Government Foreclosed Houses Rise As Guaranteed Loans Grow

The number of government foreclosed houses has been rising because the percentage of home loans guaranteed by government agencies has been increasing.

In November, almost 40 percent of all buyers of pre-owned homes used loans guaranteed by the Federal Housing Administration, according to the National Association of Realtors.

As of September 30, the number of foreclosed homes for sale available from Fannie Mae reached 72,275 units. During the first three quarters of 2009, Fannie Mae acquired 98,428 foreclosed houses, with nearly 41,000 units acquired in the July-September quarter alone. As of the end of the third quarter, it has sold a total of 89,691 foreclosed units.

Similarly, Freddie Mac has increased its foreclosure inventory over a 12-month period by 46 percent to 41,140 units in September. It acquired 24,375 foreclosed houses in the third quarter and sold almost 18,000 units.

In October, the default rate for home loans guaranteed by Fannie Mae climbed up to nearly 5 percent, an increase from 1.9 percent in October 2008. Defaulting loans considered for these rates were loans delinquent by at least three months.

In November, the default rate for single-family house loans guaranteed by Freddie Mac jumped up to nearly 4 percent, an increase from the November 2008 rate of 1.5 percent.

To speed up the sale of government foreclosed houses, Fannie Mae has revised its policy of first reviewing home loans if lenders and servicers met its underwriting requirements. Now, it can accept purchase offers for its repossessed houses without first notifying loan servicers.

Previously, before Fannie Mae accepts purchase offers for foreclosure homes, it first asks the loan servicers to submit the loan documents within 15 days so that it can check if the servicers followed Fannie Mae’s lending requirements. If the loan documents are defective, the servicers are given the option to choose between reimbursing Fannie Mae for the losses or buying the foreclosed properties themselves and selling them at the best prices they can get.

With the change in sales policy, Fannie Mae can dispose of its repossessed properties more quickly and help facilitate the home purchases of buyers.

In addition, the rise in demand for FHA loans is also expected to increase the number of FHA homes that would be available to buyers. But FHA officials said that they are instituting policies that would cut down the number of government foreclosed houses, including increased lender accountability, higher FICO requirements and increased minimum down payments.

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