GAO report suggests FHA leaving REO money on the table

The Federal Housing Administration hasn’t done as well as Fannie Mae and Freddie Mac in getting top dollar for REOs, according to a report by the Government Accountability Office analyzing sales of more than 400,000 repossessed homes FHA sold from January 2007 through June 2012.

After controlling for differences in property characteristics like location and local market conditions, the GAO estimated that differences in the combined returns of FHA and Fannie and Freddie were two to five percentage points. FHA also took longer to dispose of REOs — about 340 days on average, compared with 200 days for Fannie and Freddie.

FHA, Fannie and Freddie all “use similar strategies to dispose of their REO properties,” the GAO said in summarizing the report, but noted that FHA does not repair its properties to increase their marketability, incorporate information from multiple sources in setting list prices, or consistently take into account market conditions when reducing prices. FHA instead relies on one appraisal in setting initial prices and often reduces them by set amounts.

In 2011 alone, if FHA had been able to match Fannie and Freddie’s performance in disposing of REOs, it could have increased its proceeds by as much as $400 million and decreased holding costs like taxes, homeowners association fees, and maintenance by up to $600 million, the GAO estimated.

In its response to the June 20 report, which was posted on the GAO’s website this week, the Department of Housing and Urban Development (HUD) said it has implemented a monitoring plan for its contractors that will analyze disposition performance and practices across homeownership centers. Source: gao.gov.

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