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Foreclosures might not be as appealing as they once where … Fannie Mae’s new bright idea is to thank.

Sure, you can get a good deal once the home is Bank owed. But news from Fannie Mae earlier this week is scarring the bejezzus out of me. So what has changed?

Fannie Mae, the largest purchaser of mortgage backed securities in the country has changed guidelines with Announcement SEL-2010-07 on May 27, 2010 to state that they will NOT purchase any homes that where foreclosures UNLESS the former owners redemption period has expired.

Redemption period: In real estate terms, a redemption period is the time frame a former owner is given to reclaim their property after it has been reposed by the bank. The reason you rarely hear about home owners reclaiming their homes is because it takes a HUGE amount of money. The former owner would need to pay all fee’s, past interest and pay off the former amount due … needless to say this number can be huge! Unless your winning the lottery, its not likely going to happen. The redemption period in Oregon is 180 days.

So how is this going to affect you? Most banks that lend money want to keep their portfolio’s (All the loans they made) sellable to large investors like Fannie Mae. If Fannie states that they will not buy a loan until after the redemption period, then these banks could end up servicing these mortgage loans longer than anticipated. It’s always a good rule of thumb for banks to keep their portfolio fluid in case they need free up some money. In the end, many banks could decide to not lend on these property's because they might be forced to service them for a period of time. And if these last 3 years serves as our measuring stick ... I would venture a guess that most of the large banks will not want to take the risk.

Saving grace might be that many times a home is on the market for months before it sells. The redemption period starts when the home is reposed by the bank, so some bank owned homes could already be beyond there redemption period, in which case Fannie Mae is back in the picture.

For more on this please see Announcement SEL-2010-07