With the foreclosure machine starting to pick back up, many have wondered exactly how many government foreclosures are out there – distressed properties that have been lost by their former owners and are now owned by Fannie Mae, Freddie Mac, or a host of government agencies under the auspices of the Dept. of Housing and Urban Development.

According to recent numbers, Fannie Mae and Freddie Mac combined hold more than 180,000 repo homes that have been taken via foreclosure. Even though that number has dropped by 18% from the second quarter, it is still quite high – way higher than a healthy market would dictate.

Additionally, each home is sold with an average discount of 56% of the unpaid balance – not just 56% of the full market value of the home. That means incredible discounts are to be had through foreclosure investing with the government and Fannie Mae and Freddie Mac.

Both government-sponsored enterprises are “owned” by the federal government, and with a relative organization, Ginnie Mae, in turn own the mortgages for millions of homes across the nation – approximately 90% of all home loans written in this country.

Fannie Mae did manage to sell more REOs than it owned, by a margin of 13,000, and is on track to clear out its inventory of foreclosed homes for sale in four years. Freddie Mac, by contrast, would take 15 years at today’s rates to clear out the inventory of foreclosure listings, even if more foreclosures did not enter the pipeline as they currently are.

It will be interesting to see how both agencies handle the influx of foreclosures and distressed properties that will hit the market soon as a result of a massive backlog and virtual processing freeze instituted over a year ago by banks after the foreclosure scandal hit the news. Neither were designed to function in such a role; they were originally intended only to ensure liquidity in the real estate market by purchasing original loans, thereby giving banks the financial freedom to turn around and create additional loans.

Instead, the government has become a landlord and property manager, and is underprepared for the task.

Nevertheless, a flood of foreclosures will hit the market and drive prices lower, creating numerous buying opportunities for investors who position themselves to take advantage of the situation. That could very well include receiving substantial discounts from swamped federal agencies to take foreclosures off their hands – which means enormous profit.

A recent report indicates that the National Association of Realtors spent over $7 million in the second quarter alone in lobbying efforts. From Congress to the Federal Communications Commission and Veterans Affairs, the National Association of Realtors targeted a wide variety or government organizations in their lobbying initiatives that focused on everything from foreclosures and taxes to industry regulation.

One of the focuses of the National Association of Realtors involves the maximum loan sizes that Fannie Mae and Freddie Mac, as well as the Federal Housing Administration will guarantee. Currently, the maximum loan size is $729,750. However, as of October 1st that number is set to drop to $625,500. Although this may not seem like a big deal to states with relatively low home prices; however, for areas with higher cost of living, such as New York, a fall like this could mean that many people could not receive loans for their homes.

With the continuous battles between the Democrats and Republicans, it is no wonder that the lobbyists are not having a hard time getting anything passed in Congress. With the continuous struggles over raising the debt ceiling that led to a decline in the United States financial scores across the world, raising the loan limit with a Republican led House may be nearly impossible. However, even Obama is willing to allow the limit to fall.

So the questions is—are organizations like the National Association of Realtors wasting their money in lobbying efforts with such a divided Congress? The answer could very well be "yes" If something as simple as raising the debt ceiling has a hard time passing Congress, how can key real estate initiatives even have a shot?

Either way, props to the National Association of Realtors for doing their part in trying to pass key initiatives to help homeowners and the real estate industry in such a pivotal real estate market. Hopefully their lobbying efforts will pay off and everyone in the country will reap the benefits.

The federal government’s forays into the real estate market have met with mixed results. Loan modification programs that cost billions haven’t had the impact many expected, and the (justified) investigation of fraudulent foreclosure practices with several big-name lenders has run into quicksand.

Then again, the federal government scored a home run with its first-time homebuyer’s tax credit in 2010 that led to a spike in new and existing home sales and temporarily propped up the housing market, so maybe a new venture – one involving mortgage loan refinancing – is a good idea after all.

According to news released today, the federal government is considering a plan to refinance mortgages at today’s lower rates – around 4% – through Fannie Mae and Freddie Mac, thereby potentially saving millions of Americans a lot of money on their home loans.

This could have a stimulating effect on the economy because lower interest rates equal lower monthly payments – which equals more money in the pockets of Americans to save or, more likely, spend.

Of course, such a plan, if fully implemented, would likely cost an obscene amount of money – which might not fly if the deficit-obsessed Congress has anything to say about it. The inevitable conflict over spending could be postponed if the administration uses funds that have already been appropriated; otherwise, any new appropriations for the program would likely run into a massive roadblock with the Republican-dominated House of Representatives.

This plan is likely part of a larger plan to stimulate the economy and spur job growth, and might be a key component of Obama’s much-speculated jobs plan that he plans to unveil in September.

What impact would this have on the market, and how are investors, homebuyers, and homeowners impacted? In theory, homeowners would benefit the most because they would directly save money on their mortgages that were taken out when the interest rate was much higher. Mortgages that date from 2005 at the latest would particularly be impacted, but even relatively-new mortgages would benefit and save money – provided there is no means-based testing of eligibility for the program.

Investors and homebuyers could also benefit, though, because one perceived benefit – stability – would help the real estate market ultimately recover. This means higher home values – which means more profit for investors and homebuyers who lock in their upside potential by buying relatively soon.

In the end, this plan is mostly built on educated speculation and is not a sure thing. With that being said, it is exciting to see what comes of it – and how the real estate market will respond if it does indeed come into play.

What’s Going On with Fannie Mae and Freddie Mac?
The real estate market, at the top, resembles the NBA: Crowded at the top with plenty of big-name players who occasionally find themselves in controversy and drama.

Two of the biggest players – Fannie Mae and Freddie Mac – have found themselves in the news a lot lately, leading some to wonder what, exactly, is going on with two of the largest taxpayer-supported entities in the country today.

Fannie Mae in Hot Water over Forced Foreclosures

This week, it was revealed that Fannie Mae has been quietly pushing foreclosures instead of loan modifications for many troubled properties in Michigan. Sources have indicated that Fannie Mae was not only encouraging foreclosures, but actually threatened penalties against officials who were, in the corporation’s eyes, not moving foreclosures along fast enough.

At the same time, Fannie Mae was testifying that it was doing “everything in [its] power” to keep foreclosures from happening.

Fannie Mae and Freddie Mac were also found to be unloading foreclosures at significant discounts, sometimes selling discounted foreclosures for as much as 66% of their market value.

Michigan officials reportedly are incensed and are considering legal action against the government-sponsored enterprises. It is not clear what impact that will have on the mortgage giants; chances are, they will continue to function as normal but will have their foreclosure operations severely curtailed. This is good news for homeowners, who will probably see a temporary reprieve from foreclosures if their mortgages are owned by either of the two companies.

Fannie Mae and Freddie Mac Own Over 200,000 Mortgages – And Counting

There is also news that Fannie Mae in particular has dramatically grown its real estate portfolio to include somewhere in the neighborhood of 200,000 foreclosures between it and its counterpart Freddie Mac. Not included in this number are properties contained in a new deal reached last week with Bank of America to purchase the bank’s real estate portfolio for a price of $500 million.

That seems like a lot of foreclosures for the government to essentially own, and it is. This news, combined with all the other developments that have emerged lately with Fannie Mae and Freddie Mac, casts doubts on the ability of the two enterprises to continue in their present form in the foreseeable future.

After all, taxpayers basically cover the expenses and holdings of both corporations. In today’s climate of deficit reduction at all costs, the workings of Fannie Mae in particular could result in a nasty public backlash against the GSE.

For investors and homebuyers, buying foreclosures should still be quite possible and profitable, especially if the government moves forward with its plan to essentially allow investors to purchase the keys to thousands of foreclosure properties and convert them into income-generating rental units.

Regardless, the situation with Fannie Mae and Freddie Mac will be one that will be closely followed in the weeks to come.

Credit rating agency S&P made international news Friday when it downgraded its assessment of the United States’ sovereign debt rating, lowering it one notch from AAA – the best rating – to AA+.

Today, it struck again, downgrading the debt rating held by government-sponsored entities Fannie Mae and Freddie Mac.

The agencies previously held a top rating of AAA, like the United States. Now, their rating stands at AA+ – still very high, but significantly lower than the rating it has carried for decades. As a result, questions have arisen regarding the cost of the move and the impact it will have on the market as a whole.

One big fear with real estate investors is that the price of mortgage loans will increase, because they are tied into the federal interest rate. Since it theoretically costs more to borrow money with a lower credit rating – theoretically because this scenario has never been put into practice until now – mortgage loans and the debt secured by them could also become more expensive.

The costs would more than likely be passed down to investors – if the above situation actually happens.

The market fell drastically when it opened trading today, going well below 300 points in the red and being on track for even larger gains as of 11am ET. But, Treasury yield rates – which would theoretically rise – actually fell, showing signs that the downgrade will not be as serious as some might think.

It is very likely that this move will not have a significant impact on the real estate market as it stands today. Everyday real estate investors and homebuyers probably will not see a noticeable rise in the cost of buying a home – and certainly not enough to make someone ready to buy a home change their mind.

Moves in the high-level credit realm usually take weeks to months to play out and trickle down to investors. Someone applying for a home loan today more than likely would not pay more than someone who applied for a home loan Thursday, before the credit downgrade occurred.

The takeaway is that investors who were going to buy last week should still buy and take advantage of terrific opportunities in the real estate market. Interest rates will likely remain low for quite some time, and the abundance of properties sitting vacant on streets all across America means time is still ripe for real estate investment.

However, for many homebuyers, that path to the American Dream has been stonewalled by the banks they so desperately need for affordable financing.

The truth is, unless you are paying cash, or have significant assets at your disposal and a sterling credit rating, getting lending approved for a home purchase is difficult. Every reputable lender has tightened its restrictions on how it decides who gets funding and who doesn’t. The end result is that a record housing glut exists, with millions of homes sitting on the market and a vacancy rate of 11%.

And since the recovery of the housing market depends on allowing as many people to buy homes as possible, a conundrum exists: How do you entice lenders – banks, lending companies, and federal agencies – into loaning more money for more homes?

The solution may come from the federal government, and it may arrive sooner than you think.

Dealing with the Foreclosure Backlog with Fannie Mae and Freddie Mac

The federal government has been quietly discussing a proposal to help homebuyers and investors gain access to more loans and credit so they can start buying properties and reduce the extensive foreclosure backlog and housing oversupply that exists.

The feds cannot simply order banks to start lending, however, so the solution involves using federal agencies and government-sponsored entities (GSEs) to provide incentives and security for lenders. The policy idea that is taking shape in Washington today involves the two largest GSEs: Fannie Mae and Freddie Mac. Under the plan – still being actively yet quietly debated in D.C. – the two mortgage purchasing companies will be required to loosen their standards for loans to investors, which would help inject desperately-needed liquidity into the market.

The government can make this move because taxpayers own both enterprises, ever since they were placed into conservatorship three years ago.

Will the Foreclosure Backlog Shrink?

Even with this measure, it remains up in the air whether or not the foreclosure backlog – somewhere in the neighborhood of 1 million homes – and the foreclosure inventory – around 1.9 million – will shrink.

To do so, buyers would have to have access to credit and financing in order to take advantage of foreclosure deals from all across the country. Banks would also have to begin processing foreclosures again – instead of sitting on them like they are currently doing.

Looser lending requirements will help to take care of the first, while the pending foreclosure settlement will help to deal with the second. In fact, banks could begin wholesale foreclosure proceedings again as early as a month from now – assuming the terms of a settlement are finalized.

If the government has its way, both processes could be underway soon. When this happens, homebuyers and investors need to position themselves to benefit from the large injection of foreclosures into the market that is sure to happen over the next year. Indeed, many analysts are predicting the bottom of the market between now and the first quarter of 2012.

Finding prime opportunities for foreclosure deals will be easier than ever before, and with a bit of light at the end of the tunnel, the upside potential for investors and homebuyers is crystal clear.

All over the country, Fannie Mae sells bundles of discounted homes to investment groups for pennies on the dollar – and sometimes less. These homes are sold ‘as-is’, typically require extensive repairs, and are usually in economically depressed parts of the city. One such home, for example, was mortgaged in 2002 for $37,000.

It’s sale price from Fannie Mae? Just $200.

Investment companies are making a killing in the market, scooping up these homes and purchasing them for sometimes less than one percent of their mortgage price. In Jacksonville, Florida, the same San Diego-based company that bought the above home for $200 purchased another for $200 and bought three for $1,000, $2,500, and $3,500, respectively.

Note that these homes do require repairs and may even have squatters living in them. Some are also vandalized, with missing air conditioning units, fixtures, and other parts. This stems from these homes remaining vacant for so long, languishing on city blocks for years without owners.

With that being said, investors who qualify to purchase bulk foreclosures from Fannie Mae are doing so in droves, and are scoring incredible deals on drastically discounted homes.

Some say that the bulk purchases hurt the price value in the neighborhood. Others counter by saying these companies are revitalizing properties that otherwise wouldn’t have anyone in them, which would raise values in the long run.

Either way, this is another example of the remarkable discounts available to investors who want amazing foreclosure deals. They’re out there, and foreclosure deals – especially for investment groups who qualify with Fannie Mae – are as cheap as they’re ever going to get.

Even when foreclosed homes in Queens Village and in the rest of New York started rising, most residents reportedly have positive feelings about the region's residential property market. However, the foreclosure crisis did have some effects on this optimism, analysts have stated. During the first quarter of 2011, the survey showed that pessimism was still prevalent among some area residents, although not as much as what was seen during the 2010 fourth quarter.

The study revealed that local homeowners' outlook for the residential market in the state hardly changed from last year's fourth quarter. This, analysts stated, indicates that residents are expecting the real estate industry to improve by 2012 even with current problems with foreclosures in New York. Despite the seemingly positive outlook, analysts also claimed that most residents still have doubts over the direction that the housing market will take in the immediate future.

With bank foreclosures and Federal National Mortgage Association foreclosures remaining high in most local markets of New York, analysts stated that it is not surprising that sellers do not share the level of optimism felt by most homebuyers. For the past few years, homebuyers had the advantage as prices of homes plummeted and supply continues to expand. However, industry analysts asserted that sooner than anticipated, sellers might be the ones feeling better about the industry.

They noted that houses in foreclosure are still weighing down prices, but the whole residential property market is showing signs of improvement which could eventually lead to a sustained recovery. They claimed that the real estate sector of New York is starting to grow and signs are there that a balance within the market will soon emerge.

They did warn though, that it will take time before the impact of the oversupply of bank foreclosed properties and Federal National Mortgage Association foreclosures is shed out in the region. However, as the survey showed, most local residents have more belief in the ability of the New York real estate industry to recover compared with other residents in various areas of the U.S.

Those who currently flip foreclosed homes in Myrtle Beach are quite different from flippers of the pre-housing market crisis period. The flippers of today, according to housing industry observers, are not operating under loose lending rules and are often forced to pay in cash. The advantage that present day flippers have is that the prices of properties are way below levels during the real estate boom.

Home flippers who purchase foreclosed homes in South Carolina from auctions often do not have a lot of time to check out the insides of the properties. This, home flippers have said, makes the practice even more difficult because they need a lot of time to conduct the research, including identifying the properties that are most likely to fit their budget and offer the best profit possibilities and then comparing them with similar homes in the market to come up with the appropriate selling price, often without seeing the interior of the residential properties.

In addition, those who flip bank and Fannie Mae foreclosures today do not earn the same profits as those who flip properties prior to the housing meltdown. House flippers did admit that there are some profits to be had from home flipping today, although it requires careful pricing and study of the market. They also stated that flippers actually contribute to the housing market's recovery.

They argued that purchasing a foreclosed property for sale actually helps lower the amount of distressed homes in the area. If these properties are sold near market price levels, then the transactions benefit neighborhoods since they eliminate vacant and abandoned properties. On the other hand, those who price the properties too low are actually dragging the prices of residential properties down. House flippers have asserted that the benefit of flipping to them and to the market depends on pricing the homes just right.

Home flippers have admitted that they are aware that the supply of low-priced bank and Fannie Mae foreclosures will eventually fizzle out. They stated that the business of home flipping will not last long and they are taking advantage of the opportunities while there are still cheap foreclosures to be had.

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Dallas foreclosures for sale and foreclosed homes in Collin County posted the highest declines among the counties covered in the region. Dallas County posted the highest decline for November 2010 at 18%, followed by Collin at 17%. Denton County, on the other hand, posted an 8% drop in foreclosure numbers for November.

Foreclosure listings in Texas eased down a bit in most local areas when monthly differences are used as basis. Collin County has been posting double-digit declines for the past two months, with October foreclosure numbers showing the area recording a 13% drop. Compared with other counties, Collin is doing considerably well.

However, year-over-year totals showed that most of these counties recorded minimal to moderate increases in the number of bank and FNMA home foreclosures. Collin County foreclosure totals jumped by 3% for November 2010 compared with the same 2009 month. Some housing market observers have stated that the decline in foreclosure totals for November might be due to the temporary suspension of foreclosed property sales imposed by several lenders.

Most property analysts have rejected this observation though, claiming that the monthly decline in the number of foreclosure for sale properties is too small to be attributed to the moratorium imposed by major lenders. According to them, an 8% monthly drop in foreclosure totals is normal as foreclosure numbers fluctuate from one month to another and the market adjusts regularly.

Analysts further added that one month of decline does not mean that the trend is changing. Residential foreclosure activities in the Dallas-Fort Worth market have been averaging more than 4,000 each month for the past 26 months in a row and November statistics are still within traditional figures.

Although the number of bank and FNMA home foreclosures has declined in the Dallas-Fort Worth region for November 2010, housing market experts warn that this should not be taken as a sign that the crisis is ending. They stated that the region requires more time to get over the foreclosure crisis.

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