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Freddie Mac Needs 15 Years to Unload All REO Inventory

Sales of Freddie Mac REO homes took a dip in 3Q11 compared to the first two quarters of the year as nonperforming loans surged consistently over the previous quarter.

The number of repossessed homes plunged to 25,300, falling by 13.5% quarter-on-quarter (q-o-q) or approximately 30,000 units in 3Q11. REO sales also stumbled from 31,600 in 1Q11, the highest number recorded in the government sponsored enterprise’s (GSE) history.

In 3Q11, Freddie Mac thrust back 24,300 homes into its current inventory while disposing 25,300 REO properties at the same time. At the end of the quarter, the mortgage capital provider has already accumulated 60,000 REO properties on its books, down by 25 percent year-on-year (y-o-y) as a result of newly completed foreclosures.

If its current trend is sustained and a net 1,000 REO properties are unloaded quarterly, it would take Freddie Mac an estimated 60 quarters or 15 years to bring down its total inventory to zero in the wake of a severely constricted foreclosure pipeline attributed to loan modifications and recent regulations. The market will be compelled to take in more REO sales in order to keep up with the current trend.

The credit services company announced that REO acquisitions remained subdued in 3Q11 because of the lingering delays in single-family mortgage foreclosure process, which is anticipated to last until 2012. On a positive note, Freddie Mac forecasts its REO inventory to settle at higher levels.

Nonperforming assets, on the other hand, continued to rise in 3Q11 totaling $127.9 billion, up by 3.2% q-o-q. This figure makes up 6.6% of its total mortgage portfolio.

The government and the Federal Housing Finance Agency (FHFA), in the hopes of fixing the issue that is affecting the housing market and the economy, is seeking ideas from private property managers on cost-effective ways to unload the REO properties of GSEs and the Federal Housing Administration (FHA). The Obama administration is interested in disposing these properties by bulk with the possibility of leasing them out to potential tenants.

Speaking at the Senate Committee on Banking, Housing, and Urban Affairs last November 15, FHFA Acting Director Edward J. DeMarco insisted on developing a local program for REO disposition instead of implementing it on a nationwide scope. The FHFA is currently reviewing 4,000 submissions to the RFI.


  1. Comment by CJ Brady
    November 21st at 1:41 pm 

    Wow! Even though the number plunged – this is still alot of REO properties!

    I will be anxious to hear what FHA decides to do with these properties.

    Thanks for the great post!

  2. Comment by Frank Rizzo
    November 27th at 2:51 pm 

    You are right on with this post. There is a HUGE shadow inventory right now and while that may keep down appreciation values over the next few years, it creates a tremendous opportunity to gather assets and create new wealth in distressed properties.

    Look forward to your next post.


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