Sunday, April 1, 2012

Foreclosure Pools

According to The Wall Street Journal there is a new trend of selling foreclosed properties in pools to major Wall Street investors.   Fannie Mae (Fannie) has recently begun selling pools of foreclosed properties to investors who are required to rent the homes for several years before selling them.  Many experts, including some Illinois foreclosure attorneys, believe that this type of arrangement could help speed up the recovery of the housing market.

In the past year rent prices have increased, while home prices have continued to decrease. Goldman Sachs economists predict that the annual yield on a rental property in the United States is 6.3%, but in cities hurt most by the mortgage crisis the yield can be 8% and above.  These yields are out-performing many traditional investments.  These financial trends have piqued the interest of Wall Street investors to enter the property management business on a large scale basis. 

In general, properties are one at a time, which can be inefficient and expensive with a large number of properties to sell.  Selling properties in pools can clear out inventory quickly, and can also result in a discount for investors.  While this may seem to benefit all parties, banks are currently receiving more than 90 cents on the dollar for their asking price on foreclosures, and therefore may be reluctant to sell properties in pools if doing so requires selling for much less. In fact, until now Fannie and Freddie Mac (Freddie) have largely resisted selling properties in pools because they could make more selling houses one at a time. 

The pool currently up for auction by Fannie consists of 2,500 houses with a total market value of $320 million.  The houses are divided into eight regional pools.  These regional pools range from 572 properties in Atlanta to 99 properties in Chicago.  This is just a fraction of the 180,000 foreclosed properties, worth an estimated $14.7 billion, that Fannie and Freddie hold.  Last year Fannie sold 240,000 properties primarily through real estate agents one by one.  Fannie is now testing selling properties in pools in order to be more efficient and possibly keep a stake in the pools.  It is unclear whether this type of sale will end up benefiting Fannie more than the traditional one at a time sales.

In order to invest in a pool of properties, Fannie requires the submission of an application where the investor’s capital backing and ability to manage the properties will be analyzed.  Bids for the pool are due in mid-April, with the transaction expected to be complete by late May.

Some experts believe that this type of sale will help fully stabilize markets that are already close to stabilizing.  However, not everyone is entirely on board.   Our Oak Park foreclosure defense lawyers understand that there may be some benefits for area residents if Fannie and Freddie would provide more loans for small local investors instead.  Giving the little guys a chance is often a fairer process.

In any event, if you are facing a foreclosure it is important to contact an experienced Oak Park and River Forest foreclosure attorney who can potentially help you avoid a foreclosure.  The attorneys of the Emerson Law Firm can go over your options with you in a confidential consultation.

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