The Federal Housing Finance Agency’s bulk sales plan, whereby certain banks will allow third party institutional investors to purchase multitudes of bank owned (REO) loans in bulk, is moving ahead at full speed, and is doing so quietly.
Against pleas from members of Congress, the California Association of Realtors (C.A.R.) and others involved in the real estate industry, this program does not offer much for the market nor for individual communities and neighborhoods. In allowing institutional lenders (the identity of which is not being disclosed) to purchase this lender “shadow inventory” (that inventory that is owned by the lenders but not yet on the market), there are several threats to the housing market that are concerning:
• It could bring comparable prices down. Just at the time when home prices are starting to come up, and when demand is high with low inventory, selling large numbers of bank owned homes at discount prices could have significant effects on neighborhoods.
Also alarming, current market data may not have been used. According to C.A.R., old market data may have been used to value the homes that are being sold. With a market that is moving upwards this could create a big problem in some areas, establishing lower sales prices for homes, which in turn bring down the values in those neighborhoods. I know that if it were my neighborhood, and all of a sudden 10 homes sold in the area for way under current comparative market value, I would certainly not be happy. This could be a big problem in areas such as the Inland Empire (Riverside County).
• Increased losses to taxpayers. If these bank owned properties are sold in bulk at discount prices, the burden will fall upon us, the taxpayers, via increased losses on the sale of these homes.
The solution is to put these homes on the market as traditional lender-owned sales. With the market prices trending upwards and the lack of inventory, this is a perfect time to do so. It seems asinine to not consider such an option, as it will save taxpayers, keep the market moving, and keep prices moving up instead of down. And we can’t forget that if these properties sell at higher prices, the lenders also benefit as well!
If you agree that bulk REO sales should not be allowed in California, please contact FHFA:
Federal Housing Finance Agency
400 7th Street SW
Washington D.C. 20024
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