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Fannie Mae Homepath Financing: Conspiracy theory or epitome of negative real estate practices?

By Francisco Orchilles

Real Estate Agent with Keller Williams Classic Realty

April 02, 2013 02:40 PM

After years of negative gains for the Orlando real estate market, homes prices are finally on the rise again and the housing recovery is picking up steam across the country. This signals good news for Fannie Mae, a government controlled company that issues and guarantees mortgage backed bonds, who owns a majority of defaulted loans originated in the housing bubble era.

Many first time home buyer's are entering the market to find themselves in a figurative war zone where home sellers are receiving multiple offers on their properties and home buyers are being forced to offer above list price in order to win a bid. Orlando home owners are experiencing the beginning of what is called a seller's market, and rightfully so! They have waited years to see a turn in the real estate market and after much patience, they are finally seeing a light at the end of the tunnel.

Home prices in Orange County, FL went up 20% in 2012, and they show no signs of letting up in 2013. This dramatic gain in real estate home values alongside an almost frantic desperation felt by home buyers when they see offer after offer falling through, is vaguely reminiscent of pre-housing market crash sentiment. All I have to say is, thankfully we have appraisals to stop home values from going out of control again and inflating the real estate market! Or do we...

I guess that the real estate market is not increasing fast enough for Fannie Mae's insatiable appetite! Let me rewind a bit and explain what I mean.

In 2011 and 2012, lenders seemed to open up a bit when working with home owner's who were upside down on their mortgages and trying to short sale their homes. They had more foreclosures than they could deal with and a short sale offered a win win for both parties. The home owner would be spared the damaging effects of a foreclosure and the lender would avoid foreclosure proceedings.
When an offer is accepted on a short sale, the document is sent to the bank for review, and hopefully acceptance. The short sale lender will have a BPO, or broker price opinion, carried out on the property in order to find out if the offer on the table is in line with the current market value. Most lenders will counter with a price that is closer to the real market value, if the offered priced is too low.The lender may try to get a little more than market value, especially if the offer is cash, but they know that ultimately, the appraisal will determine if the price is to high or not. Fannie Mae has decided that market value is insufficient for them, and they are requiring that all short sale transactions be closed at 15%-25% over market value.

Under normal circumstances, the buyer would be able to collect recent sales to justify a fair market value, submit a value dispute, and the short sale lender would lower their required net proceeds from the sale and the transaction would close.

Fannie Mae refuses to be fair. Why you may ask? Simple! If the buyer is not willing to pay their inflated price, the home then becomes part of Homepath, the financing arm of Fannie Mae.

One of the most notable differences of a Homepath mortgage is the lack of an appraisal requirement. If they cannot get the price they want in the short sale process, Fannie Mae will simply foreclose on the home, and then re-list the property, offering Homepath Mortgage Financing to any lucky buyer willing to overpay for a home.

To add insult to injury, Fannie Mae is now consistently overpricing their homes in Orlando and letting them sit on the market until someone submits an offer using Homepath Financing. I hear complaints from many different Realtors about how they have submitted an offer, over list price, with little to no contingencies, on a Fannie Mae property, and the offer was rejected. Why would they reject such an offer? Because they know it won't appraise and they don't care.

Regardless of whether or not Fannie Mae is in the wrong with their bold defiance of traditional real estate practices, it is seen day after day. It IS boosting up home values, however, and as a Realtor, I cannot complain to much about that. After all, higher prices means more money in my pocket. In the end, however, the consumer is the one that suffers. Is it possible that the families who overpay for a home today, will be able to recuperate their initial investment? Of course! Historically, home prices will keep rising and they will eventually have equity in their homes. Unless of course, in a worse case scenario, this unethical overpricing of homes inches the country closer and closer to another housing collapse. But that can't happen again, can it?

Take this information and be cautious when trying to buy a Fannie Mae home, or when trying to complete a short sale on a Fannie Mae backed mortgage. In either scenario, it is important to have a knowledgeable and trustworthy real estate professional helping you through the process. Good luck!

Francisco Orchilles, Realtor | First Time Home Buyer Specialist | Keller Williams Classic Realty | 5979 Vineland Rd. #101 Orlando, FL 32819 | forchilles@gmail.com | 407-925-4552 | www.orlandorealtylist.com | www.orlandohouseprices.com

This article was originally posted by Francisco Orchilles on www.orlandohouseprices.com

About Francisco Orchilles

Francisco Orchilles is a Realtor® who specializes in Short Sales, First Time Home Buyers, and Historic Homes with Keller Williams Classic Realty in Orlando, FL. Ask Frank a real estate question. You can also find Frank on Trulia and Zillow!