Fannie Mae is selling foreclosed homes to the land bank for $1 — and will contribute $3,500 towards demolition for each house that isn’t salvageable. The first 25 properties are slated to change hands this month and most will be torn down.
This is the second time in as many years that Fannie Mae has piloted a program in Greater Cleveland to dispose of its foreclosed properties.
“The new Fannie Mae agreement is groundbreaking,” said Frank Ford, a senior vice president with Neighborhood Progress Inc. in Cleveland. He said Fannie Mae’s willingness to contribute to demolitions — and do it on an ongoing basis, not just in isolated cases, “is really extraordinary and it’s the direction we’d like to see other lenders go.”
The land bank pact is the first such deal Fannie Mae has done. But it expects to take elements of it to other communities around the country.
“We’ve piloted a number of things in Cleveland because the players there are at the forefront” of neighborhood stabilizing efforts, said P.J. McCarthy, a Fannie Mae official based in Cleveland who handles the disposition of foreclosed properties around the country.
The company said the deal made sense for several reasons: It’s a way to be a good neighbor and help communities deal with demolition costs. It allowed Fannie Mae to move forward faster and dispose of low-value property from its inventory that would otherwise carry maintenance costs. And it means that distressed homes won’t languish in neighborhoods and possibly undermine other nearby houses with Fannie Mae loans.
For Gus Frangos, president of the county land bank, the deal is significant because he said a potentially large inventory of distressed homes won’t be added to the market surplus or fall into the hands of speculators. “That’s a big deal to us,” he said.
Fannie Mae works in what’s called the secondary mortgage market, providing cash or mortgage-backed securities to lenders so they can continue to make housing loans. In the process it can take ownership of mortgages that later become delinquent.
This is the largest property purchase yet for the new land bank, which opened in June and is formally known as the Cuyahoga County Land Reutilization Corp. It’s mission is to strategically acquire foreclosed and abandoned properties and see them rehabilitated when possible or demolished when necessary — with the aim to reduce blight, increase property values and improve the quality of life.
So far the land bank has acquired about 20 properties — not including those coming from Fannie Mae — and has roughly 60 more under evaluation.
“We are very well cranked up and ready to go,” Frangos said.
Now the organization is looking to boost the dollars it needs to do its work. On Friday the land bank will ask its board to authorize a line of credit worth up to $7.5 million with Key Bank. Frangos said those dollars would be part of the $15 million to $20 million in financing the land bank wants to raise for 2010.
Frangos said of the 25 properties the land bank is taking from Fannie Mae in this first round — one is vacant, but the rest have homes on them. The majority are in the city of Cleveland, the rest are in Euclid, East Cleveland, Garfield Heights, and Maple Heights.
Frangos expects at least three-quarters will be demolished. The land bank hasn’t yet decided what to do with the others.
The land bank has secured demolition dollars from some companies in isolated cases. But this new arrangement stands out because Fannie Mae plans to continue providing demolition dollars as it sells more low-value homes to the land bank that can’t be saved.
Fannie Mae initially began talks with the city of Cleveland more than a year ago about crafting a deal. And it was the city that suggested the payment of demolition dollars. But the players subsequently agreed that Fannie Mae would instead have one arrangement with the land bank that covered the entire county.
That also gave Fannie Mae some flexibility in structuring the deal.
“The land bank gives us the ability to work with one major player, do more significant volume and participate in the local strategy, which is not to try to salvage every house but to try to take out supply,” McCarthy said.
Under the current arrangement, Fannie Mae will provide the land banks with lists of available properties valued at $25,000 or less. It will then take those properties off the market for roughly 30 days while the land bank evaluates them.
The land bank expects to take most properties and will likely pay $1 a piece plus closing costs of about $200 on each one.
Once Fannie Mae and the land bank move past their first deal of 25 properties, they plan to discuss options for the sale of properties valued at more than $25,000.
This is not the first time Greater Cleveland has been used as a testing ground.
The Fannie Mae First Look program was piloted last year in targeted Cleveland neighborhoods and gave the city, nonprofits, and potential owner-occupants 15 days to make an offer before homes were made available to the general market.
The company has since gone nationwide with that program.
And last year, at the request of Cleveland officials, the U.S. Department of Housing and Urban Development agreed to a plan that was the first of its kind in the country: HUD is giving the city or designated nonprofit development groups first dibs on all its foreclosed property in the city valued at $20,000 or less. The price is $100. They can get higher priced homes at a discount.
HUD is talking with the land bank about taking that program countywide. HUD already has taken a different version of the Cleveland pilot program nationwide.