With everything the Phoenix housing market has been through in the last few years, this one takes the cake: a huge block of 275 REO (foreclosure homes reclaimed by the lender after foreclosure) homes was just quietly bundled into a Delaware Limited Liability Company by Fannie Mae, and sold for $34 million to an unknown investor.
Until February, this wasn’t possible because Fannie-owned REO homes were spread all over the country, and were sold individually, regardless of where they were located. In February, however, the Fannie Mae “brain trust” decided to change the rules, allowing block sales of REO properties in cities like Phoenix to take place.
The question is – why, and why now?
Phoenix Housing Market In Recovery Mode
Finding a home in Phoenix has gotten to be a bit of a challenge. In recent months, almost every home I’ve listed has received multiple offers within 24-48 hours. While bidders aren’t wrestling around in the street (yet) for the right to bid on available properties, the market has shown profound improvement. And there’s a definite shortage of properties. Selling a block of 275 REO properties in one fell swoop isn’t a sign of a housing market on the rebound… it’s a sign of desperation.
Why Would Fannie Mae Engage in Desperation Sales Tactics Now?
This block of 275 properties that was quietly spirited into a Delaware LLC for bulk sale – at an average selling price of about $123,000 apiece – is the kind of thing you might see if buyers had collectively snapped their wallets shut and decided that the Phoenix housing market were damaged goods. Fire sale prices should be common when Phoenix real estate sales are going nowhere fast.
Since this isn’t the case, it begs the question: Why? In fact, I have several why-oriented questions that deserve immediate answers from the so-called Powers That Be:
- Why would Fannie Mae sell these blocks of properties given the limited number of Phoenix houses for sale?
- Who authorized the formation of a highly secretive LLC for the sale of these properties?
- Just who actually bought these properties? All I know for sure is that the building housing Fannie Mae’s Pasadena, CA office also houses East-West Bank, a Chinese concern that borrowed (and paid back) more than $308 million in TARP money. This could very easily be explained, but so far, no explanation has been offered.
- Is this transaction being kept secret to protect Fannie Mae, the Obama administration or the buyer of SFR 2012-1 US West LLC?
Bulk Phoenix REO Sale Highly Unusual, Damaging to Phoenix Housing Market, Economy
As unusual as this move is, I have 5 primary reasons for calling this transaction into question:
- LLC Transaction Cloaks the “Most Transparent Administration in History” – By hiding this transaction in an LLC, we may never know the true identity of the buyer. If taxpayers are on the hook for these properties – and you are – Fannie Mae owes us a full explanation. Building an impenetrable wall around this transaction obscures Fannie’s transparency.
- Below Market Prices Harms Local Real Estate Market – While not a lot is known about the specifics of this transaction, a sweetheart deal has taken place. Below market prices harms the local real estate market, and sucks available properties out of circulation, properties which could have been sold for market price.
- County Loses a Bundle in Recording Fees – Each time a property is bought or sold in Phoenix, the county earns $ in recording fees. Since these properties were sold the way they were, this deal deprives Maricopa County of much-needed recording revenue.
- Money Is Sucked out of Phoenix Economy – There’s also the trickle down economic effect of this lost revenue. Real estate transactions involve multiple layers – attorneys, title companies, property inspectors, construction companies, abstract companies, etc. The employees then spend that money. Not now; $34 million is a multi-million economic sucker punch, courtesy of Fannie Mae.
Fannie Mae’s Final Blow to Phoenix Economy
Finally, Fannie Mae’s sleight of hand real estate transaction has two other painful consequences for Phoenix (and U.S.) stakeholders: comps are skewed and homeowners get screwed.
Here’s what I mean: Because this bulk transaction involves so many below-market Phoenix properties being sold at once, this can throw off comps. Think it doesn’t matter? Think again! Comps are used to determine the value of other homes when determining value. Lower average sales prices drives down comparative values, which impacts everything from the amount homeowners can borrow for first mortgages, refinances – and more.
As if it weren’t bad enough that comps are skewed, taxpayers get screwed – twice. Once they’ve seen the value of their property take a hit, Fannie Mae hands you the bill for properties sold for less than market value… and demands that you reimburse them for the “loss” they took on the sale.
This isn’t right, nor is it fair, especially since Phoenix housing market has plenty of buyers willing to pay fair market value for these properties.
So What Can We Do About It?
If you’re as mad as I am about this sweetheart deal, you probably feel like breaking a stack of bricks with your bare hands, kind of like they do in those personal development seminars. Don’t despair. There are things that can be done. And in my next post, I’ll give you specific, actionable advice.
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