FHFA Statement of Alfred M. Pollard
October 27, 2015
“Vacant and Abandoned Properties in Relation to Foreclosure Proceedings Joint Roundtable Discussion”
Chairman Wagner, Chairman Petri, Members of the Committees, thank you for the opportunity to meet with you today to discuss a significant topic to all who care about housing and about the status of our neighborhoods not only here in Pennsylvania but across the country. I serve as General Counsel for the Federal Housing Finance Agency (FHFA). FHFA oversees, as regulator, the eleven Federal Home Loan Banks, including the Pittsburgh Bank, and Fannie Mae and Freddie Mac.
At the same time as being a regulator, the Agency acts as conservator for Fannie Mae and Freddie Mac. The conservatorships involve more direct involvement in the affairs of these regulated entities and a $187 billion investment by the government and, therefore, taxpayers. That investment has permitted these firms to meet their mission of providing a liquid and stable housing finance system. At the same time, the conservator is charged with preserving and conserving Enterprise assets. The conservatorships of these congressionally-chartered entities also entail certain additional legal responsibilities and authorities for the Agency.
Due to their more direct relationship to the purchasing and securitizing of home mortgages, my comments focus on Fannie Mae and Freddie Mac.
Before addressing vacant and abandoned properties in relation to foreclosure proceedings, I must let you know that avoiding foreclosure is the first priority of the Federal Housing Finance Agency. Keeping homeowners in their homes is the best way to maintain stability in communities, avoid losses to the regulated entities and produces a long term benefit to neighborhoods.
Loan Modifications. The Enterprises have been part of over 5 million special loan modifications. They serve as the agents for implementing the Treasury Department Home Affordable Modification Program (HAMP) and have their own Home Affordable Refinance Program (HARP). Through these programs, homeowners have been able to lower their monthly costs and remain in their homes. Earlier this year FHFA Director Watt announced that these programs, due to expire in 2015, have been extended through 2016 and many homeowners can and should take advantage of them.
Diversity and Inclusion. In the area of sales of non-performing loans, Director Watt has stated that the Enterprises are now making efforts to get minority-, women- and disabled-owned businesses and non-profit organizations involved in their non-performing loan (NPL) sales. These sales provide a means for the Enterprises to sell severely delinquent loans to new buyers using new servicers who will work aggressively with borrowers to help them avoid foreclosure. Conducting the right kind of outreach to entities that will maximize borrower engagement and neighborhood-based solutions is a critical component of successfully executing these sales in ways that will help keep more borrowers in their homes and help stabilize neighborhoods. Information on this program is on the Enterprise websites.
Affordable Rental Housing. Another tool that assists in foreclosure avoidance and benefits neighborhoods is support for affordable rental housing. Director Watt recently summarized a key issue—expanding access to credit and, at the same time, seeking to continue providing liquidity in the multifamily market and especially for support of affordable rental housing. Households across the country are paying more of their income for rent, with half of all renters spending more than 30 percent of their income on housing and 26 percent of renters expending more than 50 percent. The Enterprises offer affordable, long-term, fixed-rate loans that enable property owners to have a stable, sustainable mortgage payment and reduce the need to increase rents charged to tenants; over 70 percent of rental units financed by the Enterprises over the last few years have been affordable to low-income households. All of this has been accomplished with strong underwriting standards and correspondingly strong performance, which they sustained throughout the economic crisis. In other words, helping property owners and having good underwriting standards puts renters as well as homeowners in the most sustainable position.
To further this effort, Director Watt has created exclusions to the FHFA cap on Enterprise multifamily purchases. The cap will not apply to loans for affordable properties, including those in higher-cost areas, and excludes certain loans for manufactured housing communities as well as seniors housing and small multifamily properties affordable to low-income tenants. Further exclusions are anticipated.
Vacant and Abandoned Properties
Vacant and abandoned properties clearly remain problems for many communities, large and small. FHFA has heard from some of the largest cities as well as from smaller municipalities of the pressures they feel. It should be noted that not all vacant or abandoned properties are in the hands of the private sector. You may have seen reports that cities such as Chicago and Baltimore hold double digit thousands of properties and many vacant lots. As such, this issue confronts both governments and the private sector.
Note on NSI. Briefly I will mention a project that is addressing some of the issues that involve vacant or abandoned properties. Last year Director Watt announced the Neighborhood Stabilization Initiative. This is a pilot program designed to stabilize neighborhoods that have been hardest hit by the housing downturn. It was jointly developed by FHFA, Fannie Mae and Freddie Mac and includes strategies for helping delinquent borrowers avoid foreclosure and strategies for disposing of the inventory of real estate owned (REO) properties held by Fannie Mae and Freddie Mac. The number of REO properties owned by Fannie Mae and Freddie Mac is declining, however, in some areas of the country REO inventory continues to increase or remain near historic highs. Certain markets have large concentrations of distressed and low-value REO properties as well as large volumes of loans that have been delinquent for one to two years that are likely to become REO.
Given the unique challenges presented by these markets—high vacancy rates, weak for-sale markets, steep home-price declines—Fannie Mae and Freddie Mac are partnering with the National Community Stabilization Trust, a national non-profit organization experienced in stabilization efforts for distressed communities. Working together, they will leverage their ties to “boots on the ground” community organizations and local non-profits and work closely with local governments to make timely and informed decisions about the best treatment of individual properties. These may include sales to nonprofits, rehabilitation of homes, loan modifications and, in some instances, demolitions.
As to vacant and abandoned residences in general, there are two elements to addressing these properties—maintaining them and moving them to sale.
Property Maintenance. Fannie Mae and Freddie Mac have formal property maintenance programs and these are administered by their servicers normally through full time property maintenance companies. It should be noted that lenders and mortgagees are in different legal positions before and after they assume title to a property. The Enterprises set national standards and there are required reviews of service provider performance. Key elements of property maintenance include training for property maintenance vendors, seeking to find homeowners, conducting inspections, securing and stabilizing a home, keeping trash removed and lawns cut and undertaking random inspections to assure that standards are being met. Standards are available on Enterprise websites.?
Property Sale or Disposal. In many instances, homeowners may remain in their homes as Freddie Mac and Fannie Mae focus on selling their portfolio of vacant homes to owner occupants to promote community stabilization. Their respective First Look Programs allow an exclusive time period at initial listing of a home where owner occupants and nonprofits can submit offers without competition from investors. If a homeowner cannot remain in a home, then it is in the interest of the homeowner to exit in an appropriate manner. This can be through a short sale, deed in lieu, cash for keys or other transaction. Also, it is in the interest of local governments and of neighbors to see a property returned to productive use and occupancy, particularly if the homeowner has vacated or abandoned their home. To return these homes to productive use and occupancy as quickly as possible, I highlight the following considerations for you regarding the treatment of vacant or abandoned properties:
1. Accelerated Foreclosure of Vacant or Abandoned Properties
Several states have enacted laws that abbreviate what can be very long foreclosure timelines to permit faster movement to foreclosures if a property is vacant or abandoned. Timelines can be as short as 45 days. Included in these laws are safeguards or safe harbors that protect city officials or private parties from taking an action based on certain factors that may later be reversed. It is significant, therefore, that a government official indicate that a residence has been determined to be vacant or abandoned pursuant to a published checklist. Such a statute should assure as well that any review or final approval of the accelerated foreclosure is also timely and not put through a process—judicial or otherwise— that vitiates the benefits of an accelerated foreclosure law.
2. Streamlined Rules
Another approach is to streamline rules for dealing with vacant or abandoned properties. Municipalities and counties can be authorized to accelerate permitting and other procedures to deal with such properties. For example, in many instances demolition is an appropriate action for certain properties. In such cases, local authorities should act to provide early inspections, quick approvals and determine if any other normal procedures can be abbreviated to facilitate a properly conducted demolition. Other rules affecting vacant and abandoned properties may be considered appropriate for waivers or faster approvals as well.
3. ?Neighborhood-Based Programs
Where possible, municipalities can focus on neighborhood approaches that include helping homeowners remain in their homes while addressing vacant or abandoned properties that exist in their neighborhoods. Putting together a plan for outreach to community organizations, to local government agencies and to all affected lenders could result in a comprehensive approach and a beneficial outcome. Addressing as many units as possible should provide a better outcome. This, as I noted earlier, is the direction of the Neighborhood Stabilization Initiative.
While much of what I have noted above suggests action by localities, it should be accompanied by appropriate uniformity. A roadmap for certain actions makes it much easier for lenders and localities to proceed. Because all 67 Pennsylvania counties regulate the foreclosure process independently, the state may wish to consider areas where uniformity could be achieved— vacant and abandoned properties would seem to fit well within that framework in line with the ideas above.
5. Vacant Property Registration
For mortgagees, the relationship to vacant properties is at times a difficult one. The party moving for a foreclosure is not the owner of the property and does not have the rights of an owner. So even for a vacant property, there could be problems such as trespass allegations or other liability.
In Pennsylvania the foreclosure timeline of 810 days creates significant losses for lenders who are not being paid on their mortgage, but cannot act to sell the property. At the same time, counties have sought to require registration and property maintenance standards. In some cases the fees charged are so high that they represent taxes, not fees and, for Fannie Mae and Freddie Mac, they do not pay such taxes. Further, as noted, for property maintenance, Fannie Mae and Freddie Mac have national programs that benefit local communities and their property maintenance standards are national in scope.
I hope this information has been helpful and I am happy to answer any questions you may have.?
Corinne Russell (202) 649-3032 / Stefanie Johnson (202) 649-3030???