Combined, Fannie Mae and Freddie Mac still hold more than 180,000 homes repossessed through foreclosure, known as REO, despite reductions in the third quarter. Fannie Mae sold more than 58,000 REO in the third quarter, roughly 13,000 more properties than it acquired, according to its financial filing released Tuesday. It’s the lowest total of sales so far this year, 18% below the previous period’s total. Fannie disclosed that it sold the REO at an average price roughly 56% of the unpaid principal balance of the once underlying mortgage. It currently holds 122,616 previously foreclosed homes with more than half located in eight states: Arizona, California, Florida, Nevada, Illinois, Indiana, Michigan and Ohio. The 16,700 properties in the Golden State is double any other. Freddie currently holds roughly 60,000 in REO, according to its third-quarter filing. Despite the recent work to reduce their totals – the 180,000 is down from roughly 196,000 in the second quarter – many of these homes sit vacant and are crippling home price growth around the country. Freddie is on pace to need 15 years to clear its inventory because it sold only 1,000 more than it took in the first quarter. Fannie would take nearly four years if it continues to clear more than 10,000 more than it acquires every quarter – even though it has double the inventory as Freddie. Rick Sharga, the executive vice president at Carrington Mortgage Holdings, said the problem is actually worse than the story told by the raw data. Since 2005, there’s only been one quarter when the market sold more REO than lenders took in. That occurred in 2009, he said. Delays from mortgage servicing troubles, including ongoing negotiations with several state attorneys general, new consent orders from regulators and fresh state laws, such as one in Nevada making it a possible felony to robo-sign affidavits, pushed the foreclosure timeline out to a national average of nearly two years. Once the new rules are put in place, the foreclosures will ramp up again, providing an undistorted look at the foreclosure crisis currently in the shadows. Roughly 1.6 million loans are somewhere in the process, according to CoreLogic (CLGX). “The ‘inflection point’ of REO sales that suggests the beginnings of a recovery probably won’t happen until 2014. Then it’s just a matter of how quickly the market will be able to absorb all those REOs,” Sharga said. Senators recently urged the Obama administration to accelerate the finalization of a new strategy to unload government-owned REO. Regulators received more than 4,000 responses. The ideas vary. Most are split on whether a large-scale rental program would work. Others are wary of a bulk REO sale program. Federal Housing Finance Agency Acting Director Edward DeMarco has said such a strategy will be deployed at the local level, but Sharga said a national scope is needed. “The trick is to develop a national program that gets executed on a local market basis, not a program that comes in hundreds (or thousands) or local flavors,” Sharga said. “The latter approach is an operational nightmare, difficult to manage from an execution standpoint, probably attractive only to small, local market investors who are already cash constrained, and is unlikely to deliver the kind of stability to the housing market – and return to taxpayers – that a more comprehensive program would.” Write to Jon Prior. Follow him on Twitter @JonAPrior.

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