The Federal Housing Finance Agency will methodically analyze several pieces of the first REO-to-rental transaction, including how much it should monitor investor compliance to certain rules.

The FHFA announced the pilot in February to sell roughly 2,500 Fannie Mae properties in Atlanta, Chicago, Las Vegas, Los Angeles, Phoenix and in different areas of Florida. Potential investors sent applications to participate since then.

Combined, Fannie and Freddie owned more than 173,000 REO properties as of March 31, according to their financial filings.

"What we've said throughout is that the first transaction will teach us something," said Meg Burns, senior associate director of housing policy for the FHFA. "We'll look at what kind of restrictions we're using, what pool sizes make sense, what markets make sense. Everything is up for grabs in the next transaction. All of the factors are up for discussion."

Jaret Seiberg, a policy analyst with Guggenheim Partners, said the agency must also balance the cost of the program with its potential benefits.

"Monitoring the status of the 2,500 properties will be expensive," Seiberg said. "The only way to sell properties without the monitoring requirement is to convince community activists and lawmakers that investors will maintain the properties."

Burns said how much is monitored is one part of the entire puzzle. It's a groundbreaking program and still in a premature status.

The FHFA is attacking the architecture perhaps more slowly than some in Congress and the public like, but it as analytical as ever. The agency has spent months determining if the GSEs should participate in principal reduction programs through heavy number crunching.

It launched the Home Affordable Refinance Program, which despite some challenges facing the refinance space overall, has finally shown a spike in activity and assistance.

Burns said developing the REO-to-rental program will require the same approach. They will attempt to strike an equilibrium between urging forward a housing recovery while protecting GSE balance sheets and thus the taxpayer.

"At a certain point the benefit of the sale is chipped away at by the cost of ongoing monitoring," Burns said. "We're trying to balance our concerns with ensuring the communities are ultimately in better condition as part of this initiative."

jprior@housingwire.com

@JonAPrior