In coming articles, I will define and discuss foreclosures, REO’s and short sales. I will take the reader through an exploration of HUD Homes. In my last column, I devoted an article to Fannie Mae and “Homepath.” All of these sources of distressed properties can offer value and potential bargains. But, as I always say, it is solid analysis that identifies great opportunities; and no single source of inventory can always be presumed to provide winning purchases. Research is the key– current, accurate research gathered and analyzed by someone who knows what he or she is doing. Having prefaced this discussion with that caveat, let’s take a look at another source of REO inventory: Freddie Mac and its “Homesteps” unit.
Like Fannie Mae, Freddie Mac is a “government sponsored enterprise” (a “GFE”), chartered by Congress for the stated purpose of stabilizing the mortgage markets and expanding home ownership. There is currently much debate over whether either of these entities has effectively fulfilled its mission– and even whether these entities have actually harmed the real estate market by fueling the “real estate bubble” whose collapse will be working its way through the system for years to come… and causing a great deal of suffering along the way. Indeed, in September of 2008 Freddie Mac was placed in conservatorship by its regulator, in an effort to mitigate systemic risk and diminish a further erosion of confidence in the system.
Freddie Mac does not loan money or write mortgages. Like Fannie Mae, Freddie Mac purchases mortgages from banks on the secondary market. The goal is to provide liquidity and stability by providing banks with more cash to make more mortgage loans. Of course, some of the mortgages Freddie Mac purchases go into default and foreclosure. Enough have done so in the last couple of years that Freddie Mac was placed in conservatorship. And when a foreclosed home goes into Freddie Mac’s REO inventory for resale, the Freddie Mac unit charged with selling it is “Homesteps.” Homesteps holds for resale single family homes, townhouses and condominiums. It offers incentives to owner-occupants, such as a 15-day “first look” preference on homes that have entered the market. It also offers 2-year home warranties and discounts on new applicances to owner-occupants. Like Fannie Mae and unlike HUD, Freddie Mac may also repair and refurbish homes in its inventory.
Prices and areas in which Freddie Mac Homesteps homes are available vary widely, and the reader is invited to search the Homesteps site at www.homesteps.com. You can even register to receive automatic updates by email. Freddie Mac warns the prospective buyer that it invites multiple offers on its properties, and therefore recommends that the buyer make his or her “highest and best offer.” I find this admonition to be more than a bit self-serving, like the representation frequently made by the listing agent in a short sale: “There has been a lot of interest, and I am receiving multiple offers on this home; so if the buyer really wants this property, he or she had better present his or her best offer.” Do you believe that? Maybe it’s true, maybe it isn’t.
The reality of the current real estate market is that there a lot of homes competing for a more limited pool of buyers. The smart homebuyer is well advised to be moved less by emotion and more by data and analysis. Of course, this is always true for investors. And that is probably the best way to close a discussion of Freddie Mac Homesteps… or Fannie Mae Homepath… or HUD Homes… or other types of REO’s. There is no magical source of great values. There are no secret lists. All of these entities have their own web sites, and I would encourage the reader to check them often. But even more, solid analysis identifies the really great opportunities.
[Eric Dorer is a licensed real estate broker in both North Carolina and South Carolina, and he operates from offices in the Charlotte metropolitan area. He also holds a Bachelor’s degree in Business Administration and a Juris Doctor degree (doctor of laws), he has been a member of the Florida Bar since 1988, and practiced law in Florida for more than 20 years. You can research real estate in the Charlotte area and search thousands of listings free of charge at his website: http://edorer.wilkinsonandassociates.com .]