October 2012

Transaction and 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:
Freddie Mac and FHA have recently announced their own form of a “bulk sale” program.  These programs are distinctively different from each other and the FHFA REO-Initiative Pilot Program that C.A.R. has strongly opposed.  What, if any position should C.A.R. take on these newly proposed programs?

Action:
Staff is looking for direction at this time because the programs have recently been implemented.  A single position for both programs is not necessary.  C.A.R. can have a different position for each program given how distinct they are.

Options:
1. These programs fall under C.A.R.’s existing policy to “OPPOSE” bulk sales of government REOs.
2. “SUPPORT” the new programs
3. Take no position on the new programs
4. Recommend changes to the programs that would make them acceptable.
5. Other

Background:
Recently, two new programs have been announced and/or implemented that are intended to relieve either a large inventory of REO properties or a growing number of distressed loans.

Program Descriptions
Freddie Mac REO Investor Select:
• No REOs are pulled out of inventory.  The REO starts by being listed in Freddie’s First Look program and can only be sold to homebuyers for the first 15 days.  After that, if it doesn’t sell the home is still listed on the MLS, but registered investors and/or investors’ agents will get an email notification that the property is now eligible for the bulk sale.  The property is essentially dual marketed, both to individual buyers and investors.
• Targets small to medium investors by limiting the bulk sale to a minimum of 6 properties and a maximum of 100 properties in any bulk buy and a maximum of 100 offers within a month (there is no lifetime cap on the total number of purchases).
• Registered investors (meaning they have to apply and qualify with Freddie) get a weekly email notifying them what properties are available.  They pick what properties to put into their “portfolio” and make an offer to Freddie.  Freddie believes investors can’t make low-ball offers because the property is still listed and so investors are competing against the market. 
• If the property is sold in a bulk sale, the listing agent is still paid through a negotiated compensation similar to if the property went to auction.
• The program allows real estate agents representing investors to register on the site to receive listing updates.
• There is no end-use requirements attached to the bulk sale.  Investors can do with the property as they see fit to maximize their returns.
• This was rolled out nationwide on June 28.
• Approximately 300 investors have registered, and Freddie is looking at 1,600 more for qualification.

HUD’s FHA Distressed Asset Stabilization Program
• Sells pools of defaulted mortgages that have exhausted all FHA foreclosure avoidance steps, and thus foreclosure is imminent.
• There are actually two programs.  The Distressed Asset Stabilization Program (DASP), and a sub program called the Neighborhood Stabilization (NS) pools of notes.
• To qualify for the programs the loan must be:
o At least six-months delinquent
o The servicer has exhausted all steps in the FHA loss mitigation process
o The servicer has initiated foreclosure proceedings, and
o The borrower is not in bankruptcy.
• Under the NS program (expected to be roughly 3,500 loans in four cities, none located in California):
o Foreclosures are delayed for six months
o Only 50 percent of the mortgages may be sold as REO properties
o The remaining 50 percent must realize a “Neighborhood Stabilizing Outcome”:
 Modification to a re-performing loan
 Lease back to current owner or someone else (property must be held for at least three-years under this scenario)
 Short sale
 Sale of loan or property to approved NSP Grantee or sub-grantee
 Donations to approved land banks or approved state/local governments or approved not for profit philanthropic and/or community organizations.
• Under the DASP, which is expected to have approximately 5,000 notes nationwide per quarter, the buyer must try to modify the mortgage and is unable to foreclose for six months.  
• Unlike Fannie Mae and Freddie Mac, FHA does not have a large inventory of REOs on their books; however, they do have a growing number of distressed loans that are likely to go to foreclosure.  Their lack of staff and continued financial troubles has led them to expand this program so they can quickly move through their troubled book of loans.

C.A.R. Policy:
C.A.R. has taken policy in the past that:
• Opposes bulk sales of government REOs.
• In C.A.R.’s comment letter of September 2011 we stated that while we oppose bulk sales of Government REOs, if they are going to be done they should:
o Allow market conditions to dictate the need for a bulk sale
o Be small so local investors can participate
o Be free of any limitations on the end use of the property
o Prohibit entities from benefiting off properties they have an existing or past relationship with, and
o List properties prior to being put into a bulk sale program
• C.A.R. does not oppose bulk sales of REOs by private entities.

NAR Policy:
NAR’s policy on this issue has been more targeted than C.A.R.’s
• On the FHFA REO-Initiative, NAR was opposed to the program if Fannie was not going to receive a fair market price.
• NAR is not opposing FHA’s distressed note sale.
• NAR has not yet taken a position on the Freddie REO Investor Select program.

Freddie Mac and FHA have recently announced their own form of a “bulk sale” program.  These programs are distinctively different from each other and the FHFA REO-Initiative Pilot Program that C.A.R. has strongly opposed.  What, if any position should C.A.R. take on these newly proposed programs?