Bad News from the Federal Housing Finance Administration
Here is an important update regarding the Federal Housing Finance Administration’s (FHFA) REO “bulk sales” pilot initiative.
Despite vehement opposition from C.A.R. and California Congressional members, the negative economic impact to the state’s housing market, and cost to taxpayers, FHFA is moving ahead with its REO bulk sales initiative, which calls for the sale of nearly 500 Fannie Mae-owned foreclosed homes in the Los Angeles and Inland Empire areas to undisclosed institutional investors.
Not only are Fannie Mae and FHFA moving forward with the plan, they are doing it in a secretive manner and are refusing to disclose any details. C.A.R. is disappointed they fail to understand that this initiative will harm the communities in which it will be implemented and are carrying out this ill-conceived plan.
In response to FHFA’s failure to implement the REO initiative in an open and transparent manner, C.A.R. is filing a request for details through the Freedom of Information Act.
FHFA, Fannie Mae’s conservator, announced earlier this summer that winning bidders in the foreclosure auction had been chosen, with transactions expected to close in the third quarter. But FHFA didn’t release any details of the transactions, such as property locations, final property count, sales price, or names of winning bidders.
While FHFA and Fannie will not provide details of the transaction, C.A.R. has confirmed that Fannie Mae has created an LLC in California, called SFR 2012-1 US West LLC, to transfer the foreclosed properties from Fannie Mae to the LLC. It is unknown whether the winning bidders will purchase the full LLC or only a share, thus splitting the ownership between Fannie Mae and the winning bidders.
This REO initiative poses a direct threat to the Inland Empire housing market. According to C.A.R. statistics, the targeted properties are in markets that have seen significant stabilization over the last three years. Not only is the Inland Empire experiencing a severe lack of available housing, demand is also strong, and REO listings are selling in less than 30 days. In fact, the unsold inventory currently stands at a 3.1- and 3.8-month supply in Riverside County and San Bernardino County, respectively, half of the long-run average of 6 to 7 months.
C.A.R. is also concerned that FHFA and Fannie may have used antiquated market data, perhaps as old as 2011, to determine property valuations. Because the bulk sales initiative is only now in the process of closing, these dated valuations will drag down comparables and harm the Inland Empire housing market, which has shown strong signs of stabilization. Additionally, because of this price discrepancy and the very nature of bulk sales, C.A.R. believes Fannie Mae will not receive fair market value of the properties, thereby saddling taxpayers with their loss.
C.A.R. has voiced its opposition to the bulk sales program with Acting Director Edward J. DeMarco on numerous occasions advising him that investors don’t need government incentives to purchase properties by offering REOs at a discount price and that home prices will be further depressed in affected areas.
C.A.R. also has provided FHFA with multiple updates on California’s housing market conditions over the past year, which it has clearly ignored. FHFA has provided no rationale or supporting evidence to C.A.R. leadership explaining why it is moving forward with the sale of unmarketed REO properties, despite the overwhelming evidence C.A.R. has provided why bulk sales shouldn’t be pursued.
In May, California Congressmen Gary Miller (R-Brea) and seven other California congressional members introduced a bill that called for FHFA to cease its bulk sales plan in California. H.R. 5823, the “Saving Taxpayers from Unnecessary GSE Bulk Sale Programs Act of 2012,” prevents the FHFA from implementing the sale of Fannie Mae real estate-owned (REO) properties in California to institutional investors.
The introduction of H.R. 5823 followed on the heels of a letter Congressman Gary Miller and 18 other California Congressional members sent to the FHFA in April asking the agency to refrain from implementing its “REO Initiative” pilot program in California. The letter stated, “We are concerned that including California counties in this initiative is in direct conflict with your duty as conservator to preserve and conserve the Company’s assets… In California, there is no question that disposing properties through bulk sales will yield a lower return for the GSEs and taxpayers than through traditional disposition methods. This means that such a program will increase losses to the taxpayer and GSEs,” the letter concludes.