Freddie Mac sweetens the pie to try to entice home buyers
July 25, 2009 by admin
The opportunity to buy real estate in America may never have been better and new programs adding additional incentives are continually being added into the market. This past week, Freddie Mac, one of the nation’s largest agency mortgage lenders, announced they would be offering a promotional program called “smart buyâ€. The program is aimed at trying to attract home buyers to purchase bank owned properties.
Freddie Mac plays a critical role in the mortgage industry. Serving as one of the nations largest agencies that securitizes conventional home loans, they have been in a precarious financial position over the last two years as home foreclosures have swept over the housing markets. Freddie Mac, along with Fannie Mae, another large national agency covering the mortgage markets, have both received billions of dollars of capital from the U.S. government in the last twenty four months. The companies financial problems escalated as they were leveraging the value of their loan portfolios in multiples over ten percent. The value of their portfolios began to fall sharply in 2007 and on into 2008 as home foreclosures reached historically high levels. Combining the company challenges with the fall out in the credit markets, presented an enormous challenge to the government as the lack of investors purchasing mortgage loans threatened to spiral the housing markets in a free fall down. The government’s response was to pump billions of dollars into both companies as well as commit to helping home owners refinance their mortgages through new programs, modify their home loans and subsidize mortgage rates through the FOMC.
The government’s intervention has helped to keep the agency lenders from going out of business as well as providing a necessary secondary marketplace for mortgage bonds, but has not helped the companies to slow down their inventory of foreclosed homes. The burden of carrying the extra inventory is one of the key reasons why Freddie Mac has announced the “smart buy†program. Their goal, is to provide an incentive to home buyers to purchase the lenders properties. Home owners who are purchasing single family, primary residences, receive a complimentary two year home warranty to cover the properties mechanical items. The home warranty helps provide peace of mind to new home buyers, and a great marketing tool for properties in the Freddie Mac inventory.
The housing market has started to show some signs of life in the summer of 2009. Existing home sales peaked up in both June and July. The improvement in the market has yet to make a significant dent in slowing down home foreclosures, but is a small step in the right direction. Bringing housing inventories down will help to stabilize home prices, providing a necessary component to help keep homeowners from simply walking away from their homes, which has been a major challenge for the current market. Home foreclosures generally sell between twenty to forty percent below comparable homes in the neighborhood. The dramatic drop in value has led markets such as California, Nevada and Florida to realize home declines in excess of fifty percent over the last twelve months. Freddie Mac, realizing they have properties competing in a tough sellers marketplace is proactively trying to differentiate itself, perhaps even helping to bring more buyers into the marketplace and realize a higher sales price along the way.