Realty Check

Foreclosure Investors are Double-Edged Sword

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The best and most expeditious way to clear the vast inventory of foreclosed properties weighing down today’s housing market is to get more investors in and sell them these properties at bulk discounts.

That’s what the Obama administration and Federal regulators are currently considering for the thousands of homes currently owned by Fannie Mae, Freddie Mac and the FHA.

While big private equity fundsare still largely in a very tedious deal-making stage with banks or waiting on the sidelines for a government program, smaller individual investors are getting in. Nearly 23 percent of home purchases in December were by investors, according to a new survey from Campbell/Inside Mortgage Finance. That is a slight increase from November, but the share has remained largely unchanged for the past year.

What has changed dramatically is how many of these investors are using all-cash…74 percent according to the survey, which also found that, “cash buyers are able to bid significantly lower—and successfully—on many properties because they offer a shorter and more reliable closing timeline.” That is precisely what mortgage servicers want.

“While investor bids may not be the first offers accepted, they often end up winning properties after other homebuyers are eliminated because of mortgage approval or timeline problems,” according to the survey authors. “Appraisals below the contracted price are a common reason for mortgage denials. Most mortgage financing timelines are now in excess of 30 days.”

There has been a lot of concern among industry analysts that bulk foreclosure sales would push home prices down further, but it appears that is already happening, as investors usually offer 10-20 percent below list price, while first time home buyers and current homeowners are generally offering list. If the offers are competitive, cash will prevail.

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