Summary

The Enterprises have been dealing with surging foreclosure rates, rising REO inventories, and associated costs since the onset of the U.S. housing and financial crises in 2007 and 2008. By the end of 2011, their REO inventories had more than tripled to nearly 180,000 units and their related expenses totaled $8.5 billion.

Further, given the financial distress in which many American homeowners continue to find themselves, the Enterprises are likely to face elevated REO inventories and costs for years to come.

As the Enterprises’ conservator and regulator, FHFA has a critical
responsibility to oversee their REO management efforts. A failure
in Enterprise efforts to secure and maintain foreclosed properties
could drive up Enterprise losses and cause damage in affected
communities, e.g., foreclosed properties can lower the value of
surrounding properties and increase blight and crime.
In recent examinations, FHFA concluded that the Enterprises
should significantly improve their REO management efforts. The
Agency identified deficiencies in the Enterprises’ management of
the large contractor networks they employ for many REO tasks,
including inadequate property inspections and insufficient controls
to detect fraudulent reimbursements. FHFA plans to follow up on
these findings in 2012.

Additionally, FHFA is working with Fannie Mae to implement a
pilot program under which investors may buy foreclosed properties
in bulk if they agree to offer them for rent for specified periods.

The intent of the program is to determine whether such an
arrangement is a viable means to reduce REO inventories and meet
rental demands.

[…]

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