FHFA is not on an REO speed wagon when it comes to full disclosure
By Matthew Goldstein
The FHFA continues to reveal as little as possible about its pilot project of selling foreclosed homes to private investors in bulk sales.
With surprisingly little fanfare, the Federal Housing Agency announced this week that Pacifica Companies, a little-known San Diego investment firm, is the first company to emerge as the winner in the pilot project. Pacifica is buying 699 single-family homes that are part of Fannie Mae’s REO portfolio in Florida.
In the coming weeks, FHFA says it will announce the winning bids for bulks sales of REO homes in California, Arizona and Illinois as part of the much-hyped pilot project to sell 2,500 foreclosed homes. The agency that regulates Fannie and Freddie Mac says there will be no winning bid for some 541 homes it was planning to sell in Atlanta. The agency didn’t offer an explanation.
The deal with Pacifica is structured as a joint venture with Fannie that will distribute the cash generated from renting out the homes and eventually selling them three years down the road. The San Diego company is paying $12.3 million for its equity interest in the joint venture that values the portfolio at $78.1 million, or 96 percent of the appraised market value for the single-family homes. In the deal, Fannie will retain considerable equity in the joint venture and collect up to $49 million in revenue before the deal terms become more favorable to Pacifica–which also collects a separate asset management fee.
The deal structure is a bit complicated but FHFA is not saying anything more about the process. A spokeswoman for the FHFA says the agency has no plans to reveal the number of bids it received for the Florida properties or provide additional details on Pacifica’s bid or how it intends to manage the homes as rentals.
The trouble is the FHFA isn’t letting the public know just what went on behind the scenes in the auction process. At a minimum, it would seem a government agency should disclose the number of bids submitted for the homes being sold. This would be a first step for the public to make its own assessment about the wisdom of bulk sales and the FHFA’s selection process.
After all, with millions of foreclosed homes sitting on the books of Fannie, Freddie and the nation’s big banks–the decisions about how to deal with this inventory of REO properties will have big ramifications for communities hardest hit by the financial crisis.
This lack of disclosure also is unfortunate given the FHFA had high hopes for the pilot project and the news of bulk sale coincided with a mad rush into the foreclosed home market by deep-pocketed institutional investors like Blackstone, Starwood Capital, Colony Capital, Carrington and dozens of smaller firms that Jenn Ablan and I have been writing about all year.
About a year ago, several hundred investment firms and start-ups expressed interest in the FHFA bulk sale project when the agency first began discussing the idea. It was believed that the bidding for the bulk sales would be heated given the estimated $8 billion that investment firms have raised the past year to buy-up foreclosed homes.
But as the auction process dragged on, we heard reports the interest in the bulk sales might not have been as high as initially expected. That’s not to say, the interest in foreclosed homes has waned–it’s just that some were less impressed with the bulk sale process after taking a closer look a the nitty gritty details.
It would be nice if the general public could get a better understanding of those nitty gritty details as well.