A new announcement from Fannie Mae could mean the end of short sales for investors, raising the appeal of REOs and non-performing notes.
New moves by Fannie Mae bring major questions about conflicts of interests, kickbacks, and questionable lobbying at the highest level. Meanwhile, banks are plowing ahead with filing foreclosures and taking them back to the tune of 100% plus increases in real repossessions in some areas.
The question is: what is the best investment strategy for smart investors as the landscape shifts?
Many have dismissed the idea of a new wave of foreclosures or shadow inventory. Of course, they want to build momentum and confidence in the market, and cash in on higher prices and commissions, though it’s possible that some are genuinely ignorant.
However, they should know that what will scare the public (and hurt their incomes) the most would be to be blindsided by news of masses of new foreclosures, rather than to be educated about what’s coming down the pipe and how to take it on.
With the immense demand and current shortage of actively listed real estate inventory in many parts of the U.S. there is little worry of another crash. But, the truth is that a tsunami-sized wave of non-performing loans is working its way through the foreclosure process.
With a large number of U.S. banks still to report for the second quarter of 2013, those that have already released figures admit to holding a little over $5.6 billion in residential REO.
However, coming behind that is almost $113 billion in non-performing 1-4 family residential mortgage loans which are just now defaulting for the first time!
The only question now is: what is the best way to take them down as a distressed debt or real estate investor?
Short sales have been a staple of the market for years now. However, a new twist by Fannie Mae announces that as of August 1st 2013 no short sales will be approved or requests accepted unless first listed on the MLS. While this may certainly have some benefit for banks, the government and perhaps even more so for members of the National Association of Realtors, it also makes short sales even less appealing or viable for serious investors looking for value, compared to other alternatives.
While the official REO pool being advertised may be slim pickings in some areas, those with access to superior data can certainly pin point extremely appetizing and profitable deals. Jumping ahead of the competition even earlier by buying discounted notes from banks can yield even juicier spreads.
It’s time to choose: short sales at retail prices or above, or finding real value and profit in distressed debt.