Have a bright idea about how the government can best liquidate the current huge inventory of owned real estate (REO) currently held by FHA, Fannie Mae and Freddie Mac?  Here is your chance to be heard.  The Federal Housing Finance Agency (FHFA), the conservator of the two government sponsored enterprises (GSE) in conjunction with the Departments of Treasury and Housing and Urban Development (HUD) are requesting options for selling or otherwise putting the houses into useful service.  The three issued a joint Request for Information (RFI) on Wednesday soliciting a range of ideas, including a transition of REO properties to rental use.

At issue are both the current and future inventory of foreclosed homes held by FHA and the GSEs.  The three owned 250,000 properties at the end of June.  According to The Wall Street Journal, another 830,000 homes with loans tied to the three government-controlled entities are in the foreclosure pipeline.   The properties are selling, according to The Journal Freddie and Fannie moved a record number of homes in the second quarter, a combined total of 100,000 homes.  But the inventory, which represents only about half of the REO currently available, continues to grow.   It has long been a consensus among experts in real estate and real estate finance that eliminating both the existing inventory and the "shadow inventory" are prerequisite to restoring the housing market which in turn has a massive impact on the overall economy.  The goal of any initiative emerging from the RFI is to put a floor under declining home prices by removing these properties from the market.   

The RFI has the following objectives:

  • Reduce the inventories of the Enterprises and FHA in a cost-effective manner;
  • Reduce average loan losses arising from the sale of individual properties;
  • Address property repair and rehabilitation issues;
  • Respond to economic and real estate conditions in various geographic locations;
  • Assist with neighborhood and home price stabilization;
  • Suggest approaches to deciding on the most suitable disposition strategies for individual properties including sale, rental, or demolition;

The Administration anticipates the respondents will address the objectives by converting REO to rental housing, especially where markets have both a strong demand for rental units and a substantial volume of REO, but encourages alternative solutions.  The proposed strategies may also include establishing programs for previous homeowners to rent properties or for current renters to become owners though lease to own arrangements; a mechanism where private owners of REO could also participate in the solution, and options that support affordable housing

FHFA Acting Director Edward J. DeMarco said that, while the Enterprises will continue to market their REO for sale, the Administration is seeking input on combining REO properties in situations where such pooling under private management may reduce credit losses and help stabilize both neighborhoods and home values.  "Partnerships involving Enterprise properties may reduce taxpayer losses and meet the Enterprises' responsibility to bring stability and liquidity to housing markets.  We seek input on these important questions."

 "As we continue moving forward on housing finance reform, it's critical that we support the process of repair and recovery in the housing market," said Treasury Secretary Tim Geithner. "Exploring new options for selling these foreclosed properties will help expand access to affordable rental housing, promote private investment in local housing markets, and support neighborhood and home price stability."

MND has put forward a few ideas already...

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READ MORE: Rents on the Rise: Shadow Inventory a Solution?

READ MORE: HUD Focused on Rebuilding America's Dilapidated Housing Inventory

"Take note of HUD-sponsored initiatives aimed at rebuilding America's dilapidated housing stock." says MND's Managing Editor Adam Quinones. "This is where housing professionals will find the most opportunity in years ahead.  The FHA should reopen the 203(k) program to investors if they want to encourage private investment in the U.S. housing market."

READ MORE: Home Remodeling a Forward Indicator of Housing Bottom?

"With so many foreclosed properties sitting empty on the market we can expect remodeling and rehabbing to be a leading indicator of a bottom in the housing market", says MND's Managing Editor Adam Quinones. "We already know there is dearth of affordable rental housing available to low income renters. From that perspective, FHA should open its 203(k) program to investors if they want to accomplish their affordable housing goals."