As mortgage servicer Fannie Mae begins unloading foreclosed properties, Wall Street investors are preparing to buy in bulk.
Private equity investors, hedge funds and broker-dealers are interested in purchasing pools of properties that include anywhere from 572 homes in the Atlanta area to 99 in Chicago, the Wall Street Journal reports. In all, 2,500 homes in eight regions with a current market value of $320 million are being sold.
Though the initial sale is considered small, it will provide an indication of the level of interest by investors. The aim of the bulk sale is to remove foreclosed properties from the market by selling them to firms that will rent them out while the housing market continues to slowly improve. As part of the deal to purchase, the buyers can't turn around and immediately sell the homes.
Until recently, Fannie and Freddie had been reluctant to sell in bulk if they could make more profit on individual home sales. But the sluggishness of the market, coupled with the glut of foreclosed homes on Fannie's and Freddie's books, have led the mortgage companies to reconsider. The Wall Street Journal reports that Fannie and Freddie hold half the foreclosed properties in this country, about 180,000 homes, with a market value at the end of 2011 of $14.7 billion. Last year Fannie Mae sold 240,000 homes, mostly to individual buyers.
Banks selling individual homes through regular channels are getting 90 cents on the dollar. Fannie Mae reports that last year it lost approximately 35 cents on every $1 of debt that went through foreclosure.
There are still a lot of uncertainties in the strategy. Housing experts are unsure if the bulk sales will help stabilize the housing market and whether the costs will actually be less than if the homes were sold individually. Investors are taking a bet on a higher rate of return as rents continue to increase and home prices remain low.
Time will tell if this is a successful strategy. What do you think of Fannie Mae selling foreclosed homes in bulk to Wall Street investors?
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