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Agency Review » Delinquency Rates 5.59% fannie single family freddie single family 5.07% march 2012 fannie » 3.67% freddie » 3.51% 4.55% 4.03% 3.51% 3.00% 2.48% note: Delinquent loans reported here include all single-family loans 90 or more days past due as a percentage of portfolio size. Historical data covers a moving 12-month period. Source: Fannie Mae March 2012 Monthly Summary and Freddie Mac March 2012 Monthly Volume Summary 1.96% 1.44% 0.92% 0.40% /12 /12 03 /12 02 /11 01 /11 /11 12 11 /11 10 09 /11 /11 08 /11 /11 07 06 /11 05 04 /11 /11 03 /11 02 01 /10 /10 11 12 /10 /10 09 10 /10 /10 08 /10 07 06 /10 /10 05 /10 04 03 FHFA Explains Intentions of REO-to-Rental Initiative The GSEs' regulator offered clarification last month to clear up misconceptions regarding the REO-to-Rental Initiative, currently in pilot stages. Meg Burns, the Federal Housing Finance Agency's (FHFA) senior associate director for housing and regulatory policy, explained in testimony to lawmakers the purpose and intent of the pilot program, which involves the bulk sale of Fannie Mae REO properties to investors who will then convert their purchases into rental units. Calling the initiative "highly inappropriate on a national scale," Burns said the "markets are carefully selected based on obvious market characteristics—an oversupply of single-family homes for sale and a strong demand for rental housing." Burns also added that "the pilot will not result in severely discounted sales" and said the properties won't be sold to investors if they aren't purchased at prices close to what Fannie Mae can get through a retail execution. As a pilot program with many unknowns, deliberate decisions were made regarding the 20 selection of just one company and the sale of already occupied properties. Burns said, "Uncertainty surrounding the outcomes of the pilot" led to the involvement of just Fannie Mae. Why Fannie Mae properties? For one, the GSE holds a concentration of homes in specific markets. Also, FHFA decided only one company should use its resources to test the new model, and three, "legal and operational challenges associated with bundling a group of properties in any given market" led to the decision to have just one company. This "uncertainty" is also why Burns said a decision was made to sell already renteroccupied homes. When Fannie Mae first announced it put 2,490 REOs up for sale earlier this year, about 85 percent of them were already occupied by tenants. "Fannie Mae and FHFA decided to assemble pools composed mainly of rental properties to ensure that large numbers of vacant properties were not held off-market for the significant period of time required to execute a sale," said Burns. As for the program's ability to increase the supply of affordable rental housing that's available or improve the rental housing stock through "green" home improvements, Burns said this was never the intention of the program, but those outcomes could become an indirect result. As part of the first transaction announced in February, the nearly 2,500 REOs up for sale were divided into eight sub-pools located in Las Vegas, Nevada; Phoenix, Arizona; various communities in Florida; Chicago, Illinois; Riverside and Los Angeles, California; and Atlanta, Georgia. The window for completion of the first pilot is sometime in the next few months. While the program was well received by many lawmakers, in California, and the California Association of Realtors (C.A.R.) expressed objection to seeing the program in their state. In April, 19 California lawmakers sent a letter to Edward DeMarco, FHFA Acting Director, asking that California be excluded from the initiative, stating housing inventory throughout the state is "extremely low and demand is high." According to data from C.A.R., 600 of the bulk REOs are located in Los Angeles and Riverside counties, and bank-owned homes there already close in less than 60 days, on average, often above the list price. Burns said an independent third party was hired to review applications. Then, eligible bidders will be notified and the bidding process will begin. As for involving others, Burns said, "The enterprise portion of the REO market is limited, so the future benefit of the program may be more applicable to private financial institutions that choose to sell their inventory in this manner." In her testimony, Burns outlined three key objectives of the pilot program: 1) gauge investor appetite for a new asset-class— scattered site single-family rental housing—as measured by how much investors are willing to pay; 2) determine whether investors will entertain partnerships with regional and local property management companies and other community-based organizations to create appropriate economies of scale yet provide civic-minded approaches that can stabilize and improve market conditions; and 3) assess whether the model can be efficiently replicated to make it a worthwhile addition to the strategies already in place at the GSEs and other financial institutions with large inventories of properties to sell.

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