Foreclosure Sales Program Seeing Robust Demand

| About: Fannie Mae (FNMA)

According to the FHFA, a program to sell pools of foreclosed homes—real estate owned (REO)—to investors is seeing "robust" demand with "strong qualified bidder interest." The program was launched in February and during the second quarter, bids were solicited to sell 2,500 REO properties to investors. At the end of 2011, Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) owned about 180,000 REO properties.

According to Bloomberg, among the investors purchasing these properties is the Blackstone Group, a private-equity company that has purchased $250 million in properties this year.

The strong demand from investors comes as rental rates have been rising and the cost of buying a home is decreasing. reported that rental rates increased 5.4% from June 2011 to June 2012. Families that were once able to qualify for a home loan are being turned away from banks, or choosing not to buy. The result is a housing market where buying a home is actually cheaper than renting.

Fannie and Freddie currently have processes in place to unload foreclosed homes through the and online marketplaces. Increasingly, in the past few months, buyers are reporting bidding wars among other potential homeowners for purchasing these properties. The increased demand is primarily due to record low mortgage rates and home prices that may have bottomed.

Even with this good news for the FHFA, some advocates of home ownership do not think the government should be promoting rentals at this time. The record low interest rates and sharp drop in home values have made home ownership affordability reach epic levels.

According to NAR President Moe Veissi, "For those with good credit, we've never seen better housing affordability conditions or market opportunities than we see at present."

As far as housing is concerned, it appears the political imperative has shifted from actions focusing on home ownership to actions promoting home rental.

Disclosure: I am long OTCQB:FNMA, OTCQB:FMCC.

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