If you or your clients want to be bidders on the federal government’s upcoming bulk sales of "real estate owned" properties from Fannie, Freddie and the FHA, you’ve still got time.

Officials told me late last week that the first transactions are two to three weeks away and the property pools offered through 2012 may be smaller and more manageable for groups of well-advised and qualified local investors than previously assumed.

Well-advised? That means first and foremost that you’ve submitted a "prequalification request" and you know what the Federal Housing Finance Agency — which oversees Fannie and Freddie in conservatorship — is really looking for from bidders.

Turns out it’s not necessarily the giant Wall Street hedge funds who can bring megabucks to the table and scoop up thousands of REO homes to convert into rentals.

It’s actually quite different. Federal officials tell me their goal is to target primarily local areas that have "significant concentrations" of REOs held by Fannie, Freddie and FHA, and to make a positive impact on neighborhoods where foreclosed houses glut the market, drag down other owners’ property values, and disrupt the community in the process.

Equally important: They plan to give strong preference to bidders who have reached out and created working relationships with local groups — such as nonprofits, government agencies and community-based organizations — to ensure that their REO conversions to rentals benefit neighborhood and real estate submarkets.

Back to the big news: The prequalification request form the FHFA unveiled earlier this month intentionally opens the bidding to small groups of investors — even individual moms and pops. You can find it on the FHFA website: www.fhfa.gov/Default.aspx?Page=360.

Some critics, including officials at the National Association of Realtors, had worried that the government’s effort to sell off large chunks of its REO portfolio inevitably would favor deep-pocket national bidders.

Big players are still very much in the running — provided they can demonstrate rental management experience — but the prequalification parameters offer real opportunities for smaller players, as well.

For example, take the financial yardsticks set up by the FHFA:

  • If you’ve got an individual or joint net worth with your spouse of more than $1 million, exclusive of your primary residence, you’re an eligible bidder.
  • If you don’t have a million-dollar net worth, but you do have individual net income above $200,000 for each of the past two years — or $300,000-plus if you count your spouse’s income — you’re in.

Though far beyond average household financials, these numbers are well within the reach of thousands of smaller-scale investors. For groups of investors, the minimum asset baseline is $5 million, but the group (or "trust") should not have been formed solely to bid on the Fannie-Freddie-FHA REOs.

The prequalification form also requires that all bidders be actively involved in real estate or mortgages — buying, selling, originating, developing or managing assets, especially REOs.

In my conversations with federal officials, they emphasized that the initial pilot awards will be in markets where Fannie, Freddie and FHA have significant numbers of REOs clustered in relatively small areas.

Though they would not identify specific markets, they said they’re likely to be in the places that took the brunt of the housing bust — the so-called "sand states" (Arizona, Florida, Nevada and California), along with the urban Midwest.

The implications here seem to be clear for potential bidders: If you have knowledge and experience with REOs in heavily impacted areas, and you scour Fannie’s, Freddie’s and FHA’s listings of REOs to identify the densest concentrations, you will have a leg up in the early competition.

According to officials, the assets offered for sale will run the gamut from foreclosed single-family homes to nonperforming mortgages.

The pools themselves are likely to vary in size, but they won’t be mix-and-match "grab bags" (such as 20 houses from Arizona, 50 houses scattered around Florida, 15 units in Detroit). Instead, they will be focused on more compact problem areas.

In my conversations, officials emphasized that the objective is not to sell off most of the three agencies’ REO assets, but only those selected as appropriate for bulk disposition.

For example, said one official, out of Fannie’s roughly 120,000 REOs currently in stock, only about half — 60,000 — are even under consideration to be offered in bulk transactions. Of Freddie’s roughly 60,000 units, just 30,000 are likely to make the cut. The rest will remain in their current status — available for sale to individual home purchasers and investors.

This may at least partially address a key concern of the National Association of Realtors: Its members stand to lose hundreds of millions of dollars in sales commissions if bulk transactions siphon away most of the properties that otherwise would be sold through local brokerages.

"This will not involve the majority of the (current) portfolios," said one official. In fact, the Obama administration’s and the FHFA’s main concern is not with the agencies’ existing REO stocks on the books, but rather a tidal wave of 1.4 million more delinquent mortgages — which some refer to as the "shadow inventory" — estimated to be heading for REO status in the coming two years.

Despite these assurances, NAR President Moe Veissi still has concerns. The present system of REO disposition through realty agents "is working well," he told me last week.

Inventories at Fannie, Freddie and the FHA have all declined dramatically in the past year, with large percentages of sales going to owner-occupants.

"I don’t see the need for outside intervention" — selling off blocks of assets — "when there’s not really much of a problem. If it ain’t broke, don’t fix it."

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