Fannie's REO Program Ensnared in GSE Debate

The Department of Housing and Urban Development is clamping down on Fannie Mae's activities and it has ordered the government-sponsored enterprise to stop its third-party REO (real estate owned) management and sales activities.

"Yesterday, HUD ordered Fannie Mae to cease and desist its third-party REO management and servicing activities," HUD secretary Alphonso Jackson told the Senate Banking Committee on April 7.

The secretary explained that providing REO services to other companies is "inconsistent" with Fannie Mae's charter.

HUD's action is considered "symbolic" because Fannie largely gave up its ambitions to compete for REO management business several years ago following complaints from real estate agents.

HUD first learned about Fannie providing REO management services to other companies from the Office of Federal Housing Enterprise Oversight, which has been conducting a special examination of the troubled GSE's accounting practices.

HUD responded by asking the Fannie to provide additional information about its REO activities and report back by April 27, according to HUD assistant secretary John Weicher.

"Fannie Mae will be working with HUD to address and comply with the directive," Fannie spokesman Brian Faith said.

Mr. Weicher clarified that it is permissible for Fannie and Freddie Mac to manage and sell their own REO that results from loans they purchased or securitized that go into foreclosure. Fannie and Freddie list those REO properties on their websites. "They certainly have the right to dispose of their own REO," Mr. Weicher said. "That is not at issue."

The HUD secretary also told the Senate panel that Fannie and Freddie are now required to inform the department of any new products or activities.

This prior-notice requirement has been in effect for the last year and "Fannie and Freddie have been very cooperative in this area," secretary Jackson said.

Previously, the GSEs employed "a lot of maneuvers" to avoid notifying HUD about new products, the secretary said. "In many cases, we learned about new products from the newspapers."

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