Fannie Mae and Freddie Mac’s combined inventory of foreclosed residential property has quadrupled in just three years and now stands at a record $24 billion. The number of properties on their rolls — now at nearly 242,000 — has increased fivefold.

That’s roughly a third of the total U.S. portfolio of repossessed homes.

And it’s growing because the two mortgage companies operating under U.S. conservatorship aren’t finding buyers faster than new foreclosures come in.

So far, officials at Fannie Mae and Freddie Mac say, the two companies have been trying to stabilize neighborhoods by selling their massive inventory at prices that are close to market. With home seizures projected to increase this year, some housing analysts predict they may have to drop prices, with potentially far-reaching impacts on the real-estate market.

“The concern we have is less what Fannie and Freddie are showing at the moment as defaulted loans and more what’s in the shadow,” said Michael Feder, chief executive officer of Radar Logic, a real-estate data firm based in San Jose, California.

As the backlog swells and the Obama administration moves toward a complete revamp of the federal role in the housing market, pressure is growing on Fannie and Freddie to rethink their sales strategy for REO or real-estate-owned properties.

If they do eventually drop prices, that might hurt individuals who are selling their homes in a depressed market, but it could also benefit real estate investors who are being shut out by their current sales policies.

‘Prolonging Inevitable’

“I think they’re very purposefully not flooding the market,” said Michael Slaughter, a partner at New Providence Capital, a Dallas-based private lender. “It’s understandable why they’re not, but I think they’re just prolonging the inevitable.”

Officials at the two companies say they are committed to an approach consistent with their mission as backstops for the housing market. In an effort not to depress housing prices still further, the two companies have focused on selling to live-in homeowners instead of investors or “flippers.” And except for properties in need of repair, they say they won’t sell for rock-bottom prices.

“We don’t want a reduced value to initiate a quick sale,” said David Wendling, senior director of REO sales at Freddie Mac. “The focus has always been on supporting neighborhood values, making sure we don’t create low-dollar comps that impact other neighborhood folks.”

Owner Occupants

Of the 5,289 properties Freddie Mac sold in the first nine months of 2010, 67 percent went to buyers who intended to occupy them, according to agency data. At Fannie Mae, about 80 percent of sales are to owner-occupants, said company spokeswoman Amy Bonitatibus.

Fannie Mae and Freddie Mac say their prices reflect the market value for the properties they own. Because there are caps on the size of mortgages they buy from originators, the median price of their inventory is lower than the national median.

The median foreclosure list price for properties owned by the two government-sponsored enterprises is $99,000, according to RealtyStore, a Santa Barbara, California-based foreclosure data provider. That compares with a national median price of $171,000 for the nearly 4 million homes on the market overall.

The agencies say they are moving as quickly as possible while working to find the right buyer at a market price.

‘No Shadow Inventory’

“We don’t hold anything back that is available to be sold,” said Jane Severn, director of REO disposition at Fannie Mae. “We’re doing the opposite, pushing our homes out to the market as soon as we can. We don’t have a shadow inventory.”

The two companies, officially known as “government- sponsored enterprises” or GSEs, do give preferential treatment to certain buyers.

For the first 15 days after a property is listed, they will only sell to people who intend to live in them or to nonprofit and government organizations, officials said. Fannie Mae also offers financing with a 3 percent down payment to potential owner-occupants.

They’re also taking the time to invest in some properties, spending millions on maintenance so they are competitive with other homes on the market in their neighborhoods. This has created new opportunities for firms in the real-estate industry to gain government contracts.

At the same time, some real-estate analysts doubt the GSEs can keep pursuing this strategy as foreclosures continue to mount.

Foreclosures Rising

The number of homes subject to a foreclosure filing may rise by 20 percent this year, up from a record 2.87 million properties in 2010, RealtyTrac Inc., an Irvine, California data company predicted this month.

The market currently can absorb about 1 million foreclosures a year, the Mortgage Bankers Association estimates. Fannie and Freddie themselves estimate in regulatory filings that it will take “a number of years” to bring their foreclosure inventory, known as REO for “real-estate owned,” back down to pre-2008 levels.

As foreclosures increase, the GSEs will eventually need to drop prices and turn to investors, analysts predict.

“We haven’t seen a lot of opportunities to buy single-family homes at values that allow you to rent them out,” said Slaughter, the Dallas-based private lender. “That’s because they’re restricting the supply to owner-occupants and giving them 97 percent financing.”
That strategy isn’t working, he said.

“They’re continuing to add properties to their balance sheet way faster than they’re getting rid of them,” he said. “If they don’t start with a systematic distribution of these properties to investors who have cash today and will buy them at the right price, they’re going to end up selling the entire portfolio to Goldman Sachs or BlackRock at a tenth of what they can get for them today.”