More on Mega Bulk Sales

Yesterday, FHFA announced the long awaited first Mega Bulk Sales of REO properties in the hardest hit areas – see this press release (pdf)

I can summarize the program for you: mega stupid.

 
 
 
I know there are probably some of you who would say, "if you are so damn smart, why don't you come up wi

th an idea?"  To those, here is what I offer:  just reduce the price of all the properties on the list by 20% and watch them fly off the shelves. By the way, a 20% discount is probably unnecessary and the resulting price would be in any event much much more than what FHFA can possibly expect from a bulk buyer.

I know there are some of you who demand more details, so here is a little more detail.

These are the properties:

 

 

 


 

Summary of properties sold in bulk sale – click table for better resolution.

 


 

As you can see, the bulk consists of 2,490 properties spread over six states. Within the states, it is further divided into areas such as Los Angeles/Riverside, or West, South, Central Florida. Using the Fannie Mae website, you can search the cities/counties and have an idea what these properties look like.  How do you expect the buyers to have efficiency of scale with this hodgepodge of junk scattered all over the country?

The agencies reportedly have over 200,000 REOs, not counting those stuck in the robo-signing black hole. This bulk sale above is a whopping 1.2% of the total inventory. Repeat this exercise 100 times and problem solved, right?

As for value, the entire bulk sale is probably worth less than $100 million, which really does not even qualify as a "bulk" in today's financial terms.  As rentals, only the inexperienced would confuse these assets with a more conventional rental, like an apartment building.  Please check out my previous post on the topic for details (Mega Bulk Sales, A Lose-Lose Proposition?).  These properties are simply not suitable for a bulk buyer.

There's more. What would a government be if there were no red tape. Take a look at the pre-qualification package (pdf) for bidders.

It makes one wonder if they really want to sell REOs or just create some jobs for bureaucrats.

As I concluded in my previous post on the mega bulk sales idea:

 

“In conclusion, any mega bulk sales by the GSEs would certainly be a big loss for taxpayers.  If the mega bulk buyers think they are going to rip off the country the same way their predecessors did during the RTC giveaway, they may be in for a big surprise.  They may eventually find themselves holding cans of worms all over the most undesirable markets.

As for the real estate market, I have no idea what mega bulk sales will do to the already depressed metro areas. They could prove to be very destabilizing. Maybe they will turn out to be the last straw that breaks the camel's back.“

 

I think I am going to end this rant with an apposite song:

 


 

 


 

Addendum: A Little Follow-Up

 

Fannie Mae Acquired 47,256 Single-family Real-estate Owned Properties, Primarily Through Foreclosure, In 4Q

Last update: 2/29/2012 9:09:50 AM (MORE TO FOLLOW) Dow Jones Newswires (212-416-2400) February 29, 2012 09:09 ET (14:09 GMT)

 

So the mega bulk sale is for 2500 properties.  At this pace, it will take 19 mega bulk sales to get rid of one quarter of REOs.

In the meantime, Reuters reports:

 

“Fannie Mae Will Request $ 4.571B Of Funds From Treasury”

Fannie Mae (FNMA.OB), the biggest source of money for U.S. home loans, said on Wednesday it would seek $4.6 billion in additional federal aid after reporting a fourth-quarter loss.

Earlier on Wednesday, the government-controlled mortgage finance company posted a loss of $2.4 billion for the quarter ended December 31. That pushed Fannie Mae's loss for 2011 to $16.9 billion from $14.0 billion a year earlier, the company said.

Fannie Mae's pre-2009 book of soured loans and declining home prices continue to make it difficult for the company to turn a profit.

"We think that we have reserved for and recognized substantially all of the credit losses associated with the legacy book," Chief Financial Officer Susan McFarland said in an interview.

The government seized Fannie Mae and Freddie Mac, which together back roughly half of all outstanding U.S. mortgages, in September 2008 as losses from failing home loans threatened the agencies' solvency.

Fannie Mae has borrowed more than $116 billion from the government and paid almost $20 billion in the form of dividends. [that makes a lot of sense, ed.]

"We're very focused on returning to profitability so we don't have to draw (from Treasury) to cover operating losses," said McFarland, who is also an executive vice president.”

 

 


 

 

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