On July 3, FHFA announced the selection of the winning bidders in its real estate owned (REO) pilot program, with the initial transactions expected to close in the third quarter of 2012. FHFA launched its REO pilot program in February 2012 and bids from qualified investors were sought during the second quarter of the year for roughly 2,500 single-family foreclosed properties held by Fannie Mae. According to FHFA, investors qualified for the bidding process after a rigorous evaluation, considering factors such as their financial strength, asset management experience, property management expertise, and experience in the geographic area of the available properties. In a February 27 press release announcing its REO pilot sales initiative, FHFA identified the locations of the available properties, including the Chicago and Los Angeles metro areas.
On June 6, HUD announced an agreement to resolve an administrative complaint filed last year by the National Fair Housing Alliance (NFHA) and numerous individual fair housing organizations alleging that a national bank engaged in discriminatory practices with regard to real estate owned (REO) properties. The complaint was one of several that followed an investigation conducted by the fair housing groups, which allegedly revealed that REO properties in predominantly minority neighborhoods are more likely to have maintenance problems and are less likely to have a “For Sale” sign than properties in predominantly white neighborhoods. The report suggested that poor maintenance practices and other alleged neglect can result in properties being vacant for longer periods and can increase the likelihood that a property eventually will be purchased by an investor at a discounted price, as opposed to an owner-occupier. Under the conciliation agreement, the bank will invest $39 million in 45 communities to support homeownership, neighborhood stabilization, property rehabilitation, and housing development. The bank also will (i) use a revised Real Estate Broker Procedure Manual and property inspection checklist, (ii) implement an enhanced training program for real estate brokers and agents who list REO properties, and bank staff responsible for managing REO properties, and (iii) extend the amount of time that individual REO properties will be available exclusively for purchase by an owner-occupant or a non-profit organization.
On April 5, the FRB released a policy statement that reiterates its general policy that banking organizations should make good faith efforts to dispose of foreclosed properties, also known as REO properties, as soon as practicable. However, under current market conditions, the FRB explains that banking organizations may hold and rent residential REO properties within legal holding-period limits without demonstrating continuous active marketing of the property for sale provided suitable policies and procedures are followed. The guidance offers risk management and compliance considerations for renting REO properties, as well as specific expectations for large-scale REO rental programs. The FRB release also points out that REO rental properties may meet the definition of community development under the Community Revitalization Act (CRA), and, if so, a banking organization would receive favorable CRA consideration.