Reminiscent of the
Resolution Trust Corporation’s approach of the early 1990s when real estate was liquidated for a fraction of its value, mortgage giant
Fannie Mae plans to unload thousands of repossessed homes by way of opening offices in South Florida and Southern California to “get the property out the door.”
Fannie Mae intends to open an office in Fort Lauderdale, Fla., in August, and a sister office in Irvine, Calif., in September.
The satellite offices are designed to streamline Fannie Mae’s efforts to unload bank-owned properties known as Real Estate Owned (REO), reduce defaults, and better manage repossessed properties until the inventory can eventually be liquidated.
“Real estate is at some level local – it makes sense to be local,” Daniel H. Mudd, president and chief executive officer of Fannie Mae was quoted saying in the
official transcript from an Aug. 8 conference call with analysts to discuss second quarter results.
“We’re adding hundreds of staff as well as contractors to our loss mitigation team, and we have effectively quintupled the amount of senior management that is -- dedicated to this effort.”
Fannie Mae has had to rethink its approach as the number of Real Estate Owned properties repossessed in 2008 reached 54,173 on June 30. By comparison, Fannie Mae repossessed 49,121 bank-owned properties for the entire year of 2007, and 36,580 for all of 2006.
Fannie Mae’s repossessed properties are concentrated primarily in six states, including the two where the satellite offices are opening within the next 45 days.
Florida accounts for 5 percent, or 2,681, of the bank-owned properties controlled by Fannie Mae. California accounts for an additional 9 percent, or 4,814, of the Real Estate Owned on the Fannie Mae books.
It is unclear if Fannie Mae plans to open additional offices in other downward spiraling markets where bank-owned properties are spiking such as Michigan with 10,263 bank-owned properties, Ohio with 3,402, Arizona with 1,978, and Nevada with 1,205.
Fannie Mae’s immediate focus is to unload the growing inventory of properties that have been repossessed by the government sponsored, privately-owned entity that is the largest trader of residential mortgages on the secondary market.
“As a licensed real estate brokerage that exclusively represents discount buyers, we commend Fannie Mae’s efforts to work towards implementing a solution to the foreclosure crisis,” said Peter Zalewski, the broker-owner of
Condo Vultures® Realty LLC in Bal Harbour, Fla. “For our part, we pledge to work endlessly throughout our network to ensure that all of our clients and customers are aware of the Real Estate Owned properties that have been earmarked for liquidation by Fannie Mae. With hard work and some luck, we hope to be able to assist Fannie Mae to move some of its distressed inventory in the upcoming months.”
Besides Florida, Condo Vultures® operates in Southern California and Las Vegas, and is pursuing plans to open in Phoenix.
Fannie Mae’s liquidation efforts are being seen by many industry watchers as a proactive measure to prepare for what some think will be a second wave of foreclosures – and ultimately Real Estate Owned properties – that are expected to flood the market in the upcoming months.
“We continue to move property -- to move REO in this strained market,” Mudd said according to the transcript. “We’re processing much more REO at the same through-put and at the same cycle times using a lot of innovative ways to get the property out the door. I do not think this is a time to be holding on to REO and hoping for a better day. So, we’re doing a good job of moving that inventory back out onto the market.”
A primary reason for the spike in Real Estate Owned properties controlled by Fannie Mae is that many borrowers in expensive markets such as Florida, California, and Nevada are being squeezed by inflation, fuel prices, weakening economies, job losses, and a lack of credit options.
When these issues are combined with the fact that many properties are now worth less than the amount owed, it is not difficult to see why borrowers – many of which obtained exotic financing - are ultimately losing their homes as teaser rates expire.
“Home prices have cratered in certain markets since the peak,” Mudd said according to the transcript. “Cape Coral, Florida, down 50 percent; Las Vegas, down 35 percent, Northern Virginia, down 30 percent; and in California, Modesto and Stockton, down 50 percent; Riverside, down 40 percent. The list goes on.”
Fannie Mae reported that 47 percent of its $1.3 billion in single-family credit losses in the second quarter of 2008 are attributable to four states: California, representing 29 percent of the loss; Florida, accounting for 7 percent; Arizona, representing 6 percent, and Nevada, accounting for 5 percent.
“These states saw the most dramatic run-up in prices, and are now seeing the most rapid declines,” Stephen M. Swad, Fannie Mae’s Chief Financial Officer said according to the transcript.
Home prices slipped between July 2007 to June 2008 by -20.9 percent in California, -21.2 percent in Florida, -23.1 percent in Nevada, and -20.1 percent in Arizona. Nationally, home prices slipped by an average of -7.4 percent, according to Fannie Mae.
Peter Zalewski is a principal with the consulting company Condo Vultures® LLC and a licensed real estate broker with Condo Vultures® Realty LLC. Peter can be reached at 305-865-5629 or by email at peter@condovultures.com. Be sure to check out Peter’s blog at CondoDump.com. Don't forget to sign up for our weekly Market Intelligence Report. Looking for a property at a deep discount? You are encouraged to take a peek at the Vultures Database™.
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