Monday, June 21, 2010
Cost of Fannie/Freddie Seized Properties Surges for Taxpayers
12:40 pm cdt
From today's New York Times:
CASA GRANDE, Ariz. — and took over a foreclosed home roughly every
90 seconds during the first three months of the year. They owned 163,828 houses at the end of March, a virtual city with
more houses than Seattle. The mortgage finance companies, created by Congress to help Americans buy homes, have become two
of the nation’s largest landlords.
Bill Bridwell, a real estate agent in the desert
south of Phoenix, is among the thousands of agents hired nationwide by the companies to sell those foreclosures, recouping
some of the money that borrowers failed to repay. In a good week, he sells 20 homes and Fannie sends another 20 listings
“We’re all working for the government now,” said Mr. Bridwell
on a recent sun-baked morning, steering a Hummer through subdivisions laid out like circuit boards on the desert floor.
For all the focus on the historic federal rescue of the banking industry, it is the government’s decision
to seize Fannie Mae and Freddie Mac in September 2008 that is likely to cost taxpayers the most money. So far the tab stands
at $145.9 billion, and it grows with every foreclosure of a three-bedroom home with a two-car garage one hour from Phoenix.
The predicts that the final bill could
reach $389 billion.
Fannie and Freddie increased American home ownership over the last half-century by persuading
investors to provide money for mortgage loans. The sales pitch amounted to a money-back guarantee: If borrowers defaulted,
the companies promised to repay the investors.
Rather than actually making loans, the
two companies — Fannie older and larger, Freddie created to provide competition — bought loans from banks and
other originators, providing money for more lending and helping to hold down interest rates.
“Our business is the American dream of home ownership,” Fannie Mae declared in its mission statement, and in
2001 the company set a target of helping to create six million new homeowners by 2014. Here in Arizona, during a housing
boom fueled by cheap land, cheap money and population growth, Fannie Mae executives trumpeted that the company would invest
$15 billion to help families buy homes.
As it turns out, Fannie and Freddie increasingly
were channeling money into loans that borrowers could not afford. As defaults mounted, the companies quickly ran low on
money to honor their guarantees. The federal government, fearing that investors would stop providing money for new loans,
placed the companies in conservatorship and took a 79.9 percent ownership stake, adding its own guarantee that investors
would be repaid.
The huge and continually rising cost of that decision has spurred
national debate about federal subsidies for mortgage lending. Republicans want to sever ties with Fannie and Freddie once
the crisis abates. The Obama administration and Congressional Democrats have insisted on postponing the argument until after
the midterm elections.
In the meantime, Fannie and Freddie are editing the results of
the housing boom at public expense, removing owners who cannot afford their homes, reselling the houses at much lower prices
and financing mortgage loans for the new owners.
The two companies together accounted
for 17 percent of real estate sales in Arizona during the first four months of the year, almost three times their share
of the market during the same period last year, according to an analysis by MDA DataQuick.
Valarie Ross, who lives in the Phoenix suburb of Avondale, has watched six of the nine homes visible from her lawn chair
emptied by moving trucks during the last year. Four have been resold by the government. “One by one,” she said.
The population of Pinal County, where Mr. Bridwell lives
and works, roughly doubled to 340,000 over the last decade. Developers built an entirely new city called Maricopa on land
assembled from farmers. Buyers camped outside new developments, waiting to purchase homes. One builder laid out a 300-lot
subdivision at the end of a three-mile dirt road and still managed to sell 30 of the homes.
Mr. Bridwell sold plenty of those houses during the boom, then cut workers as prices crashed. Now his firm, Golden Touch
Realty, again employs as many people as at the height of the boom, all working exclusively for Fannie Mae. The payroll now
includes a locksmith to secure foreclosed homes and two clerks devoted to federal paperwork.
Golden Touch gets more listings from Fannie Mae than any other firm in Pinal County. Mr. Bridwell said he was ready to jump
because he remembered the last time the government ended up owning thousands of Arizona houses, after the late-1980s collapse
of the industry.
“The way I
see it,” said Mr. Bridwell, whose glass-top desk displays membership cards from the Republican National Committee,
“is that we’re getting these homes back into private hands.”
Selling a house generally costs the government about $10,000. The outsides are weeded and the insides are scrubbed. Stolen
appliances are replaced, brackish pools are refilled. And until the properties are sold, they must be maintained. Fannie
asks contractors to mow lawns twice a month during the summer, and pays them $80 each time. That’s a monthly grass
bill of more than $10 million.
All told, the companies spent more than $1 billion on
upkeep last year.
“We may be behind many loans on the same street, so we believe
that it’s in everyone’s best interest to aggressively do property maintenance,” said Chris Bowden, the
Freddie Mac executive in charge of foreclosure sales.
Prices have plunged. So by the
time a home is resold, Fannie and Freddie on average recoup less than 60 percent of the money the borrower failed to repay,
according to the companies’ financial filings. In Phoenix and other areas where prices have fallen sharply, the losses
often are larger.
Foreclosures punch holes in neighborhoods, so residents, community
groups and public officials are eager to see properties reoccupied. But there also is concern that investors are buying
many foreclosures as rental properties, making it harder for neighborhoods to recover.
Real estate agents tend to favor investors because the sales close surely and quickly and there is the prospect of repeat
business. But community advocates say that Fannie and Freddie have an obligation to sell houses to homeowners.
David Adame worked for Fannie Mae’s local office during the boom, on programs to make ownership more
affordable. Now with prices down sharply, Mr. Adame sees a second chance to put people into homes they can afford.
“Yes, move inventory,” said Mr. Adame, now an executive focused on housing issues at Chicanos
por la Causa, a Phoenix nonprofit group, “but if we just move inventory to investors, then what are we doing?”
Executives at both Fannie and Freddie say they have an overriding obligation to limit losses, but that they
are taking steps to sell more homes to families.
Fannie Mae last summer announced that
it would give people seeking homes a “first look” by not accepting offers from investors in the first 15 days
that a property is on the market. It also offers to help buyers with closing costs, and prohibits buyers from reselling properties
at a profit for 90 days, to discourage speculation. Fannie Mae said that 68.4 percent of buyers this year had certified
that they would use the house as a primary residence.
Freddie Mac has adopted fewer
programs, but it said it had sold about the same share of foreclosures to owner-occupants.
The companies also have agreed to sell foreclosed homes to nonprofits using grants from the federal Neighborhood Stabilization
Program. Chicanos por la Causa, which won $137 million under the program in partnership with nonprofits in eight other states,
plans to buy more than 200 homes in Phoenix in the next two years. It plans to renovate them to sell to local families.
The scale of such efforts is small. The home ownership rate in Phoenix continues to fall as foreclosures
pile up and renters replace owners.
But John R. Smith, chief of Housing Our Communities,
another Phoenix-area group using federal money to buy foreclosures, says he tries to focus on salvaging one property at
“I tell them, ‘O.K., you want to unload 10 houses to that guy, fine,’ ”
he said. “ ‘Now give me this one. And this one. And one over here.’ ”
Wednesday, June 16, 2010
Senate Votes to Extend Closing for Homebuyers Credit
According to the Associated Press, the Senate has approved a plan to give home buyers an extra three
months to finish qualifying for federal tax incentives that boosted home sales this spring.
9:11 pm cdt
The move by Senate
Majority Leader Harry Reid (D-Nev.) would give buyers until Sept. 30 to complete their purchases and qualify for tax credits
of up to $8,000. Under the current terms, buyers had until April 30 to get a signed sales contract and until June 30 to
close the sale.
The proposal would only allow people who have signed contracts to finish later. About 180,000 homebuyers who
already signed purchase agreements would otherwise miss the deadline.
the proposal to a bill extending jobless benefits through November.
Wednesday, June 2, 2010
Owners Stop Paying - and Stressing - About Their Mortgages
10:15 pm cdt
The New York Times had an article on Monday that was very interesting regarding people who have stopped
paying their mortgages - and who don't feel that it is wrong. I've reprinted it below:
PETERSBURG, Fla. — For Alex Pemberton and Susan Reboyras, foreclosure is becoming a way of life — something they
did not want but are in no hurry to get out of.
Foreclosure has allowed them to stabilize
the family business. Go to Outback occasionally for a steak. Take their gas-guzzling airboat out for the weekend. Visit the
Hard Rock Casino.
“Instead of the house dragging us down, it’s become a
life raft,” said Mr. Pemberton, who stopped paying the mortgage on their house here last summer. “It’s
really been a blessing.”
A growing number of the people whose homes are in foreclosure
are refusing to slink away in shame. They are fashioning a sort of homemade mortgage modification, one that brings their
payments all the way down to zero. They use the money they save to get back on their feet or just get by.
This type of modification does not beg for a lender’s permission but is delivered as an ultimatum:
Force me out if you can. Any moral qualms are overshadowed by a conviction that the banks created the crisis by snookering
homeowners with loans that got them in over their heads.
“I tried to explain my
situation to the lender, but they wouldn’t help,” said Mr. Pemberton’s mother, Wendy Pemberton, herself
in foreclosure on a small house a few blocks away from her son’s. She stopped paying her mortgage two years ago after
a bout with lung cancer. “They’re all crooks.”
have been initiated against 1.7 million of the nation’s households. The pace of resolving these problem loans
is slow and getting slower because of legal challenges, foreclosure moratoriums, government pressure to offer modifications
and the inability of the lenders to cope with so many souring mortgages.
borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008,
according to LPS Applied Analytics.
While there are no firm figures on how many households
are following the Pemberton-Reboyras path of passive resistance, real estate agents and other experts say the number of
overextended borrowers taking the “free rent” approach is on the rise.
is no question, though, that for some borrowers in default, foreclosure is only a theoretical threat for a long time.
More than 650,000 households had not paid in 18 months, LPS calculated earlier this year. With 19 percent
of those homes, the lender had not even begun to take action to repossess the property — double the rate of a year
In some states, including California and Texas, lenders can pursue foreclosures
outside of the courts. With the lender in control, the pace can be brisk. But in Florida, New York and 19 other states,
judicial foreclosure is the rule, which slows the process substantially.
In Pinellas and
Pasco counties, which include St. Petersburg and the suburbs to the north, there are 34,000 open foreclosure cases, said
J. Thomas McGrady, chief judge of the Pinellas-Pasco Circuit. Ten years ago, the average was about 4,000. “The volume
is killing us,” Judge McGrady said.
Mr. Pemberton and Ms. Reboyras decided to
stop paying because their business, which restores attics that have been invaded by pests, was on the verge of failing.
Scrambling to get by, their credit already shot, they had little to lose.
could pay the mortgage company way more than the house is worth and starve to death,” said Mr. Pemberton, 43. “Or
we could pay ourselves so our business could sustain us and people who work for us over a long period of time. It may sound
very horrible, but it comes down to a self-preservation thing.”
They used the
$1,837 a month that they were not paying their lender to publicize A Plus Restorations, first with print ads, then local
television. Word apparently got around, because the business is recovering.
owe $280,000 on the house, where they live with Ms. Reboyras’s two daughters, their two dogs and a very round pet
raccoon named Roxanne. The house is worth less than half that amount — which they say would be their starting point
in future negotiations with their lender.
“If they took the house from us, that’s
all they would end up getting for it anyway,” said Ms. Reboyras, 46.
the house is worth so much less than the debt is because of the real estate crash. But the couple also refinanced at the
height of the market, taking out cash to buy a truck they used as a contest prize for their hired animal trappers.
It was a stupid move by their lender, according to Mr. Pemberton. “They went outside their own guidelines
on debt to income,” he said. “And when they did, they put themselves in jeopardy.”
His mother, Wendy Pemberton, who has been cutting hair at the same barber shop for 30 years, has been in
default since spring 2008. Mrs. Pemberton, 68, refinanced several times during the boom but says she benefited only once,
when she got enough money for a new roof. The other times, she said, unscrupulous salesmen promised her lower rates but
simply charged her high fees.
Even without the burden of paying $938 a month for her decaying
house, Mrs. Pemberton is having a tough time. Most of her customers are senior citizens who pay only $8 for a cut, and they
are spacing out their visits.
“The longer I’m in foreclosure, the better,”
In Florida, the average property spends 518 days in foreclosure, second only
to New York’s 561 days. Defense attorneys stress they can keep this number high.
generations of Pembertons have hired a local lawyer, Mark P. Stopa. He sends out letters — 1,700 in a recent week —
to Floridians who have had a foreclosure suit filed against them by a lender.
you have “no defenses,” the form letter says, “you may be able to keep living in your home for weeks,
months or even years without paying your mortgage.”
About 10 new clients a week
sign up, according to Mr. Stopa, who says he now has 350 clients in foreclosure, each of whom pays $1,500 a year for a
maximum of six hours of attorney time. “I just do as much as needs to be done to force the bank to prove its case,”
Mr. Stopa said.
Many mortgages were sold by the original lender, a circumstance that
homeowners’ lawyers try to exploit by asking them to prove they own the loan. In Mrs. Pemberton’s case, Mr.
Stopa filed a motion to dismiss on March 17, 2009, and the case has not moved since then. He filed a similar motion in her
son’s case last December.
From the lenders’ standpoint, people who stay in
their homes without paying the mortgage or actively trying to work out some other solution, like selling it, are “milking
the process,” said Kyle Lundstedt, managing director of Lender Processing Service’s analytics group. LPS provides
technology, services and data to the mortgage industry.
These “free riders”
are “the unintended and unfortunate consequence” of lenders struggling to work out a solution, Mr. Lundstedt
said. “These people are playing a dangerous game. There are processes in many states to go after folks who have substantial
But for borrowers like Jim Tsiogas, the benefits of not
paying now outweigh any worries about the future.
“I stopped paying in August 2008,”
said Mr. Tsiogas, who is in foreclosure on his house and two rental properties. “I told the lady at the bank, ‘I
can’t afford $2,500. I can only afford $1,300.’ ”
who lives on the coast south of St. Petersburg, blames his lenders for being unwilling to help when the crash began and
his properties needed shoring up.
Their attitude seems to have changed since he went
into foreclosure. Now their letters say things like “we’re willing to work with you.” But Mr. Tsiogas feels
little urge to respond.
“I need another year,” he said, “and I’m
going to be pretty comfortable.”