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Cascade: No. 70, Winter 2009

Proposed Transfer of REO Properties to Local Partnerships

A new effort launched by four national community development intermediaries is attempting to expedite the transfer of real estate owned (REO) properties from financial institutions* to local partnerships in order to bolster neighborhood stabilization.

The effort, the National Community Stabilization Trust (NCST), was launched as a nonprofit limited liability corporation on October 4, 2008, by Enterprise Community Partners, Housing Partnership Network, Local Initiatives Support Corporation, and NeighborWorks America.

Craig S. Nickerson, consultant during NCST’s planning phase and currently its director, said he hoped that NCST’s most important contribution in the first half of 2009 would be creating a cost-effective mechanism for transferring properties from REO departments to local collaborations of housing nonprofits and government agencies.

Crais S. Nickerson, Director, National Community Stabilization TrustCraig S. Nickerson, Director, National Community Stabilization Trust

Local partnerships that will receive Neighborhood Stabilization Program (NSP) funds from HUD face the formidable task of improving distressed neighborhoods through the purchase of properties from a wide array of prime and subprime lenders as well as Fannie Mae and Freddie Mac, he said.

Nickerson said that while the nearly $4 billion in NSP funds will only begin to meet the need of acquiring properties and returning them to market, he hoped that NSP participants would seek to maximize leverage of NSP funds with other monies from lending institutions, housing finance agencies, and for-profit developers. The NSP funds, which will become available in early 2009, can be used for the acquisition of foreclosed and abandoned property, property renovation, demolition, new construction on vacant land, land banking, and similar activities.

Asked about the reaction of the financial institutions to NCST’s efforts, Nickerson said that “last summer institutions had modest levels of interest in a broad execution, but now that NSP guidelines are clear, servicers are interested in streamlining the property transfer process and are looking for assistance from intermediaries.” The servicers don’t want to deal with hundreds of entities that want to purchase properties using federal monies. Further, the REO departments are unfamiliar with HUD’s NSP guidelines, he said. The NCST sees itself as “a bridge between the servicer and local housing worlds, helping to rebuild strong markets cost effectively,” he added.

The NCST is currently establishing working relationships with six financial institutions – Bank of America, Citi, Fannie Mae, Freddie Mac, JPMorgan Chase, and Wells Fargo. Test runs are being conducted in the Minneapolis-St. Paul area, allowing the financial institutions to better understand the property transfer process and to work out process or technical glitches. Nickerson noted that not all properties in a locality would flow through the NCST to local housing providers; only properties in targeted areas would be transferred. For example, in Minneapolis, the NCST found that of 3,000 currently foreclosed properties, 2,360 could be sold without intervention in relatively healthy markets. Of the remaining 640 units, an estimated 400 would be acquired and renovated by for-profit developers, 100 might be demolished, and the remainder would be rehabilitated by nonprofits using NSP funds.

The cities of Minneapolis and St. Paul said in a joint press release about the test program that “a key component of recovery efforts is to gain control of properties and then manage the disposition and redevelopment of those properties at a scale large enough to build confidence and stimulate investment.” The cities highlighted the importance of acquiring homes quickly, once the redemption period has passed and before they are listed for sale through traditional mechanisms. Participating financial institutions will provide an offer price and access to the properties for inspection, they said. The buyer of properties in the current test period will be the Greater Metropolitan Housing Corporation in Minneapolis and Dayton’s Bluff Neighborhood Housing Services in St. Paul.

Nickerson explained that the NCST seeks to obtain “a first look at properties when they first come into REO.” Financial institution REO properties typically do not sell quickly in struggling markets coping with many abandoned and foreclosed properties. In such neighborhoods, properties may sit in the servicer’s inventory for many months, resulting in high costs for maintenance, security, and taxes and insurance. By obtaining property from financial institutions quickly, Nickerson said, the NCST can help reduce costs to financial institutions while conveying property to local housing providers at a below-market purchase price.

The Greater Metropolitan Housing Corporation (GMHC) in Minneapolis has purchased and rehabilitated foreclosed homes such as the ones shown above and sold them to low- and moderate-income buyers.The Greater Metropolitan Housing Corporation (GMHC) in Minneapolis, MN, has purchased and rehabilitated foreclosed homes such as the ones shown above and sold them to low- and moderate-income buyers. It is one of the organizations expected to acquire, rehab, and sell similar properties under the NCST test program. (Photos provided by GHMC)

Nickerson said he expects the NCST to work in 40 to 50 localities in 2009, offering properties from 15 to 20 participating financial institution REO departments. He said geographic areas would be selected based on the presence of a strong degree of collaboration in which a city or county has decided on its use of NSP funds and identified roles; targeting of properties in a concentrated area; a comprehensive strategy in which the partners have identified which properties, if rehabilitated, would have a positive impact; capacity to restore a substantial number of properties; and the ability to leverage capital from NSP funds.

The NCST is housed within NeighborWorks and is expected to have a staff of six by the end of January. Development funding for the NCST has been provided by the Ford and MacArthur foundations and the four national sponsoring organizations.

Nickerson was vice president of expanding markets for Freddie Mac from 1997 to 2008. Previously, he coordinated the National Partners in Homeownership program for HUD Secretary Henry Cisneros. In addition to serving as director of the NCST, he is president of the Nickerson Group, a housing and community development consultant firm in the Washington, D.C., area.

Curriculum on REO Properties

NeighborWorks America (NWA) has developed a new curriculum called “REO Solutions.” There are sessions on property assessment, acquisition and financing, approaches to efficiently rehabilitating REO properties, and strategies for selling or leasing REO rehabilitated properties.

NWA will introduce the curriculum at its National Training Institute in Atlanta on February 16 to 20, 2009. Participants can register for individual parts of the course. To register, go to www.nw.org/ External Link.

NWA trainers will also use the curriculum when sponsoring organizations host training at other locations. For information, contact sgreenberg@nw.org E-mail.

The curriculum was developed as part of an NWA-Federal Reserve System partnership on efforts to stabilize neighborhoods that have experienced high foreclosure rates.

For information, contact info@stabilizationtrust.com E-mail. Related topics may be viewed at www.stablecommunities.org External Link.

  • *The institutions are lenders, loan servicers, investors, and government-sponsored enterprises (GSEs).

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