PART ONE: Freddie Mac Homesteps Division… Another Source of Potential Bargains

In previous editions of this blog, I have defined and discussed foreclosures, REO’s and short sales (see February, 2011).  I have taken the reader through an exploration of HUD Homes devoted an edition to Fannie Mae and “Homepath.”   All of these sources of distressed properties can offer value and potential bargains.  But, as I always say, it is solid analysis that identifies great opportunities; and no single source of inventory can always be presumed to provide winning purchases.  Research is the key– current, accurate research gathered and analyzed by someone who knows what he or she is doing.  Having prefaced this discussion with that caveat, let’s take a look at another source of REO inventory: Freddie Mac and its “Homesteps” unit.

Like Fannie Mae, Freddie Mac is a “government sponsored enterprise” (a “GFE”), chartered by Congress for the stated purpose of stabilizing the mortgage markets and expanding home ownership.  There is currently much debate over whether either of these entities has effectively fulfilled its mission– and even whether these entities have actually harmed the real estate market by fueling the “real estate bubble” whose collapse will be working its way through the system for years to come… and causing a great deal of suffering along the way.  Indeed, in September of 2008 Freddie Mac was placed in conservatorship by its regulator, in an effort to mitigate systemic risk and diminish a further erosion of confidence in the system.

Freddie Mac does not loan money or write mortgages.  Like Fannie Mae, Freddie Mac purchases mortgages from banks on the secondary market.  The goal is to provide liquidity and stability by providing banks with more cash to make more mortgage loans.

Of course, some of the mortgages Freddie Mac purchases go into default and foreclosure.  Enough have done so in the last couple of years that Freddie Mac was placed in conservatorship.  And when a foreclosed home goes into Freddie Mac’s REO inventory for resale, the Freddie Mac unit charged with selling it is “Homesteps.”   In the next edition of this blog, we will explore analyzing Freddie Mac properties, offering to purchase them, contracting for and closing their purchase.