HomePath worthwhile for REO?

Question

The pros seem to be if you are going to owner occupy (which I am), you can lock up a deal before other investors can get to it. The downside is the prices are still somewhat higher than if you found a motivated seller or REO that has been sitting.

Has anyone had success with Homepath or know any strategies with it?

Russell Monson · Answer

I have purchased two of these in Utah as an investor this year.  They tend to sell very quickly during the first look period in my area, so both of the ones I purchased were properties where the OO buyer didn't go through with the deal.  When they are re-listed they don't go back into first look, so as an investor I was able to pick them up immediately.  Both were priced very near appraised value, however, FNMA had completed a full renovation of both properties.  I was able to rent them quickly and both cash flow well.

Bottom line is that in order to buy them as an investor I had to watch for the re-listing of properties I knew I wanted and check the listings every day to make sure I could put in an offer very quickly.  The 10% down loans are great and worth the effort for me as I've been able to purchase more property this year than I otherwise could have.

Account Closed · Answer

I'm a fannie mae broker.    Out of all the banks they typically are the best at getting the most money for the property.    They do authorize agents to ask for new paint/carpet before listing, and they typically list right at appraisal value.   They are really pushing for O/O buyers.   Very few properties that we listed ever were people attempting to flip, i didn't feel any that we sold were worth flipping.   A lot of property was sold to buy/hold investors.   I think we listed/sold like 75 REOs in the last year for fannie.   We aren't a primary broker in my area, but my broker's office handles a bunch of them.

I've never really seen huge discounts taken from list price, and i've never really felt fannie mae was a great resource for investors looking to flip.   With that said, they use auction.com as a dumping ground when property starts to get some age on it.

I've been part of 2 auction.com flips.    None of which were that spectacular but were worth doing.

JOE SNEAD · Answer

I think there is a strategy. most homes i feel are priced a little aggresively high to start.  fannie mae often has the first fifiteen day for owners to bid wihtout investors.

heres the strategy i found that worked for me as an all cash buyer.  I placed many offers on properties that were rejected by fannie mae.  i would suggest going through the listing agent to put in any offers.  everything is done online these days.  so its pretty boiler plate paperwork to submit an offer.  dont be afraid to submit an offer because you can always back out without any money down during the 10 day inspection period.

Ultimatly look for homes that are back on the market listing.  these are homes that went to contract and then people backed out of the deal.  why does this happen?  I found the majority of the time the property is just in poor enough condition that a traditional lender wont give a mortgage on the property.  the deal falls through and fannie mae places it back on the market typically with a price reduction.

This will eliminate a large pool of potential home buyers and now leave it for just all cash investors or perhaps your bank will agree to a 203k loan to renovate the property.  do your own research and figure out what the home is worth , repairs needed etc.

Ive tracked many properties and most tend to go pretty quick after being listed.   my research from just the homes i had offers on sold for above or within 90% of asking price.

http://www.biggerpockets.com/forums/16/topics/77512

good luck to you. there are good deals on homepath and not so good deals be patient and trust the numbers

Scott W. · Answer

i am contemplating taking advantage of their deal. 30-yr fixed at 4.25% w/ 2 points but with 10% down ($79k-$90k purchase price). but here's a good deal - 15% down & they will roll the rehab loan (if it's rehab approved) into the mortgage.  OPM (other people's $).

Shane M · Answer

You are pretty much right about this Donna, I have found a few deals occassionally but the best ones have had price reductions at least twice. If I had more capital there is a duplex I would scoop up but I'm still working on my first deal

Donna Smolinski · Answer

I'm not sure about other regioins, but here in San Diego County, most Homepath properties are listed OVER FMV or it's a complete dump, and still listed over FMV based on condition.  I think their strategy is this:  List it high during the 1st Look period, knowing their market will be much greater when it opens to Investors too.  Then after 30 days of no offers, they do a pretty good price reduction.  If no offers in 45-60 days, they bite on a lowball offer or make another reduction.  I've never liked working with FNMA, but you can get a good buy once it sits on the market for awhile.  New listings are just too high priced here.

Mark H. · Answer

No real "strategy", but I did get one last year.  It wouldn't have financed normally, (leaky roof & missing water heater) & Homepath *would* have financed the property, but the fees were so high & they changed the deal at the last minute (they wanted 15% down instead of the 10% we were promised)...

with all the Homepath fees, 15% down was actually almost the same cash out of pocket as 25% down with my local credit union.  Since we had burned several weeks of time trying to jump through all of the Homepath financing hoops, we just did it all cash - told the banker to go pound some sand..

That said, the property was an excellent buy, I think the only reason I was able to get a crack at the property was because of it's ugly condition,  (the drywall in the garage was falling down and moldy due to the leaky roof).  We had the roof over the garage replaced for about a grand, and just ripped down the rest of the drywall on the garage ceiling, there's no need for it in a rental.

As for initial pricing, I think it was too high - here's the history on the one I got

Listed 11/22/2010 @ $88,750
Reduced 12/23/2010 to $80,000
Reduced 1/30/2011 to $75,000
Reduced 3/3/2011 to $69,000

(I wrote a full price offer on 3/3/11 and the listing broker *refused* to present it, claiming the house was under "auction terms"... )

Listed on Auction.com 3/4/11 "starting at" $19,000

I participated in a couple of the "pre-sale auctions", gradually upping my bid to $62,500

Closed on 4/28/2011 @ 62,500.   With closing costs, cash out of pocket was ~$64,500, probably another $3k in miscellaneous repairs, and the property is currently rented @ $950.   Finding a tenant took seven days on MLS.

Zillow shows the property is worth $80k today. 
The most recent model-match REO went pending last week @ $99,900 (multiple offers, no idea where it will actually close).
The only normal-sale model match in the neighborhood is listed @ $129,900.

There are several short-sales in the neighborhood that went pending at $65-$80k, so I'm sure those are holding the values down, even though you really have to know someone to get one at those prices.

So, my point is, Homepath homes can be a decent deal.

Michael S. · Answer

There are great deals through Homepath.  Around here it typically goes like this:  15 days on market owner occupant only (first-look period) -- any offers submitted during this period will likely be held til the end of the 15 days then responded to.    Next 15 days are available to all who want to bid -- if they still don't get any bites they will drop the price and it will still be available for all bidding (HUD switches it back to owner occupant only when price drops).

My advice is to call the listing agent and let them write the offer for you.  Ask them questions and feel it out.  Get them on the phone and let them work to get you a good deal.  If that one isn't going to work, ask them what deals are good?  As an REO broker they will know where the deals are and will help you.   Talk to all of them.  Good luck.

Karen Margrave · Answer

If you can find listings on homepath, and get them during the period of time where they aren't offered to investors, they seem to be a good deal. I don't know about them being more expensive than other REOs, when I've seen any available that wasn't the case. However; in southern California they were very rare anyway, as are any other distressed properties.