Published September 15, 2011 09:30
September 15, 2011 Last month, the federal agency that controls Fannie Mae and Freddie Mac released a request for information (RFI) asking for suggestions on how to return foreclosed properties back into the housing market. The Federal Housing Finance Agency (FHFA) has been the conservator of the two mortgage giants since they had to be bailed out three years ago. As a result, the federal government—and, therefore, taxpayers—own nearly 200,000 foreclosed properties across the country. These real-estate owned properties (REO’s) are currently sitting vacant—blighting communities that are already suffering from foreclosures.
The California Reinvestment Coalition and 15 of its members have submitted a comment letter to FHFA with specific suggestions that would allow nonprofits and public agencies first access to these properties, while also making recommendations for changes to their foreclosure prevention practices. FHFA should take this opportunity to transfer properties in a way that helps and protects communities instead of unloading them quickly to for-profit investors.
The consistent pace of the crisis in California has led thousands of families to lose their homes, without much help by the banks or the federal government to give them a fair shot at modifying their loans and staying in them. Now, FHFA owns nearly 28,000 foreclosed properties in California. Unfortunately, FHFA’s unresponsive policies contributed to this glut of taxpayer-owned foreclosed properties.
“FHFA has been a real obstacle to community stabilization on a number of fronts,” says Kevin Stein, Associate Director of the California Reinvestment Coalition. “If they want to help the economy and housing market recover, they need to prioritize selling these properties to nonprofits, let tenants stay in their homes, and change the loan modification policies at Fannie and Freddie.”
With nearly 30% of California homeowners owing more on their homes than they are worth, principal reduction is key to preventing foreclosure. Unfortunately, FHFA refuses to allow principal reduction on Fannie Mae and Freddie Mac-owned loans. FHFA also refuses to stop the “dual track” process—whereby homeowners receive notice of foreclosure while they are in the midst of negotiating for a loan modification.
“FHFA should have three priorities: to prevent more foreclosure, to protect current tenants, and to use this opportunity to increase affordable housing,” said Andrea Luquetta, CRC’s Policy Advocate.
CRC’s response to FHFA’s request for information includes these policy recommendations:
• Set asides and preferences for nonprofits—30 – 50% of all properties should be set aside for sale to nonprofits or public agencies.
• Lease to own strategies, subject to consumer protections, should be considered. The agency could institute a program that enables former occupants of the properties to work on credit and related issues and return to homeownership in their former homes.
• Bulk sales of these properties to private investors amount to a taxpayer subsidy for private investors. Any sales to investors should require a set-aside for affordable units for low-income individuals and be subject to tenant and fair housing protections.
• Offer long-term leases through Fannie and Freddie to tenants living in REO’s.
• Principal reduction on Fannie and Freddie’s loans should be required to help more families prevent foreclosure.
• The “dual track” process should be ended immediately. Homeowners should receive a yes or no answer on their modification application before foreclosure proceedings are continued.
The California Reinvestment Coalition advocates for the right of low-income communities and communities of color to have fair and equal access to banking and other financial services. CRC has a membership of more than 280 nonprofit organizations and public agencies across the State.