Pipeline

Who's the Boss

If there were any vestigial doubts about to whom the board of Freddie Mac does and does not answer, a director has put them to rest.

"As a legal matter, our responsibilities and our duties run to the conservator here," Clayton Rose, a Harvard Business School professor who was elected to Freddie's board in October, said on CNBC Wednesday.

It's been more than two years since the government took over Freddie and Fannie Mae and placed them under the conservatorship of the Federal Housing Finance Agency. Common shareholders' investments were wiped out, but the government-sponsored enterprises continued to trade (at penny-stock levels) on the New York Stock Exchange until June of last year, when they were delisted and moved to the over-the-counter markets.

On paper, the government owns about 80% of each GSE. Seasoned GSE watchers are well aware that the FHFA calls the shots for Fannie and Freddie. But lest any day traders watching CNBC had the wrong idea, the hedge fund manager Bill Ackman drew Rose out on the implications of the GSEs' peculiar setup.

"You can make decisions that are adverse to shareholders?" Ackman, the head of Pershing Square Capital Management, asked Rose during the televised conversation.

"Correct," Rose replied.

"And there's no liability to you?" "Correct."

REO Revamp

Increased oversight should help the Federal Housing Administration sell more repossessed homes quickly, and at the right price.

Vicki Bott, the Department of Housing and Urban Development's deputy assistant secretary for single-family housing programs, said the FHA's revamp of its management and marketing programs last year, which split property preservation from asset management functions, will ensure that asset managers get paid only when a property is sold.

Before the changes were completed in December, HUD had just one contractor in each geographic region that did everything from conveying the property to the department to maintenance to listing and selling the home.

"I'd be paying [for] property preservation even if they didn't sell the home, so they had constant income and were not motivated to sell," Bott said. "Now, if field service managers are slow, the asset manager may tell on them, and it gives us some eyes and ears on the ground."

Under the new system, HUD has multiple managers in each region with separate functions, so HUD can compare them to one another. HUD also may start looking at the process of how real estate agents are chosen for listings.

"That's something we're starting to evaluate, how diverse is the realtor database," Bott said. "You need a strong realtor base and it shouldn't be so tight since the geographic areas are large."

HUD also has hired a consulting firm to track the 17 third-party vendors involved in repossessed properties.

Becky Walzak, the president of Walzak Consulting Inc., a Deerfield Beach, Fla., risk management provider that is analyzing data provided by the HUD vendors, said the goal is to measure current processes so HUD can improve returns.

"What they needed was a way to track these vendors to make sure the properties aren't languishing out there," Walzak said. "HUD wants to reward good vendors for quality, reliability and cost control, so those that get ranked the highest get rewarded with more properties."

At yearend the FHA had 62,804 properties in its inventory of real estate owned, a 42% increase from June.

"We are trying to culturally ensure that the REO staff is doing everything they can to sell the home," Bott said. "Under the old system, we saw ourselves as contract managers. We certainly don't want to keep a lot of it or have REO around because we didn't take the aggressive steps to move them."

Still, the majority of HUD homes are priced from $150,000 to $180,000, and typically sell in 30 to 60 days, she said. "We are looking at some different tactics out there in an effort to sell quickly and get the highest return."

Freddie-Ready

Enterprise Community Partners Inc., a nonprofit founded by Jim Rouse, has joined the roster of lenders approved to write affordable-housing multifamily loans for Freddie, the companies announced Wednesday.

Based in Columbia, Md., Enterprise already had similar approvals to sell and service loans for Fannie and the FHA. It closed more than $126 million of loans and projects last year, and aims to do $195 million in such business this year.

Rouse, who died in 1996, was best known as the leader of Rouse Co., which built shopping malls and planned communities (including Columbia). He started his career as a mortgage banker.

Quotable …

"Whoever wants things more colorful and beautiful should go to a flower meadow or a museum."