IN MY opinion there is a big bad wolf that is always winning over any market we are in. It’s not the rich guy you here about buying up rental properties, it’s not the Real Agent with their investor clients buying up distress homes, it’s not the banks that are foreclosing on you and its certainly not you that is benefiting from this horrible real estate market now. Who might you ask? It’s Wall Street!
They bundle up all the bad loans in the good all days and sold them off to investors worldwide and made a terrifying profit and now when the market is down, they are buying up all the foreclosures from the bank in bulks and selling them off to big companies.
This is how its happening in the secondary market that you or I cannot possibly have a hand in but can just view it from a far distance. As mortgage servicer Fannie Mae begins unloading foreclosed properties, Wall Street investors are preparing to buy properties from the banks in bulk. In bulk, meaning the banks will sell a big number of foreclosed properties at a discount and investors would then take them all and go thru that bundle and will sell some and will keep some as rental properties.
Private equity investors, hedge funds and broker-dealers are interested in purchasing pools of properties that include anywhere from 572 homes in the Atlanta area to 99 in Chicago, the Wall Street Journal reports. In all, 2,500 homes in eight regions with a current market value of $320 million are being sold. As long as there are foreclosed homes there will be bulk buying and selling.
Though the initial sale is considered small, it will provide an indication of the level of interest by investors. The aim of the bulk sale is to remove foreclosed properties from the market by selling them to firms that will rent them out while the housing market continues to slowly improve. As part of the deal to purchase, the buyers can’t turn around and immediately sell the homes.
Until recently, Fannie and Freddie had been reluctant to sell in bulk if they could make more profit on individual home sales. But the sluggishness of the market, coupled with the glut of foreclosed homes on Fannie’s and Freddie’s books, have led the mortgage companies to reconsider. The Wall Street Journal reports that Fannie and Freddie hold half the foreclosed properties in this country, about 180,000 homes, with a market value at the end of 2011 of $14.7 billion. Last year Fannie Mae sold 240,000 homes, mostly to individual buyers.
Banks selling individual homes through regular channels are getting 90 cents on the dollar. Fannie Mae reports that last year it lost approximately 35 cents on every $1 of debt that went through foreclosure.
There are still a lot of uncertainties in the strategy. Housing experts are unsure if the bulk sales will help stabilize the housing market and whether the costs will actually be less than if the homes were sold individually. Investors are taking a bet on a higher rate of return as rents continue to increase and home prices remain low.
Time will tell if this is a successful strategy. What do you think of Fannie Mae selling foreclosed homes in bulk to Wall Street investors?
Here in California there are bulk sale going on too but not like other states where over 60% home in some areas are undwater and being foreclosed on.
Bank of America has a new program, called “Mortgage to Lease,” The technique was used during the Great Depression but fell out of favor after the 1930s. The trick will be to find homeowners who are struggling with bloated mortgage payments but who have enough steady income to safely make smaller rental payments.
Bank of America says it’s targeting homeowners who are at “considerable risk” of foreclosure; have high loan balances relative to their home’s value; have exhausted all loan modification programs; and have been delinquent on their mortgage payments for more than 60 days.
“If this evolves from a pilot into a more broadly based program, we also see potential benefits from helping to stabilize housing prices in the surrounding community and curtail neighborhood blight by keeping a portion of distressed properties off the market,” said Ron Sturzenegger, a Bank of America executive.
Charlotte, N.C.-based Bank of America, the nation’s second-largest bank, said it will eventually sell the homes to investors. If successful, the program could be expanded to include real-estate investors who buy homes at risk of foreclosure and keep the homeowners as tenants.
Foreclosures surged in February across half of US states, according to RealtyTrac, which follows foreclosure filings. Banks are wrestling with a backlog of homes with mortgages that had gone unpaid yet remained in limbo because of delays involving a government probe into foreclosure abuses.
Nevada has the nation’s highest foreclosure rate as of February: One in every 278 households in the state had received a foreclosure-related filing, twice the national average, according to RealtyTrac.
Arizona ranks third behind California. New York has not been as hard hit, with one in every 4,604 households receiving a foreclosure-related filing.
BofA will be reaching out to more than 200,000 potential homeowners by mailing them the invitations to participate in the loan modification program and provide necessary financial information. The company will complete the mailing process by September-end.
BofA anticipates that on an average these modifications will lead to the principal reduction of about $150,000 each. Additionally, customers who qualify for this program will be able to bring down their monthly mortgage payments by 30%.
Eligibility criteria
According to BofA, in order to qualify for the program, the customers must be delinquent for more than two months as of January 31, 2012 and be underwater (value of the property less than the loan value).
Additionally, the customers must hold loans, which are either owned or serviced by BofA. Mortgages serviced by BofA for other investors that have given the company the authority to do such modifications are also eligible. Further, the homeowner must have a contractual monthly payment for principal, interest, property taxes, hazard insurance and any applicable homeowner association fees of more than 25% of total gross income.
To qualify once you receive the invitation you must be able to provide documents showing the borrowers would be able to make monthly payments after principal reduction.
Also, the present monthly loan payment must be more than 25% of the gross total income and the customer must prove that he/she is unable to afford that. Hence, if the borrower qualifies, BofA would reduce the monthly loan payments to 25% of the borrower’s gross income.
These are pilot programs therefore will take some time to be effective.
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Call Ken Go of 1st Innovative Finance Group at (562)508-7048 or write to [email protected] for your inquiries or comments.