California Realtors are calling for a change of leadership at the Federal Housing Finance Agency (FHFA) following the first transactions in a pilot initiative to sell real estate owned (REO) homes in bulk to large corporate investors.

The California Association of Realtors has previously criticized the agency, which regulates Fannie Mae and Freddie Mac, for moving forward with the initiative in California without giving full consideration to the objections of state lawmakers or the program’s potential negative economic impact on housing markets and cost to taxpayers.

CAR has also criticized what it said was "the highly secretive manner" in which the bulk sales were carried out, objecting to the FHFA’s failure to publicly disclose sales prices and exact locations for individual properties.

"Fannie Mae and FHFA’s decision to move forward with the REO bulk sale in California amounts to another gift to Wall Street at the expense of taxpayers," said LeFrancis Arnold, CAR’s president, in a recent statement.

"The deal, which calls for the sale of more than 400 foreclosed homes in Los Angeles and the Inland Empire, not only hurts taxpayers and prospective homebuyers, but will also delay a full recovery in the housing market."

CAR says it opposes bulk sales in California because the state is currently experiencing a severe shortage of for-sale housing. In the Inland Empire, the median home price rose 15 percent between February and September, and in Los Angeles the median jumped 37 percent during that period, the trade group said. In both areas, unsold inventory is down from between a five- and six-month supply to less than four months.

"The botched execution of the REO bulk sales and Home Affordable Foreclosure Alternatives (HAFA) and Home Affordable Refinance Program (HARP) under FHFA’s oversight and leadership has demonstrated a lack of understanding of the housing market. Given these and other missteps, CAR believes it is time for a change in leadership at the FHFA," the trade group said.

CAR did not specify which leaders it would like to see removed. Edward DeMarco, acting director of the FHFA, has come under fire from the White House for refusing to allow Fannie Mae and Freddie Mac to use principal reductions in loan modifications for struggling borrowers. In recent weeks, the Obama administration has let housing industry activists know that DeMarco will be replaced, the Financial Times reported Monday.

In a statement, the FHFA said it was "encouraged by the results of Fannie Mae’s first Real Estate Owned (REO) pilot transactions and remains committed to pursuing efforts that build upon the success of this initiative. This is in keeping with FHFA’s Strategic Plan for the Enterprise Conservatorships which called for implementation of the REO initiative and creative strategies for placing foreclosed homes back into the marketplace in order to reduce losses."

The FHFA announced last year that it was considering bulk sales of single-family homes to investors, with the goal of converting REO properties into rentals.

After collecting feedback and under pressure from lawmakers to move forward with the program, FHFA in February announced the launch of a pilot initiative targeting bulk REO sales in metropolitan areas "hardest hit" by the foreclosure crisis, including Atlanta, Chicago, Las Vegas, Los Angeles, Phoenix and parts of Florida.

The REO initiative offered qualified investors about 2,500 single-family foreclosed properties owned by Fannie Mae, including nearly 500 properties in the Los Angeles and Riverside areas in California, with the requirement that the investors rent out the properties after purchase for a specific period of time.

FHFA announced in July that it had chosen the winning bidders in the REO pilot initiative, and the transactions have since closed. In Florida, San Diego-based Pacifica Companies LLC purchased 699 properties, offering $78.1 million and putting down $12.3 million with the remainder to be paid over time by splitting rental income with Fannie Mae.

The FHFA said all properties in the initiative were sold near or above market value. A third-party valuation put the Florida properties’ worth at $81.5 million.

The Cogsville Group LLC, based in New York City, bought 94 Chicago properties as part of the initiative. The company offered $11.8 million for the homes, putting down $2.1 million. The properties were valued at $13.7 million.

Los Angeles-based Colony Capital purchased 970 properties in the West: 432 properties in the Los Angeles and Riverside areas of California; 328 properties in the Phoenix area of Arizona; and 210 properties in the Las Vegas area of Nevada. The homes were valued at $156.8 million and the company offered $176 million, putting $34.1 million down.

In each of the closed transactions, Fannie Mae transferred the properties to an LLC and sold the winning bidders an interest in the equity cash flows of the LLC. Fannie Mae also retained an interest in each LLC. Each party’s share of interest in the LLC will vary over time according to certain yield and cash flow thresholds, according to the FHFA. The LLC for the Western properties is SFR 2012-1 US West LLC.

The FHFA did not sell the 572 Atlanta properties originally included in the pilot initiative. "Those properties will be evaluated for disposition through Fannie Mae’s retail sales operation or through future structured transactions," the agency said.

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