The NAR recommends loan modifications as the answer to REO properties.

The National Association of Realtors has responded to a request from the U.S. Department of Housing and Urban Development, the Federal Housing Finance Agency and the U.S. Department of the Treasury for input on recommendations for selling real estate owned (REO) properties primarily held by Fannie Mae, Freddie Mac and the Federal Housing Administration.

The issue of reducing REO inventories faced by U.S. government agencies stems from a number of avenues: an inability to offer affordable mortgage financing to qualified home buyers and investors; a lack of resources directed towards loan modifications and short sales; and a need adjust REO property transactions, the NAR wrote.

NAR President Ron Phipps said in the letter that the lack of affordable mortgage financing hurts not only REO sales, but the entire housing market.

“Expanding resources and ensuring the use of already allocated funds for pre-foreclosure efforts is the best opportunity to reduce taxpayer costs and create more positive outcomes for homeowners and their communities,” Phipps said.  “Loan modifications keep families in their homes and reduce defaults, while short sales keep homes occupied, helping stabilize neighborhoods and home values.”

NAR suggested that by modifying loans and short sales, families unable to keep their homes would be able to avoid foreclosure. This option would prove to be less costly than foreclosure, and would redirect federal housing program resources that have fallen short of expectations.

NAR also suggested giving incentives for individual sales over bulk sales of REO property. Bulk sales made by large national investors may quickly reduce REO property inventories but also put large sections of the housing market into the hands of fewer market participants. This puts homebuyers and sellers at a disadvantage.