October 2010
Transaction & Regulatory Committee
Federal Committee
This material is for discussion purposes only and has not been approved by the Transaction and Regulatory Committee, Federal Committee, Executive Committee or the Board of Directors.
Issue:
Should C.A.R., in conjunction with NAR, take a position on any of the government First-Look Programs?
Action:
Optional
Options:
1. “SUPPORT” the First-Look Programs
2. “OPPOSE” the First-Look Programs
3. Take another position
4. Take no action
Background:
In November of 2009, Fannie Mae implemented nationwide the “First-Look” initiative. Originally started in August of 2009 as a pilot program, the First-Look initiative is designed to “provide owner occupants and public entities an advantage in purchasing Fannie Mae-owned foreclosed properties.” For the first 15 days of a Fannie Mae REO listing only offers from owner occupants and buyers using public funds are considered.
This program was in response to a record number of investors purchasing distressed properties; beginning in late 2008 and early 2009. Lenders holding REO properties were faced with the choice of an investor’s all cash offer with no contingencies or a homebuyer who needed to procure financing; which would require an appraisal and inspection. In spite of homebuyers offering 10 to 20 percent above investor offers, REO holders almost always took the cash offer as a way to quickly clear the non-performing asset from their books.
In early and mid 2009 community groups and other interested parties, including REALTORS® were expressing frustration from their homebuyers about continuously losing a home to a lower offer from investors. During C.A.R.’s 2009 business meetings, C.A.R. members raised this issue in the Real Estate Finance Committee. In September Freddie Mac followed suit with own First-Look Program that is similar to Fannie Mae’s.
Additionally, FHA this Summer announced their own First Look Program, which unlike Fannie’s and Freddie’s, will not allow homebuyers and investors to make an offer on a FHA REO property for approximately the first 14 days of a listing. Instead these properties will be offered to state and local governments, and nonprofit organizations participating in HUD’s Neighborhood Stabilization Program (NSP) under their First-Look program which will run through May 31, 2013.. Furthermore the FHA First-Look Program will provide NSP purchasers with the opportunity to purchase FHA properties at a discount of 10 percent below their appraised value. Entities that purchase HUD Homes under this program will have the ability to sell the properties for homeownership or rent the properties out under the NSP guidelines. This program is only applicable to HUD Homes within a NSP area.
Status/Outlook:
Fannie Mae has expressed concern that many of their REO brokers and agents may be holding properties on the MLS for 15-days to meet the First Look requirements but not seriously consider any offers. After the 15-days the agents simply accept cash offers from investors. This disregard for the program’s guidelines and objective has led Fannie to take two recent actions. The first is the creation of a First Look tracker on the HomePath.com website. This will allow agents and buyers to know how much time the property has left in the program. The second is extending the 15-days to 30-days in Nevada, and exploring lengthening the timeframe in other areas as well.
Support:
Supporters of these programs have stated that:
• Not just first-time, but all homebuyers have been pushed out of the distressed home market by investors.
• This has led to frustration by the majority of C.A.R. members who represent homebuyers and not investors.
• An increase in investors in a community is more likely to turn distressed and hard hit areas into renter communities.
• 15, or even 30 days is not an unreasonable amount of time for investors to wait on the side lines.
• The lack of public outcry or even knowledge of this program’s existence is evidence that it is not hindering the ability of investors to find profitable investments.
• If Fannie Mae, Freddie Mac and FHA as owners of the nonperforming asset are willing to take the risk of holding the property for 15 to 30 days that is their right.
• The role and mission of Fannie Mae, Freddie Mac, and FHA is to promote homeownership which this program does.
• HUD has stated the FHA “First Look initiative is a marriage of two programs to accelerate our effort to confront property abandonment in communities struggling to overcome the effects of the foreclosure crisis. By essentially giving our NSP grantees a first bite at the apple, we hope to accelerate the sale of FHA’s foreclosed properties while supporting the Obama Administration’s neighborhood stabilization efforts.”
• The FHA program only impacts a small segment of the market since it only applies to properties in NSP zones.
• The properties purchased under the FHA program may be in unlivable conditions and the nonprofits are fixing up the properties and reselling them often at a loss.
Opposition
Opponents of these program have stated that:
• It provides an unfair advantage to homebuyers in what should be a fair market.
• It doesn’t really work as many agents are not responding to offers on the MLS for 15 days and then taking investor offers anyways.
• Investors are picking up distressed properties quickly and keeping them from becoming a blight within the neighborhood. Delaying their ability to purchase these properties only harms the communities they are in.
• Many of these properties aren’t in a condition that would qualify them for conventional financing. Investors have the resources necessary to turn a distressed blighted property back into a marketable home.
• If HUD wants to stabilize a community then there is no reason why homebuyers should be excluded form the FHA First-Look Program. Homeownership is the bedrock of a stable community and making homeowners wait an extra step to buy a property from the non-profit makes no sense in areas where demand is high. Additionally, NSP recipients have the option to turn the property into a rental.
• While the HUD program may only impact foreclosures in NSP zones, in a state such as California that may equate to urban areas that encompass millions of residents.
C.A.R. Policy:
C.A.R. does not have policy that would instruct staff to either oppose or support the First Look Program or the extension of it beyond the current 15 days. However, it should be noted that C.A.R. viewed Fannie Mae’s First-Look Program as a favorable action in light of increasing member complaints of their homebuyers’ inability to compete with investors.
C.A.R. did raise concerns with FHA regarding their program’s exclusion to homebuyers.
NAR Policy:
NAR does not have policy on this issue, but they did view the announcement by Fannie Mae as a positive response to members’ complaints about the inability of homebuyers to compete with investors.
NAR facilitated a discussion with FHA regarding their First-Look program and listened to C.A.R.’s concerns, but was indifferent about the exclusion of homeowners from the program.
Should C.A.R., in conjunction with NAR, take a position on any of the government’s First-Look Program?
