FHFA, Fannie Mae Cease Selling REOs To Rent-To-Own Companies

Written by Patrick Barnard
on May 24, 2017 No Comments

Fannie Mae has reportedly ceased all sales of real estate owned (REO) properties to Vision Property Management – and, in fact, all other “rent-to-own” companies – after an investigation revealed that some of the homes Vision offered on a rent-to-own basis had lead paint, failing septic systems and other safety problems, even though the renters had agreed by way of their contracts to move into the homes “as is” and fix them up.

On the surface, Vision’s goal of getting lower-income people into homes they can ultimately own is enviable: Not only does the company create a path to homeownership through its rent-to-own program that otherwise might not exist, but its model also helps speed up the elimination of blight by putting renters in control of property condition.

Part of the problem lies in the fact that in most, if not all, states, it is illegal to rent a property if it isn’t safe or in good functioning condition – even if the property owner agrees by way of the lease to fix it up. Normally, if an investor buys a property from Fannie Mae that has lead paint, the investor is required to remediate the problem before renting or selling it. Under Vision’s model, however, the homes are leased “as is” and the tenants have responsibility for repairs and maintenance.

Apparently, that model is flawed because now, following an investigation, as well as a series of articles in the New York Times detailing the company’s practices, the Federal Housing Finance Agency (FHFA) and Fannie Mae have agreed to stop selling the properties to Vision and, in fact, all rent-to-own companies.

The decision is based, in part, on the results of an investigation conducted by Rep. Elijah E. Cummings, D- Md., a ranking member of the House Committee on Oversight and Government Reform, which revealed that the company had “willfully” ignored its responsibilities as owner and landlord of the properties, “endangering tenants and promoting abusive lease-to-own schemes,” according to a statement from Cummings’ office.

“Families who move into homes purchased from Fannie Mae should not have to worry about whether their children will get lead poisoning,” Cummings says in the statement. “Vision withheld documents from both Congress and Fannie Mae, so I applaud this decision to end sales to this company.”

On May 12, Cummings sent a letter urging the FHFA to restrict Vision and other “unscrupulous investors” from buying properties at bargain-basement prices and then “shirking their obligation as landlords to ensure the safety and habitability of their homes.”

Contributing to the FHFA and Fannie Mae’s decision was the fact that Vision had declined to provide certain data on its leases as part of the investigation.

In response to the situation, Fannie Mae plans to insert in its future contracts with investors a provision prohibiting the use of Fannie properties in lease-to-own schemes.

In addition, Fannie Mae will identify all investors who buy more than 25 REOs in a single year and will approach these buyers to sign memoranda of understanding requiring them to provide data about how properties they buy from Fannie are being used.

Cummings’ investigating into Vision’s “abusive practices” is the result of an article in the New York Times detailing how a family in Baltimore suffered lead poisoning after living in a home leased from Vision that had been purchased from Fannie Mae.

According to the statement from Cummings’ office, Vision purchased 3,417 REO properties from Fannie Mae between 2010 and 2014 in pool sales – and it continued to acquire properties from Fannie Mae after pool sales ended in 2014.

During an interview with MortgageOrb in December 2016, Jon Buerkert, chief business development officer at Vision, explained that although the company rents the properties “as is” and that renters agree to fix them up, that does not mean the company won’t step in and make a repair if there is a health or safety issue.

“After we acquire a property, there are often critical maintenance issues that have to be dealt with, and if it needs a new roof, power or water source, we’re going to get that done,” Buerkert told MortgageOrb. “But when it comes to things such as carpet, paint, upgraded appliances or fixtures, we leave that up to our occupants. We sell them on the fact that this is their canvas, and they can do what they want with it. So long as they’re making payments and we are not getting notices from the city, we are not going to be bothering you.

“The little wrinkle to that is that sometimes, there is one repair that is needed that a tenant just can’t do,” Buerkert added. “If that’s the case, then we help him or her do that. Our thought is, if we can get an occupant in the home who is able to handle 75 percent to 90 percent of what needs to be done, then we’re happy to help that person out with that last 10 percent to 25 percent – whether that is connecting a water line to the well or putting a new roof on. But that’s a very involved, complex process – and it’s not easy. Fortunately, we’ve been able to compile a large network of local contractors who can do this work. This is also what really sets us apart. We have an account services department that handles all of the payments, but we also have carved out a little department within that so that when a customer calls with one of these types of requests, we have the resources to handle that. It’s a very hands-on approach – we are very communicative with our customers.”

(MortgageOrb will be following up on this story as more information becomes available.)

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