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Administration: Investors Wanted to Rent out Government REOs

The Obama administration is setting the stage for a public-private collaboration to tackle the growing inventory of REO homes already flooding the market by turning them into rental properties.


On Wednesday, the ""Federal Housing Finance Agency"":http://www.fhfa.gov (FHFA), ""HUD"":http://www.hud.gov, and the ""Treasury Department"":http://www.treasury.gov issued the call for private investors, industry stakeholders, and community organizations to share their recommendations on how best to manage the disposition of government-owned properties.

The agencies have issued an official ""Request for Information"":http://www.fhfa.gov/webfiles/22366/RFIFinal081011.pdf (RIF) to explore alternatives for foreclosed homes held by ""Fannie Mae"":http://www.fanniemae.com, ""Freddie Mac"":http://www.freddiemac.com, and the ""Federal Housing Administration"":http://www.fha.gov (FHA) â€" both current inventories and the expected inflow of new properties.

Together, the three entities hold nearly 250,000 REO homes. About 70,000 of those are currently listed for sale, and another 22,000 have been listed and a buyer has made an offer but the deal hasn't closed yet, according to an FHFA spokesperson.

Federal officials believe the most effective tactic to take to reduce taxpayer losses and help alleviate the market’s oversupply of homes is to sell off pools of properties to responsible investors who will employ an REO-to-rental strategy. But they say they’re open to any range of creative ideas that will reduce the REO inventories of the GSEs and FHA, and minimize loss severities at the same time.

Per the RFI, strategies might include: joint venture proposals that specifically address local economic and real


estate conditions; analytic approaches to determine the appropriate disposition strategy for properties, whether sale, rental, or demolition; programs for previous homeowners to rent properties or for current renters to become owners through a lease-to-own option; or plans that include asset contributions from other REO holders, including banks and private securitization trusts.

Officials noted that any recommendations involving a rental strategy should also include details on the steps the investor will take to ensure the properties are well maintained and managed.

The ultimate goal, according to the administration, is to improve loss recoveries compared to individual retail REO sales, help stabilize neighborhoods and local home values, and where feasible and appropriate, improve the supply of rental housing.

The initial scope of the project proposal is to get around 90,000 homes off Fannie’s, Freddie’s, and FHA’s books, a HUD spokesperson explained. She noted, though, that this is just a preliminary ballpark figure, not the full reach of what they hope to accomplish.

The primary objective, she stressed, is to develop innovative and effective strategies for managing not only the current inventory held on government portfolios, but the stream of new REOs coming down the pipeline.

Federal officials say they are looking for input not only on how to enhance market outcomes in the process of disposing of REO properties, but responses from industry participants that have the technical and financial capability to engage in large-scale transactions with the GSEs or FHA.

Based on responses to the RFI, Fannie, Freddie, or FHA may issue requests for proposals to third parties to implement the transactions or disposition structures suggested, according to administration officials.

“Taking steps to encourage private investment in REO properties and transition them into productive use will help stabilize neighborhoods and home values at a critical time for our economy,” said HUD Secretary Shaun Donovan.

The full RFI, detailing the administration’s objectives and how to submit recommendations, ""can be viewed online"":http://www.fhfa.gov/webfiles/22366/RFIFinal081011.pdf. Responses are requested by September 15th.