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

 Phoenix Waterfront Foreclosures for Sale in Gilbert and Chandler

$474,900 :: 1320 W PALO VERDE Drive, Chandler AZ, 85224

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3 beds, 2 baths
Home size: 2,076 sq ft
Lot Size: 13,504 sq ft
Added: 11/21/22, Last Updated: 12/03/22
Property Type: Single Family
MLS Number: 6490844
Community: SARATOGA SQUARE
Tract: SARATOGA SQUARE
The price of this listing was last reduced on 12/3/2022 by 5%
Status: Active


Come live under the shade of the Ficus tree - this Chandler charmer features a huge yard, pool, spa and out-building and no HOA on a coveted, oversized cul-de-sac lot . Kitchen features upgraded cabinets with pull out shelves, wine and dish racks, deep drawers for larger items, several glass fronts & more! Walk-in pantry has lots of room for storage. Primary suite has a retreat space perfect for a sitting room, work out area, office space or convert it to a 4th bedroom! Primary ensuite offers dual sinks, two closets including one cedar lined with built-in shelving, and large sunken shower with a window. Exit the primary suite to your back yard with a beautiful pool and spa, a storage shed, RV rolling gate, and & out-building with AC for use as storage, toys, a workshop & beyond.

Listed with Hague Partners


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


$735,000 :: 943 E SAN REMO Avenue, Gilbert AZ, 85234

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5 beds, 3.5 baths
Home size: 3,435 sq ft
Lot Size: 10,455 sq ft
Added: 09/23/22, Last Updated: 09/23/22
Property Type: Single Family
MLS Number: 6468052
Community: CIRCLE G MEADOWS 3
Tract: CIRCLE G MEADOWS 3
Status: Active


BRING ALL CASH OFFERS! This large basement home with 5 bedrooms, 3.5 bath, pool and spa needs some TLC from its next family. Current owner replaced all the windows, put in synthetic grass in front and around the pool, and installed a new sprinkler/watering system, built a raised garden bed, renovated to make a small apartment and installed solar panels. There is no HOA here and no backyard neighbor. Highly desirable Gilbert location. **NEED A FAST CLOSE**

Listed with Keller Williams Legacy One


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

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