Page: An Assessment of The Federal Housing Finance Agency's Real Estate Owned (REO) Pilot Program

An Assessment of The Federal Housing Finance Agency's Real Estate Owned (REO) Pilot Program

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1 An Assessment of The Federal Housing Finance Agency's Real Estate Owned (REO) Pilot Program

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4. An Evaluation of The Federal Housing Finance Agency's Real Estate Owned (REO) Pilot Program
   
   An Assessment of the Federal Housing Finance Agency's Real Estate Owned (REO) Pilot Program
   
   Statement of Meg Burns. Senior Associate Director for Housing and Regulatory Policy. Federal Housing Finance Agency. Before the U.S. House of Representatives Committee on Financial Services. Subcommittee on Capital Markets and Government Sponsored Enterprises. May 7, 2012
   
   Chairman Garrett and Ranking Member Waters, thank you for welcoming me here today to affirm on the Federal Housing Finance Agency's (FHFA) Property Owned (REO) Initiative. I am Meg Burns, Senior Associate Director for the Office of Housing and Regulatory Policy at FHFA and I are accountable for handling this project.
   
   As you understand, FHFA controls Fannie Mae, Freddie Mac, and the 12 Federal Mortgage Banks, which together support over $10 trillion in mortgage possessions nationwide. Since 2008, FHFA has actually likewise functioned as the conservator to Fannie Mae and Freddie Mac (the Enterprises), a duty that the company takes very seriously. In that capacity, FHFA has focused on minimizing losses to both companies through tighter underwriting standards, more accurate pricing of risk, and aggressive loss mitigation strategies.
   
   The complete variety of Enterprise loss mitigation programs are developed to keep families in their homes whenever possible, pursue options to assist families avoid foreclosure when a mortgage adjustment is not practical, and lastly, transfer to foreclosure expeditiously when essential. The goal of all of these efforts is to help with the stabilization of communities and neighborhoods.
   
   My remarks today will focus on the disposition of residential or commercial properties that are conveyed to Fannie Mae and Freddie Mac through the foreclosure procedure. Today, the two business own roughly 180,000 REO residential or commercial properties and roughly half of these residential or commercial properties are readily available for sale at any point in time. Preparing residential or commercial properties for sale often takes numerous months for a range of factors, such as the wait duration required under state redemption laws during which foreclosed customers might re-claim ownership rights, and time needed to fix damaged or ignored residential or commercial properties.
   
   The rate of REO sales has enhanced significantly over the last few months, a trend that suggests that the excess products of these residential or commercial properties must decrease in the future. However, the number of non-performing loans-particularly severely overdue loans-remains large. Today, the Enterprises jointly own or guarantee around 1.3 million non-performing loans, most of which are more than a year overdue. A top priority for FHFA and both companies is to avoid foreclosure even in these drawn-out cases, through short sales, deeds-in-lieu, and deeds-for-lease.
   
   Loss Mitigation and Current Approach to REO Disposition
   
   Fannie Mae and Freddie Mac have been leaders in working to solve problem loans and address the ongoing challenges in the market. Collectively, their efforts have made a meaningful effect on reducing foreclosures. Since conservatorship, the Enterprises have finished 1.1 million loan adjustments, more loan adjustments than foreclosures. These modifications plus all other foreclosure avoidance activities, overall to some 2.2 million foreclosure prevention actions, more than twice the number of foreclosures the Enterprises have finished throughout this exact same duration.
   
   Not every foreclosure can be avoided, nevertheless, and the REOs should be offered in a way that is most useful for both the Enterprises and the areas where these residential or commercial properties lie. Efficiency at the same time, with conscientious repair and sales preparation, thorough management, and aggressive marketing of the residential or commercial properties results in the finest outcome for all. To date, both Fannie Mae and Freddie Mac have actually performed this role well. Both business depend on retail sales strategies, where residential or commercial properties are offered one at a time, frequently to purchasers who plan to utilize the residential or commercial properties as their main house. In 2011, roughly 65 percent of the Enterprise REOs were sold to owner-occupants. The bulk of these residential or commercial properties were offered within 60 days, at near to market worth.
   
   Further, both business use special sales opportunities for nonprofits and city governments to purchase residential or commercial properties before they are marketed to a more comprehensive set of financier buyers. The Enterprises' First Look programs allow residential or commercial properties to be utilized for mission-oriented neighborhood stabilization programs. During the very first 15 days that a residential or commercial property is noted, both companies only think about offers from those looking for to buy the home as their main home and public entities. Finally, for residential or commercial properties that do not offer within 6 months or two and are sufficiently focused in a specific geographical location, Fannie Mae and Freddie Mac participate in little bulk sales. The residential or commercial properties offered through these arrangements are typically lower-valued homes and are purchased by nonprofits, regional federal governments, or local investors.
   
   Objectives of the REO-to-Rental Initiative
   
   The REO-to-Rental Initiative matches these main disposition strategies and is intended to serve as a pilot, supplying a chance to check another design. The goals of this pilot are fairly minimal, particularly relative to public understanding, so it is seriously important to examine FHFA's objectives:
   
   1. Gauge investor hunger for a new asset-class-scattered site single family rental housing-as measured by the rate that financiers want to spend for a generally high-value product that has actually been hampered by oversupply