Fannie Mae REO inventory shrinks in third quarter

In what could be further indication of the housing market recovery, the distressed property inventory of one government-sponsored enterprise declined significantly during the third quarter.

In what could be further indication of the housing market recovery, the distressed property inventory of one government-sponsored enterprise declined significantly during the third quarter.

At the end of the three-month period, the number of foreclosed houses in Freddie Mac's REO inventory was down 30 percent from peak levels seen in 2010, the GSE said.

"As of our last quarter, we were at about 53,000 units," said Freddie Mac HomeSteps unit vice president Chris Bowden, according to HousingWire.

In 2010, the standing REO inventory totaled an estimated 75,000 units, but homeowners are getting better at handling debt since the recession and fewer borrowers have defaulted on their mortgages and subsequently entered foreclosure in recent years.

Additionally, initiatives such as a bulk auction program in which distressed properties owned by both Fannie and Freddie are sold to investors, have gone a long way in reducing the total supply.

FHFA names next bulk sale candidate
The Federal Housing Finance Agency, which oversees mortgage activity at Fannie and Freddie, recently gave the green light to the Cogsville Group to purchase 94 distressed properties from the government-sponsored enterprises.

The majority of the properties are multifamily homes located in Chicago and contain 111 units altogether, in which more than half are currently occupied by families. The Cogsville Group bought the properties for $11.8 million, slightly less than the market value of $13.7 million.

"Our acquisition of these Chicago assets is a natural outgrowth of The Cogsville Group's successful public-private investments in commercial real estate," said company chief executive Donald Cogsville. "With the shifting fundamentals in the housing markets, single family residential is fast becoming an important asset class."

However, the Cogsville Group is the second company to qualify for the program, which originated earlier this year. In September, the FHFA announced that a transaction had been finalized with Pacifica Companies for slightly less than 700 properties in Florida.

It's the hope of the FHFA, as well as Fannie and Freddie that the companies will repair these properties and either resell them for a profit or convert them into affordable rental units. Whichever route investors take, the end result could significantly reduce the real estate vacancy rates in these areas and bolster surrounding property values.



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