When Fannie Mae told real estate broker Rick Suarez to pull some of Fannie Mae-owned homes off the market and cancel closings of REO deals, he knew immediately his business was going to take a hit.
Government sponsored mortgage company Fannie Mae has halted sales of homes foreclosed on by several loan servicers amid a controversy over questionable legal documents used to seize homes from borrowers.
Late Thursday, the head of a key congressional committee called on top U.S. mortgage lenders and banks to voluntarily halt home foreclosures in all 50 states and the District of Columbia until the banks’ legal departments review their company’s procedures.
So far, Suarez has had to cancel 10 closings and remove for-sale signs from many of his listed properties since being contacted by Fannie Mae last week.
“It is going to be very difficult for an REO broker to stay in business between now and until this headache goes away,” said Suarez, who markets and sells homes repossessed by financial institutions.
The properties are known as real estate-owned, or REO.
The REO industry in South Florida — a center of the nation’s foreclosure crisis — flourished as foreclosure filings began flooding courthouses across the region in 2007. Now, brokers who specialize in marketing REO properties fear a halt in closings will cripple their business.
“It is going to affect me greatly because if we are not closing properties, which is our business, we are not going to be able to maintain the operation that we have ongoing,” REO broker Jose Fente said. Fente said his company employs more than 20 people to manage REO properties. “If there is no income, there is a loss of jobs.”
Fannie Mae’s decision came weeks after loan servicers GMAC, JPMorgan Chase and Bank of America acknowledged they may used improper documentation when they foreclosed on homes on behalf of loan owners, including Fannie Mae and Freddie Mac, which is also government-owned.
Loan servicers prepare the paperwork — from assignments of mortgage to affidavits in support of summary judgments — that goes before judges in foreclosure suits. Many loan servicers are also lenders.
In late September, GMAC was the first loan servicer to say it may have submitted improper documents in residential foreclose cases. GMAC, JPMorgan and Bank of America said they are reviewing their foreclosure practices and put on hold foreclosure sales, evictions and REO sale closings.
The three debt servicers told title agents across South Florida to halt closings.
Last week, Old Republic National Title temporarily stopped issuing title insurance on sales of REO properties involving JPMorgan Chase and GMAC. The company is still issuing title insurance on other deals involving these loan servicers.
“There is no prohibition on writing title insurance on short sales or following a deed-in-lieu of foreclosure involving these lenders or any prohibition against insuring titles where a mortgage foreclosure by Ally Bank/GMAC, JPMorgan Chase or Bank of America appears in the back chain of title,”said an Old Republic memo sent to title agents last week.
While the servicers see a cure to their problem, Fannie Mae told REO brokers last week to freeze any transaction that involves a property under investigation by a loan servicer.
“Where we learn of possible issues with the processing of legal documents by a servicer, we immediately halt foreclosures, evictions and REO sale closings on the affected properties,” Fannie Mae spokeswoman Amy Bonitatibus said. “Transactions on such properties are on hold until the servicer can verify that the problem has been rectified.”
As of June 30, Fannie Mae owned 13,179 properties in Florida, up from 4,251 in June of 2009, according to the government-supported agency. That number is set to grow as more Fannie Mae foreclosures are processed by the courts. On June 30, 12.6 percent of its loans in Florida were “seriously” delinquent, up from 9.71 percent in June 2009.
Currently, Fannie Mae is marketing 1,191 homes and condos in Miami-Dade County, 1,226 in Broward County and 617 in Palm Beach County, according to homepath.com, its marketing website.
Fannie Mae still has to determine how many of its foreclosure properties will be taken off the market.
To Fente, that number is irrelevant. He only knows that since GMAC’s announcement on Sept. 20, several financial institutions that used GMAC, Bank of America and JPMorgan Chase to prepare home foreclosures are canceling listings and REO closings.
“I’ve been hit with an avalanche of cancellations from all my clients,” said Fente, owner of Tropical Realty in Miami Lakes. His clients include Fannie Mae, Freddie Mac, Wells Fargo, GMAC and Bank of America.
Fente worries his business will plummet by 80 percent as a result of the cancellations. He also expects to receive fewer listings from loan owners while the issue of improper court documents is resolved.
“You are going to see a lot of REO shops close down,” he said.
Brokers are required to pay for utilities and repairs while REO properties sit on the market. The financial institutions reimburse them a month or two later, so brokers have to close deals to generate the cash to cover their temporary costs.
REO brokers usually earn a 2.5 percent commission on a sale, Suarez said.
“We continue to pay all these things, and now we have no money coming in,” said Suarez, owner of Castle Realty in Miami. Maintaining an REO property in unincorporated Miami-Dade can cost from $2,000 to $3,000. His REO listings range from $35,000 to about $200,000.
Nearly 30 percent of his 50 REO listings are on hold. He said Fannie Mae estimates the freeze will last between15 and 30 days.
“But it could take much longer,” Suarez said.
Fente said he will survive, but he may have to cut his workforce. “Everybody in my office is petrified. … They are not even speaking because they see the e-mails that are going around, and they know you can’t run an office like that. They know this is an ugly situation,” he said.
Beyond REO brokerages, experts say, the transaction freeze is likely to hurt an economy struggling to recover from one of its worst recessions in more than half a century.
Every time people buy a home, they spend money on home improvements, buy furniture, hire contractors and gardeners, said Michael Krein, president of the National REO Brokers Association in Henderson, Nevada.
“Putting people in the houses affects all aspects of the economy,” he said. “Vacant houses don’t require those services.”
A delay in selling foreclosed homes will also slow down the return to a normal housing market, said Coral Gables real estate consultant David Dabby.
“REO and short sales are the major market force behind residential sales today and next year,” he said, adding that 55 percent of residential sales in Miami-Dade and Broward counties are distressed deals.
“You want to check on the validity of a court document? That’s fine,” he said, referring to the loan servicers reviewing their foreclosure practice. “But any delay in REO closings is a delay in market recovery.”
Local brokers who specialize in selling foreclosed properties are feeling the pinch after mortgage giant Fannie Mae and several loan servicers halted home sales amid questions about the legitimacy of court documents used to seize them from borrowers.
Many of the brokers have focused on the sale of foreclosed and distressed homes while the traditional market languishes.
GMAC, JP Morgan Chase and Bank of America acknowledged they have submitted improper documents in residential foreclose cases. Fannie Mae has stopped sales and listings of properties seized by the three companies on its behalf.
“It is going to be very difficult for an REO broker to stay in business between now and until this headache goes away,” says one broker who specializes in selling foreclosure homes.
GMAC was the first to announce a widespread freeze on foreclosure sales and evictions.
The big loan servicers handle foreclosures on behalf of banks and mortgage companies such as Fannie Mae and Freddie Mac.