Neighborhood Stabilization: Local Partnerships Are Rebuilding Communities

Wells Fargo: Using Multiple Strategies for Managing and Renewing REO Properties

Wells Fargo This Wells Fargo REO property is in Livermore, California. Mary "Muffie" Gabler, Central Region Community Development Manager, Wells Fargo Wells Fargo, the nation's largest mortgage lender, uses a multifaceted approach to managing and disposing of real estate owned (REO) properties to help stabilize and revitalize communities. The bank follows two simple rules. First, whenever possible, avoid acquiring REO. Second, when REO properties are acquired, get them off the books as quickly and productively as possible. Wells Fargo uses a variety of homeownership preservation strategies to help borrowers remain current with mortgage payments and keep their homes. If foreclosure becomes necessary, the bank works to sell or dispose of foreclosed properties in ways that benefit the bank and its investors, and communities hit hard by high rates of foreclosure and the recession. Wells Fargo has three business units working to achieve these goals. Wells Fargo Housing Foundation cultivates and manages relationships with nonprofit organizations. Premiere Asset Services manages REO properties. Wells Fargo Community Development Corporation invests in nonprofit organizations and local community revitalization efforts, and, as a result, seeks to sell or transfer REO properties to community groups that renew communities and help low- and moderate-income persons and families find affordable housing. Typically, Wells Fargo prepares REO properties for sale and lists them on the Premier Asset Service's Web site and with local Multiple Listing Services. During the recent economic downturn, Wells Fargo sought other ways to sell REO properties and has welcomed offers from nonprofit organizations looking to buy properties at a discount. Since 2008, Wells Fargo has asked nonprofit organizations, public agencies, and other interested buyers to make bids, whenever possible, through the National Community Stabilization Trust. This allows the bank to benefit from efficiencies and to leverage the nonprofit's expertise, technical assistance, and standardized procedures to help list, price, and inspect properties. The Wells Fargo Housing Foundation steps in when the nonprofit organization wants to buy property in a community where the Stabilization Trust does not operate. The Foundation supports homeownership opportunities for low- and moderate-income families in several ways, including discounting the purchase price for nonprofit organizations or donating properties to nonprofit organizations or government agencies. These requests are reviewed individually. REO donations: Wells Fargo periodically examines its REO portfolio and identifies properties for donation, and its foundation identifies nonprofit organizations that can rehabilitate and sell the properties. Nonprofit organizations and government agencies can also ask the bank to donate REO properties. The foundation's ability to donate REO properties not owned by Wells Fargo depends on the delegated authority owners or investors have given the bank, market conditions, and other factors. Discounted sales: Wells Fargo's REO Discounted Properties Program transfers REO properties at a discount to government agencies and nonprofit organizations revitalizing neighborhoods and provides sustainable homeownership and rental opportunities to low- and moderate-income persons and families. Nonprofit organizations and government agencies interested in buying discounted properties may apply using the foundation's online application. Applicants must prove they are a nonprofit organization or government agency. Available properties and prices are listed on the Wells Fargo and Wachovia REO Web sites. When applicants make discounted bids, Wells Fargo may accept, counter, or request revised bids. Discounted bids for properties owned by investors and serviced by Wells Fargo must be approved by investors. Property rehabilitation: Wells Fargo's REO Rehabilitation Program supports the volunteer efforts of bank employees working with nonprofits to revitalize neighborhoods and to find homes for low- and moderate-income renters and buyers. The program gives up to $35,000 to a nonprofit organization as an incentive to team members to perform rehabilitation. Premiere Asset Services manages Wells Fargo's REO properties and ensures they are maintained until sold. The bank ensures that REO properties are maintained in a number of ways: When loans default, if Wells Fargo is unable to contact the borrowers, the bank begins monthly inspections of the properties. Once homes are vacant, Wells Fargo secures the properties, removes exterior debris, maintains lawns and swimming pools, and takes other necessary steps to care for the properties until they are sold. When properties are added to REO inventory, they are prepared for sale by real estate agents. If they don't sell, Wells Fargo may discount the list prices and accept discounted bids from nonprofit organizations and government agencies. Wells Fargo Community Development Corporation offers an REO Acquisition/Rehabilitation Equity Equivalent Investment (EQ2) for nonprofit organizations and government agencies to convert foreclosed properties into affordable homes for low- and moderate-income persons and families. Wells Fargo provides low-cost, flexible loans to established nonprofit organizations and government agencies interested in buying bank-owned, single-family homes for rehabilitation and resale to qualified low- and moderate-income borrowers. Funding, available in amounts up to $1 million per applicant, is structured as unsecured, subordinated debt for five years at 2 percent interest and may be used for due diligence, acquisition, infrastructure, rehabilitation, and marketing expenses. Eligible EQ2 applicants must demonstrate the following qualifications: A strong track record of acquisition and rehabilitation of single-family homes. A business plan that demonstrates how the nonprofit organization or government agency can successfully acquire, rehabilitate, and sell homes to low- or moderate-income borrowers in the current real estate market. Experience with down-payment assistance programs and providing home buyer education before and after a purchase. A solid financial position and an unqualified audit for at least three consecutive fiscal years. For more information on applying for an EQ2, contact a Wells Fargo Community Development officer or visit the Stable Communities Web site. Leading the Way by Building Partnerships Wells Fargo was the first bank and mortgage loan servicer to work with the Stabilization Trust to transfer REO properties to nonprofit organizations and government agencies working to rebuild distressed communities. Wells Fargo helped pilot the Stabilization Trust's First Look Program, which gives nonprofit buyers the chance to see and buy REO properties at a discount before they are available to the general public. The program began in Minneapolis, Minnesota, in conjunction with the Greater Metropolitan Housing Corporation (GMHC). At the end of September 2009, Wells Fargo notified the Stabilization Trust of about 1,200 REO properties for sale in designated zip codes. About 150 REO properties had been acquired by the nonprofit's partners nationwide. Wells Fargo expects sales to increase as funds from the Neighborhood Stabilization Program (NSP) reach communities faced with high foreclosure rates and as more Stabilization Trust partners become available. Recently, Wells Fargo initiated the Priority Communities Program to support efforts by the Stabilization Trust and its local partners. This program will give grants to local partners in 30 metropolitan areas for subsidies, down-payment assistance, and direct investments using REO properties to stabilize communities. Wells Fargo expects the Stabilization Trust and its local partners to continue to be key participants in community stabilization efforts nationwide. Because local partners rely largely on NSP funds to buy, renovate, and sell REO properties, neighborhood revitalization efforts are likely to expand and gain momentum as more NSP grants are issued and grantees demonstrate the effectiveness of their work. Similarly, as NSP funds become available and local partners expand in number and capacity, a greater share of the properties that Wells Fargo refers to the Stabilization Trust will likely be purchased by the Stabilization Trust's local partners. As one of the nation's largest lenders and servicers of mortgage loans, Wells Fargo is committed to supporting community stabilization efforts, and will continue to work with the Stabilization Trust and other partners to revitalize communities as well as housing and lending markets. For more information, e-mail Mary "Muffie" Gabler. Reno Housing Authority and Wells Fargo: Helping Renew Reno, Sparks, and Washoe County Reno, Nevada, is renewing neighborhoods devastated by foreclosed and abandoned homes with the help of federal grants and a partnership with a new national nonprofit. Reno offers a model for providing affordable homes for families in need. In early 2009, with $4.2 million in grants from the U.S. Department of Housing and Urban Development's Neighborhood Stabilization Program (NSP), the Reno City Council selected the Reno Housing Authority to use the funds to buy real estate owned (REO) from banks and other financial institutions. About $1.2 million was earmarked to buy housing for low- and moderate-income renters; the rest was to buy and rehabilitate homes for sale to families earning up to 120 percent of the area's median income. The Housing Authority partnered with the National Community Stabilization Trust and agreed to work with the Stabilization Trust's First Look Program. In return, lenders working with the Stabilization Trust agreed to notify the Housing Authority when they had REO properties to sell in the distressed communities where the housing authority wanted to buy and rehabilitate homes. Lenders also agreed to give the Housing Authority the opportunity to review and buy properties before they were offered for sale to the public through traditional means. Using zip codes, the Housing Authority identified three communities—in Reno, Sparks, and Washoe County—for renewal, communities that the state of Nevada targeted in its NSP grant application. When the housing authority got its first look at the REO properties for sale in these communities, David Morton, Executive Director of the Reno Housing Authority, realized that many were in good condition and were for sale by Wells Fargo. Morton and his staff had decided to buy only relatively new properties with few serious problems, to make the homes easier for low- and moderate-income home buyers and renters to maintain. The Housing Authority was less interested in property that needed significant work or had serious problems, such as asbestos tiles. The Housing Authority was given 24 hours to indicate an interest in buying the property and, if interested, five days to inspect the property, Meanwhile, Wells Fargo agreed to evaluate the property and, according to the Stabilization Trust's requirements, come up with a sales price discounted from what the price might be if sold on the open market. The Housing Authority conducted its own appraisals to ensure that it agreed with the price offered by Wells Fargo. This led to terms agreeable to both sides, and a contract—crafted by the Housing Authority, Wells Fargo, and the Stabilization Trust's legal staff—that conformed to Nevada law and local requirements. As of early September 2009, the Housing Authority with the help of the Stabilization Trust had purchased 17 properties from Wells Fargo. The Housing Authority plans to use NSP funds and loans to buy more properties and to provide additional housing for low- and moderate-income families. For more information, e-mail David Morton. 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OCC's Community Affairs Department (202) 874-5556 E-mail CommunityAffairs@occ.treas.gov to receive a hard copy of Community Developments. Articles by non-OCC authors represent their own views and are not necessarily the views of the OCC.