Federal Housing Finance Agency Director Mel Watt addressed the future of the agency he leads and the future of Fannie Mae and Freddie Mac in his first public address on Tuesday.
In Watt’s speech, he outlined three main goals: Maintain, reduce and rebuild.
One of the tenets of Watt’s “maintain” goal is the continued refinement and improvement of mortgage servicing and foreclosure prevention standards. “Experiences in recent years have revealed serious weaknesses in the servicing industry and in the foreclosure prevention alternatives offered to borrowers,” Watt said. “Substantial work has been done to get things right, but there is still room for improvement.”
Watt then announced a new initiative jointly developed by the FHFA, Fannie and Freddie. The “Neighborhood Stabilization Initiative” will seek to assist homeowners in communities that were disproportionally affected by foreclosures.
Fannie and Freddie will partner with the National Community Stabilization Trust, a national non-profit that is experienced in stabilization efforts in distressed communities. Working together, the companies plan to leverage community organizations, local non-profits and governments to make timely and informed decisions about the best treatment of individual properties.
The FHFA listed three main goals for the NSI program: increasing the number of families able to stay in their current homes through loan modifications, effectively matching distressed properties with responsible non-profits for property renovation and resale, and assisting distressed communities in executing their building demolition plans.
Watt announced that the first phase of the pilot program will be in Detroit and is expected to begin in the next few weeks.
The program includes two distinct pre-foreclosure strategies and three distinct post-foreclosure strategies, all of which are intended to assist homeowners who are behind on their mortgages, help neighborhoods recover, and reduce the inventory of real estate owned properties held by Fannie and Freddie.
The NSI’s two pre-foreclosure strategies are:
1. Distressed Region Modification – Borrowers will be evaluated for a new loan modification that provides a greater reduction in monthly principal and interest payments than is available in the traditional loan modification programs.
2. Non-Performing Loan Sale/Donation – Severely delinquent low-balance loans secured by distressed properties may be transferred to a non-profit entity for resolution prior to foreclosure. Non-profits will work with seriously delinquent owners to determine the most feasible outcome for the household and the property. Solutions may include new affordable payment terms, a short sale, a deed-in-lieu of foreclosure, or foreclosure and subsequent repair or demolition, as appropriate.
The NSI’s three post-foreclosure strategies are:
1. NCST Quick Look Period – Non-profits will have an opportunity to acquire certain REO properties (occupied or vacant) through purchase or receive properties as a donation prior to the Enterprises initiating their standard disposition processes. NCST will assist the Enterprises with these sales and donations.
2. Post-Quick Look – Occupied properties not sold or donated to non-profits during the Quick Look period will be sold at auction; vacant properties and those that do not sell via auction will be prepared for normal REO sales, which starts with the First Look process, a 20-day period when properties are offered only to owner-occupants, nonprofits, and governmental entities.
3. Enhanced First Look Process – Properties will be offered to non-profits through NCST several days prior to being marketed through Multiple Listing Services. For low-value REO properties, Fannie Mae and Freddie Mac will work with NCST and local community organization to determine the optimum disposition of individual properties, which may result in donation, donation/demolition, or repair/rehabilitation. Discounts and incentives may be offered to non-profits depending on characteristics such as property condition, value, and location.
“We’re pursuing pre-foreclosure and post-foreclosure strategies that include deeper loan modifications and partnering with nonprofits earlier in the REO sales process,” Watt said. “FHFA expects to use the experiences in Detroit to expand this initiative to other parts of the country.
“We believe this will be a win-win for hardest hit communities and for our conservatorship objectives,” he said.