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Fannie Mae, a government-sponsored entity (GSE) responsible for buying up a large swath of foreclosed homes in the U.S., has announced its preference for selling distressed homes to individual buyers as opposed to institutional investors. The reason is far from altruistic however; Fannie Mae reps say individual buyers pay higher prices because they want the home for the long haul rather than as a quick way to turn a buck. The GSE ensures small-time buyers get first dibs through its “First Look” program, and sells about 60% of its inventory to owner-occupants in the process. For more on this continue reading the following article from TheStreet.

Investors are crowding out home buyers in the foreclosure market, bidding for properties in bulk and converting them into rentals, leaving owner-occupants with a frustratingly limited supply of low-priced homes.

At Fannie Mae (FNMA), however, owner-occupants continue to come first.

"Our goal is to sell [foreclosed] properties at market-competitive rates to owner-occupants as often as possible," says Andrew Wilson, spokesperson for Fannie Mae.

"Owner-occupants often are willing to pay a higher price than investors," said Wilson, since they are in it for the long haul. On the other hand, "Investors are looking to make a profit, they want to buy at a lower price, fix up the house and sell or rent it out," he said.

Secondly, Fannie Mae is focused on stabilizing communities that have been hurt by a large number of foreclosures and allowing them to recover.

The thinking is that owner-occupants tend to build communities, as opposed to investors buying vacation homes or renting them out.

Through its "First Look" program, which it launched in 2009, Fannie Mae offers homebuyers a chance to bid and purchase foreclosed properties before they are made available to investors, usually within the first 15 days from the time a property is listed.

The program is available to buyers who intend to live in the home at least for one year from the time of purchase. It is also open to non-profits and public entities.

Fannie Mae sells about 60% of its properties to owner-occupants.

The continuing emphasis on owner-occupancy could be one reason why Fannie Mae and its sister mortgage giant Freddie Mac (FMCC) have been relatively slow to take advantage of the boom in single-family rental business.

As TheStreet noted in an article Wednesday, Fannie Mae is yet to expand the foreclosure-to-rental pilot program that it launched last year, despite the fact that Wall Street is pumping billions of dollars into this business.

Fannie Mae and Freddie Mac, also known as government sponsored enterprises or GSEs, together own over 150,000 foreclosed homes that should be ripe for the picking for investors scouting for bulk deals.

Fannie Mae says it is still waiting for approval to proceed with the program from its regulator, the Federal Housing Finance Agency. The FHFA , in turn, has said it is still evaluating the pilot program and the evolving market dynamics.

As home prices rise, the agencies may find they do better executing through the retail channel than through pool sales.

Wilson says there is no reason to believe bulk sales are any more efficient than selling at the retail level.

"We do a pretty large volume through our retail channel. We sold 180,000 properties last year and 2,000 through pool sales. So we are pretty efficient. We have a robust process," he said.

This article was republished with permission from TheStreet.