Fannie Mae unveiled its First Look program for buyer-occupants. It is designed to give potential buyer-occupants of real estate owned (REO) resale properties priority over all other types of buyers during the first 15 days the REO property is on the market.
First Look also helps buyer-occupants acquire Fannie Mae REO homes through a reduction in the good faith deposit to as low as $500, and an increase in the sales escrow period from 30 days to 45 days.
This program has been developed as a response to roadblocks buyer-occupants have been confronted with when attempting to purchase REO property in the current market. Many of the REO properties are snatched up by investors or speculators who are able to pay cash up front. These groups then hold the properties as rentals or immediately proceed to flip the properties for a profit by sandwiching themselves into the process.
Fannie Mae reported 72,275 REO single-family residences on its books as of September 30, 2009, while Freddie Mac reported 41,133 REO single-family residences. Together Fannie and Freddie hold around 2/3rds of all the mortgages in the country.
Fannie’s number of REO single-family residences is going to increase. Nearly 5% of the home loans owned or guaranteed by Fannie were 90 days or more overdue in September 2009, up from nearly 2% just one year earlier. This is the much discussed shadow inventory of REOs that will adversely impact MLS inventories and depress home prices throughout 2010 and 2011.
first tuesday take:
Fannie is recognizing and acknowledging the damage that speculators have on the market. But the priority First Look gives buyer-occupants is insufficient, as the 15 days will only serve to further frustrate them as the offer and acceptance process consistently takes more than 15 days to finalize with any lender on an REO resale. On the 16th day, speculators will be ready with cash on hand to swoop in and make the purchase.
Speculators are parasites. They abuse the market, leeching money out of real estate while contributing nothing. They play a zero sum game in which their winning is directly proportional to everyone else’s loss.
Real estate is meant to be used, whether by an owner-occupants or an investor renting out income-producing property. Rules need to be put in place to bar speculators, immediately. [For more information regarding damage speculators do to the real estate market, see the January 2010 first tuesday article, Homebuyer beware: the real estate game lacks fair play.]
Attempting to bar speculators is an important step, especially considering the now dry REO market due to government interference in stalling foreclosures and failure to give authority to bankruptcy courts to cramdown loans to property values so the owners can sell their properties. Buyer-occupants who want to purchase an REO property are getting out-muscled by cash-on-hand speculators (and the lenders who support those speculators) who have no real interest in the recovery or the long-term health of the real estate market. Speculators are momentum opportunists, hitting and running when inventory drops and demand is strong. Speculators are having a field day in the current market since the tax credit craze and low interest rates are pushing up demand by putting tomorrow’s buyers in the buying mood today.
Re: “Fannie Looks to Level Foreclosed-Home Playing Field,” from The Wall Street Journal