Fannie Mae and Freddie Mac’s federal regulator says it’s "proceeding prudently but with a sense of urgency" to lay the groundwork for bulk sales of repossessed homes to investors.
On Aug. 10, Fannie and Freddie’s regulator, the Federal Housing Finance Agency (FHFA), announced it was exploring bulk sales as an option for dealing with the mortgage giants’ growing inventories of real estate owned (REO) properties.
The Department of Housing and Urban Development (HUD), and the Treasury Department are consulting with FHFA on the program, which could also include homes repossessed by the Federal Housing Administration (FHA).
In August, FHFA put out a request for ideas for sales, joint ventures and other strategies that would benefit Fannie, Freddie and FHA REO disposition programs. Responses were due back Sept. 15.
Last month Democrats serving on the Senate Banking Committee urged FHFA and the Obama administration to move forward with a plan.
"With 10.4 million households in jeopardy of defaulting on their mortgages at the same time that the demand for rental housing is increasing, Americans are facing pressure on all fronts in the housing market," a letter signed by 33 Senators said.
Bulk sales of REO properties to investors could provide more rental housing if those homes are rented out instead of flipped.
FHFA said this week that it received 4,000 responses to its request for ideas, with most of those providing input suggesting REO disposition strategies that involved renting properties for a period of time. Asset management companies, banks, developers, housing advocacy groups, real estate firms and trade groups all provided input.
Many suggested offering tenants an opportunity to purchase properties, FHFA said in summarizing the comments it received. Some said demolition is the best option in some cases, and suggested that properties should be analyzed to determine the relative value of rehabilitation and subsequent sale or rental vs. demolition.
There was broad agreement that seller financing will be important in the early stages of the program, as only a few companies have the capability to manage dispersed single-family rental properties.
"As more firms develop the capacity to participate, competition will increase, resulting in higher bids and reducing the need for financing assistance," FHFA said in summarizing the comments it received. "Respondents cite the Resolution Trust Corporation and (Federal Deposit Insurance Corp.) experience and indicate that such a feature will expand the investor base."
There was general agreement that bulk sales must include "internal and external controls addressing how potential government partners are qualified, how properties are managed with and without tenants, and how to work cooperatively with community groups and nonprofits," FHFA said.
While some said bulk sales should be focused on certain geographic regions, others wanted to see a more nationwide approach.
Nonprofits and affordable housing advocates said appropriate controls must be in place to ensure that buyers with poor management track records don’t have access to REO properties, and that the government should adopt strategies that integrate nonprofits into the overall disposition strategy, and ensure that the activities of private investors promote local neighborhood stabilization efforts.
Although the FHFA has not set a timetable for beginning bulk REO sales, government officials speaking on background with Inman News columnist Ken Harney said they may launch the program with a sale of 500 to 1,000 homes as early as this month, or opt for larger transactions of up to 10,000 units during the first quarter of 2012.
Fannie, Freddie and FHA face "a tsunami-sized shadow inventory" of 1.4 million delinquent loans on their books, at least half of which are expected to end up in foreclosure, Harney wrote, which would overwhelm the current systems of individual sales through Realtors to owner-occupants and small investors.
Officials told Harney that their approach will be to sell properties in bulk in areas where there is demand for rental units, rather than in cities and neighborhoods where inventories of homes for sale are low.
In prepared testimony before the House Financial Services Committee’s Oversight and Investigations subcommittee Thursday, FHFA acting Director Edward DeMarco said the agency is "not trying to develop a single, national program for REO disposition. We are most interested in proposals tailored to the needs and economic conditions of local communities."