General Information

Good News for Property Investors? – Fed’s REO-to-Rental Pilot Program Begins

Posted by

In recent months, there has been a lot of discussion in our industry about a new program called REO-to-Rental.  Why should you care about this program?  Well, if you are an investor in rental properties, you will care.  If the program is successful, it may be easier and more affordable for you to buy previously distressed homes from banks as investment properties!

The following is from Jerry Ascierto on HousingFinance.com:

The Federal Housing Finance Agency (FHFA) took the first step in its Real Estate Owned (REO) Initiative recently, outlining how investors could pre-qualify to bid on transactions in the initial pilot phase.  The Initiative allows investors to purchase pools of foreclosed single-family properties in the nation’s hardest-hit metros, with a catch—those properties must remain rentals for a certain number of years.

During the pilot phase, Fannie Mae will offer pools of various types of assets, including homes already being rented, vacant properties, and non-performing loans. But it’s just a guinea pig to test investor interest, operational strategies and financing structures to prove the idea out.

While Fannie will supply the first round of foreclosures in the experiment, Freddie Mac and the Federal Housing Administration will also offer pools to investors in subsequent phases of the program. (Read more at HousingFinance.com)

What is an REO? (from Wikipedia)

Real estate owned or REO is a class of property owned by a lender—typically a bank, government agency, or government loan insurer—after an unsuccessful sale at a foreclosure auction.  A foreclosing beneficiary will typically set the opening bid at a foreclosure auction for at least the outstanding loan amount. If there are no bidders that are interested, then the beneficiary will legally repossess the property. This is commonly the case when the amount owed on the home is higher than the current market value of this foreclosure property, such as with a high loan-to-value mortgage following a real estate bubble. As soon as the beneficiary repossesses the property it is listed on their books as REO and categorized as an asset (non-performing asset).