FHFA Invites Investors to Pre-Qualify for Bulk REO Sales

The Federal Housing Finance Agency (FHFA) announced
today the first step in a new initiative to convent foreclosed properties (REO)
in the hardest-hit metropolitan areas to rentals. The Real Estate Owned Initiative
is a joint endeavor of the Departments of Treasury, and Housing and Urban
Development (FHMA’s parent), the Federal Deposit Insurance Corporation, and the
government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.

The first phase of the program will encourage
investors interested in participating to “pre-qualify” to bid on property in
the pilot phase of the program and any subsequent phases with the understanding
these properties would be held as rentals for a specified period of time. The
expectation is that the rental period will provide relief for local housing
markets suffering under the large inventories of foreclosed and often vacant
and/or deteriorating housing as well as providing additional options to some
tight rental markets. 

During the
pilot phase, Fannie Mae will offer pools of various types of assets including
rental properties, vacant properties and non-performing loans for sale.  The first transaction will be announced in
the near-term.

There has
been a lot of discussion in recent weeks about the value of linking REO
inventory reduction to rentals as one way of speeding recovery of the
market.  Much of the talk was driven by a
prepared for Congress by the Federal Reserve which focused on the
issue and the probable cost.   It said in
part; “An REO to rental program
that relies on sales to third-party investors will be more viable if the
cost-pricing differential (i.e. the discount offered to investors) can be
narrowed which might be done by (a) structuring sales as competitive auctions;
(b) making sales packages more attractive to a variety of investors.  A third option suggested by the Fed, providing
investors with the debt financing, does not appear to be part of the current

FHFA said it had received more than 4,000 responses
for a Request for Information posted last summer which sought input on options
for selling single-family REO held by the GSEs and FHA.  The pre-qualification step announced today will
require potential investors to meet minimum criteria including, but not limited
to the financial ability to acquire the assets, sufficient experience and
knowledge to analyze and bear the risks of the opportunity, and agreement to
keep certain information about the REO and related matters confidential.  FHHFA said the agency wants to ensure that
investors have the financial capacity and operational knowhow to manage
properties in such as way as to stabilize communities hard-hit by the housing

“This is
an important step toward increasing private investment in foreclosed properties
to maximize value and stabilize communities,” said FHFA Acting Director Edward
J. DeMarco
. “I am grateful for the collaborative effort by the many
stakeholders including investors, nonprofit organizations, and state and local
government officials, who have worked together on this Initiative.”

FHFA said
it continues to look for ways to improve its sales to owner occupants and small
investors who constitute the majority of the market for Fannie Mae and Freddie
Mac and who buy at close to market value. 
The pilot phase is to determine the type of assets, size and location of
pools, and the service and support necessary to appeal to investors who will
best work to stabilize communities while maximizing the return to the sellers
and improving home values in impacted markets.

Interested investors can obtain information about pre-qualification
at http://www.homepath.com/structuredsales.html.

Read the full FHFA announcement here.

…(read more)

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