[Update 1: Corrects ownership interest between EquityLock and Equity Assurance; clarifies details of price protection plans.] The federal government can get rid of the more than 280,000 foreclosed homes on its books without having to sell them at massive discounts, according to a coalition of companies proposing to manage the disposition process. The key is to provide a form of insurance against home price declines, says the Coalition for Recovery of Real Estate, a consortium of firms that responded to a request for information issued by the Federal Housing Finance Agency, the Treasury Department and the Department of Housing and Urban Development seeking ideas on how best to dispose of the federal inventory of real estate owned properties. The government owns roughly half of the REO inventory in the U.S. through HUD, Fannie Mae and Freddie Mac. High-level executives at FHFA have expressed interest in the proposal, and recently requested clarification on some details of the plan, said Howard Blum, a spokesman for the group. "It is clear that current housing market economics are severely impaired by buyer fear, which leaves sellers with no real options other than to drastically reduce prices, thereby creating economic loss for the seller," says the coalition in its confidential RFI response, a copy of which was provided to HousingWire. That buyer fear, along with a lack of creative tools to adequately re-market REO property, is one of the two biggest issues with the current state of the housing market, the document says. "CORRE believes that home price protection is a solution to both of these issues and central to the CORRE strategy," says the group, which includes two nationwide real estate brokerages, a mortgage lender, a mortgage insurer, a major servicer of distressed loans and a large law firm. That's in addition to investment bank Gleacher & Co. Securities Inc., which would handle property-level analysis and administration, plus securitization, and EquityLock Solutions, a Greenwood, Colo.-based company that would provide the home price protection plans. Blum requested that other partners remain unidentified. EquityLock, which has been in business for about three years, launched the HPP products earlier this year. The risk it takes on those contracts is sold to Equity Assurance, a insurance subsidiary. The HPP plans protect home buyers against price declines by guaranteeing REO purchasers a payout of up to 20% of their purchase price if an FHFA index of area home prices declines between the time of purchase and an eventual resale. Although similar to insurance, the product differs by being tied to an index, not the price of the individual home. The guarantee applies to properties held for a minimum of two years and resold up to 15 years later, and would be included on properties that were pooled and/or securitized. The CORRE group proposes analyzing the government's REO inventory to determine the best possible exit strategy for each property — including sales to owner-occupants, sales to investors, securitization of the REO assets, and demolition of severely dilapidated property. Rentals could also be part of the mix. In extremely weak markets, "some of the REO properties will have to be sold to investors to place into rental stock until those markets recover with time," says the proposal. "As a very last resort, the CORRE process would place these REO properties into rental or rent-to-own portfolios with no further recourse to the enterprises post-sale." The coalition says by eliminating the need for drastic price cuts and encouraging homeownership, its plan would liquidate the government's REO portfolios in a cost-effective manner, lessen the potential use of taxpayer funds in disposing of those REOs and provide a potential future revenue stream for the government. Write to Liz Enochs.