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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5 beds, 4.5 baths
Home size: 3,729 sq ft
Lot Size: 13,504 sq ft
Added: 08/10/19, Last Updated: 12/21/19
Property Type: Single Family
MLS Number: 5963735
Community: FIELDSTONE ESTATES
Tract: FIELDSTONE ESTATES
The price of this listing was last reduced on 12/2/2019 by 8%
Status: Conditional


AMAZING VALUE for the upgrades offered! NEVER BEFORE ON THE MARKET! STUNNING CURB APPEAL, LARGE LOT w/ BEAUTIFULLY MANICURED GROUNDS & GORGEOUS LUXURY OUTDOOR AMENITIES awaits in the desirable gated community of Fieldstone Estates. ORIGINAL OWNERS display pride of ownership in this grand and spacious home offering a desirable floorplan with seamless living & entertaining spaces. The main level offers high ceilings, neutral tile floors, a guest suite w/ separate ensuite & front courtyard entrance, living rm w/gas fireplace, dining rm w/ custom built-in cabinetry, butlers pantry w/ lg walk-in pantry & private outdoor courtyard w/ automated roller shade. The well-appointed kitchen features full-overlay cabinets, granite counters, double ovens, gas range, overhead pot rack, breakfast room,

Listed with Russ Lyon Sotheby's International 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/!


$394,900 :: 3033 E BLUE RIDGE Way, Gilbert AZ, 85298

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4 beds, 2.5 baths
Home size: 2,986 sq ft
Lot Size: 8,277 sq ft
Added: 01/11/20, Last Updated: 01/11/20
Property Type: Single Family
MLS Number: 6022647
Community: SHAMROCK ESTATES PHASE 1
Tract: SHAMROCK ESTATES PHASE 1
Status: Active


Welcome home to this beautiful north-facing, two story home featuring beautiful mountain views, wide open living spaces , open kitchen with kitchen island and breakfast bar, huge fenced back yard with covered patio, spacious three car garage, large master suite with separate tub and shower and upstairs laundry room.

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/!


$299,900 :: 1282 E WASHINGTON Avenue, Gilbert AZ, 85234

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3 beds, 2 baths
Home size: 1,526 sq ft
Lot Size: 5,228 sq ft
Added: 12/10/19, Last Updated: 01/02/20
Property Type: Single Family
MLS Number: 6011595
Community: LAKEVIEW TERRACE AT WIND DRIFT
Tract: LAKEVIEW TERRACE AT WIND DRIFT
Status: Active


Amazing opportunity to own this great 3 bedroom 2 bath home in the highly desirable Lakeview Terrace at Wind Drift subdivision! This home has a perfect floor-plan and features vaulted ceilings and a large great-room. The kitchen features a gas range and walk in pantry. The master boasts a large walk in closet, separate tub and shower and private toilet room. Enjoy the large covered patio with N/S exposure. You will love living next to Freestone Park which offers tennis, skate park, softball, soccer, batting cages, fishing, volleyball, Rec center and the list goes on!! New AC in 2016. Homes here don't last so act quick so you don't miss the opportunity!

Listed with The Offer Company


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


$620,000 :: 2314 E BEACHCOMBER Drive, Gilbert AZ, 85234

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5 beds, 3 baths
Home size: 3,742 sq ft
Lot Size: 7,841 sq ft
Added: 12/03/19, Last Updated: 12/03/19
Property Type: Single Family
MLS Number: 6010805
Community: TANGLEWOOD COVE AT VAL VISTA LAKES 2 LOT 116-228
Tract: TANGLEWOOD COVE AT VAL VISTA LAKES 2 LOT 116-228
Status: Active


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Listed with West USA 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/!


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

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