​​​​Summary

The Neighborhood Stabilization Initiative (NSI) was jointly developed by the Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac to stabilize neighborhoods that have been hardest hit by the housing crisis.  The program includes two distinct pre-foreclosure strategies and three distinct post-foreclosure strategies, all of which are intended to assist homeowners who are behind on their mortgages, help neighborhoods recover, and reduce the inventory of real estate owned (REO) properties held by Fannie Mae and Freddie Mac.  Initial piloting of the program will occur within the city limits of Detroit, Michigan and will begin in the coming weeks.

Background

The number of REO properties owned by Fannie Mae and Freddie Mac is declining and approaching pre-crisis levels in some states.  At the national level, the REO inventory of Fannie Mae and Freddie Mac is declining from its 3Q10 peak of nearly 250,000 properties to 150,000 in 4Q13, as dispositions outpace acquisitions.  However, in some areas of the country REO inventory continues to increase or remains near historic highs.  Some particular markets have large concentrations of distressed and low-value REO properties as well as large volumes of loans that have been delinquent for one to two years that are likely to become REO. 

Given the unique challenges presented by these markets—high vacancy rates, weak for-sale markets, steep home-price declines—Fannie Mae and Freddie Mac are partnering with the National Community Stabilization Trust (NCST), a national non-profit organization experienced in stabilization efforts for distressed communities.  Working together, they will leverage their ties to “boots on the ground” community organizations and local non-profits, and work closely with local governments to make timely and informed decisions about the best treatment of individual properties. 

NSI Program Goals

The NSI program has three primary goals:

1. To increase the number of families able to stay in their current homes through loan modifications;

2. To effectively match distressed properties with responsible non-profits for property renovation and resale; and

3. To assist distressed communities in executing their building demolition plans.

Goals one and two should decrease vacant houses by increasing the number of properties occupied by owners or renters.  Non-profits may renovate properties for sale to owner-occupants, lease back to current occupants when possible, or lease to other qualified renters.  For pre-foreclosure properties, the program will offer incentives to current borrowers and nonprofits, maximize payment relief and increase chances for current or future occupants to stay in the home.  When such efforts are not feasible, the delinquent notes would be conveyed to NCST for resolution.  For post-foreclosure properties, the program will consider an array of neighborhood stabilization options such as donation, demolition, financial incentive mechanisms, repairs, and auctions. 

NSI Program Elements

Pre-Foreclosure Strategies:

• Distressed Region Modification – Borrowers will be evaluated for a new loan modification that provides a greater reduction in monthly principal and interest payments than is available in the traditional loan modification programs.

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• Non-Performing Loan Sale/Donation – Severely delinquent low-balance loans secured by distressed properties may be transferred to a non-profit entity for resolution prior to foreclosure.

• Non-profits will work with seriously delinquent owners to determine the most feasible outcome for the household and the property.

• Solutions may include new affordable payment terms, a short sale, a deed-in-lieu of foreclosure, or foreclosure and subsequent repair or demolition, as appropriate.

Post-Foreclosure Strategies:

• ​​NCST Quick Look period – Non-profits will have an opportunity to acquire certain REO properties (occupied or vacant) through purchase or receive properties as a donation prior to the Enterprises initiating their standard disposition processes.  NCST will assist the Enterprises with these sales and donations.

• Post-Quick Look – Occupied properties not sold or donated to non-profits during the Quick Look period will be sold at auction; vacant properties and those that do not sell via auction will be prepared for normal REO sales, which starts with the First Look process, a 20-day period when properties are offered only to owner-occupants, nonprofits, and governmental entities.

• Enhanced First Look Process – Properties will be offered to non-profits through NCST several days prior to being marketed through Multiple Listing Services (MLS).  For low-value REO properties, Fannie Mae and Freddie Mac will work with NCST and local community organization to determine the optimum disposition of individual properties, which may result in donation, donation/demolition, or repair/rehabilitation.  Discounts and incentives may be offered to non-profits depending on characteristics such as property condition, value, and location.