Propertyrnmaintenance companies and repair contractors who do essentialrncleaning, repairs, and maintenance. </p</li</ul<ul<liAppraisersrnand broker price opinion firms which help the GSEs determine thernvalue and listing prices of the properties.</li</ul<pWhilernthe burden of managing these REO inventories is significant enough,rnthe GSEs and HUD must also pay attention to their "shadowrninventories,” that is properties with mortgages more than 90 daysrndelinquent but which are not yet in foreclosure which, as statedrnabove, have the potential to exponentially expand those inventories.</prn<pHUDrnand the GSEs have taken several steps to shrink their REOrninventories. FHA, HUDs housing agency, uses itsrnOffice of Assets Sales which was established in 2001 to coordinaterndisposition of single family and multifamily mortgage notes. Thesernnote sales began as a pilot in 2010 and have resultedrnin the sale of nearly 2,400 single family loans as of April 2013. Notes are sold competitively at a market-determined price generallyrnbelow the outstanding principal balance to purchasers who agree torndelay foreclosure for at least six months. This allows the borrowerrna chance to get help from the loan servicer to avoid foreclosure.</p<p InrnSeptember 2012, FHA enhanced the program to include pools ofrnexpanded size and use criteria; the revamped program is referred tornas the Distressed Asset Stabilization Program. The first offeringsrnfrom the Distressed Asset Stabilization Program occurred in Septemberrn2012 with the latest offering conducted in March 2013. As of Aprilrn2013, the program has resulted in the sale of nearly 26,000rnmortgages. Another offering is planned for June 2013 with anrnanticipated sale of 15,000 to 20,000 loans.</p<pInrnFebruary 2012, FHFA directed Fannie Mae to launch a pilot REOrndisposition program and bids were solicited from qualified investorsrnto purchase and then rent for a specified period about 2,500 of itsrnforeclosed properties in geographically concentrated areas across therncountry. Investors were qualified to bid after an extensive reviewrnof their financial strength, asset management experience and localrnexpertise. FHFA has targeted especially hard hit areas such asrnAtlanta, Phoenix, and parts of Florida for the program and severalrnrounds of successful sales have been conducted. </p<pThernFHFA OIG said that since becoming their conservator FHFA hasrnconsistently listed the large inventories of the GSEs as a criticalrnconcern yet did not conduct targeted examinations or other focusedrnreviews until 2011. FHFA-OIG subsequently audited FHFA’s oversightrnof the GSE’s REO management and marketing and found they had takenrnpositive supervisory steps but needed to supplement these in thernfuture with more comprehensive risk assessment of, for example, thernshadow inventory. </p<pOIGrnsays it plans future assessments of the REO management processrnincluding matters such as securing the property, maintenance,rnvaluation, marketing, and sale and is considering several evaluationsrnof FHFA’s oversight of the GSE’s REO activities with a focus on theirrnability to handle future workloads and mitigate adverse effects onrnhomeowners and communities. </p<pFHFArnOIG will also assess Fannie Mae's pilot REO program if FHFA decidesrnto implement the sale-rental model on a wider scale. That assessmentrnmay include whether the program is achieving its expected outcomesrnand whether it is more cost effective to proceed with the modelrnrather than make sales through the traditional retail channel. OIGrnmay also look at the qualities of the controls to vet potentialrninvestors and the GSEs’ compliance with the controls and theirrnmonitoring and enforcement of investor compliance with the programsrnrules. </p<pFHFA-OIGrnalso plans to assess FHFA's oversight of single-family propertyrninspections at the GSEs, which are required at various points in thernmortgage servicing process, including upon delinquency, inrnforeclosure, and while managing and disposing of REO. Theserninspections should determine the overall condition of the property,rnsecurity of the house, occupancy status, maintenance and capitalrnrepair requirements, neighborhood conformity, and other relatedrninformation. Inspectors must be qualified to perform therninspections.</p<pWithrnthis audit and evaluation strategy, FHFA-OIG believes that it will bernwell positioned to determine whether FHFA is monitoring the GSEs’rnefforts to mitigate REO risks and costs and the negative impacts ofrnforeclosures on communities and to evaluate the effectiveness of therncontrols associated with the REO pilot program controls. </p<pThernOIGs' report concludes by saying that REO management and dispositionrnare challenging tasks and are likely to become more so as shadowrninventory becomes REO and substantial attention must continue to bernpaid to the manner in which HUD, FHFA, and the GSEs handle suchrnissues.

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