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FHFA to Bulk-Sell Foreclosed Homes

22 March 2012 - News - Editor

As home foreclosures continue and Americans are forced to find alternative housing, the rental market in major centers is reportedly taking strain in keeping up with the demand. This may very well be alleviated by the bulk sale of Fannie Mae and Freddie Mac-owned houses to investors-turned-landlords. It has been reported that among the high-profile investors showing an interesting in the bulk buying of foreclosed homes are OakTree Capital Management, Starwood Capital, Och-Ziff Capital Management, and TPG Capital.

The Federal Housing Finance Agency – regulators for Fannie Mae and Freddie Mac – anticipates a good response in the April sale of the first 2,500 foreclosed homes in Chicago, Atlanta, Phoenix and Los Angeles. When the FHFA initially announced its intention to sell these properties in bulk, it reportedly received positive responses from more than 4,000 investor groups, nonprofit organizations and other organizations. Senior associate director for FHFA housing and regulatory policies noted that many of the properties up for sale are being rented already, and that it is preferable to have people living in the homes than for them to stand vacant. If the first sell-off of foreclosed homes proves to be successful, FHFA may consider selling off batches of distressed mortgages held by the two agencies.

Carrington Capital Management, together with OakTree Capital, has reportedly created a US$450 million fund to buy into the new initiative. In a marketing document Carrington reportedly states that it anticipates generating an annual yield of 7 percent from rental income. The company’s long-term strategy would be to package the fund in a real estate investment trust to be traded publicly. Projected internal rate of return are 25 percent over three years, based on the success of this strategy. Other investors looking at cashing in on foreclosed homes note that the return on investment is more likely to be between 8 and 15 percent – a rate which may nevertheless look attractive to wealthy investors, considering the current environment in the United States where US Treasuries are yielding below 2.5 percent on a 10-year Treasury note.

The fly in the ointment for wealthy investors may be that Main Street Americans are battling to make ends meet, and the potential for bad publicity and picking up a slum-lord reputation may not be worth the return on investment. With "Occupy Wall Street" having garnered a lot of attention and sympathy, some economists feel that moving these physical assets – the foreclosed homes – over to the infamous "one percent" may not be the wisest move. Investors will no doubt be watching with interest to see the outcome of the first batch of sales by the Federal Housing Finance Agency to take place in April.


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