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• 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. Legislature Committee on Financial Services. Subcommittee on Capital Markets and Government Sponsored Enterprises. May 7, 2012
  
  Chairman Garrett and Ranking Member Waters, thank you for inviting me here today to affirm on the Federal Housing Finance Agency’s (FHFA) Property Owned (REO) Initiative. I am Meg Burns, Senior Associate Director for the Office of Housing and Regulatory Policy at FHFA and I are accountable for handling this task.
  
  As you understand, FHFA controls Fannie Mae, Freddie Mac, and the 12 Federal Mortgage Banks, which together support over $10 trillion in mortgage assets nationwide. Since 2008, FHFA has also served as the conservator to Fannie Mae and Freddie Mac (the Enterprises), an obligation that the firm takes really seriously. In that capability, FHFA has actually focused on minimizing losses to both companies through tighter underwriting standards, more accurate pricing of risk, and aggressive loss mitigation techniques.
  
  The full range of Enterprise loss mitigation programs are created to keep households in their homes whenever possible, pursue options to help families avoid foreclosure when a mortgage adjustment is not feasible, and finally, transfer to foreclosure expeditiously when essential. The objective of all of these efforts is to assist in the stabilization of communities and communities.
  
  My remarks today will concentrate on the disposition of residential or commercial properties that are conveyed to Fannie Mae and Freddie Mac through the foreclosure procedure. Today, the two 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 often takes several months for a range of reasons, such as the wait duration needed under state redemption laws during which foreclosed customers might re-claim ownership rights, and time needed to fix broken or neglected residential or commercial properties.
  
  The pace of REO sales has improved substantially over the last couple of months, a pattern that suggests that the excess products of these residential or commercial properties ought to decrease in the future. However, the variety of non-performing loans-particularly badly overdue loans-remains big. Today, the Enterprises jointly own or guarantee roughly 1.3 million non-performing loans, the majority 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 been leaders in working to resolve issue loans and attend to the ongoing challenges in the market. Collectively, their efforts have made a meaningful impact on minimizing foreclosures. Since conservatorship, the Enterprises have finished 1.1 million loan modifications, more loan modifications than foreclosures. These adjustments plus all other foreclosure prevention activities, overall to some 2.2 million foreclosure avoidance actions, more than twice the variety of foreclosures the Enterprises have actually completed during this very same duration.
  
  Not every foreclosure can be prevented, nevertheless, and the REOs must be offered in a way that is most helpful for both the Enterprises and the neighborhoods where these residential or commercial properties lie. Efficiency while doing so, with conscientious repair 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 actually performed this role well. Both business rely on retail sales techniques, where residential or commercial properties are sold one at a time, most typically to purchasers who plan to utilize the residential or commercial properties as their primary home. In 2011, around 65 percent of the Enterprise REOs were offered to owner-occupants. Most of these residential or commercial properties were sold within 60 days, at near to market value.
  
  Further, both business provide special sales opportunities for nonprofits and regional federal governments to purchase residential or commercial properties before they are marketed to a more comprehensive set of investor buyers. The Enterprises’ First Look programs allow residential or commercial properties to be utilized for mission-oriented neighborhood stabilization programs. During the very first 15 days that a residential or commercial property is noted, both business only think about deals from those seeking to acquire the home as their primary house and public entities. Finally, for residential or commercial properties that do not offer within six months approximately and are sufficiently focused in a specific geographical area, Fannie Mae and Freddie Mac participate in small bulk sales. The residential or commercial properties offered through these arrangements are normally lower-valued homes and are bought by nonprofits, regional federal governments, or regional investors.
  
  Objectives of the REO-to-Rental Initiative
  
  The REO-to-Rental Initiative complements these main personality methods and is intended to work as a pilot, supplying a chance to evaluate another model. The objectives of this pilot are relatively restricted, particularly relative to public perception, so it is seriously crucial to review FHFA’s goals:
  
  1. Gauge investor appetite for a brand-new asset-class-scattered site single family rental housing-as measured by the cost that financiers are ready to pay for a generally high-value product that has actually been hampered by oversupply