Buy a Fannie Mae Foreclosure
As a potential buyer of a foreclosure home from Fannie Mae, there are a few things you’ll need to understand before taking the first step in the purchasing process. Fannie Mae is currently under receivership of the Federal government. Prior to this, it was a shareholder-owned company. The financial crisis that began in 2008 affected the company greatly, the consequences of which have led to its current form. The primary goal of Fannie Mae and Freddie Mac is to facilitate liquidity for the entities participating in the residential mortgage market. It performs its primary function by purchasing mortgage loans originated by home lenders and repackaging for sale in the secondary market. Fannie Mae doesn’t directly engage in residential lending or loan origination.
The home loans are generally serviced by mortgage servicing companies. These companies collect mortgage payments on behalf of the original note holder from the borrowers according to original loan terms and conditions. If a borrower fails to make payments for an extended time, the servicer may initiate foreclosure proceedings. After all the available remedies are extinguished, the property get foreclosed and it comes under the control of the note holder, which in the case of FNMA-backed loans is Fannie Mae itself. On those foreclosed homes in which Fannie Mae retains ownership, its new objective is to sell them off and recover its funds.
Due to the credit crisis and ensuing housing market declines, a number of homeowners have failed to keep up with their payment obligations and thus ended up losing their homes to foreclosure. Currently, tens of thousands of foreclosed homes are part of the inventory of Fannie Mae’s repossessed inventory. All the Fannie Mae foreclosures around the country can be accessed through the offical HomePath website.
Most of the individual foreclosure listings are handled by listing agents who are approved by Fannie Mae. The listing agents are responsible for an number of tasks associated with Fannie Mae foreclosed homes. They are expected to handle all aspects related to the marketing and management of the property prior to the sale. All offers and negotiations must also be processed through them. Prior to listing the property, Fannie Mae requests the realtor to provide a “Broker’s Price Opinion” along with a list of any repairs that may be needed to be performed. This report along with the value provided by a certified appraiser is generally used as the basis to determine the initial listing price. Most of the findings from the inspection and appraisal on a property are disclosed and made available to potential buyers. The value of the property is adjusted according to the condition as determined by the professional reports.
Buyers can visit the properties by setting up appointments right from the property’s listing page on Fannie Mae foreclosure listing site. The buyer is required to submit a standard “Offer to Purchase” completely filled out and signed along with a Purchase Addendum required by Fannie Mae. In addition to the contract, a loan pre-qualification must also be submitted for consideration. The lender issuing the pre-approval letter must be reputable and preferably, approved by FNMA. Before submitting the offer documentation, take time to completely understand the terms and conditions as they contain certain stipulations and conditions that are not always obvious to most buyers.
If you look closely, the language of the addendum makes it clear that Fannie Mae is relieved on any responsibility for any future issues that may come up regarding the condition of the home. While Fannie makes all reasonable efforts to bring the property to acceptable condition, it is also the responsibility of the buyer to have an independent appraisal and inspection done to uncover all the issues that may be lurking the foreclosed home they are looking to buy. It is important to remember that you are buying the property in “As Is” condition.
After agreeing on a deal, the buyer is given a period of 10 days for deciding on purchase. This is the period in which a thorough home inspection must be conducted to gain a complete picture of the residential property’s condition. If the buyer decides to proceed with the remaining steps in the purchase process, the property then goes “Under Contract”. While Fannie Mae prefers a quick closing through a quick cash settlement, it also considers other settlement and financing alternatives.
To purchase a Fannie Mae Foreclosure, a borrower may seek the assistance of HomePath programs, down payment assistance programs, private money loans or any such financing option. All co-operation and support is extended to help homebuyers secure an affordable housing solution. While FNMA prefers owner occupants, investors are also encouraged to make offers after the completion of the initial period reserved for buyers of primary residences. As an investor, you would be expected to make an earnest deposit of 10% of the purchase price. This amount must accompany any offer for purchase made on a Fannie Mae foreclosure home. A deed restriction is placed on investor purchases that prevents the resale at more than 120% of the purchase price in less than 3 months.