A.gov site belongs to an official federal government organization in the United States.

Secure.gov websites utilize HTTPS
A lock (Lock Locked padlock) or https:// indicates you've safely connected to the.gov website. Share sensitive information only on authorities, safe websites.

Search

- About About FHFA

- Mission & Core Values
- Leadership
- Conservatorship
- FHFA Policies
- Budget, Finances, and Performance
- FOIA & Privacy
- Information Quality
- Work With Us
- Ombudsman
- Equal Job Opportunity
- Careers
- Contact Us

- Advisory Bulletins
- Dodd-Frank Act Stress Tests (DFAST).
- Examiner Resources.
- Fannie Mae & Freddie Mac.
- Federal Mortgage Bank System.
- Legal Documents & Suspensions.
- LIBOR Transition.
- Rulemaking and Federal Register.
- Suspended Counterparty Program

- Affordable Housing Allocations.
- Common Securitization Platform.
- Credit Risk Transfer.
- Credit report.
- Deemed-Issuance Ratio.
- Executive Compensation.
- Guarantee Fees.
- Language Access.
- Mortgage Servicing.
- Multifamily Businesses.
- Non-Performing and Re-Performing Loan Sales.
- Pilot Transparency.
- Private Mortgage Insurer Eligibility Requirements.
- Representation and Warranty Framework

- 2024 TechSprint: Generative AI in Housing Finance.
- Affordable Housing & Community Investment.
- Duty to Serve.
- Enterprise Housing Goals.
- Financial Technology.
- Fraud Prevention.
- Housing Finance Examiner Commission Program.
- Loss Mitigation.
- National Mortgage Database.
- Natural Disaster Risk.
- Neighborhood Stabilization Initiative.
- Suspended Counterparty Program

- Borrower Assistance Map.
- Conforming Loan Limit.
- Dashboards.
- Data Governance.
- Duty to Serve Eligibility Data.
- Duty to Serve Performance Data.
- Enterprise Housing Goals.
- Fair Lending Data.
- FHFA House Price Index ®
. -FHLB Membership Data.
- NMDB ® Aggregate Statistics.
- NSMO Public Use File.
- Public Use Databases.
- FHLB Stress Tests for Market and Credit Risk.
- Market Data.
- Market Risk Scenarios.
- MIRS Transition Index.
- UAD Appraisal-Level Public Use File.
- UAD Aggregate Statistics.
- Underserved Areas Data

- Briefs, Notes & White Papers.
- NMDB Staff Working Papers.
- Staff Working Papers

- Conservatorship Reports.
- Fannie Mae and Freddie Mac Reports.
- FHFA Reports.
- FHLBank Reports.
- Mortgage Market Reports

- About Mortgage Translations.
- Borrower Education Materials.
- COVID-19 Resources.
- Interpretive Services.
- Language Translation Disclosure.
- Search Documents

- News Releases.
- Statements.
- Speeches.
- Testimonies.
- Public Input.
- Blogs.
- Fact Sheets.
- FAQs.
- Partner Agency Engagements.
- Public Engagements.
- Videos

- Facebook.
- LinkedIn.
- YouTube.
- X (formerly Twitter)

Breadcrumb

1. Home.
2. News.
3. Testimonies.
4. An Evaluation of The Federal Housing Finance Agency's Real Estate Owned (REO) Pilot Program

An Examination 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 testify on the Federal Housing Finance Agency's (FHFA) Real Estate Owned (REO) Initiative. I am Meg Burns, Senior Associate Director for the Office of Housing and Regulatory Policy at FHFA and I am accountable for managing this job.

As you understand, FHFA controls Fannie Mae, Freddie Mac, and the 12 Federal Mortgage Banks, which together support over $10 trillion in mortgage assets across the country. Since 2008, FHFA has actually likewise worked as the conservator to Fannie Mae and Freddie Mac (the Enterprises), an obligation that the company takes extremely seriously. In that capability, FHFA has actually focused on minimizing losses to both business through tighter underwriting requirements, more precise pricing of risk, and aggressive loss mitigation strategies.

The full range of Enterprise loss mitigation programs are created to keep households in their homes whenever possible, pursue options to assist households avoid foreclosure when a mortgage adjustment is not feasible, and lastly, move to foreclosure expeditiously when needed. The goal of all of these efforts is to help with the stabilization of neighborhoods and communities.

My remarks today will focus on the personality of residential or commercial properties that are conveyed to Fannie Mae and Freddie Mac through the foreclosure process. Today, the 2 companies own approximately 180,000 REO residential or commercial properties and around half of these residential or commercial properties are offered for sale at any moment. Preparing residential or commercial properties for sale frequently takes several months for a variety of reasons, such as the wait period needed under state redemption laws during which foreclosed borrowers might re-claim ownership rights, and time required to fix broken or overlooked residential or commercial properties.

The speed of REO sales has improved considerably over the last couple of months, a trend that suggests that the excess products of these residential or commercial properties must decrease in the future. However, the variety of non-performing loans-particularly seriously overdue loans-remains large. Today, the Enterprises jointly own or warranty approximately 1.3 million non-performing loans, most of which are more than a year delinquent. A concern for FHFA and both business is to prevent foreclosure even in these lengthy 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 actually been leaders in working to fix problem loans and address the ongoing challenges in the market. Collectively, their efforts have made a meaningful effect on decreasing foreclosures. Since conservatorship, the Enterprises have completed 1.1 million loan adjustments, more loan adjustments than foreclosures. These adjustments plus all other foreclosure prevention activities, total to some 2.2 million foreclosure avoidance actions, more than twice the variety of foreclosures the Enterprises have actually completed throughout this very same period.

Not every foreclosure can be avoided, nevertheless, and the REOs need to be sold in a way that is most advantageous for both the Enterprises and the areas where these residential or commercial properties lie. Efficiency while doing so, with diligent repair work and sales preparation, thorough management, and aggressive marketing of the residential or commercial properties results in the very best outcome for all. To date, both Fannie Mae and Freddie Mac have performed this function well. Both companies rely on retail sales strategies, where residential or commercial properties are offered one at a time, frequently to buyers who prepare to use the residential or commercial properties as their main home. In 2011, approximately 65 percent of the Enterprise REOs were sold to owner-occupants. Most of these residential or commercial properties were sold within 60 days, at near to market worth.

Further, both companies provide special sales opportunities for nonprofits and local federal governments to acquire residential or commercial properties before they are marketed to a more comprehensive set of investor purchasers. The Enterprises' First Look programs allow residential or commercial properties to be utilized for mission-oriented community stabilization programs. During the first 15 days that a residential or commercial property is noted, both companies just think about deals from those looking for to acquire the home as their primary residence and public entities. Finally, for residential or commercial properties that do not sell within six months or two and are sufficiently focused in a particular geographic location, Fannie Mae and Freddie Mac participate in little bulk sales. The residential or commercial properties sold through these arrangements are generally lower-valued homes and are acquired by nonprofits, city governments, or regional investors.

Objectives of the REO-to-Rental Initiative

The REO-to-Rental Initiative matches these primary personality methods and is meant to work as a pilot, providing an opportunity to check another model. The objectives of this pilot are fairly restricted, particularly relative to public understanding, so it is critically essential to examine FHFA's goals:

1. Gauge investor hunger for a brand-new asset-class-scattered site single family rental housing-as determined by the rate that investors are ready to spend for a typically high-value commodity that has been obstructed by oversupply;.

2. Determine whether the personality of residential or commercial properties wholesale, instead of one-by-one, provides a chance for well-capitalized financiers to partner with regional and regional residential or commercial property management business and other community-based organizations to produce suitable economies of scale, yet offers civic-minded approaches that can stabilize and improve market conditions;.

3. Assess whether the design can be efficiently reproduced to make it a worthwhile addition to the basic retail and small-bulk sales strategies in location at the Enterprises and other banks with big stocks of residential or commercial properties to sell.


I 'd like to likewise clarify some misunderstandings about FHFA's intent and goals with this effort. The REO Initiative is extremely targeted, focused only on markets that supply an opportunity to remedy a fundamental supply-demand imbalance. This kind of intervention would be extremely improper on a nationwide scale and the program was never planned to be offered nationally. The pilot markets are carefully selected, based upon apparent market characteristics-an oversupply of single household homes for sale and a strong demand for rental housing. Further, the pilot will not result in severely marked down sales. If the action from financiers shows that these residential or commercial properties can not be cost prices that are close to what Fannie Mae can get through a retail execution, the residential or commercial properties will not be sold. While FHFA as conservator must consider the return to the Enterprise, the agency is likewise worried about the unfavorable influence on the communities and regional housing markets from any additional anxiety of home worths.

The uncertainty surrounding the outcomes of the pilot also resulted in the decision to involve only Fannie Mae residential or commercial properties in the first stage of the Initiative-for a number of reasons. One, Fannie Mae has more homes available, in concentration, in the selected markets. 2, considered that the program is merely a pilot, FHFA took care to think about how resources would be dedicated to infrastructure and execution and identified that just one business must broaden upon existing capabilities to test the model. And, 3, offered the significant legal and functional challenges related to bundling a group of residential or commercial properties in any provided market, the choice was made to limit the scope of residential or commercial properties for sale to those from one company.

Similarly, based upon the uncertain outcomes, the pool of residential or commercial properties made available for sale in the very first transaction consists of a large portion of homes that are currently leased. Most of the renters residing in these homes were in place when the residential or commercial properties were communicated to Fannie Mae; the previous investor-owners lost the residential or commercial properties through foreclosure. Fannie Mae and FHFA decided to assemble pools composed generally of rental residential or commercial properties to guarantee that great deals of uninhabited residential or commercial properties were not held off-market for the significant amount of time needed to execute a sale. The sales timeline is as aggressive as it can be, however should consist of adequate time for the assembly of the swimming pools, collection and publication of property-level information, due diligence by potential purchasers, evaluation of qualified financiers' strategies, and the supreme bid auction itself. Furthermore, offering rental residential or commercial properties for bulk sale really helps to check among the crucial goals - to identify financier cravings for this property class.

Another fundamental misconception originates from the desire to attend to long-standing rental housing issues with this program. In reality, the REO-to-Rental Initiative was never meant as a lorry to increase the national supply of cost effective rental housing, nor to enhance the rental housing stock, through energy-efficient or "green" home improvements. Given that the residential or commercial properties offered under this Initiative are all special, with various building designs and materials, any effort to take part in large-scale upgrades would be hampered by the failure to buy structure products in bulk and to standardize the construction process. Additionally, while the residential or commercial properties lie in general proximity to one another, the range to take a trip for continuous upkeep and management will likely be a challenge and add expenses for any property supervisor. The economies of scale that offer an opportunity to lower expenses in multifamily rental housing are likely not applicable to this kind of housing.

I would keep in mind that the expansion of rental housing alternatives in the affected communities might have an advantageous influence on price in the surrounding rental market. These homes also use much better options for larger households than lots of conventional multifamily rental complexes, with more bed rooms and outside area for recreational activities. And the general home enhancement, which may include the setup of insulation or new, more energy effective home appliances, might eventually contribute to the total improvement of the housing stock; it's simply not the main goal of the program.

Current Status of the REO-to-Rental Initiative

In developing the REO-to-Rental Initiative, FHFA welcomed a number of federal firms with experience in asset disposition and REO sales to get involved in an interagency working group, examining info gotten by the original demand for info released in August 2011 and evaluating alternative techniques for the pilot. The working group includes the Federal Deposit Insurance Corporation (FDIC), the Department of Housing and Urban Development, the Federal Reserve, and the Department of the Treasury, along with Fannie Mae and Freddie Mac. The interagency input has actually been valuable and FHFA adopted a variation of the FDIC approach to possession personality for banks as a design for this pilot.

We are well into the first transaction, revealed in February, targeting areas that have actually been hardest hit by the housing crisis. Fannie Mae is selling around 2,500 residential or commercial properties, divided into eight sub-pools, located in Las Vegas, Nevada; Phoenix, Arizona; different communities in Florida; Chicago, Illinois; Riverside and Los Angeles, California; and Atlanta, Georgia. More comprehensive information on the number of residential or commercial properties in each place is offered on FHFA's Real Estate Owned (REO) guide page. Immediately following the announcement, interested investors were asked to prequalify by licensing to their monetary capacity, appropriate market experience, and obligation to follow the transaction guidelines. Those who prequalified were then qualified to send an application to take part in the auction. Evaluation of those applications is now underway.

The application process is comprehensive, strenuous, and requiring, needing extensive amounts of info and paperwork from the candidates and their service partners. Only those financiers who have enough capital and functional competence will make it past the analysis of the reviewers. The financial strength of the financiers may depend on collaborations among a number of parties. Nonprofit financiers might work with-and use the deeper financial base of-institutional investors and numerous types of financiers can pool resources to expand capability and create better execution. As pointed out formerly, the intent of the Initiative is to check whether personal capital can and will enter into this brand-new property class, offering much-needed monetary assistance to some of the hardest-hit housing markets.

Just as important, only those financiers with deep functional expertise in both possession management and residential or commercial property management will make the cut. The application requires that the investors explain 6 their previous experience handling these kinds of possessions, from marketing to leasing to maintenance. How appropriate, comprehensive, and current that experience was will matter in the scoring.

In addition, the applicants were expected to information their prepare for running a first-rate rental program with these particular residential or commercial properties. They were needed to describe how they will rely on regional and regional organizations to tailor their programs to fulfill the needs of these citizens in these neighborhoods. Investors needed to explain what resources they will hire to ensure that residential or commercial properties are repaired, leased rapidly, and well-maintained, and to guarantee that the residents get the services they need. There is an expectation that regional building and construction and repair business will be engaged due to their familiarity with state and local building regulations, that regional residential or commercial property management firms will know the possible occupant population in the area and the best ways of marketing to these people, which community-based nonprofits might offer helpful services to the residents. The program even requires that the new owners spend for tenants to get credit counseling at their request from a HUD-approved housing counseling agency in order to assist repair their credit and get them on more steady footing.

This extensive application procedure is planned to narrow the swimming pool of eligible bidders to those who have financial and functional competence, however likewise the mission-oriented dedication to ensure that this program brings capital to markets in requirement in a manner that stabilizes neighborhoods.

Currently the independent 3rd celebration employed to review the applications remains in the procedure of doing so and this process will be finished in next few weeks. After that, eligible bidders will be informed and the bid process will start. FHFA's goal is to finish this very first pilot transaction in the next few months.

To reiterate, the REO-to-Rental Initiative is a pilot, a test, to see whether another disposition method can complement existing sales efforts, creating personal financial investment in single family rental housing in a way that is both effective and effective at supporting local markets.

The pilot counts on Fannie Mae for execution, however honestly, the Enterprise part of the REO market is restricted, so the future benefit of the program might be more applicable to personal banks that pick to sell their stock in this way. Further, as mentioned previously, both business will continue to count on their existing retail sales techniques as the primary vehicle for selling homes. Retail sales move residential or commercial properties rapidly, most often to households who plan to live in the homes, and at rates that are close to market price. As part of the more comprehensive REO efforts underway, FHFA is working with both companies to enhance these retail sales methods, enhancing and broadening specialized financing programs readily available for both homebuyers and small investors.