Merkley Urges Rehab-to-Rent Strategy to Help Stabilize Housing
Merkley Urges Rehab-to-Rent Strategy to Help Stabilize Housing
WASHINGTON, DC – Oregon’s Senator Jeff Merkley joined 33 of his colleagues in asking the Obama Administration and the Federal Housing Finance Agency (FHFA) to swiftly develop an efficient and effective real estate owned (REO) management strategy. This strategy will convert foreclosed homes into affordable rentals to help address the foreclosure crisis and stabilize the housing market.
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.”
Earlier this year, Senator Merkley released a comprehensive plan to stem the tide of foreclosures. His six point plan would bolster the market by providing a permanent tax credit for first-time homebuyers; assist families facing foreclosure through a national “short refinance” program that would enable homeowners who are facing foreclosure to refinance their mortgages based on current interest rates and home values; stop the “dual track” by which mortgage companies continue foreclosures while loan modifications are evaluated; require banks to provide homeowners with a single point of access when they seek a loan modification to improve accountability and ensure greater clarity during the process; establish a third-party review prior to foreclosure and fully enforce existing law; and implement the “lifeline” bankruptcy option by providing bankruptcy judges with the power to modify the terms of home loans just as they can with loans for vacation homes and yachts.
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.
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