FHFA REO Asset Disposition & Rental Strategy

December 14, 2011

by Scott Sambucci

4 comments

In August 2011, the United States Federal Housing Finance Agency offered its “Request for Information” (RFI) for REO Asset Disposition including a transition to a rental-based solution, soliciting ideas from the private sector, academia, and research groups on the handling of the existing REO inventory.  From the August release:

The Federal Housing Finance Agency (FHFA), in consultation with the U.S. Department of the Treasury and the U.S. Department of Housing and Urban Development, is issuing this Request for Information (RFI) to solicit ideas for sales, joint ventures, or other strategies to augment and enhance Real Estate-Owned (REO) asset disposition programs of Fannie Mae and Freddie Mac (the Enterprises) and the Federal Housing Administration (FHA). The agencies are exploring alternatives that will facilitate the current and future disposition of REO, 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.

Two weeks ago, the FHFA posted a summary – FHFA REO Initiative: RFI Response Summary. A couple of the solutions offered by the respondents:

  • Joint venture partnerships, outright sales, and auction methods.
  • Adoption of approaches similar to the Treasury Department’s Public-Private Investment Partnership program. That program, which included risk sharing with the U.S. government, involved the use of Treasury financing, along with private equity, to purchase troubled loans from banks.
  • Proposed the use of Real Estate Investment Trust (REIT) structures. REIT structures give investors unique tax advantages, support longer term investment capital, and require controls to prevent practices such as property “flipping.”

It’s always nerve-racking to hear of government involvement with private equity, REITs, or any private sector investment vehicle.  But, from the looks of it, the FHFA is taking legitimate steps to involve the private sector, which is good for taxpayers, and the process is moving quickly.  RFI submissions were due in September and the FHFA posted the initial summary document on November 29, 2011.

I’ll happily take a sip of eggnog with an optimistic toast – “Here’s hoping that we’re on the right path…”

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