Private Equity Firms Purchase Fannie Mae Foreclosures

By Kevin Chiu

The bulk sale of foreclosed Fannie Mae homes to private equity firms will place foreclosures right back into the very hands of some of the bank owned home banks and investors which triggered the foreclosure crisis by manipulating financial markets.

Fannie Mae is inviting investors to become joint venture partners in the biggest bulk sale of homes in U.S. history.

The government backed agency has disclosed few specific details behind its plan to unload most of its current 122,616 foreclosure inventory. But the portfolio of foreclosed homes will first be limited to test bulk purchases in Florida, Arizona and Southern California, which have been hardest hit by the foreclosure crisis.

The private equity funds started focusing on bulk foreclosure purchases after the Obama administration asked for public input on how to get rid of the 210,000 foreclosed homes under government control in September. Since that time the inventory of foreclosures has grown and is expected to mushroom in 2012.

A Manhattan, New York company, GTIS Partners and GI Partners, a private equity firm based in Menlo Park, California will each invest $1 billion for the purchase of foreclosures. Other Wall Street firms, including Barclays Bank, Deutsche Bank and Wells Fargo are attempting to get in on the action.

fannie mae and possible partners

The Federal Housing Finance Agency (FHFA), started by the Obama administration to oversee Freddie Mac and Fannie Mae as part of the government’s takeover of the agencies announced the first step in the foreclosure initiative last week.

Investors interested in taking part in the program are being pre-qualified to establish eligibility standards to bid on the homes, which are expected to be sold-off for as little as a dime on a dollar to the private equity firms.

The REO initiative will allow investors to purchase pools of foreclosed properties with the requirement to rent the homes for an undetermined number of years. The program is intended to provide relief to neighborhoods that have been devastated by the foreclosure crisis with a surplus of vacant and often rotting properties.

“This is an important step toward increasing private investment in foreclosed properties to maximize value and stabilize communities,” said FHFA Acting Director Edward J. DeMarco. “I am grateful for the collaborative effort by the many stakeholders including investors, nonprofit organizations, and state and local government officials, who have worked together on this initiative.”

During the pilot program, Fannie Mae will offer pools of residential properties to investors, including rentals, vacant homes and properties that have defaulted on their mortgages, where some homeowners are still living in foreclosures.