Sunday, July 14, 2013

Speculating Banksters Increase Use Of Credit Bids At Foreclosure Auctions To Buy, Flip Their Own Distressed Properties

In Sarasota, Florida, the Sarasota Herald Tribune reports:

  • As home prices in the region climb and inventory dries up, the nation's largest mortgage lenders are gambling on the future of the housing recovery, a Herald-Tribune analysis shows.

    Banking giants from Wells Fargo to Fannie Mae are routinely paying top dollar on the auction steps to hold onto their own distressed properties, outbidding cash offers and paying well above assessed value, according to a review of thousands of Southwest Florida auction purchases.

    They are speculating that the properties will appreciate even more in the next couple of years.

    The new strategy is a shift from the years after the nadir of the foreclosure crisis, when mortgage lenders accepted any fair offer to avoid the hassle of listing the default.

    Yet worries are mounting that the competition between lenders and billion-dollar investment funds could drive housing values higher through the kind of price speculation that marked the walk-up to the Great Recession.
  • So far, lenders have had mixed results.

    The strategy worked to near perfection for a 2,100-square-foot house on Venice's Flamingo Road. To keep the three-bedroom home, Fannie Mae outbid a $161,700 third-party offer at a Jan. 11 auction — committing $31,700 more than the property's assessed value.

    With a $276,827 final judgment and $250,297 unpaid principal in the deal, the government enterprise famously bailed-out by federal tax dollars was bound to take a loss on the property either way.

    But by holding onto it for six more months, the lender found a retail buyer willing to pay $194,000 on May 30 — reducing the loss by $32,300 with the gamble.

    Although Fannie Mae can still go after the borrower for the difference, banks rarely pursue a deficiency judgment to collect the remaining balance.

    Fannie Mae whiffed on a similar attempt with a home on Lockwood Meadows Boulevard in Sarasota.

    The lender turned down firm cash offers at an auction in late January to bid a winning $121,001 for the property — a 203 percent markup from the assessed value.

    During the next five months in Sarasota, the median prices for single-family homes grew nearly 19 percent.

    Despite that rapid appreciation, the home could only fetch $92,200 on the retail market in May. Fannie Mae's overpayment at auction ultimately cost the lender $28,800 on top of the soured principal amount, plus any subsequent expense to maintain the property and brokerage fees to find a buyer.

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