Who really loses on a foreclosure – the bank? Think Again!

Bank Owned Foreclosure – A Play on Words?  

It is very common to associate a foreclosure with a bank, and this idea is reinforced when we see advertisements for “bank owned” properties.  Mistakenly, we also believe banks are taking the biggest financial hit when a house is sold as a foreclosure.  However, the fact is that in many cases a foreclosure is not owned by a bank.  If not the bank, then who owns these distressed properties and takes the financial  loss?

Understanding Fannie Mae and Freddie Mac

Fannie Mae (Federal National Mortgage Association) was created in 1938 during the Great Depression by Franklin D. Roosevelt, set up as a government-sponsored enterprise(GSE), and later converted into a publicly traded company in 1968.  Freddie Mac (Federal Home Loan Mortgage Corp.)  was founded in 1970 so Fannie Mae wouldn’t have a monopoly on government-backed mortgages. Their collective purpose is to buy mortgages from savings and loans, banks and lenders to provide cash for more mortgages.  The mortgages purchased by Fannie Mae and Freddie Mac are packaged into mortgage back securities(MBS) through a process called securitization. This process transforms realtively illiquid loans into highly liquid securities.  Therefore, the bank or lender who originates your loan or that services the loan by collecting monthly payment is probably not the entity that owns the note.

While relatively unknown to the general public, the significance of Fannie Mae and Freddie Mac to the mortgage market cannot be underestimated.  Combined they hold approximately $5 trillion of  mortgages, about half of the nation’s home loans. Losses to Fannie Mae and Freddie Mac are expected to approach $400 billion before the foreclosure crisis ends.  The graph to the right from The Cromford Report shows the percentage of distressed sales by city, many of which were owned by Fannie Mae and Freddie Mac.

Who really pays for foreclosures?

On September 7, 2008,  Fannie Mae and Freddie Mac were placed into conservatorship.  The federal government now explicitly guarantees debt issued by Fannie Mae and Freddie Mac.

In a Jan. 2011 article from the Arizona Republic, Anthony Sanders, a former professor of real estate and finance at ASU stated, “Fannie and Freddie losses are passed onto the taxpayers.”

If you want to know if your loan is owned by Fannie Mae or Freddie Mac, click here.  I found out that my loan is owned by Freddie Mac, not the company I mail a check to every month.

The next time you are driving around and see a  HomePath or HomeSteps foreclosure rider on a Phoenix real estate sign, you can be assured that it is a Fannie Mae or Freddie Mac foreclosure, not a bank owned property. Additionally, it is not any bank that is taking the loss but the US government,  and ultimately you and I.

Related Posts:

2012 Real Estate Market Trend

Distressed Property Posts

In search of happily ever after with a Phoenix short sale offer

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$330,000 :: 3571 S Barberry Place, Chandler AZ, 85248

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3 beds, 2 baths
Home size: 1,900 sq ft
Lot Size: 7,405 sq ft
Added: 10/17/18, Last Updated: 10/17/18
Property Type: Single Family
MLS Number: 5834655
Community: CARMEL BAY AT OCOTILLO MC
Tract: CARMEL BAY AT OCOTILLO MC
Status: Active


Beautiful 3 bedroom + retreat, could easily be converted into 4th bedroom.Tile in Kitchen, wood flooring in family room+. Corner lot sits up high for privacy. Light, bright open floor plan. Outstanding value in Ocotillo lakes area with pool! Mature trees. Close to shopping, restaurants, schools and freeways. Please use Magnus Title 7400 S Power Rd # 102, Gilbert, AZ 85297

Listed with Century 21 Arizona Foothills


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$394,900 :: 1571 W WINCHESTER Way, Chandler AZ, 85286

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4 beds, 2 baths
Home size: 2,279 sq ft
Lot Size: 6,969 sq ft
Added: 08/22/18, Last Updated: 10/08/18
Property Type: Single Family
MLS Number: 5810245
Community: SILVERTON RANCH
Tract: SILVERTON RANCH
The price of this listing was last reduced on 9/25/2018 by 3%
Status: Active


4 bedroom/2 bath home in Silverton Ranch. Conveniently located near Loops 101 & 202. Home features include North/South exposure, 3 car garage, AZ room, vaulted ceilings, split floor plan, open kitchen, desert landscaping and ceiling fans. This remarkable property is available for immediate sale. The seller is very responsive and the property is a perfect opportunity for all buyer types.

Listed with American Allstar Realty


Brought to you by Gordon Baker, Remax Alliance Group. Call me today at 480-326-8571, or visit my website at www.myhomeinaz.com/!


$265,000 :: 2806 S ANDERSON Lane, Gilbert AZ, 85295

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3 beds, 2.5 baths
Home size: 1,875 sq ft
Lot Size: 5,227 sq ft
Added: 10/18/18, Last Updated: 10/18/18
Property Type: Single Family
MLS Number: 5835158
Community: COOLEY STATION PHASE 1
Tract: COOLEY STATION PHASE 1
Status: Active


BEAUTIFUL 3 BEDROOM HOME IN COOLEY STATION ON RARE CORNER LOT! THIS PROPERTY HAS ONLY ONE NEIGHBOR AND PRIVATE SIDE YARD W/COVERED PATIO. BUILT IN 2015, THIS HOME IS LOCATED ON PREMIUM GREENBELT & FRONT IS MAINTAINED BY HOA!! THE KITCHEN FEATURES UPGRADED MAPLE CABINETRY, GAS RANGE/OVEN, WALK-IN PANTRY & BREAKFAST BAR. OPEN CONCEPT GREAT ROOM ADJOINS BREAKFAST ROOM & LOOKS OUT TO COVERED PATIO. 1ST FLOOR HAS DEN & POWDER ROOM THAT WAS PRE-PLUMBED FOR FUTURE SHOWER/TUB. MASTER & SECONDARY BEDROOMS ON 2ND FLOOR W/LOFT & LAUNDRY

Listed with Keller Williams Realty East Valley


Brought to you by Gordon Baker, Remax Alliance Group. Call me today at 480-326-8571, or visit my website at www.myhomeinaz.com/!


Additional information about short sales and bank owned property can be found at Phoenix Waterfront Distressed Property

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