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Government Seeks Solutions to Foreclosure Glut

by devteam August 11th, 2011 | Share

Have a bright idea about how therngovernment can best liquidate the current huge inventory of owned real estatern(REO) currently held by FHA, Fannie Mae and Freddie Mac?  Here is your chance to be heard.  The Federal Housing Finance Agency (FHFA),rnthe conservator of the two government sponsored enterprises (GSE) inrnconjunction with the Departments of Treasury and Housing and Urban Developmentrn(HUD) are requesting options for selling or otherwise putting the houses intornuseful service.  The three issued a jointrnRequest for Information (RFI) on Wednesday soliciting a range of ideas,rnincluding a transition of REO properties to rental use.</p

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

The RFI has the following objectives:</p<ul class="unIndentedList"<liReducernthe inventories of the Enterprises and FHA in a cost-effective manner;</li<liReducernaverage loan losses arising from the sale of individual properties;</li<liAddressrnproperty repair and rehabilitation issues;</li<liRespondrnto economic and real estate conditions in various geographic locations;</li<liAssistrnwith neighborhood and home price stabilization;</li<liSuggestrnapproaches to deciding on the most suitable disposition strategies forrnindividual properties including sale, rental, or demolition;</li</ul

The Administration anticipates the respondentsrnwill address the objectives by converting REO to rental housing, especiallyrnwhere markets have both a strong demand for rental units and a substantialrnvolume of REO, but encourages alternative solutions.  The proposed strategies may also includernestablishing programs for previous homeowners to rent properties or for currentrnrenters to become owners though lease to own arrangements; a mechanism where privaternowners of REO could also participate in the solution, and options that supportrnaffordable housing </p

FHFA Acting Director Edward J. DeMarco</spansaid that, while the Enterprises will continue to market their REO for sale,rnthe Administration is seeking input on combining REO properties in situationsrnwhere such pooling under private management may reduce credit losses and helprnstabilize both neighborhoods and home values. rn"Partnerships involving Enterprise properties may reduce taxpayer lossesrnand meet the Enterprises' responsibility to bring stability and liquidity tornhousing markets.  We seek input on thesernimportant questions." </p

 “As we continue moving forward on housingrnfinance reform, it’s critical that we support the process of repair andrnrecovery in the housing market,” said Treasury Secretary Tim Geithner.rn”Exploring new options for selling these foreclosed properties will help expandrnaccess to affordable rental housing, promote private investment in localrnhousing markets, and support neighborhood and home price stability.” </p

MND has put forward a few ideas already…</p

READ MORE: Affordable Housing Units Needed for Low Income Renters</p

READ MORE: Land-Backed Securities: Time to Bulldoze Excess Housing Inventory?</p

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

READ MORE: HUD Focused on Rebuilding America’s Dilapidated Housing Inventory</p

“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.”</p

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

“With so many foreclosed properties sitting empty on the market we can expect remodeling and rehabbing to be a leading indicator of a bottom inrn the housing market”, says MND’s Managing Editor Adam Quinones. “We already know there is dearth of affordable rental housing</a 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."

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