Add real estate brokers to the list of businesses pushing regulators to curb the government-sponsored enterprises activities.
They say two Freddie Mac companies are exceeding their mandate and encroaching deep into broker territory. The companies, HomeSteps Asset Services and HomeSteps Home Buying Center, provide outsourcing services for banks, lenders, and others that want to unload foreclosed properties quickly and cheaply.
Freddie Mac officials counter that the two are using local brokers, lowering price tags in foreclosure sales, and helping communities. But brokers who sell foreclosed homes, also known as real-estate-owned properties, or REOs, say Freddie is doing more harm to them than good.
Moreover, some real estate professionals argue that the divisions serve as a beachhead through which Freddie can take advantage of its size and clout to dominate the field.
Freddie Mac is aggressively going after lenders to get business, said Warren Adams, a broker with Security Pacific Real Estate in Sacramento, Calif. People have left the REO business and have gone into selling regular housing. Freddies activity in this business has taken away about 20% of his business, Mr. Adams said.
HomeSteps Asset Services, of Dallas, is a product of Freddie Macs 1998 purchase of Cendant Asset Services. It consists of a network of real estate brokers, eviction attorneys, appraisers, and closing and title companies, and sells 10,000 homes a year.
Freddie also started HomeSteps Buying Center in 1998. The Moreno Valley, Calif., company is a one-stop center where consumers can get particulars about homes for sale and get financing and escrow services.
A Freddie spokesman said HomeSteps Asset Services refurbishes roughly half of the houses it sells and participates in education programs and affordable-lending initiatives to promote community revitalization.
The California buying center is staffed by brokers from a licensed real estate firm that Freddie has contracted, the spokesman said, and only Freddie Mac properties are available through it.
Freddie officials say the two divisions provide a service to the real estate industry by reducing foreclosure costs. (Fannie Mae announced last August that it was pulling out of the REO business last August and is in the midst of a 12-month winding down process, a company spokesman said.)
While some real estate professionals argue that Freddie should not be in the REO business at all, others, like Mr. Adams, say they have no problem with the California center as long as it sells only Freddie foreclosures.
But Mr. Adams and other brokers argue that through HomeSteps Asset Services, Freddie is seeking REO business for all loan types from lenders all over the country, expanding its operation to include the sale of non-GSE foreclosures. This, the brokers maintain, is shrinking their share of a small market.
If they were just into Freddie Mac-insured properties, I could understand their wanting to get rid of those themselves, Mr. Adams said. But when they go after other entities for REOs and solicit their business, they are in direct competition with me; I cant compete with a government-sponsored enterprise, which has billions.
Traditional REO players are getting behind a bill sponsored by Rep. Richard Baker, R-La., to create a new regulator for the GSEs. Critics such as Steve Bartlett, president of the Financial Services Roundtable, say that without a new regulator there is little to stop the GSEs from dominating a business that others feel is outside their mission charter.
It is technically true that the Department of Housing and Urban Development regulates Fannie and Freddie, Mr. Bartlett said, but HUD has no teeth. Fannie and Freddie can engage in activities first and then dare HUD to stop.
Bruce Koklich, an REO marketing specialist in Long Beach, Calif., said: It is appalling that the new HUD regulatory administration is not complying with its duty to effectively regulate the GSEs. It is unbelievable that HUD is continuing to allow the first federally subsidized real estate brokerage operation to remain in business.
HUD officials declined to comment. Freddie Mac officials disputed the criticisms, saying Freddie is the seller of last resort for many of those foreclosed properties, as one of them put it.
Tom Walsh, Freddies vice president in charge of HomeSteps Asset Services, said that only 10% of the homes his division sells, roughly 1,000, are non-Freddie Mac properties. He argued that the foreclosure sales are conducted primarily at the request of Freddie lenders and local municipalities. Freddie spokesman Brad German said he is perplexed by the brokers charge that his company hurts broker.
We list our REO inventory with real estate brokers, Mr. German said. We dont sell our properties directly to consumers we always go through licensed real estate professionals. So Im not sure what business it is we are supposed to be leaving.
Mr. Koklich responded that though Freddie uses licensed brokers to handle its REO sales, it does take a part of the brokers sale commissions thus making it a participant in the realty business.
Regardless of what say and however small they claim their sales to be, the function of selling third-party REOs is a licensed activity, Mr. Koklich said. It is a brokerage function, it is a management function, and it is a profitable function that they are using their government subsidies to promote.