The two largest holders of real estate owned property (REO) in the country, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), are biting their nails as their REO inventory grows while the real estate market shows all the signs of softening. After amassing over 191,000 REOs nationally in the first quarter of this year (more than double last year’s reclaimed REOs combined), Fannie and Freddie are buckling under their bloated inventories and threatening to crack-down on lollygagging lenders and servicers.
Fannie and Freddie’s newly initiated foreclosures have risen steadily over the second quarter of 2010 to more than 150,000 nationally in July, a 60% increase from April. In addition to a climbing national foreclosure rate, an estimated four million delinquent loans are sitting in limbo as shadow inventory yet to be foreclosed, many of which will eventually be absorbed into Fannie and Freddie’s REO inventory. [For more information on the shadow inventory, see the March 2010 first tuesday article, Where have all the REOs gone?]
These staggering numbers of REOs sitting in Fannie and Freddie’s storeroom have absorbed extraordinary amounts of maintenance expenses. Of the $13 billion worth of REOs added to the national inventory in the second quarter of this year, Fannie and Freddie have paid-out an estimated $487 million to cover utility bills, pay property taxes and hire real estate agents and contractors to rehabilitate the homes to maintaining property values. [For more information on Fannie and Freddie’s troubled balance sheets, see the August 2010 first tuesday article, Freddie and Fannie need more help, before disappearing.]
Surprisingly, Fannie and Freddie are in no hurry to sell the spate of homes they are sitting on. Since they either own or have guaranteed the majority of the market’s REO inventory, Fannie and Freddie have to be careful of their influence over home prices. If Fannie and Freddie cut home prices for marketing their REOs to compete with REO-holding, private-label mortgage backed bonds (MBBs) or release too many of the REO properties all at once, they could adversely influence current market values across the board. This could potentially contribute to a double-dip downturn in the real estate market, which already appears to be underway.
One way for Fannie and Freddie to continue to hold on to their assets without continuing to hemorrhage money is through a lease-and-hold approach. By renting foreclosed properties while the market finds its equilibrium, Fannie and Freddie can keep houses out of the REO rental market and, at the same time, cover some of the maintenance costs on the rent they receive from foreclosed properties. Thus, this would save millions of dollars that can be used to fund new programs to further promote the stabilization of the real estate market.
As they continue to grow weary under the weight of their REO inventory, and as they are poised to accumulate even more foreclosures in the coming years, Fannie and Freddie are becoming increasingly impatient with lenders who take too long to reclaim vacant homes. Thus far, only idle threats to charge fines to procrastinating lenders have been made, but Fannie and Freddie’s frustration is palpable.
first tuesday take: Funding maintenance costs for vacant REOs is the least of Fannie and Freddie’s worries – a pittance in the grand scheme of resolving their insolvency. What is $500 million of maintenance costs compared to the inevitable landslide of shadow inventory foreclosures set to be incorporated into Fannie and Freddie’s already distended REO inventory?
Renting out a few foreclosures may mitigate some of Fannie and Freddie’s current fiscal injuries, but their losses will only be compounded exponentially since these lenders must eventually sell their REO inventories and report their losses. Non-government lenders delay reporting their losses to protect their fragile balance sheets by taking advantage of the Federal government’s extend-and-pretend mortgage modification programs, such as the Home Affordable Modification Program (HAMP). [For more information on the floundering HAMP program, see the July 2010 first tuesday article, HAMP is losing participants.]
Given that Fannie Mae and Freddie Mac are under government conservatorship (read: full ownership), the federal government should be developing programs that impose strict regulations in order to put an end to the interminable delays perpetrated by lenders in clearing out delinquencies — the same parties that ultimately caused the real estate fall-out through their intense desire for a lack of regulation.
The results of forcing lenders who whine about everything, as do spoiled, untrained brats, to report their losses in a timely manner may initially be uncomfortable for everyone to hear, but at least getting their accounting right will paint an accurate picture of where the economy, and thus where the real estate market, is really going. Maybe then the organic recovery can finally begin.
Re: “Reluctant Realtors: Fannie, Freddie” from the Wall Street Journal
And so too happens:)
How can you possibly have a right that imposes an obligation on another? The federal government’s authority is delineated in Article I sec 8 of the constitution. We don’t pay taxes for everything. Good God, educate yourself. Madison addressed exactly this misunderstanding in Federalist # 41. You can’t just list the things that you want as rights.
The middle class pay’ their share and the rich do not.
You need a logic course as well as a history and political science refresher(that is, if you ever studied them at all).The wealthiest 5% pay over 50% of the income taxes. Repeal the 19th and 24nd amendments.
Meg Whitman hires an illegal…whom you probably welcomed into this country with open arms. Funny how the dimwits now are jumping on a so-called republican for hiring someone they have no problem with letting into the country in the first place.Repeal the 19th and 24nd amendments.
Try this on for fair. Take the federal budget. Divide by the numbers of voters. That’s what you pay to vote. No more income tax, no more loopholes, no more tax-free foundations(THERE are your wealthy directing taxes to themselves, watch the Bill Gates foundation buy computers loaded with Linux for the poor children overseas) no more deductions, no more tax lawyers, accountants., no more April nightmares. In 2004 this amount would have been around 25K. I can’t count how high it is now, trillions confuse me.
Everyone pays the same. Is that fair? You don’t pay for government, you don’t get a say. What kind of government looks at two citizens and says “YOU pay this amount, and YOU pay nothing. This is how the Gracchi set Rome on it’s decline.Giving bread to the peasants, and then allowing them to vote.
Sorry, but affordable housing and affordable health care is a right. We pay taxes for everything in this country, that is also our right. Nothing is free in this country, we pay to keep this country moving, therefore the government should provide affordable housing and affordable health care, I’m saying AFFORDABLE, NOT FREE. Middle class folks pay their fair share, the rich take and take and DO NOT WANT TO PAY THEIR FAIR SHARE, just see what Meg Whitman is doing, hiring illegal workers. She doesn’t want to hire an American born maid because she knows that she’ll have to pay additional taxes to the government. Reforms in all areas, housing, health care, education, immigration, etc., etc., are needed desperately. Enough of paying all those wealthy politicians for standing on the side lines, angry as hell, praying for our current government to fail. All those angry politicians, the Republicans should just go home, stop receiving a fat check. This will definately save our country lots of money.
Let’s not pick too much on Kimberly. She has been misled as have soooo many others. But back to topic.
This is the first Author here that has a handle on what went on, and what is happening.
The big question is … Can the Gov’t provide a soft landing for the economy and still leave us with a viable Republic?….
Ha ha … trick Question … the Republic has been dead since 1865 . . . thanks for playing.
Kimberly needs to read and understand the US constitution! No such rights are described in our constitution!
If you want those rights, move to Russia. Read their constitutions…several are available. Maybe those enumerated rights are more acceptable to your way of thinking!
Affordable health care is not a right. Nor is affordable housing. Or an education. A true right is something which only requires a tacit acknowledgment from others, not an active participation on their part. How can you possibly have a “right” that imposes an obligation on someone else? Have you ever thought of that? Appropriating someone else’s labor is known as slavery.
In the 90’s the government pronounced that everyone had the “right” to affordable housing. We know how that turned out. Now, the mantra is that everyone has the right to affordable health care. I don’t see how this will turn out any differently.
“Decent living conditions are also a right for Americans”
Where do you get that? You can’t just deem whatever it is you like as your “right”. How about my right to drive expensive European sports cars?
“…sorry, but I don’t think only people with money should be healthy and live in a clean, decent home.”
okay, you take care of all those people and we’ll call it quits. Oh I see, you think I should take care of them too. So you have a great idea, if only I and everyone else would go along. Kinda like Hillary Clinton, with her great ideas for America that it can’t afford. If you feel that strongly, you are free to give just as much of YOUR income as the government lets you keep, and let me choose where I give my income.
.What distinguishes this country from every other that has ever existed is that the government’s powers are limited in writing,i.e., sovereignty lies with the people. And now to get around that, we have people who ask us to define the word is. Because if the word “is” is subject to the particular definition of the user, then it really means nothing at all, which also means our constitution means nothing definite at all, but depends upon the whims of some positivist judge.
I want the government off my back, and I don’t care if they clean up the mess they made, in fact they will only make it worse. Their insistence on banks being forced to lend to people who had no income, no assets, and nothing down, was great for RE agents, MO’s appraisers, etc. For a while. Now there will be hell to pay, this is not over by a long shot.
Just listen to the educated buffoons on TV who argue whether we’re in a “double-dip” recession, this is a full-blow dollar crisis, the have papered it over since 1971(August 15th, in case you were wondering) and now they will, if given the opportunity, draw this misery out for twenty years.
Affordable health care is a right. Decent living conditions are also a right for Americans. That’s what makes us different than many other countries where only the wealthy are able to enjoy their lives..sorry, but I don’t think only people with money should be healthy and live in a clean, decent home. You want the governement off your back until you want them to clean up your mess.
“The results of forcing lenders who whine about everything, as do spoiled, untrained brats…”
Yeah, I remember when those lenders were whining about the government forcing them to make loans to people who couldn’t afford a used car, much less a house. See the noise made over “red-lining” by our liberal government saviors in the late 80’s and early 90’s. Now those same morons who hailed “affordable housing for all” are selling us on “affordable health-care for all”. Health-care and housing are not “rights”, they must be earned.