An important resource for first-time and other homebuyers who find themselves in unfair competition with deep-pocket investors bearing cash just got better: The two biggest players in the mortgage market, Fannie Mae and Freddie Mac, are now giving non-investor shoppers 20-day exclusive rights to bid on and buy new listings they are selling.
During the 20-day “first look” period, investors will be excluded from submitting bids. To qualify, non-investor buyers will need to commit to make the home their principal residence for at least a year. The idea, according to Fannie and Freddie officials, is to encourage greater owner-occupancy, stabilize neighborhoods that have seen significant numbers of foreclosures, and generally help out shoppers who find it difficult to outbid all-cash investors.
All-cash purchases of homes hit a high mark last month, according to a new report from RealtyTrac, a housing data firm. A stunning 42 percent of all residential sales nationwide went to buyers who paid cash — the highest rate since RealtyTrac began measuring the phenomenon in early 2011, and nearly double what it was as recently as May.
First-time buyers looking for affordably priced homes have been hit especially hard by the profusion of investors waving cash at sellers. They locate a home that fits their budget, make an offer with a mortgage contingency, and then lose the sale to an investor who has no financing requirements. A mortgage contingency ties the contract to the ability of the bidder to obtain a loan, which slows the process and often makes the offer less attractive to the seller.
Fannie and Freddie have large inventories of previously foreclosed homes for sale — byproducts of the economic woes of 2008 to 2010. As of last week, Fannie had roughly 35,000 houses listed for sale around the country through its “HomePath” program. Freddie Mac had 13,000 active listings in its “HomeSteps” program. Buyers can access the listings online by state, city and price range, then submit offers through a participating broker.
In California, for example, Fannie had 2,136 properties listed, many below $200,000. Current listings range from a $139,000, two-bedroom single-family house in Big Bear City to a $700,000 three-bedroom home in South San Francisco. Buyers in San Diego could pick up a two-bedroom condo for $394,000.
In Washington state, Fannie had nearly 1,900 listings including a three-bedroom, two-and-a-half-bath condo in Everett for $215,000 and a four-bedroom, three-bath house in Monroe at $445,000. Shoppers in Virginia had 742 houses to choose from, including a three-bedroom, three-bath house in Virginia Beach for $214,000 or a condo in Alexandria for $369,900.
Freddie also has active listings in every state through HomeSteps, ranging from a three-bedroom single-family home in Key Largo, Fla., for $485,000 to a $99,900 condo in Silver Spring, Md.
Both companies offer mortgage deals on some, but not all, properties. Freddie’s financing includes features such as 5 percent down payments, no required appraisals, and no mortgage insurance. Freddie also provides up to $500 toward new purchasers’ home warranty policies.
Fannie’s financing deals start at 5 percent down with no mortgage insurance or appraisal costs. HomePath listings that need some fix-up may also be eligible for “renovation mortgages,” where the loan amount includes funds for the purchase itself plus the estimated money needed for improvements.
Here’s the deal on “first look” exclusions of investors from bidding. On all homes listed on or after Dec. 17 (Freddie) and Jan. 2 (Fannie), owner-occupant buyers will get a shot at viewing houses and submitting bids with no competition from investors for 20 days after listing. Currently the exclusion is for the first 15 days.
If Fannie or Freddie receives acceptable offers from owner-occupant bidders, they will sign contracts to sell without seeing any competing bids from investors. Chris Bowden, Freddie Mac’s senior vice president for HomeSteps, said the extra time for exclusive bidding could be “especially important for buyers in markets where home inventories are shrinking.”
So if you or someone you know is thinking of a home purchase, check out HomeSteps and HomePath listings online. If you qualify and keep your eye on the clock, you just may get a chance to buy a new home with mortgage terms you can afford — without worrying about fat-cat investors muscling in and outbidding you with cash.
Kenneth Harney is a syndicated real estate columnist.