HUD to Privatize Foreclosed Home Sales

In a forthcoming policy change that should provide new opportunities for moderate-income home buyers and small-scale real estate investors nationwide, the federal government’s biggest housing agency plans to privatize its sales of more than 60,000 foreclosed homes a year.

The idea, according to Housing and Urban Development Secretary Andrew Cuomo, will be to streamline and speed up a process often criticized by community groups for being so slow that it leads to accumulations of boarded-up, vacant houses in many urban neighborhoods.

Real estate industry critics also charge that HUD’s home sale procedures scare away potential buyers who don’t want the hassles of dealing with government bureaucrats.

Under a plan to be announced shortly by Cuomo, HUD would contract out the job of disposing of its vast portfolio of foreclosed homes to one or more large, private-sector real estate companies.

Those companies would then do what professional realty marketers know how to do best:

Aggressively pursue potential buyers using all the tools available to heads-up Realtors--online national and local multiple listing services, Web sites, TV, newspapers, direct mail and other specialized media.

The companies would have to take legal title to the 5,000-plus homes nationwide that pour into HUD’s portfolio every month due to foreclosures, and market them through participating private brokers with as advantageous terms as possible. The firms would also be responsible for taking care of the houses while they held title to them.

Under the agency’s current glacial procedures, HUD-owned homes are virtually never listed on real estate multiple listing services--thereby cutting them out of the mainstream of the market--and can be purchased only through antiquated “sealed-bid” arrangements.

In a sealed-bid process, one or more bidders make offers known to no other bidder. A local HUD office then analyzes the bids and eventually chooses a winner.

What’s missing in the sealed-bid approach, according to realty agents who’ve participated in them, is the sort of offer-counteroffer bargaining that the private market uses to sell houses quickly. The government often loses out in this process as well, since competing bidders don’t have the ability to top one another’s offers.

“You basically get one shot [at a property], and that’s not smart,” said one Washington, D.C., area broker who has occasionally bid on homes for clients.

Cuomo’s upcoming plan--part of an effort to reform his agency’s deeply troubled Federal Housing Administration home mortgage insurance program--should be “a win-win for everyone,” said Cuomo, “both for borrowers as well as taxpayers.”

On the one hand, with ordinary home buyers having far greater access to HUD-owned homes via realty listings, the pool of potential purchasers should be expanded significantly, according to Cuomo.

And, since HUD employees won’t be controlling a sealed-bid procedure any longer, the opportunity for buyers to acquire properties quickly at advantageous prices should be greater.

On the other hand, according to realty agents, there is a real possibility that free-market competition will push up the sale prices of the most attractive houses in the portfolio.

From the government’s point of view, according to HUD officials, the privatization will allow the agency to cut its work force--a budgetary requirement--and to shift personnel to more productive areas.

In a notice to be published soon in the Federal Register, HUD offers virtually no details of how the forthcoming privatization contract will work.

The likely contractors appear to be national or regional real estate brokerage and management firms that have experience in sales of foreclosed properties for banks and other financial institutions.

Presumably such firms would receive compensation tied to the speed and net-dollar proceeds they obtain from the resales.

How might this affect individual consumers who want to buy a house?

For starters, most HUD-owned houses are priced in the moderate and lower brackets of their markets.

Since local brokers will now be able to list HUD homes, first-time buyers who might never have known about the availability of such properties will now be able to visit, inspect and submit offers on them through brokers, just like a conventional home purchase.

Such buyers are also likely to qualify for low-down payment FHA loans to swing the deal.

Small-scale investors--a key category of purchasers of HUD homes--will also have far more efficient access to properties, but they’ll probably find themselves competing more frequently with regular home buyers.

HUD officials say that despite the privatization, the agency intends to continue targeting about 10% of its houses for sale to nonprofit organizations and local neighborhood revitalization programs.

Distributed by the Washington Post Writers Group.