Fannie Mae And "Homepath Financing" is bad for our long term market correction

The federal government is doing their best to stop the housing market decline, but are they really going about it in a manner that is not hurting our economy in the long run?

60% of our local REO listings are Fannie Mae owned assets. These homes are priced 10-30% above current market value. Current market value is supported by active & recent sold comps in the subject’s neighborhood. Fannie Mae constantly prices their assets at absurd prices, and when you challenge their price, you will be shocked at their response.

I recently made an offer on a Fannie Mae owned property in my area, which was listed at $243,000. The actual value of the home was $180,000, as it had an unfinished remodel, and was an older tract home in central Temecula. I even had an appraiser pull comps to support my conventional offer of $180,000. My offer was rejected without so much as a counter offer. When I spoke to the listing office, their response was as follows: “If you really want the home, pay $243,000 for it, utilize homepath financing, and they will lend without ordering an appraisal on it” My jaw dropped upon hearing that response. They acknowledge they are selling assets at puffed up inflated values, but their answer is to utilize their lender, and to overlook the fact that you are paying $63,000 above the current market value.

How is this protecting the home buyers? The people that work hard daily to provide for their families? To advise them to pay over market value for a home in an unstable market. What happens when that family relocates jobs in 2 years and goes to sell the home, only to realize it is worth $190,000 (2.5% yearly appreciation). They will then be faced with 2 tough options… rent it out for a loss, or lose the home to foreclosure.

So to sum it up, rather than just let the market correct itself, the government chooses to pay off all major banks to hold back foreclosures, and let the shadow inventory rise to an all time high, while at the same time releasing homes priced an average of 20% above actual market value, again, with their reasoning being if you utilize their “homepath financing”, they will not worry about an appraisal. So let’s not educate buyers, instead letting them make bad financial decisions, which can hurt them down the road if they need to sell, or if their needs change.

Did I also mention homepath financing rates on average are 1% higher than traditional banks? They also don’t care about condos with insolvent HOA’s! Another huge problem when a homebuyer goes to resell... Because most lenders do not lend on complexes with HOA’s in trouble, simply because the default rate on loans in that complex is typically higher than normal.

So is this really the solution? To force the market up by advising homebuyer’s to pay 20% over market value simply to get into a home? To sweeten the pot for agents showing government owned properties by offering 4% commission out? To offer buyers 3.5% in closing costs to basically make it a cost free loan? Sounds to me like the government is trying to force home prices up, which in turn is causing homebuyers to make bad choices and could inevitably set our market back another 3-5 years.

Thoughts? Comments? Please Share!