Fannie REO Inventories Slowly Subsiding

by Chicago Agent

REO inventories fell at Fannie by 27 percent from Q4 2010 to 2011.

REO inventories for Fannie Mae fell by 43,961 units in 2011, as it disposed of more distressed units than it acquired, according to data it released yesterday.

The GSE sold 243,657 units in 2011, while overtaking just 199,696; those totals are a near inverse of 2010, when Fannie acquired 262,078 units and unloaded 185,744. For the fourth quarter of 2011, Fannie took over 47,256 units while selling 51,344, resulting in 27 percent less inventory than in 2010’s fourth quarter.

In comments related to inventories, Fannie stated that is has been leasing its REOs to occupying tenets to great success.

“We currently lease properties to tenants who occupied the properties before we acquired them into our REO inventory, which can minimize disruption by providing additional time to find alternate housing, help stabilize local communities, provide us with rental income, and support our compliance with federal and state laws protecting tenants in foreclosed properties,” Fannie stated. “As of December 31, 2011, over 9,000 tenants leased our REO properties.”

Frank DeNovi, a sales associate with Coldwell Banker who has sold REO properties for 25 years throughout the Chicagoland area, said that the lower inventories make sense, considering all the resources he has observed Fannie Mae apply to its REO inventories, from opening a Chicago office, to increasing staff, to incorporating more agents to handle the properties.

DeNovi did clarify, though, that Fannie may be recruiting more agents, but the REO market is not for everyone. “You must do it 100 percent,” he said, referencing the copious amounts of inspections, maintenance and even rehabilitation that many of Fannie’s REO properties require – and all under a strict deadline enforced by the GSE.

DeNovi also said that his inventories are up substantially in the last three months, as his office has acquired more properties in that time span than it had the previous 10 months. Interestingly, Calculated Risk’s Bill McBride, in a post on Fannie’s inventories, had expressed a much different prediction, writing that though foreclosures may increase in 2012 (especially with the robo signing settlement a done deal), REO sales will remain steady.

“Most lenders (have) sold more REO than they acquired in 2011 – not just Fannie and Freddie,” McBride wrote. “A common misperception is that when the lenders start foreclosing again at a higher level, that there will be a surge in REO sales. Fannie could increase acquisitions by 20 percent, and keep the sales pace the same, and their REO inventory wouldn’t increase.”

In further comments, Fannie cautioned that in judicial foreclosure states – areas where foreclosure procedures are handled in court in front of a judge – REO inventories would certainly take longer to reduce.

“Foreclosures generally take longer to complete in states where judicial foreclosures are required than in states where non-judicial foreclosures are permitted,” Fannie stated. “For foreclosures completed in 2011, measuring from the last monthly period for which the borrowers fully paid their mortgages to when we added the related properties to our REO inventory, the average number of days it took to ultimately foreclose ranged from a low of 391 days in Missouri, a non-judicial foreclosure state, to a high of 890 days in Florida, a judicial foreclosure state.”

DeNovi said that inventories in Illinois (which is a judicial state) are a year behind other state’s inventories, and that it will probably take another year for the state to work through its backlog of foreclosures.

The relationship between the courts and foreclosures has been a controversial one since the housing collapse, and it received a shot in the arm this week when a bill was introduced to Congress to extend principal reduction powers to judges for bankruptcy proceedings.

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