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Friday, September 24, 2010

Fannie Mae Offering Deals You Can't Refuse...or so they hope

Welcome to Fannie Mae, Let's Make a Deal

Diana Olick
CNBC Real Estate Reporter

So it seems Fannie Mae is doing all it can to unload its massive quantities of REO inventory.

When I say massive, I mean the 129,310 single family bank-owned properties — or REOs, as they're called — it held at the end of Q2, which is more than twice what it was carrying at the end of Q2 2009.

As I noted in a Tweet yesterday, every time home prices drop just 1 percent, the value of all government-sponsored enterprise (GSE) REOs fall by $287 million (thank you to John Burns of John Burns Real Estate Consulting for that math).

No surprise, then that Fannie would want to get rid of its REO as fast as possible, especially as we saw bank repossessions hit a new record in August and home prices are again weakening. How does Fannie do it? It's renewing an expired program that gives buyers of its REOs "3.5 percent of the final sales price that can be used toward closing cost assistance, including a home warranty."

And if that's not enough, Fannie is now getting those crash-weary real estate agents on its side as well. "Selling agents representing owner-occupants will receive a $1,500 bonus." Nice. The offer runs from Sept. 23, "and must close by December 31, 2010," so this is a pretty short deal.

“We continue to look for ways to stabilize neighborhoods and offer incentives to qualified buyers who will occupy these properties over the long-term and help support their communities," writes Terry Edwards, Executive VP of Fannie's Credit Portfolio Management in the press release.

So let's just do a little more math...in the first half of 2010 Fannie sold around 87,000 REOs.

If it sells half that, because it's three months not six, then Fannie will be paying out a little over $65 million just to real estate agents, not to mention the assistance back to the buyers in the 3.5% back.

I'm thinking Fannie is really worried about rising REO inventory.

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