneled about $130 billion into the mortgage giants so far, the Congressional Budget Office said.