Yesterday, Monday January 23, 2012, a panel on United States mortgage financing announced that they predict Fannie Mae and Freddie Mac (the two large Government Sponsored Enterprises who buy mortgages on the secondary market and essentially finance most home purchases in the United States) will bulk sell distressed assets.
If they do this, its a move to recapitalize the two giant mortgage financiers. Predictions have been made that it will cost upwards of $100 billion to capitalize the companies if they are forced to write down mortgage notes on residential properties to market. This means the companies need to raise capital fast.
A move like this, to bulk sell so many properties, will likely bring buyers who plan on buying 100-200 properties in certain markets, or more. These will be investment companies who have built business plans around buying distressed assets. In some situations buyers rehab the homes and sell them quickly. In other scenarios, they rehab them and rent them out where rental markets are strong.
You can do this too! Work with one of our brokers who can help you buy a home as an investment. Flip and make your money fast, or rent and hold to have a renter pay down your principal balance.
Its too early to tell what a move like this from Fannie and Freddie will do to the housing market. There are a couple things that can happen. If the market gets flooded with distressed assets quickly, it will likely cause another steep dip in housing prices. Ample distressed sales on the market will make average prices lower, and higher priced comps scarce. This in turn will cause buyers, brokers, and appraisers to be more conservative with their valuations, perpetuating the downward pricing pressure. Fortunately, the quicker we get through the distressed inventory, the quicker the housing market can rebound.
Alternatively, if distressed assets trickle into the market, or the overwhelming majority of investors decide not to immediately sell their distressed holdings (likely using a rental strategy), its unlikely we will see steep declines in pricing, if at all. Consequently, these homes must be sold eventually, so this could also point at a longer recovery for the housing market and greater economy.
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