In The News | Product Updates
Fannie Mae slipped out a press release just before the Thanksgiving Holiday announcing their new "First Look" Initiative. Under the guise of neighborhood stabilization, the program gives home buyers (those who plan to live in the home themselves) and public entities the first shot at buying any Fannie Mae REO's -- investors are locked out unless Fannie does not receive an acceptable offer within the first 15 days.
At first blush, this seems positive. After all, owner-occupied homes should in theory be better-taken care of which is good for neighborhoods, and public entities are using our money to buy so why make them compete with investors.
Let's not forget though that Fannie loans are backed with "our" money as the loans from these entities have an implicit, if not explicit, guarantee from the federal government (this point could have been argued until we took them under conservatorship in 2008 - now I think their losses are unquestionably our losses). As such, I'd think our goal should be to limit Fannie's losses, not limit competition to help certain buyers over others.
There's no question this program could provide some relief to folks trying to buy a home to live in. We regularly hear about home buyers losing offer after offer to all-cash investors willing to pay prices not only over asking but above appraisal value. An incredible fact is given that we have a record number of homeowners facing foreclosure, and had exploding supply a year earlier. Just keep in mind that we only have this feverish battle right now because the government has worked hard to artificially limit supply, and artificially pump demand. So I have a simple question: is the problem that the real estate market is so slow that we need to stimulate it with low-interest rates and tax credits, or is the market so hot that we need to protect home buyers from the competition?
What I find even harder to understand is why this "First Look" program extends to public entities. As you may recall the government launched a number of programs to buy up foreclosures in an effort to limit their impact on neighborhoods. The theory at the time was that there would be far more foreclosures than there would be traditional buyers (homeowners and investors) and that these programs would help clean up the extra supply. But that is not the way it played out.
Instead, we now have these programs competing for homes at a time when there simply is not enough supply for current demand (not unusual to see 10+ offers on a clean REO in California right now). As such it makes no sense for these public entities to use taxpayer funding to buy foreclosures AT ALL right now, let alone have Fannie limit competition and take a bigger loss (using taxpayer dollars) to allow these public entities to buy them cheaper.
Bigger picture this program probably doesn't matter much. There are so few REO's coming to market right now, investors are already giving up on them and moving on to buy at trustee sales (foreclosure auctions). While riskier for inexperienced investors, the trustee sales are true public auctions where anyone with a check can come and compete for these homes before Fannie gets a chance to decide who does, or does not, get the "First Look".
