Investors have been heavily interested in buying foreclosure properties in stricken real estate markets across the country since the foreclosure crisis began in 2007, but lately investing in foreclosures has picked up considerably due to the eminent implementation of a federal foreclosure-into-rental program.

The program – originally announced in 2011 – seeks to connect private equity investors with government foreclosures to convert them into rental properties. Instead of the federal government serving as a virtual landlord to thousands of government homes – such as VA homes, HUD homes, and USDA homes – private investors would purchase them in bulk, rehabilitate the home foreclosures, and then turn them into rentals.

The plan would take advantage of an increased demand for rental properties over the last few years while also serving to relieve the government – and the American taxpayer – of the financial burden of maintaining thousands of non-performing assets. Over 200,000 foreclosure listings would be marketed by the government for the new pilot program, set to begin sometime this year.

Already, private equity investors are lining up around the block. The proposition has turned a decently-sized market worth millions into a huge potential market worth billions – a move that could inject much-needed capital into the housing market and potentially provide a boost to the economy as well.

Throw in the consideration that today’s sky-high rental prices could be reduced by increased demand and savings incurred through cheaper foreclosures and millions of American renters could receive a stimulus boost as well.

Lenders are cautiously optimistic about the proposal, at least as it concerns originating loans that are guaranteed by the federal government. This could lead to more home loan origination as well as a general check on declining home prices throughout the country – particularly in hard-hit areas like Florida, Michigan, California, New York, New Jersey, Georgia,Illinois. Already home prices have plummeted by 3.7% from November 2010 to November 2011, with the trend set to continue throughout the next year.

The federal government is currently working on initial partnerships and transactions with private-equity investors and firms that will be completed in the first quarter. Additional partnerships will be announced throughout the year, possibly with rent-to-own clauses included for many tenants. Time will tell if the program will be a success, but it is fair to say that the Obama administration needs a big-time victory with this initiative to both help repair the housing market and bolster its chances with elections in November.