However, other factors - like the home being sold “as is” - may affect the ultimate price, so it’s important to work through the process methodically to make sure you account for every variable. In many cases, lenders are motivated sellers who do not want to sit on their REO inventory, and (depending on the bank’s history with the property) these homes may be priced at a discount. REO properties are attractive to homebuyers or real estate investors for several reasons. The lender prepares to sell it, which may involve evicting occupants and removing outstanding liens attached to the property. If the home fails to sell at auction to a third party, possession typically passes to the lender and it becomes a Real Estate Owned (REO) property. If the property sells to a third party at the auction, the bank or lender recoups some of the cost of the outstanding loan balance, interest and fees from the sale of the property. The property is then offered to the public at a foreclosure auction and typically sold to the highest bidder. The lender initiates legal proceedings against the borrower to foreclose on the property. The homeowner/borrower defaults on (fails to make) their mortgage payments for a certain length of time, with the qualifying amount usually specified in the mortgage terms. In order to become an REO property, it must go through these general steps: REO, which stands for “Real Estate Owned,” is a term applied to foreclosed properties whose ownership has transferred to the bank or lender. What is a Real Estate Owned (REO) Property? However, some REO properties come at a significant discount, and, if you’re willing to work through some of the nuances of the post-foreclosure market, you can set yourself up for a great deal. Some homebuyers are intimidated by foreclosed and bank-owned homes because they often require more renovations - and a different type of negotiation - than other options on the market. Today it is a shareholder-owned company that operates under a congressional charter.Many potential homebuyers and investors overlook bank-owned properties, but for buyers who take the time to understand the REO process, these homes can be a significant opportunity. Fannie Mae Web Siteįreddie Mac was chartered by Congress in 1970 as a private company to likewise help ensure a reliable and affordable supply of mortgage funds throughout the country. Today it is a shareholder-owned company that operates under a congressional charter. government in 1938 to help ensure a reliable and affordable supply of mortgage funds throughout the country. The Enterprises’ support for mortgage lending that finances affordable housing reduces the cost of such borrowing.įannie Mae was first chartered by the U.S. That makes the secondary mortgage market more liquid and helps lower the interest rates paid by homeowners and other mortgage borrowers.įannie Mae and Freddie Mac also can help stabilize mortgage markets and protect housing during extraordinary periods when stress or turmoil in the broader financial system threaten the economy. The Enterprises’ purchases help ensure that individuals and families that buy homes and investors that purchase apartment buildings and other multifamily dwellings have a continuous, stable supply of mortgage money.īy packaging mortgages into MBS and guaranteeing the timely payment of principal and interest on the underlying mortgages, Fannie Mae and Freddie Mac attract to the secondary mortgage market investors who might not otherwise invest in mortgages, thereby expanding the pool of funds available for housing. Lenders use the cash raised by selling mortgages to the Enterprises to engage in further lending. They provide liquidity (ready access to funds on reasonable terms) to the thousands of banks, savings and loans, and mortgage companies that make loans to finance housing.įannie Mae and Freddie Mac buy mortgages from lenders and either hold these mortgages in their portfolios or package the loans into mortgage-backed securities (MBS) that may be sold. They perform an important role in the nation’s housing finance system – to provide liquidity, stability and affordability to the mortgage market. Fannie Mae and Freddie Mac were created by Congress.
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