In an effort to boost the economy, create jobs, and stabilize neighborhoods, 33 U.S. Senators are asking the Obama Administration and the Federal Housing Finance Agency (FHFA) to swiftly develop an efficient and effective real estate owned (REO) management strategy to make better use of vacant foreclosed homes.
Led by Senators Jack Reed (D-RI), Tim Johnson (D-SD), and Bob Menendez (D-NJ), the senators today wrote a letter to the U.S. Department of the Treasury, the U.S. Department of Housing and Urban Development (HUD), and FHFA stating: "We urge you to analyze, quickly and diligently, the input you have received so that all REO properties under your control may be best managed to produce the most value for Fannie Mae, Freddie Mac, and FHA. As part of this analysis, we ask that you also keep in mind the importance of looking for the most effective ways to stabilize neighborhoods and housing values."
With 10.4 million households in jeopardy of defaulting on their mortgages at the same time that the demand for rental housing is increasing, Americans are facing pressure on all fronts in the housing market.
Since 2010, Senator Reed has championed a proposal to make better use of REO properties by converting vacant foreclosed homes into affordable, energy-efficient rental units. In August 2011, FHFA, Treasury, and HUD issued a formal Request for Information (RFI) soliciting public feedback and investor ideas for how to sell or rent REO properties. On September 20, the Banking Subcommittee on Housing, Transportation, and Community Development, chaired by Senator Menendez, held a hearing on "New Ideas to Address the Glut of Foreclosed Properties," where expert witnesses testified that a more effective REO management strategy will help put us on a path towards greater economic stability.
"There are too many foreclosed homes, many of which are unoccupied, and an increasing number of Americans who are in need of affordable rental housing. With the other side of the aisle seemingly embracing a "let it fall" policy when it comes to legislative housing solutions, the American people still need creative, proactive strategies to fix the economy. Developing an innovative REO initiative could help turn lemons into lemonade by creating new opportunities for businesses and investors while simultaneously increasing the supply of rental housing and reducing foreclosures," said Senator Reed.
"We need to do everything we can to help get the housing market back on track, and that includes exploring creative proposals to address the excess supply of foreclosed properties," said Chairman Johnson. "This proposal is a potential win, win, win. It would provide Americans needed rental options, help struggling neighborhoods recover, and protect taxpayers from additional losses. I want to thank Senator Reed for his leadership on this very important issue and Senator Menendez for continuing to explore ways to help our housing market."
"We need to fix the housing market to fix the broader economy, and getting the government's foreclosed homes into people's hands is a key part of that. We have explored this issue in my Housing Subcommittee. I remain committed to finding a solution, and I am encouraged that the Obama Administration is doing the same," said Senator Menendez.
The full text of the letter follows:
October 27, 2011
The Honorable Timothy F. Geithner
The Honorable Shaun Donovan Secretary
The Honorable Edward J. DeMarco
Dear Secretary Geithner, Secretary Donovan, and Acting Director DeMarco:
We write regarding the Request for Information (RFI) put forward by the Department of the Treasury, the Federal Housing Administration (FHA), and the Federal Housing Finance Agency (FHFA), on innovative and efficient ways in which to sell or rent real estate owned (REO) properties owned by Fannie Mae, Freddie Mac, and FHA. We urge you to analyze, quickly and diligently, the input you have received so that all REO properties under your control may be best managed to produce the most value for Fannie Mae, Freddie Mac, and FHA. As part of this analysis, we ask that you also keep in mind the importance of looking for the most effective ways to stabilize neighborhoods and housing values.
We all know too well that our housing markets are under severe stress. With 7.5 million homes in the foreclosure process since 2007 while other homeowners find themselves very much underwater, foreclosures have taken a heavy toll on too many Americans. Owning a home has become so difficult that our nation's homeownership rate dropped to 65.9% in the 2nd quarter of this year, which is the lowest level since 1998. At the same time, the national rental vacancy rate has decreased from 10.6% in the second quarter of 2010 to 9.2% in the 2nd quarter of this year. With 10.4 million households in jeopardy of defaulting on their mortgages at the same time that the demand for rental housing is increasing, Americans are facing pressure on all fronts in the housing market.
As Federal Reserve Board Governor Elizabeth Duke recently stated, "we, as a nation, currently have a housing market that is so severely out of balance that it is hampering our economic recovery." It is clear that we need to gain traction in our housing market so that we can anchor a sustainable economic recovery that actually reaches and helps the middle class. We continue to believe, especially with the benefit of a recent hearing in the Senate Subcommittee on Housing, Transportation, and Community Development on "New Ideas to Address the Glut of Foreclosed Properties," that a more efficient and effective REO management strategy will help put us on a path towards stability.
Indeed, developing a successful REO management strategy is critical given the findings of a recent evaluation by the Federal Housing Finance Agency Office of Inspector General, which stated:
"FHFA has yet to conduct a targeted examination of [Fannie Mae's and Freddie Mac's (collectively, the Enterprises)] management of their REO inventories, despite the surging number of foreclosures since 2007. For example, Fannie Mae's REO inventory increased in size by more than 6 times, growing from 25,125 properties in January 2007 to 162,489 at the end of 2010. REO represents a significant financial risk to the Enterprises since they incur taxes and fees on the properties in their inventories, these costs increase the longer it takes to resell the REO, and all the while the value of the properties may be declining. FHFA cited the Enterprises' REO management as a primary reason that it has classified operational risks at both entities as a "Critical Concern" from 2008 through early 2011. FHFA-OIG views the fact that FHFA has not examined a critical risk area like REO as indicative of the adverse impact of staffing shortages on the Agency's examination program."
As part of the RFI process, we urge FHFA to do everything within its powers to take this opportunity to address these concerns head on. We also ask that FHFA, Treasury, and FHA respond to these questions:
* When do you expect to finish reviewing the RFI submissions?
* Are there any particular strategies or proposals that appear promising at this moment?
* What appear to be the greatest challenges and concerns?
* Once you have finished reviewing and analyzing the RFI submissions, what is the likely next step, and when do you expect to take this next step?
We thank you for your consideration and look forward to your response. Please let us or our staffs know if we can be helpful to you or your staffs.