Report: FHA’s REO Disposition Strategy Weak Compared to GSEs

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The FHA can learn from this report and make the needed changes. This will help their bottom line and they can use any help they can get in this regard. Please read the article below and let me know what you think.

The FHA Condos Approval Company, Inc.

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The Federal Housing Administration (FHA) needs to work on improving its REO disposition strategy so it can bring in higher returns when properties go to sale, according to a recent report from the GAO. In fact, when compared to Fannie Mae and Freddie Mac, the congressional watchdog found FHA disposes its REOs at a much slower pace and sees smaller returns.

The report was based on a period spanning from January 2007 to June 2012. According to the GAO, the agency’s inventory of REOs grew from over 25,000 in 2007 to a peak of over 65,000 by the end of 2011.

After examining foreclosure timelines, the GAO revealed the FHA takes about 340 days to dispose of its REOs after foreclosure, which is more than 60 percent longer than the GSEs’ average of 200 days.

Additionally, FHA’s returns on REOs were found to be smaller.

Over the four-and-a-half-year period inspected, the report found FHA disposed of more than REO 400,000 properties. To find the agency’s combined returns, the GAO measured the net execution rate, which is the net sales proceed divided by the property value.

Overall, the FHA’s returns were about 4 to 6 percentage points below the GSEs’ returns. When controlling for certain characteristic differences, such as value, location, and local market conditions, FHA’s returns were about 2 to 5 percentage points lower compared to the GSEs.

According to the report, “if FHA’s execution rate and disposition time frame had equaled those of the enterprises in 2011, it could have increased its proceeds by as much as $400 million and decreased its holding costs – which can include items such as taxes, homeowners’ association fees, and maintenance costs – by up to $600 million for the year.”

To read the complete article – please use the link below.

FHA’s REO Disposition Strategy

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