There has been a lot of back room deals being made that will directly impact your bottom dollar especially those of us living throughout the Southern California area. We have been living through a real estate hell that started going on 5 years back where home prices plumetted, homeowners will not able to sell their home. Families lost their home. Home buyers had a hard time obtaining a loan to purchase a home because of the credit crunch. Slowly, we have been making headwind and raising ourselves out of the hole. in 2012, great strides have been made. There has been higher home prices. More and more buyers have had loans approved to purchase real estate. And the overall sentiment has been positive.
This rise may stall with the decisions made by the Federal Housing Finance Administration (FHFA) and Fannie Mae. Recently it has been discovered that Fannie Mae and FHFA have moved forward to sell and unknown LARGE number of Real Estate Owned (REO) properties to a small number of secret investors that will in turn decided when and how to use these thousands of homes to bring out to the public. There is the much talk that these properties will be used as rental properties thus never making out to the real estate market or will be sold at investor controlled low pricing.
What this means to you? A investor controlled real estate market will mean stagnant prices, less inventory and a longer recovery for Southern California. Sellers will sell their properties for less and buyers will be left out as less homes will be available for sale.
Here are excerpts of a letter from LeFrancis Arnold, President of the California Association of Realtors.
Despite vehement opposition from C.A.R. and California Congressional members, the negative economic impact to the state’s housing market, and cost to taxpayers, FHFA is moving ahead with its REO bulk sales initiative, which calls for the sale of nearly 500 Fannie Mae-owned foreclosed homes in the Los Angeles and Inland Empire areas to undisclosed institutional investors.
Not only are Fannie Mae and FHFA moving forward with the plan, they are doing it in a secretive manner and are refusing to disclose any details. We are disappointed they fail to understand that this initiative will harm the communities in which it will be implemented and are carrying out this ill-conceived plan.
In response to FHFA’s failure to implement the REO initiative in an open and transparent manner, C.A.R. is filing a request for details through the Freedom of Information Act.
FHFA, Fannie Mae’s conservator, announced earlier this summer that winning bidders in the foreclosure auction had been chosen, with transactions expected to close in the third quarter. But FHFA didn’t release any details of the transactions, such as property locations, final property count, sales price, or names of winning bidders.
While FHFA and Fannie will not provide details of the transaction, C.A.R. has confirmed that Fannie Mae has created an LLC in California, called SFR 2012-1 US West LLC, to transfer the foreclosed properties from Fannie Mae to the LLC. It is unknown whether the winning bidders will purchase the full LLC or only a share, thus splitting the ownership between Fannie Mae and the winning bidders.
This REO initiative poses a direct threat to the Inland Empire housing market. According to C.A.R. statistics, the targeted properties are in markets that have seen significant stabilization over the last three years. Not only is the Inland Empire experiencing a severe lack of available housing, demand is also strong, and REO listings are selling in less than 30 days. In fact, the unsold inventory currently stands at a 3.1- and 3.8-month supply in Riverside County and San Bernardino County, respectively, half of the long-run average of 6 to 7 months.
C.A.R. is also concerned that FHFA and Fannie may have used antiquated market data, perhaps as old as 2011, to determine property valuations. Because the bulk sales initiative is only now in the process of closing, these dated valuations will drag down comparables and harm the Inland Empire housing market, which has shown strong signs of stabilization. Additionally, because of this price discrepancy and the very nature of bulk sales, we believe Fannie Mae is assured to not receive fair market value of the properties, thereby saddling taxpayers with their loss.
In May, California Congressmen Gary Miller (R-Brea) and seven other California congressional members introduced a bill that called for FHFA to cease its bulk sales plan in California. H.R. 5823, the “Saving Taxpayers from Unnecessary GSE Bulk Sale Programs Act of 2012,” prevents the FHFA from implementing the sale of Fannie Mae real estate-owned (REO) properties in California to institutional investors.
The introduction of H.R. 5823 followed on the heels of a letter Congressman Gary Miller and 18 other California Congressional members sent to the FHFA in April asking the agency to refrain from implementing its “REO Initiative” pilot program in California. The letter stated, “We are concerned that including California counties in this initiative is in direct conflict with your duty as conservator to preserve and conserve the Company’s assets… In California, there is no question that disposing properties through bulk sales will yield a lower return for the GSEs and taxpayers than through traditional disposition methods. This means that such a program will increase losses to the taxpayer and GSEs,” the letter concludes.
C.A.R. will continue to fight the implementation of bulk sales in California, and I will continue to keep you updated on this important topic as it unfolds.