The FHFA's REO program has a number of things going for it, as the agency readies its completion.

The Federal Housing Finance Agency (FHFA) has selected the winner bidders for its pilot initiative, putting the agency one step closer to closing out what many have anticipated as its most helpful program yet for the U.S. housing market.

The program, which intends to convert roughly 2,500 Fannie Mae-owned REO properties in Illinois, California and Florida into privately-owned rental units, has been fielding applications from property investors for months, and now that the winning bidders have been chosen, the FHFA expects to close on transactions early in the third quarter. With the program nearing its completion, we though we’d look at some of its fundamentals – and why it will be so beneficial for the housing market.

1. Inventory – As we just covered the other day, though housing inventory remains, on the whole, quite low by historical standards, there are still quite a few distressed properties sitting around on the housing market, and until those properties are dealt with, the market will have a tough time recovering. So, the FHFA’s program, which takes some of those properties and converts them into rental units, is addressing that problem head-on.
2. Appraised Appeal – One of the conditions of the FHFA’s program is that the investors who buy the REO properties update and maintain them, which will be good for adjacent properties in the area. As many agents know, in today’s market, poorly-maintained properties can negatively impact the appraised values of other residences in the area, but if those properties are renovated and maintained, that obviously won’t happen!
3. Economics 101 – Possibly the most compelling case for the FHFA’s program is its strong potential for economic growth. A recent analysis by CoreLogic estimated that the program’s investors could net as much as $100 billion in income this year alone from the program, and a separate study by Morgan Stanley estimated the program would create more than a million one-time jobs in its initial phase and 800,000 permanent, long-term positions in maintenance and upkeep. And the demand will probably be there for the rental units – the Wall Street Journal recently reported that rental demand is at a 15-year high.

Dianne Moore, a managing broker for United Real Estate in Houston who just oversaw the brokerage’s expansion into Chicago (in total, United Real Estate consists of more than 650 offices nationally), said the program will be a good thing for consumers, though it will primarily impact the economy on a local level.

“I do think it’s going to be more of a local impact,” Moore said. “So how it’s interpreted and how it plays out in Houston may well be very different from how it plays out in Chicago.”

“Each local area is going to receive it and interpret it differently on some level,” Moore continued, “even though with the national layout and rollout, I know they’re going to try and implement it with some consistency.”