Federal officials reported on Monday, that Fannie Mae has sold nearly 700 foreclosed homes located in Florida, to the San Diego investment company, Pacifica Cos.
The deal is the local company’s first winning bid for purchasing foreclosures in bulk in Fannie Mae’s pilot program that sells repo homes in bulk to investors. The only condition attached to the sale is to convert the properties into rentals.
The price paid by Pacifica Cos for the 699 repo homes, some of them occupied, some vacant, located throughout Florida, hardly reached $12.3 million, according to details revealed by the Federal Housing Finance Agency and Fannie Mae. The transaction is part of a huge program that at the start has faced opposition from Florida’s Realtors trade group, but it closed on September 6.
As the Fannie Mae document shows, the transaction is aimed to bring home price stability, improve the housing market inventory and enhance rental inventory, by using the rent and hold strategy.
While the idea of selling foreclosed homes in bulk is new, the structure is not. Here is how it works.
Pacifica and Fannie Mae own interest in a newly formed LLC that holds the properties located in Florida. According to the business structure, the mortgage servicer will get 90% of the limited liability company’s rental revenue, until it reaches the $49 million mark. From then on, Fannie Mae’s share will drop to 50% while the other party, Pacifica, will get the balance in both situations.
In addition, Pacifica will also receive payment as it manages the LLC, it will take 20% of the gross rental income. In other words, the transaction appears to bring benefits for both parties.
As Norm Miller, a real estate professor of University of San Diego, states the deal is structured so the mortgage servicer gets priority on returns and after the milestone is reached, the returns shift to Pacifica. This is aimed to create a strong interest in maintaining the home as well as improving it for Pacifica and rewards both, the lender and the bulk buyer.
However, this works for the GSE Fannie Mae, as it will speed up returns to the government and the final beneficiaries are the taxpayers.
While this specific deal is the first one, the idea isn’t new, it went mainstream last year and investors were invited to submit their documentation to qualify for the program back in February. Right at the beginning of the initiative about 2,500 foreclosed properties were sold in bulk, with more than 600 homes located in Riverside and Los Angeles counties