Rising property prices in the US have left many would-be home buyers in the woods. Since they cannot afford the homes, investors are having a field day.
Fannie Mae runs an innovative program called 'First Look' which seeks to encourage home-ownership and promote neighborhood stabilization. According to the program, owner-occupants, public entities (and partners) and a few non-profits have the first right to buy foreclosed homes in Fannie Mae's possession. For 20 days, investors cannot buy these properties.
Who is an owner occupant?
An owner occupant is a person who will start living in the property within 60 days of buying it and will continue living there for one year, at least. If you are planning to buy the property to hold in a trust, as a part time or vacation residence or if you want to purchase the property for another person, you are an investor, and you cannot buy the property in the first 20 days.
When a homeowner defaults on his home loan (owned by Fannie Mae), the mortgage company will take over the property and sell it. Fannie Mae is one of the biggest sources of foreclosed homes in the US. More than 50 percent of these properties are resold to individuals, local governments and non-profits; the rest are sold to investors.
Rising property prices play spoilsport
In spite of its mandate, Fannie Mae is not able to promote home ownership as much as it would like to because property prices are soaring. The only entities who can afford the higher rates are investors, who in turn rent the property out or resell after holding it for some time. Another reason why 'First Look' buyers are not able to buy foreclosed properties is because mortgage companies want the highest rates for their properties, and they usually mark them at the market or above market price.
Such issues have caused the 'First Look' program to lose some of its sheen. By the time property prices are reduced they are no longer in the program, and homebuyers have to compete with investors. For example, in Montview Drive (Marietta county, Atlanta), there are three similar properties on sale. One of the homes is foreclosed by Fannie Mae. The price of this property is $25,000 more than the others, making it the most expensive house on the street. Naturally, a homebuyer would be unwilling to pay $25,000 more for property when he can get a similar one on the same street for a lower price.
The situation is only going to get worse. The Federal Reserve is tapering its quantitative easing which means interest rates are going to increase. As a result, would-be home buyers are in for a rough ride.