Andrews: Federal foreclosure fire sale lacks local opportunity

Published Mar 13, 2012 at 9:05 am (Updated Mar 13, 2012)

It is sort of an enticing tag line: purchasing foreclosed properties. The airwaves are full of infomercials espousing the ease of buying a cheap foreclosure, performing a quick fix-up and making a cool profit from a fast sale. So when the Federal Housing Finance Agency announced an "REO Initiative" allowing qualified investors to purchase pools of foreclosed properties, under the condition that they turn them into rentals for a specified number of years, it caught a lot of attention. "During the pilot phase, Fannie Mae will offer for sale pools of various types of assets including rental properties, vacant properties and non-performing loans with a focus on the hardest-hit areas," the FHFA says. Pre-qualification for the program requires meeting certain minimum criteria, including 1) the financial wherewithal to acquire the assets, 2) sufficient experience and knowledge in financial and business matters to analyze and bear the risks of the investment, and 3) agreement to keep certain information about the REO and related matters confidential. I've received a few phone calls about this program lately and have had to tell the callers that the current list of 2,490 properties included in the program are not located in our market and are concentrated on the "hardest-hit areas" of Atlanta, Chicago, various Florida MSAs, Las Vegas, Los Angeles, and Phoenix—all areas that experienced hyper-growth in the housing boom. Most of the properties are single-family homes (61%) and condos (18.5%) that tend to be management and capital intensive. My view on this program is that it might work well for the larger and better capitalized players already located in those markets, but not for south Louisiana investors looking to seize on an opportunistic situation. If the program comes to our area, it might be worth a look; but since we did not participate in the over-building madness, it's unlikely that we will see much activity in local markets from this initiative.

(Brian Andrews is a certified mortgage banker specializing in the financing of commercial real estate. His business is Andrews Commercial Real Estate Services, and he can be reached at brian.andrews@acmla.com.)