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FHFA Targets Hardest Hit Markets with Neighborhood Stabilization Efforts

home-protectionOne goal for Fannie Mae and Freddie Mac, as outlined by its conservator, the Federal Housing Finance Agency, for 2015 was to reduce the number of vacant REO properties they own. While the number of these properties has been steadily declining the last few years, it remains elevated in some areas.

The FHFA targeted 18 of those markets [1] when it expanded its Neighborhood Stabilization Initiative (NSI) in November 2015 after a launching a pilot NSI program in Detroit in June 2014 and expanding it to Cook County (Chicago) in April 2015. The pilot program “sought to test innovative pre- and post-foreclosure strategies aimed at stabilizing selected distressed communities.”

According to the FHFA’s Conservatorship Scorecard for 2015 released last week, which measures the progress of the goals for Fannie Mae and Freddie Mac while under conservatorship of FHFA, the GSEs are expected to give consideration to several tools when reducing the number of REO properties they hold. Those tools include giving consideration to non-profit organizations, repairing REO properties before executing a third-party sale, and either demolishing or donating uninhabitable properties—and leveraging NSI to develop strategies to achieve the best possible outcomes in neighborhoods, according to FHFA.

Following the launch of the pilot programs in Detroit and Chicago, FHFA worked closely with the GSEs to analyze current risks in their REO portfolios and determine in which markets the NSI REO approaches would be most successfully implemented. The GSEs and FHFA determined that a broad-based REO stabilization program could be implemented in multiple markets using the infrastructure created with the pilot program.

The expansion of the NSI builds on a partnership with the National Community Stabilization Trust (NCST) and features an Enhanced First Look program in those metropolitan statistical areas identified. Through Enhanced First Look, the GSEs offer NCST-approved community buyers and exclusive opportunity to purchase the REO properties without competition.

“The sales prices of REO properties are established using a cost-avoidance framework that reduces the list price for a property based on estimates of the costs the Enterprise would otherwise incur for the preservation, maintenance, marketing, and sale of the property and takes into consideration a quick and certain sale,” FHFA said.

The NSI expanded to the following markets, effective December 1, 2015: Akron, Atlanta, Baltimore, Chicago, Cincinnati, Cleveland, Columbus, Dayton, Detroit, Jacksonville, Miami, New York, Orlando, Philadelphia, Pittsburgh, St. Louis, Tampa, and Toledo.

“Our goal is to take what we learned in Detroit and Chicago and apply it to these additional communities as quickly and efficiently as possible. Giving local community buyers an exclusive opportunity to purchase these properties at a discount, taking into account expenses saved through a quicker sale, is an effective way to give control back to local communities and residents who have a vested interest in stabilizing their neighborhoods,” FHFA Director Mel Watt said.