Since the housing market crashed in 2008, the industry has experienced a massive build-up in the inventory of foreclosed properties—currently estimated at 250,000 homes. Despite the White House and Congress rolling out several programs designed to stem the tide of foreclosures, stabilize property values and provide support for the struggling housing market, the initiatives have not had the desired effect.
Last fall, the Federal Housing Finance Agency (FHFA) issued a Request for Information (RFI) in an effort to generate ideas for the sale of real estate owned or REO assets owned by FHA, Fannie Mae and Freddie Mac. The RFI received over 4000 responses.
This month, the FHFA announced its plan to roll out Phase 1 of the foreclosure rental program. The pilot program transforms government REOs into rental properties by selling them to private investors and private-equity firms. Purchasers must rent the homes for a specified period.
Basics of the Government’s REO Program
The program’s strategy promotes cooperation between Fannie Mae, Freddie Mac, the Federal Deposit Insurance Corporation, Federal Reserve Board and the Treasury Department, to moderate the impact of foreclosures in regions hit hard by the crisis. Selling foreclosed properties through pools or structured sale transactions also help to manage future foreclosures and mitigate neighborhood deterioration.
Pool Sales: foreclosure investors and public enterprises can make volume purchases of Fannie Mae properties, in a single transaction. This enables investors to form a single point of contact within the agency and reduce paperwork. Attributes of pool purchases may include properties in the same geographical area and homes with post-closing limitations. Pools can include vacant and occupied properties.
Structured Sales: investors interested in purchasing larger blocks of property can participate in the structured sales program, which consists of pool sales or joint venture agreements in partnership with Fannie Mae.
Investors’ Eligibility Criteria
Foreclosure investors from all walk and levels are encourage to submit applications, including women, minorities, individuals with disabilities, public housing agencies, not-for-profit entities and local, state and federal housing organizations.
All investors must pre-qualify, which ensure they have the financial capacity and experience to manage the properties, to receive information on available transactions.
Eligible parties may include the following foreclosure investors:
- Corporations, partnerships, limited liability companies or not-for-profit entities
- Trusts with total assets of $5,000,000 and were not established for the purpose of investing in REO or HUD properties
- Natural persons with individual or joint net worth with spouse of $1,000,000
Parties will also have to sign off on certain acknowledgements and representations. The FHFA has developed a scoring methodology for evaluating investors’ applications. The scorecard compares a particular application to the “complexity and risk” of the property portfolio, which makes up the transaction.
Many housing market analysts believe the program will help revitalize the housing market by putting families into vacant homes and stabilizing neighborhoods hit hard by foreclosures. In addition, housing advocates hope that making more rental units available, will curtail rising rent prices.
Investors in foreclosure properties can obtain more information and determine their eligibility for Uncle Sam’s foreclosure rental program by going to the Fannie Mae website and completing the necessary forms.