Unstructured Finance

FHFA is not on an REO speed wagon when it comes to full disclosure

By Matthew Goldstein

The FHFA continues to reveal as little as possible about its pilot project of selling foreclosed homes to private investors in bulk sales.

With surprisingly little fanfare, the Federal Housing Agency announced this week that Pacifica Companies, a little-known San Diego investment firm, is the first company to emerge as the winner in the pilot project. Pacifica is buying 699 single-family homes that are part of Fannie Mae’s REO portfolio in Florida.

In the coming weeks, FHFA says it will announce the winning bids for bulks sales of REO homes in California, Arizona and Illinois as part of the much-hyped pilot project to sell 2,500 foreclosed homes. The agency that regulates Fannie and Freddie Mac says there will be no winning bid for some 541 homes it was planning to sell in Atlanta. The agency didn’t offer an explanation.

The deal with Pacifica is structured as a joint venture with Fannie that will distribute the cash generated from renting out the homes and eventually selling them three years down the road. The San Diego company is paying $12.3 million for its equity interest in the joint venture that values the portfolio at $78.1 million, or 96 percent of the appraised market value for the single-family homes. In the deal, Fannie will retain considerable equity in the joint venture and collect up to $49  million in revenue before the deal terms become more favorable to Pacifica–which also collects a separate asset management fee.

The deal structure is a bit complicated but FHFA is not saying anything more about the process. A spokeswoman for the FHFA says the agency has no plans to reveal the number of bids it received for the Florida properties or provide additional details on Pacifica’s bid or how it intends to manage the homes as rentals.

Deeper into the abyss

A man walks out of the headquarters of Freddie MacThe subprime crisis has come to this: The U.S. government is considering taking over mortgage finance companies Fannie Mae and Freddie Mac if their funding problems worsen, the New York Times reported, citing people briefed on the matter. Fannie and Freddie, government-sponsored entities that have the implicit backing of Washington, would be placed into conservatorship, with shareholders left with little or nothing, and the losses on the $5 trillion in home loans they own or guarantee — what amounts to half of all U.S. mortgages — would be paid by U.S. taxpayers.

General Electric is set to sell its Japanese consumer finance operation to Shinsei Bank for 580 billion yen ($5.4 billion), people familiar with the matter said. The business includes a moneylender, Lake, as well as a credit card and housing loan operation. GE had previously said it was looking to sell Lake, but did not say anything about the entire Japanese consumer finance business.

How’s this for an about-face? Anheuser-Busch is in active talks to sell itself to InBev in a friendly deal, the New York Times said on its website, citing people briefed on the matter. Price seems to be a factor, with InBev seemingly open to raising its $65 per share offer, along with pressure from major shareholders like Warren Buffett. What will politicians like Sen. Claire McCaskill and presidential candidate Barack Obama say now that “America’s Beer” may be selling itself willingly?

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