What are HUD and Fannie/Freddie doing about the REO and Shadow Inventory?
FHA: Notes Sales and Distressed Asset Stabilization Program
In 2010, FHA began its Note Sales program. Essentially, FHA sold off notes of homeowners that they could not assist under their guidelines in an effort to allow for more options under a different investor. This program has been minimal since its inception as only 2,400 loans have been sold as of April 2013. In an effort to widen the program’s usefulness, FHA broadened the program and renamed it the Distressed Asset Stabilization Program. FHA increased the number of loans that would be eligible for sale from 1,800 per year to 5,000 per quarter. As of April 2013, 26,000 mortgages have been sold under the revised program. This step will certainly help some homeowners who have exhausted all loss mitigation help that is available through HUD, but it is far from a solution to the more than 700,000 loans that are in HUD’s shadow inventory.
REO Pilot Program:
In February 2012, FHFA directed Fannie Mae to launch an REO Pilot program in which they solicited bids where qualified investors would purchase about 2,500 REO properties and rent them back to homeowners for a specified number of years. Hardest hit metropolitan areas were targeted; Atlanta, Chicago, Las Vegas, Los Angeles, Phoenix and parts of Florida were included in the Pilot program. To date, 699 properties in Florida, 94 properties in Chicago, and 970 properties in California, Arizona and Nevada have been sold under this pilot program.
FHFA Office of the Inspector General plans to assess Fannie Mae’s REO pilot program to determine whether the program is achieving the outcome the program was designed for. The analysis will look at whether it is cost effective to do a bulk sale of REO properties. The Office of Inspect General will also assess whether inspections performed on REO adequately protects the investors interest in the properties. The inspections should determine the overall condition of the property, security of the house, occupancy status, maintenance and capital repair requirements, neighborhood conformity and other related information. This information is critical to protecting the value of homes in the REO portfolio. The goal of this oversight is to ensure that the GSEs are effectively protecting the REO risks and costs and the negative impacts of foreclosures on communities. FHFA’s Office of Inspector General believes that it will be in a position to make recommendations to protect FHFA REO interests.
The report concludes that REO management and disposition are challenging tasks, likely to become more challenging as shadow inventory becomes REO. However, it states that both FHFA and HUD have taken significant steps to work to ensure that REO related issues are handled efficiently and effectively.
While this report offers insight into the volume of REO properties and the number of homes that are currently 90+ days delinquent, it does little to offer long term hope for complete housing recovery. Some steps that have begun are a good start to move REO properties out of the inventory of both HUD and FHFA, however, the homes that are part of these pilot programs represent a small fraction of the problem that currently exists. Hopefully these programs can be expanded do help people on a national scale and not merely experiment with a few thousand homes when over 1.7 million homeowners are currently over 90 days past due on their mortgage.
If you have further questions about the Shadow Inventory Report, your loan, or you’re seeking legal advice from knowledgeable attorneys, contact Cogburn Law Offices today. We can help.