The 2008 financial crisis was a serious blow to the economy for many, many reasons, but one of the central catalysts was the Real Estate Bubble Burst. This happened, primarily, because hundreds of thousands of people took out subprime mortgages, and defaulted because they were allowed to very expensively finance homes that they could barely afford. This was due in part to big banks’ unregulated mortgage lending, but also due to a huge drop in the the stock market earlier in 2007. This ended up affecting not only real estate agents, but home sellers and potential buyers, new college graduates, people in the country on long-term visas, and the automotive industry. Layoffs happened all over the country, and the unemployment rate began to rise nation-wide.
The State of the Market
2008 wasn’t a very good year for many people, but the market has recovered since then, partially because of natural upturns in the market, but more because of economic policies put into place to save various industries. Among the policies were the controversial Wall Street Bailouts, an act of Congress that continues to cause debate to this day. These bailouts, though, were for big banks – the very banks on which hundreds of thousands rely to pay their mortgage and monthly bills. Though the bailout wasn’t loved by all, it was, in part, a necessary move to keep further damage from being done to the already-fragile US economy, and the housing industry started to bounce back. Except in cities that were very crowded, like Los Angeles, Chicago, or New York, the recovery for home prices was slow, but steady. Larger coastal cities struggled more with unemployment than they did with very low wages, and the cost of housing actually began to rise as people were laid off, and left their hometowns for other cities so that they could have more opportunities to work.
What Is Fannie Mae?
Enter Fannie Mae. Fannie Mae is actually a sort of slang name for the Federal National Mortgage Association, or FNMA. The name, ‘Fannie Mae’ is born of that shorthand version of the organization’s name. The purpose of Fannie Mae was two fold: first, Fannie Mae purchased mortgages on homes in foreclosure. This meant buying the mortgages directly from the banks that held the mortgages. During the 2007 Financial Crisis, unemployment was high from layoffs and job migration, so people were beginning to fall behind on their mortgages and on their bills. This resulted in a rising number of foreclosed properties, and far less income for local governments that rely on that tax money to continue operations. To provide an easy way out of a nearly-impossible situation, Fannie Mae essentially bailed people out of their foreclosed homes, releasing them of the debt. Fannie Mae’s secondary function was actually to help to get the housing market back up and running smoothly by offering these homes to buyers at a competitive price. These are not traditional mortgages, though – homes purchased in foreclosure might or might not actually be move-in ready, the home could have serious problems, or a list of other considerations that have an impact on how this type of mortgage is classified. Instead, Fannie Mae is actually considered a leader in the secondary mortgage market.
The secondary mortgage market is the place where home mortgages and servicing rights are bought and sold between lenders and investors. As one might assume, the market is very large, can be subjective, and involve exchanging large amounts of money at wildly varying rates.
In response to the Mortgage Crisis of the late 2000s, Fannie Mae established HomePath, a database of all of the foreclosed properties for sale through Fannie Mae. This online collection of all homes owned by Fannie Mae contains listings from all over the country, and can present prospective buyers with a large variety of purchasing opportunities. Unlike traditional listings, families and individuals purchasing the homes for their own private use have the first chance at a newly-listed home; after 20 days, however, Fannie Mae allows investors and other agencies to make a bid for the home. Clearly, large homes in desirable areas are the first to go – these are extremely rare, and most any discount on these types of properties is a bargain. Whether you’re purchasing a home through Fannie Mae, or buying one through a traditional mortgage, a home will normally be on the market for a couple of days, perhaps a couple of weeks, before being sold. There may even still be a small, short bidding war among qualified individuals.
Fannie Mae is a rare company – a company with a mission to get foreclosed homes into the hands everyday buyers at an affordable price. To do this, and to keep proper records, Fannie Mae contracts realtors, appraisers, and a variety of other experiences real estate professionals in a given area. These individuals live and work in the areas of the homes that are owned by Fannie Mae. They provide all of the information to which Fannie Mae offices may not be able to easily access, while stimulating the local economies by putting real estate professionals to work. And with their information, Fannie Mae is able to understand median home prices in the area, how each private property compares to other surrounding properties, the state of the home’s structure and wear, and the appraisal value. Homes sold by Fannie Mae will be sold for as much as 15% below their fair market value, one of the many ways that Fannie Mae has invested in its mission to get qualified buyers into homes.
Fannie Mae protects their mission by not only holding off on the ability of agencies and investors to purchase a property before a homeowner, but also by paying at least a portion of the closing costs for each property. This can be very helpful for homebuyers looking for the best possible deal for their money. Fannie Mae, on occasion, will finance home improvements to a property, especially a property that is badly damaged, or a property that isn’t considered legally livable. While it is rarely the case that Fannie Mae will make expensive or extensive upgrades to a property that they intend to sell, it is far from uncommon for a little bit of capital from the company to be invested back into promising properties that need a boost to be worthy of a tough market.
Fannie Mae Considerations
The fewer foreclosed homes left on the market, the higher the value of other homes in the neighborhood, and on the market. Though Fannie Mae is invested in making more homes more accessible to those ready to purchase a home, there’s never a guarantee that an application will be accepted. Like any lending organization, or any financial institution, Fannie Mae won’t be willing or able to qualify every mortgage application that is submitted for consideration. There are certain credit scores or other background tidbits that may cause Fannie Mae to deem your application ineligible. But with Fannie Mae, it is still much easier to get a mortgage for your foreclosed home, and the number of foreclosed properties that are available all over the United States remain high.
Some within the company dream of the day that Fannie Mae goes out of business, and it has nothing to do with a terrible working environment, or low pay for the employees. Fannie Mae is also in the business of foreclosing homes, this can be a difficult fact to face. Even when someone is lucky enough to finally buy a home, Fannie Mae may not retain exclusive rights to a property, but instead, to sell it to another agency – and sometimes, these agencies don’t provide a good experience for homebuyers. Complaints to Fannie Mae revealed a culture of luring people from lower socio-economic backgrounds into buying deeply flawed and faulty homes, and making them totally responsible for any major repairs and renovations, all without clearly expressing what the buyer was actually getting. As anyone can imagine, this can have a devastating effect on families and individuals who are homeowners. Fannie Mae stepped in just a few short years ago, eliminating their relationships with the predatory home lenders, and making sure that the number of incidences like that were reduced, and the remaining cases thoroughly investigated.
Regardless of whether or not you’re sure that you’re interested in a traditional mortgage, particularly for first-time homebuyers, it’s always a good idea to consider foreclosures. Make sure to first consult a local real estate professional. In addition to the homes for sale through Fannie Mae, they will be able to guide you to other resources for those who are open to purchasing a foreclosed home. A real estate agent will also be able to guide you through the process of purchasing any home, foreclosed properties included. And just as you would with any other home purchase, make sure that your credit history is clear, debts have been minimized, or eliminated, and you are ready to go with a down payment and a ready pen.
INTERESTED IN WORKING WITH US?