Fannie Mae

How to make an offer on a Fannie Mae home

This is a post about how to make an offer on a Fannie Mae-owned (foreclosure) home in metro Phoenix, Arizona where I’m a licensed Realtor. If you’re reading this from out of area, or long after Summer 2011, please consult a professional in your area.   Need a metro Phoenix-area Realtor? Contact me!

To make an offer on a Phoenix-area Fannie Mae home at present, you need at least the following forms, completely filled out:

  • REO coversheet
  • Owner Occupant Certification
  • Notification to Listing Agent
  • Fannie Mae Real Estate Purchase Addendum
  • AZ State Purchase Offer/ Contract
  • Agency form
  • Loan PQF

I submitted a Fannie Mae purchase offer this morning for one of our buyer clients -- it was 28 pages long!

Several of these forms you get from the Listing Agent (that’s the seller’s Realtor). The Loan PQF (Pre-Qualification Form) you have to get from the Buyer’s loan officer, and it must be dated within the past 1 to 8 weeks or so.

Currently, Fannie Mae is requiring that the Buyer complete their Fannie Mae Real Estate Purchase Addendum. That’s a fairly new requirement; it used to be buyers didn’t fill in that form at all but rather waited for Fannie Mae to send it once the buyer’s bid had been accepted. Be careful with this form! It has a couple really vital “trigger dates” in it, and the Buyer has to fill in those dates. A trigger date is my term for a date that other contract deadlines count from. For example, the inspection period counts from the Acknowledgement Date which is different from (but closely related to) the Effective Date. Fill in the wrong dates on these blank trigger date fields and you can seriously screw yourself up.

Another thing to be carful with on the Fannie Mae addendum – the form uses the terms Settlement Date and Expiration Date interchangeably, but never use the term Closing Date, which I find utterly stupid. The way the government’s attorneys wrote the form, if the closing doesn’t happen on the Settlement Date, the deal expires, per the Expiration Date. But the addendum doesn’t say what happens then! Does the buyer lose their Earnest Money? Does the deal just close on the next business day? Who knows! The Addendum doesn’t say.

Oh, and don’t forget to specifically ask for the Fannie Mae Incentive of 3.50% of the purchase price from the Seller to cover some of the buyer’s closing costs, by adding that request to your purchase offer. If you don’t ask, you won’t get the closing cost assistance! You also have to know when Fannie Mae’s offering that incentive; they don’t do it all the time.

Confused yet? You’re not alone. If you’re a buyer or potential buyer in the metro Phoenix are in Summer 2011 you’re bound to run into Fannie Mae homes. Fannie Mae’s got so many homes for sale these days, it’s like shooting fish in a barrel.  As the commercials say, “Don’t attempt this at home alone kids!”  

You really need an experienced Realtor working on your behalf when you’re trying to make an offer on a Fannie Mae home. The paperwork is just so confusing and Fannie Mae keeps changing the rules about which forms they want and how you have to fill them out.  Hire a Realtor!

Need a Realtor? Read all about Heather and Chris, authors of this site and experienced Buyers’ Agents.  Then contact us and hire us; we’re happy to help.

How long do banks take to reply to an offer on an REO foreclosure home?

I wanted to use the title “when banks hold up their own closings”.  I also considered titling this “I hate banks.”

The short answer is “banks reply whenever they feel like it.” The longer answer is: usually, in Metro Phoenix, in Fall/Winter 2010, banks take about 2-3 business days to reply to an offer. Once you’re under contract and in escrow the bank’s reply time often slows down considerably. Try 2-3 weeks.

This is an email trail between myself and the Realtor representing a bank on an actual transaction currently in progress.

Me, on Nov 29 at 5:55pm:
The buyer's underwriter is ready to issue final approval but needs seller's signature on Amendment changing price. Still don't have that and it could hold us up. Otherwise, we're aiming to close on Mon, Dec 6 as planned.

Bank’s Realtor, on Nov 30 at 1:03am:
This addendum was submitted to seller on 11/17/10 when I received it. All we can do is wait for it to go through Fannie. It is reviewed by 4 people each of whom can take up to 3 days, not including weekends and holidays.

I will send the seller signed copy just as soon as I have it.

(note that Realtor was working at 1 o’clock in the morning! Being a Realtor is not all sweetness and light and easy money)

Me, on Nov 30 at 6:24am:
Ok, understood.  Just as long as seller knows that Buyer's lender is at a stand-still and Seller is holding up closing. I'm sure you know, but wanted to put it in black and white for seller's 4 people who have to review. thanks.

again, note the timestamp. Don’t go into real estate unless you consider yourself a workaholic.
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Fannie Mae is cost cutting

Just got a newsflash via my email subscription to Inman.com, a real estate industry news source.

Fannie Mae has launched a pilot program in three markets in which it's only accepting offers on properties in its real estate owned (REO) inventory when they are first submitted online by agents representing buyers.

Test markets are Orlando, Detroit and San Diego.

According to Fannie’s press release, their goal is to “provide increased transparency and efficiency in the REO bidding process by providing buyer's agents with offer confirmations and allowing them to track the status of submitted offers.”

Fannie also says the move is an attempt to stamp out "property flopping" -- a fraudulent practice in which listing agents receive multiple offers but withhold one or more of those offers in order to help an investor purchase the home at a lower price.

Frankly, I think Fannie’s stated goals are complete B.S.

When I place an offer on a Fannie Mae property for a buyer client, I already get an email or verbal confirmation the offer was received. It’s true that tracking the offer status isn’t transparent. But the buyer & I either get a “yes” or get no answer. That’s not ideal, but it is simple. I don’t know about flopping. I suppose it could be a problem.

I think Fannie Mae is trying to do one thing, and one thing only: cut their operating costs. By cutting out the listing Realtor they’re lowering their cost to sell by at least 2% or 3% per home. With Republicans marching into Washington in January to take control of the House, the clamor to dismantle Fannie and Freddie will get louder than ever. I think this is a preemptive move to help The Two F’s claim they’re not as fiscally troubled as conservatives think they are, and perhaps bolster the Obama administration’s call to replace Fannie/Freddie with another type of government backed mortgage entity.

Time will tell!

If you hate the idea of government-backed mortgage programs, it’s interesting to note this: now that Fannie & Freddie are essentially government-owned, they’re free of the profit motive. That means they don’t have to chase market share and profits, which is what got them into trouble in the first place. If they were operating in the black but not keeping up with the rest of the mortgage market, wouldn’t that be acceptable?

If you’re a conservative, answer me this:

Why shouldn’t low-income people have the chance to own a small home? Do some people not “deserve” a home? Are only the middle class and above worthy of owning a home?

For most Americans, their home is the most valuable thing they own and is the way they provide retirement income for themselves. If nobody helps low income families buy homes and build wealth, aren’t we just going to support them on the taxpayers’ dime when they’re old?

What if Fannie & Freddie morphed into a small government-owned program, that provided budgeting & home ownership classes to low-income folks and gave them a chance to become responsible homeowners someday? What if the entity providing these mortgages was a charity? Or a church? Would that change your mind? 

What if the entity providing these mortgages was a for-profit business? Would you buy stock in that business to make their business model viable? Low income folks are usually also less educated, and more easily taken advantage of. So who should decide how much profit this fictional future mortgage company can make off of the low-income housing sector? Should it be unlimited?

I’m not trying to start an argument. (altho that might be kinda cool since we never feel we have enough blog traffic)  I’m seriously trying to get conservatives to talk to me in something more detailed than talking points. I’m sick up to my eyeballs of conservative talking points.  Chime in!

Jumbo mortgages

A jumbo mortgage is a home loan that’s too big (in dollars) to be sold to government backed agencies (Fannie Mae, Freddie Mac). The upper dollar limit for jumbos varies geographically but the general rule of thumb is a loan larger than $417,000 is a jumbo.

It seems to me that people who have money continue unaffected when there’s a deep recession in the American economy. I always joke: people with money are always economically safe, the truly poor can rely on welfare and charity, and the working & middle classes buckle down during recessions because they know they’re the ones who are really going to take a beating.

Be that as it may (or not)…   In an odd twist on normal, jumbo mortgages have suffered during the Great Recession. Usually they account for 18% of the real estate market, but according to a new Wall Street Journal (WSJ) report, jumbo mortgages were only 5% of the real estate mortgage market in 2009 and 2010.

Interest rates for jumbo mortgages have been high too, but are now back down to earth. The WSJ reports the average jumbo rate through the week ended Oct. 29 was 5.11%, down from about 6.14% on Jan. 1, 2010

It’s my experience that people who can afford to take out a jumbo mortgage expect to get a mortgage easily, with little trouble and few questions about their financial life. Beware, the New Normal is different, even if you’re wealthy. My favorite brokers and the WSJ story report that mortgage underwriting continues to be strict: Borrowers still need excellent credit profiles and must provide complete documentation and verification of income, unlike several years ago. Down payments of 20% to 40% typically are required.

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hat tip Relator John Wake for the inspiration and source article for this post

Fannie and Freddie caused housing crash?

Did Fannie Mae and Freddie Mac cause the housing debacle? Before we get to the answer, let’s all get on the same page about what Fannie, Freddie and FHA actually are.
Neither Fannie Mae, Freddie Mac or FHA is a bank, they don't lend money.  FHA insures loans and Fannie Mae and Freddie Mac are investors, they purchase loans from the banks who originate them as soon as they are "funded".  (source: the Examiner.com)

Look at the charts below and I think you’ll find that the people who scream that Fannie Mae and Freddie Mac caused the housing crisis are simply wrong. How can two companies that had the smallest share of the mortgage market have caused anything in that market? Other lenders - notably Bear Stearns, Lehman Brothers and the rest of that gang - were involved in the subprime mortgage world far deeper than Fannie and Freddie.

I’ll leave it to each of our lovely readers to decide whether the Fannie/Freddie bashers are stupid, lying or practicing world-class political spin.

mortgage originations by originator (I originally found these charts on Barry Ritholtz' The Big Picture blog)

See how the number of mortgages issued by Fannie and Freddie during the boom years of 2004-2007 dropped dramatically?

Meanwhile the number of mortgages issued by ‘private label’ lenders increased sharply. “Private label” in this context means companies like Lehman Brothers, Bear Stearns, Merrill Lynch, Goldman Sachs and Morgan Stanley.

Here’s the same data divided by mortgage type:

Mortgage originations by product type, 2003-2010

See all those subprime mortgages being offered by companies that weren’t Fannie and Freddie?

See 2004-06? That was the height of the boom; the market cooled after that. Fannie and Freddie lost market share during those years and Lehman, Bear and their friends made more mortgages every year.

This isn’t to say that Fannie and Freddie don’t have their problems. They do. They just aren’t guilty of causing the housing crisis.