Selling real estate owned (REO) properties to owner-occupants and buyers who qualify for publicly funded housing programs remains an overarching goal of the government-sponsored enterprises (GSEs), according to two articles written by GSE executives and published this week. Despite increased loss mitigation activity by servicers, REO activity at Fannie Mae and Freddie Mac has, unsurprisingly, ballooned in recent years, the executives say.
For example, Fannie Mae's REO dispositions nearly doubled, from 64,843 in 2008 to 123,000 in 2009, Jay N. Ryan Jr., the company's vice president for REO Alternative Disposition, wrote in ‘REO & Vacant Properties: Strategies for Neighborhood Stabilization,’ a joint publication produced by the Federal Reserve Banks of Boston and Cleveland and the Federal Reserve Board. The document was published in conjunction with the Federal Reserve-sponsored summit on neighborhood stabilization happening this week in Washington, D.C.
At Freddie Mac, REO inventory has almost tripled in the last 24 months to more than 62,000 properties, HomeSteps vice president Chris Bowden wrote in this month's Featured Perspectives, a monthly feature posted on Freddie Mac's website.
Both Ryan and Bowden identified the sale of REOs to owner-occupants as a necessity in stabilizing home prices and stemming the decay of neighborhoods with high concentrations of foreclosures. To encourage such sales, Fannie Mae rolled out its First Look initiative in November 2009. The program provides certain benefits to buyers who plan on occupying the properties themselves or repurposing the properties in a way that leverages public funding and protects the local community. Public-entity buyers include parties that use Neighborhood Stabilization Program funds, Community Development Block Grant funds or similar funds.
Under First Look, Fannie Mae only entertains offers from such qualified buyers during the initial listing and marketing period.
‘While investors play a role in the REO market, home buyers who intend to occupy the property make an immediate and lasting commitment to the community and, therefore, merit extra consideration in the REO sales process,’ Ryan wrote.
Public-entity buyers enjoy other perks under First Look, including deposit waivers and extra time for closing. Approximately 70% of Fannie Mae's 2009 REO dispositions went to owner-occupants or entities using public funds, according to Ryan.
Freddie Mac, meanwhile, has targeted recent property auctions to owner-occupants. Earlier this year, the company sold 272 homes to owner-occupants in Las Vegas, Phoenix and hard-hit counties in California. Freddie Mac currently sells more than two-thirds of its REOs to such buyers, according to Bowden.
‘Most of our marketing and sales strategies are geared toward attracting owner-occupants, and include incentives for both the real estate agents and prospective home buyers,’ Bowden wrote in Featured Perspectives.
An example of the targeted strategies includes Freddie Mac's SmartBuy promotion, which offers owner-occupant buyers a two-year home warranty and closing-cost assistance. The benefits, which can help cover the costs of transaction fees, moving and home maintenance, are ‘particularly valuable’ to first-time buyers, Bowden wrote.
Ryan and Bowden additionally highlighted the ways in which the GSEs are looking to keep properties occupied post-foreclosure. Fannie Mae's Deed-for-Lease program provides qualified borrowers an opportunity to trade their deed for a lease that is good for up to 12 months. Freddie Mac's Rental Initiative offers month-to-month leases to qualified former owner-occupants and tenants.
In cases where a Freddie Mac property has been identified as vacant, the company has taken steps to mitigate the associated costs and dangers. The company's ‘Good Neighbor’ policy mandates that properties be secured, preserved and cleaned within three business days of being confirmed vacant.
Ryan also touched upon REO sales to investors, which he noted provide a ‘much-needed infusion of private capital.’ Fannie Mae has ramped up its scrutiny of investor buyers, Ryan said, by increasing the amount of screening that is done before Fannie Mae approves pool sales to investors. Company representatives visit the sites of other projects purchased by investors and conduct title searches to follow up on previous investor promises.
‘In short, we care about what investors do with the properties we sell to them,’ Ryan wrote.