Political Advocacy: REO-to-Rental - Not for Every Market

Caution on REO-to-rental initiative; extending debt cancellation relief; FHA fee changes; My REALTOR® Party victories.

March 1, 2012

NAR is calling for caution on a Federal Housing Finance Agency program that gives Fannie Mae and Freddie Mac a green light to make some REO properties available through bulk sales to investors for use as rentals. The REO-to-rental program is part of a larger initiative President Obama rolled out earlier this year to help underwater home owners. The goal is to help reduce the shadow inventory of REO properties that has hung over the market since the downturn, contributing to persistent home price sluggishness, while helping property owners and investors meet an increasing demand for rental properties.

In some markets, REO properties are already selling well, so NAR analysts say the program should apply only in areas where there’s significant need. REOs are slower to come onto the market in states requiring judicial foreclosures, so the REO-to-rental program may be more useful in those states and generally should be limited to markets with a glut of REOs, NAR says. Obama administration officials say they’re sensitive to the widely differing market conditions and intend to limit the program to places with high REO ­inventories.

NAR has called for a national advisory board to oversee the program and has advised Obama administration officials of the importance of having local real estate professionals handle bulk sales. “An overly aggressive REO-to-rental program that is not privately administered by local entities and does not involve substantial participation of local market experts could be disruptive and counterproductive to communities,” NAR says.

Keep Debt Cancellation Relief Alive

A federal law that provides tax relief for home owners who receive debt forgiveness through a foreclosure, short sale, or modification is set to expire at the end of this year. But NAR is making a push to get the law extended. Ordinarily, the IRS counts forgiven debt as “imputed income,” taxable at ordinary rates. But in 2007, Congress authorized a two-year provision enabling taxpayers to exclude income from mortgage debt forgiveness on their principal residence. Later the provision was extended through 2012. Another extension has bipartisan support, but the effort could get snagged as Congress takes up trillions of dollars’ worth of tax provisions set to expire. These provisions typically are considered as a package at the end of the legislative session, opening the door to negotiations that could imperil the debt forgiveness. Analysts say the extension is needed as lenders restructure millions of loans.

FHA Fees: Up for Purchases, Down for Some Refinances

The annual FHA mortgage insurance premium will increase by .10 percent for purchase-money borrowers starting April 1. The increase was part of 2011 legislation to extend payroll tax cuts. There’s an additional .25 percent increase on jumbo loans, to take effect June 1. The upfront mortgage insurance premium is also going up April 1—to 1.75 percent. Meanwhile, to help spur refinancing for borrowers who took out loans before June 1, 2009, the Obama administration is reducing the upfront premium on FHA refis to .01 percent, and lowering the annual premium to .55 percent. Borrowers have to meet certain eligibility requirements.

My REALTOR® Party Update

Two Land Use Victories in New Mexico: The Taos County Association partnered with NAR and the REALTORS® Association of New Mexico to successfully fight two onerous land-use proposals. One would cloud titles of thousands of properties, and the joint effort was able to stall it for now. The other would have placed unfair development restrictions on local property owners. That measure was defeated. The Taos association worked with the New Mexico association to use NAR’s Land Use Initiative Program along with consulting support to defeat these proposals.

Workforce Housing in Wisconsin: The Wisconsin REALTORS® Association and its partner, the Wisconsin Housing and Economic Development Authority, teamed up to create Wisconsin Housing Works, a Web site devoted exclusively to employer-assisted housing issues. They tapped NAR’s Housing Opportunity Program to develop the site, which informs and educates real estate professionals, lenders, employers, and employees on the value of home ownership. The site describes how to create workforce housing programs and points users to resources and training materials.

Robert Freedman

Robert Freedman is the former director of multimedia communications at NAR.