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More from HW:

The FHFA set off a firestorm of discussion in 2011 when it announced an REO-bulk sales initiative that aims to repair the hardest-hit housing markets by selling off bulk assets to investors who have the ability to turn those properties into rentals.

The FHFA, as conservator for the government-sponsored enterprises, says investors can now enter the pre-qualification process to establish whether they have the financial ability and property-management capacity to bid on transactions during the initial pilot phase of the program.   

“This is an important step toward increasing private investment in foreclosed properties to maximize value and stabilize communities,” said FHFA acting director Edward DeMarco. “I am grateful for the collaborative effort by the many stakeholders including investors, nonprofit organizations, and state and local government officials, who have worked together on this Initiative.”

Investors who qualify will be able to purchase pools of foreclosed properties for the purpose of turning those homes into rentals.

The pre-qualification process will identify which investors have the expertise to manage the properties and the financial capacity to deal with the homes for a long period of time. Investors who participate have to sign agreements, promising to keep certain aspects of the deals confidential.

Investors who want to pre-qualify, can click here for information.

From npr.org:

Investors from Asia are taking advantage of housing prices that have plummeted in recent years, buying foreclosures and short sales at below what it would cost to build them.

Kevin Chu’s Hong-Kong investment firm owns property in Las Vegas, but he’s never seen any of it. So his first visit to the U.S. is to inspect the houses in Las Vegas.

In the past 18 months, the firm he works for, The Creations Group, bought up distressed homes all over the U.S. — including 13 Las Vegas houses at fire sale prices.

Tracy Bennett, the local property manager, is driving Chu to see one of his firm’s houses that has just been renovated.

She points to a disaster of a house that’s clearly vacant. Blue graffiti cover the garage. Trash is piled in the yard. Before anyone can say anything, Bennett laughs.

“I’m kidding,” she says.

But it is a reminder of the bleak housing reality here, where foreclosure rates are more than three times the national average. Thousands of bank-owned properties that sit empty. Thankfully, for Chu, his real house down the block is in much better shape.

It’s a modest one-story house. The firm bought it for $55,000. At the height of the market, it could have sold for more than $200,000. Inside it’s clean, with fresh paint. It’s ready for a tenant.

“It looks very good, much better than I expected,” he says.  In fact, the U.S. housing market as a whole looks much better than expected to Chu’s boss, Danny Lim.

“In some places the types of prices that we are getting, I think it’s you know, once in a generation, perhaps once in a lifetime kind of opportunity,” says Lim, who was in Miami looking for more property.

Andy Chu, a local real estate agent, says he is advertising in the Asian newspapers. He points out the strong rental market in Las Vegas means houses here can quickly become income-producing properties.

“We let them know, hey look, U.S. is a good place to invest,” he says.

Andy Chu’s clients from Asia are now a quarter of his business, and he wants more.  They’re good customers. They often will buy several properties and pay in cash, which means he doesn’t have to spend months waiting for financing to be approved.

“From a business perspective, you can get paid in four days or get paid in six months,” he says.

Read the rest of this entry »

If they make it a condition of sale that the investors have to rent the REOs they purchase, and can’t sell them, then this idea won’t have much impact on the resale market. Selling bank-owned properties out of the shadow inventory and then designating them for rental properties means the shortage of well-priced inventory for the end buyers will continue. From HW:

While the Obama administration may be pondering the idea of helping underwater homeowners through principal write-downs, Federal Housing Finance Agency Director Edward DeMarco said there is no current consideration for principal write-downs on underwater home loans.

DeMarco told C-SPAN in an interview that the FHFA has already assisted borrowers through principal forbearance programs and loan modification tools that have helped borrowers reduce their monthly payments. He said the other balance the FHFA has to strike is making sure home aid efforts do not afflict taxpayers with additional losses since public funds hold up the quasi-federal housing agencies. He placed write-downs on principal in this camp and suggested the FHFA is not going in that direction.

“Principal forgiveness does not accomplish our conservator mandate,” DeMarco said on CSPAN while speaking to reporters from Reuters and the Wall Street Journal. He added,”the borrower still has a responsibility and an obligation for the repayment of the loan.”

DeMarco said the FHFA sees the next housing initiative being one that focuses on offloading GSE properties to investors who can buy the REO properties in bulk and turn them into rental properties.

To date, the FHFA has received 4,000 comments from interested parties who submitted feedback on the proposed REO bulk sales program.

“Now that we have the HARP announcement out, we are turning to this as the next priority,” he said.

The FHFA said earlier this month that it would lower barriers to refinancing, allowing more underwater borrowers to qualify for the government’s HARP refinancing program.

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Rick Sharga and Carrington are already jockeying for position, trying to run off competitors here.  Who ends up getting what, and for how much, should be quite a spectacle, unless it’s all done in secret, behind the usual closed doors.

Everybody wants a bank deal or government freebie!  From HW:

Investors are extremely enthusiastic about acquiring Fannie Mae, Freddie Mac and Federal Housing Administration REO properties in bulk and renting or selling them, Amherst Securities Group said Friday.

Amherst’s report arrives weeks after the Treasury, Federal Housing Finance Agency and the Department of Housing and Urban Development asked industry professionals to submit feedback on ways the government agencies can move distressed properties through REO asset disposition programs.

Some 4,000 proposals were submitted to the FHFA — suggesting investors and others are immensely interested in the issue and want to be heard.

“It is very clear to us that the economic value of the homes involved, and the benefit to the economy, is maximized by bulk auctions to investors (who will then turn them into rental housing),” said Amherst. “The massive housing market overhang is a clear danger to the U.S. economy — it creates significant stress on borrowers, communities, courts and the banking system — and is stifling growth in the broader economy.”

A few weeks ago, Morgan Stanley released a report, saying investors are warm to the idea of acquiring distressed properties in bulk from the government-sponsored enterprises.

Amherst’s report focuses specifically on the supply-demand imbalance that is currently making it difficult for property owners to offload properties. This imbalance has created a systemic shift in the housing market, making it more attractive for investors to eye properties as rentals that can possibly produce yield while improving the overall housing market.

“Selling to investors can absorb this overhang and, at the same time, provide much needed supply to the rental market,” Amherst Securities wrote. “It is clear that the faster the resolution, the faster the housing market can make a meaningful and positive contribution to the U.S. economy.”

Are you the type of buyer that likes your REOs cheap and ugly?

Hat tip to DOB for sending this along from the wsj.com - mistakes when buying rental properties:

Traditional investments are delivering low returns, and home prices are at bargain levels. Is it time to consider buying some rental housing?

Investing in real estate right now can be surprisingly profitable, if everything goes well. Rents are climbing in many areas, and more properties may be coming on the market. Last month, the Obama administration asked for proposals on how to convert at least some of Fannie Mae’s and Freddie Mac’s bulging inventories of foreclosed homes into affordable rentals.

Investors used to aim for rents that were 1% of the purchase price, or $1,000 a month for a $100,000 home—an annual gross return of 12%—says Michael McCreary. His firm, McCreary Realty, manages about 300 properties in the Atlanta area. Today, he says, some of his investors are getting as much as 2% of the purchase price.

In general, though, average returns after expenses are far less, more like 5% to 6% of the property value, says Ingo Winzer, president of Local Market Monitor, a real-estate forecasting firm. But that still is well above what many other investments yield.

Before you start scouring for deals, keep in mind that owning rental properties is time-consuming, expensive and fraught with challenges, and many investors lose money. You will want to avoid falling into one of these common traps.

Read the rest of this entry »

From HW:

The Obama administration will begin working on new strategies for how to better sell previously foreclosed homes held by Fannie Mae, Freddie Mac and the Federal Housing Administration, which may include renting more REO.

The Federal Housing Finance Agency, the Treasury Department and the Department of Housing and Urban Development put out a request for information, seeking new ideas from market participants for selling REO. Currently, the government owns roughly half of the REO inventory in the U.S.

The agencies called on private property managers to submit ideas on how to reduce the REO portfolios at the GSEs and the FHA in a cost-effective manner. They also seek new ideas on property repair, sales strategies in specific hard-hit areas and new analysis of when to sell or even rent these properties.

There are 92,000 properties currently for sale from HUD, Fannie and Freddie. Inventory is different as many properties are held up and not currently on the market due to delays in the process or state and federal regulations. Fannie Mae held 135,719 REO properties at the end of the second quarter, and Freddie held an inventory of roughly 61,000 REO.

The agencies said there could be new programs developed for allowing the previous owner to rent the home or to allow current renters to become owners. They are also looking for private holders of REO to partner with the government in the effort.

FHFA Acting Director Edward DeMarco said Fannie and Freddie will continue marketing individual REO for sale, but they will also look at possibly pooling these properties in some areas to reduce credit losses and stabilize neighborhoods.

“Partnerships involving enterprise properties may reduce taxpayer losses and meet the enterprises’ responsibility to bring stability and liquidity to housing markets. We seek input on these important questions,” DeMarco said.

Treasury Secretary Timothy Geithner said solving glut of REO on the market is crucial to repairing housing finance overall.

“Exploring new options for selling these foreclosed properties will help expand access to affordable rental housing, promote private investment in local housing markets, and support neighborhood and home price stability,” Geithner said.

HUD Secretary Shaun Donovan said millions of families, who have struggled to maintain their monthly payments, have seen the value of their home drop because of abandoned properties.

“At the same time, with half of all renters spending more than a third of their income on housing and a quarter spending more than half, we have to find and promote new ways to alleviate the strain on the affordable rental market,” Donovan said. “Taking steps to encourage private investment in REO properties and transition them into productive use will help stabilize neighborhoods and home values at a critical time for our economy.”

Hat tip to daytrip for sending this along, from the wsj.com:

The Obama administration is examining ways to pull foreclosed properties off the market and rent them to help stabilize the housing market, according to people familiar with the matter.

While the plans may not advance beyond the concept phase, they are under serious consideration by senior administration officials because rents are rising even as home prices in many hard-hit markets continue to fall due to high foreclosure levels.

Trimming the glut of unsold foreclosed homes on the market is “worth looking at,” said Federal Reserve Chairman Ben Bernanke in testimony to Congress last week.

Nationally, home prices in May were 7.4% lower than a year earlier, but after excluding distressed sales, prices fell just 0.4%, according to CoreLogic Inc. Foreclosures and other distressed sales now account for about 30% of homes sold each month and sales from government-related entities make up about one third of that number.

“Adding more stock simply increases that overhang. If that can be avoided, it should be,” says Jared Bernstein, an economist who left the White House in April and is now a senior fellow at the Center on Budget and Policy Priorities, a liberal think tank in Washington. Because rents are firming up, “this idea could have some legs,” he said.

Renting out homes could cover the costs of holding the properties until they can be resold once markets stabilize, potentially turning a profit for mortgage titans Fannie Mae and Freddie Mac or the Department of Housing and Urban Development, which handles foreclosures on loans backed by the Federal Housing Administration.

But scattered-site rental programs could require the government to become a national landlord, an area where the mortgage firms have little experience. They also pose accounting challenges that could produce big upfront losses.

One proposal winning support among some federal officials would sell thousands of foreclosed federal properties to private investors who agree to rent them.  Investors would rehab homes, run the leasing process, and contract with national property management firms to handle day-to-day tenant demands.

The government could keep a stake in the venture, modeled on loss-share transactions by the Federal Deposit Insurance Corp. Officials have received interest from around a half-dozen private investors, according to people familiar with the matter.

HUD owned about 69,000 homes at the end of April and sold 11,000 homes in that month. Fannie and Freddie held another 218,000 at the end of March.

Analysts at Credit Suisse estimate that reducing Fannie and Freddie’s foreclosed-property sales to around 30,000 each month, from the current rate of 50,000, would cut total distressed sales by one third and avoid a further 3% to 5% decline in home prices.

By flushing foreclosed properties onto markets with few traditional buyers, Fannie and Freddie are “undermining their own recovery,” says John Burns, the head of a homebuilding consulting firm in Irvine, Calif., who backs the public-private rental approach.

A guy who probably just wanted to get a little something for himself, finds out that seeing a project through to the end can be a bigger challenge than it appears:

If this might be your cup of tea and want more details, here are other clips that didn’t make the first cut:

Are you thinking of buying an investment property?

We’ve been hoping that Fannie Mae might be holding back some REOs until the new program opened:

Buy a Fannie Mae-owned house, and get up to 3.5% credit towards closing costs through Oct., 2011.

Here is a list of Fannie-owned SFRs on the outskirts of NSDCC (Oceanside, Poway, RP, RB, etc.):

Fannie REOs

Favorites on the list include: Carlota, Carmel, Del Diablo, Via Cajita, Warmlands, and Woodshadow.

Only a handful on the list are active listings.  Because the good ones tend to sell quickly, I wanted to give you time to evaluate before they hit the open market – most aren’t listed yet.  There’s no telling exactly when they’ll hit the market, or for how much.

But we know they’ll probably be eligible for HomePath financing – here are the terms:

HomePath Mortgages:     

• Minimum Down Payment is 3%.
•  Investor’s minimum down payment is 10% down.    
• 2-unit properties require 20% down regardless of occupancy.
• 3-4 units require 25% down regardless of occupancy.       
• An appraisal is not required. 
• Regardless of down payment, mortgage insurance is not required. 
• Most closings can occur within 30 days.    
• The interest rate is usually .375% higher than market. 
• The payment on a HomePath Mortgage will always be lower than an FHA payment. 
• Condos in Arizona, California, Florida, Michigan and Nevada are not eligible.     
• Minimum credit score is 660 unless the down payment is 20% then the minimum score is 620.  
• The minimum loan amount is $50,000.  The maximum loan amount is $417,000.
• The seller can pay up to 6% of the sales price towards buyers closing costs, regardless of LTV.      

HomePath Renovation Mortgages:  

• Minimum Down Payment is 3% but the fees to do this will exceed 2% of the loan amount.
•  The sales price on the contract should not include the cost of repairs. 
• A list of required repairs will not be provided. 
• The borrower must rely on their inspection. 
• Sweat equity is not allowed. 
• Borrowers must hire one credible General Contractor to bid the entire project.
• Multiple bids are not allowed.  The General Contractor must attend closing.      
• The repairs are completed after closing. 
• The minimum down payment for investors is 15%. 
• 2-unit properties require 25% down regardless of occupancy.   
• 3-4 unit properties require 30% down regardless of occupancy.    
• Condominiums, manufactured housing and co ops are not eligible.
• Renovation funds can be used for cosmetic renovations. 
• The bid must include all required repairs necessary to bring the house up to average condition.  
• Barns and pools cannot be added.  
• $35,000 is the maximum the borrower can escrow, but additional repair costs can be paid in cash.

If we catch a lull in the market, there could be an excess of Fannie Mae listings laying around.