The Housing Policy Council of the Financial Services Roundtable (HPC) has made recommendations to the Federal Housing Finance Agency (FHFA), U.S. Department of the Treasury and the U.S. Department of Housing & Urban Development (HUD) in response to the request for ideas on reducing the Real Estate-Owned (REO) properties of the goverment-sponsored enterprises (GSEs) and the Federal Housing Administration (FHA).
“The Housing Policy Council supports the goal of reducing the inventory of REO properties of Fannie Mae, Freddie Mac and the FHA," said John H. Dalton, president of the Housing Policy Council. "The overhang of these properties is one of the factors preventing a full recovery of the housing market."
The Roundtable's Housing Policy Council is made up of 32 companies that are among the nation's leaders in mortgage finance. Member companies originate 75 percent of the mortgages for American homebuyers. Member companies participate in the Council through the senior mortgage executive in their company.
"REO properties should be sold in a timely fashion, and in significant blocks based on local market conditions," said Dalton. "Purchasers of the REO properties should have the flexibility to sell, rent, or demolish if necessary to enable the local real estate market to begin to recover. Additionally, these properties need to be sold 'free and clear' to purchasers."
According to the letter, an effective REO disposition program should address these factors:
►The GSEs should not become landlords. The sales of the REO properties should be on a
free and clear basis;
►Price for the REO properties should be maximized by limiting the conditions attached to the
►To the extent possible the efficiencies of large scale should be a factor in determining the size
of the blocs of properties that are sold, but size should be balanced with the potential impact
on values in key markets;
►Utilize contractual terms to ensure that the sales are conducted appropriately and the
properties are administered in a manner that meets responsible standards;
►Phase the program in with its usefulness and effectiveness being considered first with smaller
►Complete the first sale under the program promptly;
►Consider the maximization of price as a key factor and recognize that careful packaging of
small units of properties may maximize the price with only a marginal impact on the timeline
►Allow participants to use a variety of solutions to the use of the properties including: sale,
rental, and when necessary, demolition for other uses.
"It is important that Fannie Mae, Freddie Mac or FHA do not remain landlords in the REO process," said Dalton. "We share the desire of HUD and FHFA to reduce, in a responsible fashion, the amount of REO currently on the books of the GSEs and FHA. The overhang of that property and of the REOs held by the private sector has reduced the pace at which the housing industry can recover from its downturn. Creating effective programs to reduce the GSE and FHA REO inventory is one step in the right direction.”