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FREDDIE MAC OFFERS BUYERS A NEW INCENTIVE

Good news for Buyers willing to purchase a foreclosure property. Not so much for anyone else who wants to sell a home.

Someone at Freddie Mac must to be watching a lot of late night television infomercials. The nations #2 mortgage finance company is offering comprehensive two year home warranties and will pay up to 3.5% of the purchase price to qualified buyers of their HomeSteps foreclosures.

The "Smart Buy" sales promotion is intended to help the mortgage giant unload a larger share of its growing portfolio of repossessed homes.

It is no secret that glut of foreclosed homes is weighing on Freddie Mac, just the same as other financial institutions. Freddie had 29,145 homes in its "real estate owned" portfolio as of March 31st, more than double that at the end of 2007. The costs have deepened the company's losses, which have forced it to draw $51.7 billion in government support.

Foreclosure inventory is costly to maintain and difficult to unload.

So, what does any good retailer do when they cannot move the merchandise? They have a sale!

Here is the script for the fast talking guy who reads the disclaimer at the end of the commercial
  • offer valid for initial purchases made by Oct. 31, 2009, with deals that close by Dec. 31, 2009.
  • Owner-occupied, principal residence only.
  • Homes costing less than $25,000 do not qualify
  • Sorry, offer void only in the continental 48 states.
  • Buyers must complete a SmartBuy Buyer's Closing Cost registration form, and obtain a coupon that must be presented both at the time of the original offer and at closing.

A great many savvy buyers are already demanding that their sellers offer closing cost credits and home warranties, but there are several key differences in this announcement.

First, the warranties cover a two year term, twice the conventional one year offer.

Second, even the warranties comes with bonus features: Cross Country Home Services will cover electrical, plumbing, air conditioning and heating systems, as well as ductwork and many major appliances. They will guarantee repairs for 180 days and will replace appliances that can't be repaired with comparable units. The warranties also include a discount buying program for up to 30% on the cost of name brand appliances and up 15% on installation.

These incentives should draw a lot of interest from home buyers, and likely will lead to many more sales of Freddie owned homes. Burning off that inventory is good for Freddie and in turn, good for the overall economy, but man, this is going to smack a lot of home owners in the pocket book. hard. Prospective buyers are drawn out of the "conventional" marketplace and into the foreclosure pool. Fewer Buyers looking willing only lead to more downward price pressures for the rest of the home-selling world.

Gotta figure that this is going to play out, just like it does when retailers and airlines announce price cuts, rebates and other incentives; everyone else is going to have to match those discounts or suffer a loss of market share. Stay tuned for similar announcements from some other the REO portfolios
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