Freddie Mac earned $49 million from REO operations in Q312, compared to $221 million in expenses a year prior, according to their latest earnings report.

While the REO operations are a small turnaround, it shows improvement in line with overall gains at Freddie. The goverment-sponsored enterprise also earned a profit of $2.9 million for Q312.

The decline in expense for the year is mainly because of improving home prices in specific geographical locations with significant REO activity, resulting Freddie getting better value from sales and lower writer-downs of the single-family REO inventory. 

Freddie Mac reported the decline in the volume of single-family REO acquisitions is due to the ever lengthening foreclosure process in judicial states.

The uptick in loss mitigation services, including short sales, also lowered REO acquisition volumes. Thus, fewer loans are being resolved through foreclosure and REO sales.

The new Federal Housing Finance Agency short sale guides for Freddie Mac and Fannie Mae that went into effect on Nov. 1 will improve the approval process with servicers and borrowers. As a result, REO operations should decline at the GSEs with the new guidelines. 

Servicers can now approve any short sales or deed-in-lieu without individual mortgage insurance approval as long as it meets Fannie Mae’s requirements.

“We expect that the length of the foreclosure process will continue to remain above historical levels,” stated the report.