Fannie Mae First Look Initiative Program and its Negative Effects on our Real Estate Market
I primarily deal with buyers and my main objective is to locate the best deals I can find for those buyers that still meet their list of stated criteria. Naturally, a majority of these are foreclosures and short sales. I have represented buyers in the purchase of several Fannie Mae owned properties in the past. Generally speaking, I have no major compaints about how those were handled in the past. The local real estate brokers handling the Fannie Mae owned properties (primarily Re/Max All Pro in Gatlinburg) are very competant and do a very good job on their end marketing the properties, paying attention to the details, and overall doing things in an ethical and professional manner. Now, they along with local real estate agents representing buyers are faced with what I consider an absolute terrible policy – “The Fannie Mae First Look Initiative”.
Determining the Different Classification of Buyers Under the Fannie Mae First Look Policy
The Fannie Mae First Look program was implemented beginning around March 2010 in our area and has just now become prevalent in our market where all Fannie Mae properties are subject to the First Look Initiative. Essentially, this program creates a series of time limits/deadlines for various types/segments of buyers to purchase properties:
- Owner Occupants and people using the property as their primary residence OR entities using public funds (non-profits, local housing and community development agencies) must wait until the property has been officially listed for sale for 5 days before offers are considered.
- People or entities purchasing the property as an investor or second home must wait 15 days before their offers will be considered.
This policy, while it may have some merits in certain locations, neighborhoods, or developments, is an absolute nightmare for the overnight rental market in Sevier County – including the areas of Pigeon Forge, Gatlinburg, Sevierville, etc. In my opinion, there are several major flaws with the policy and how it is implemented. First, the policy no matter where it is implemented goes against my free market ideals and logic.
Lacking Free Market Principles and Discriminating Against Investors and Second Home Buyers
A property, in my opinion, should be able to be sold under the same conditions and terms to anyone who has the ability to purchase the property. No matter their race, age, background, sexual preference, or their purpose for buying the property (owner occupant, investor, or second home). There should be absolutely no discrimination and the seller should look at an offer essentially blind of who the buyer is other than the terms of the offer and their capability to perform under those terms. Fannie Mae’s First Look Initiative obviously violates these free market principles that I believe are essential to our country.
The Sevier County Cabin Market Adversely Effected by Policy & Incentive for Fraud or Deception
Second, our market area is comprised of an overwhelming number of foreclosure cabins utilized as overnight rental properties (investment properties) or second homes. This includes a VERY substantial portion of our market. By implementing the Fannie Mae First Look Program for these properties it creates situations where fraud is actually more prevalent. The likelihood of a buyer saying they are using the property as a permanent residence/owner occupied) is surely compounded so they can “jump the deadline” in front of the “investors” waiting to make an offer. Fannie Mae has tried to limit this by requiring buyers to sign a form that states in part:
“In the event the I falsely represent any statement in this certification, I shall pay Five Thousand Dollars ($5,000) to Seller as liquidated damages, which amount shall be in addition to Sellers right to retain any earnest money deposit and any liquidated damages held or covered by the Seller pursuant to Section 19 of the Real Estate Purchase Addendum or any other remedy available to Seller at law or equity.”
Not only do the buyers have to sign a document stating the above, but the listing agent and the selling agent is also required to sign documentation stating things such as:
“Listing broker/agent is hereby notified that if, for any reason, you have concern that the Owner Occupant Certification made by the PURCHASER(S) or SELLING AGENT is false, misleading or a misrepresentation of the truth that you should report this concern to your Fannie Mae sales representative or Asset Management Provider.”
This sounds like they are requiring the listing agent to be a snitch if they “for any reason” doubt the legitimacy of the buyer(s) claim to be purchasing the property as an owner occupant. The listing agent is required to report any concerns to the proper entity. Luckily, I am not a listing agent of Fannie Mae properties. How am I to get in the head of a buyer and know their intentions on a property?
Additionally, if a listing agent raises concern and that concern is unfounded, one would think the buyer would not be too pleased if the sale would fall apart and there could be additional repercussions to the listing agent. Also, while representing a buyer, an agent must sign a document stating in part they have “not knowingly submitted to Seller the sales contract and Real Estate Purchase Addendum for the above referenced property on behalf of an investor purchaser.” I typically take the word of my client as long as I find it to be reasonable and what I consider truthful, but I certainly don’t want to be negatively effected if I am not able to understand the exact intention of the buyer(s).
There is no doubt people will claim to use the property as their primary residence when in reality they will not. I have already heard of instances exactly described as above regarding the Fannie Mae First Look Initiative policy. It is a terrible and unfair practice to implement in the first place and then the fines ($5,000+) to enforce their already unfair policy is a disgrace in my opinion.
Disadvantages to Investors – the Primary Buyers of Cabins in the Smoky Mountains
The other major factor is the 15 day “waiting period” for investors. I consider one of my best market advantages as a Realtor here is knowing the market well and quickly recognizing the properties that fit my clients’ needs and investment objectives. With this 15 day waiting period, it not only practically eliminates my market advantage to quickly notify clients and distribute information and analysis quickly, but it also creates a situation where Fannie Mae will likely “stack offers” and create multiple offer situations. Admittedly, part of my concern of this is because it will adversely effect my business, but it also makes it more difficult for my clients to get their offer(s) accepted.
Essentially, by establishing the 15 day “waiting period” it creates an auction like environment where there are multiple bids and everyone is required to present their “highest and best offer”. Statistically, of my clients, they are MUCH less likely to obtain a property in this type of scenario and the more offers the lower their chances. I sincerely try to obtain the best possible price and terms for my client and when it becomes a situation where there are 5+ offers this is nearly impossible to achieve. There seems to always be an agent out there looking to “just make a sale” and do whatever it takes for the buyer to get the property – no matter if it is higher than past comparable sales.
Being of the free market belief I can’t really complain that Fannie Mae “stacks offers” in some scenarios – as they should try to obtain the highest possible price. One must remember Fannie Mae is a Government Sponsored Entity (GSE) – not a private corporation. The major issue I have is distinguishing two different classes – investor/second home buyers and owner occupied. If a bank stated that they will consider all offers (no matter who they are from) once the property has been on the market for a set number of days (for instance five days) I wouldn’t have nearly as much of an issue. I understand they are trying to obtain the best possible price as the seller and that is their right. However, in my opinion, it is NOT their right to distinguish WHO should be able to submit offers and when – especially being a government sponsored entity.
Government & GSE’s Favor Owner Occupants over Investors
The legislation and policy enacted by our government and GSE’s seem to definitely favor owner occupants. In reality, the way to truly clean up the foreclosure crisis is to open up the same opportunities for investors and second home owners. For instance, the tax credit that just recently expired wasn’t offered to investors or second home owners. Not that I advocate the distribution of tax payer dollars to credit home buyers, but opening it up to investors/second home owners would have been a more effective way of reducing the inventory of foreclosures and giving incentives for more investors to purchase property. The Fannie Mae First Look Policy is following the same path of failed logic.
Initial Confusion Over Deadline Dates & When Offers Could Be Submitted
Among the other problems associated with the policy is when the deadlines/waiting period started and ended. At first it was extremely unclear – some places indicating it was when it was officially listed in the MLS and others when a listing agreement was signed, or when it was posted on the Homesteps.com (Fannie Mae owned properties) website. Finally, and to the credit of Fannie Mae/Homesteps they did clear this up and have made it uniform by posting the days on their website and that is the “official” source.
What will be a result of this however, will hurt the buyer agent industry. Buyers instead of going to their Realtor to find information will go directly to the Fannie Mae website. I’m not necessarily saying that Fannie Mae is trying to eliminate or reduce the use of buyer representation, but it certainly will have an adverse effect. Buyers are unquestionably (in my opinion) better represented by a party looking out for their best interests. A buyer is more likely now to call up the listing agent directly and likely be represented in a facilitator/transaction broker capacity at best. This puts the listing agent in a difficult situation if they have multiple offers from clients not represented by a buyers agent as far as offering price.
I could go on for several more paragraphs or even pages about the flaws I see with the government mandated policies regarding housing and Fannie Mae. One such example is Fannie Mae requesting another $8.4 billion in bailout money from the taxpayers after reporting a loss of $11.5 billion in the first quarter of 2010. Continuing on would likely bore my readers into dozing off at their computers, so I will hold back and save that for another blog!
To read the form required (and referenced above) to be signed by buyers claiming to be using a Fannie Mae owned property as their primary residence please click here: http://www.wearsvalleyhomes.com/FannieMae-OwnerOccupantCertification.pdf