“We’re all working for the government now”

Editor’s Note: The cost of taking over foreclosed homes greatly exceeds the principal reductions that are inevitable anyway. Either way the taxpayer foots the bill. As usual, big business and government have taxpayers paying the higher bill.

Here is how the narrative ran. The trillion dollar banks and some “smaller” ones used all their influence over the media and lawmakers to get the narrative going in the direction of “why should anyone get a free house?” or “Why should HE get a break on HIS mortgage just because he stopped making payments? I’ve been the good citizen making my payments and I don’t see anyone giving me a break.”

The answer is as simple as it was when I first voiced it three years ago. This is not a mortgage problem, it is a fraud problem that will bring down the whole economy. And victims of fraud have a right under our existing laws to be made whole, if possible or at least given some relief from the fraud enabled by highly sophisticated financier leveraging off asymmetry of information.

By getting us fighting amongst each other about a non-issue, the banks, media and lawmakers distracted us from the real issue. The result was a bailout for the fraudsters and a nightmare for the rest of us whether we got hurt directly or not. In fact, we are all hurting from the foreclosure mess either directly or indirectly. Property values are going lower and lower, nice neighborhoods have turned to urban blight, and upscale neighborhoods are seeing ugly signs go up inviting unwanted buyers who either look for the quick buck or who don’t fit with the old context of the neighborhood. Jobs are being lost by everyone, not just people who are losing their houses in foreclosures.

The plain truth is that both the homes and the securities sold to finance the mortgages were inflated through fraudulent means. The resulting fall-out continues to drag median income down and with it, the price of housing. Everyone knows the securities were overvalued, everyone knows they are worth far less than represented, and that the reason is the appraisals of the homes and viability of the loans were simply a lie. The ONLY possible end to this under any scenario, is that the real value is going to be reflected in the market place whether we like it or not.

That means in simple language that the securities are going to be marked down to their real value and the home loans, which were also securities in this scheme must meet the same fate. It doesn’t matter what people in or out of power want. The cat is out of the bag and nobody is going to pay the premium that sellers and banks are looking for.


June 19, 2010

Cost of Seizing Fannie and Freddie Surges for Taxpayers


CASA GRANDE, Ariz. — Fannie Mae and Freddie Mac 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 his way.

“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 Congressional Budget Office 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. “Just amazing.”

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 savings and loan 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 a time.

“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.’ ”

12 Responses

  1. Rhode Island & Massuchusetts Call George E.Babcock Esquire a Attorney who gets it. A MERS Slayer with experience that all homeowners will need.
    No one turned away.Every family helped with a free consultation and a budget plan to serve all!Call Kim to set up a consultation at 401-274-1905.

  2. [youtube=http://www.youtube.com/watch?v=ssl5yb7FewA&color1=0xb1b1b1&color2=0xd0d0d0&hl=en_US&feature=player_embedded&fs=1]

  3. When you consider that all of the $9.5 Trillion in Residential Home BANK Mortgages are basically fraudulent as you so well pointed out, then it is time to flush all of them.

    The $24.5 Trillion bailout to the banks this last year is 2.5 times bigger than the entire 9.5 T in mortgages, while trying to bail out $700 Trillion in unpayable CDOs & CDS. This scheme has not made a dent into anything.

    The $9.5 Trillion are unenforceable and unconscionable. Let’s cancel them all – Now. Retirees, unemployed, and working classes staying in their homes can survive this storm, if they stay in them, for as many years as it takes, even if their so-called mutual funds are damaged. They are damaged anyway, and being homeless does not eventually fix that, like the banks wish us to think.

    Then let’s use real money like silver, gold, and such and start over.

    We’d have the most profitable safe economy in the world then. Solid, secure American people, working out of the mess, even upon a part time income for food & gas.

    We built this country physical assets, not these toxic financial institutions.

    It’s OURS– Keep it, all of it.

  4. When all this was going on, and I got many calls soliciting refi, I often wondered who had targeted American’s biggest asset, their home equity.By their fruits ye shall know them. since it is the government that now claims to own 90% of mortgages, it would be hard to argue anything less than a stealth nationalization of housing.

    The only just remedy is to shut down Fannie and Freddy and make restitution. That is, send the mortgages to owner occupants without any liens. Then go after all of the fraudsters in and out of government and prosecute them.

    This would stop the losses at and Freddie and be a real boon to the people. More people owning their houses outright would add stability to the society and economy. As for the government, it got caught and it is not entitled to recoup losses from victims. It must swallow the losses not add more.

  5. You know there’s one thing (major thing) that flaws the whole corporate personhood, constitutional rights, Citizens United ruling theory….
    “The province of the court is, solely, to decide on the rights of individuals”. Marbury v. Madison, 5 US 137, at *170 (1803)

    Corporations can be divided so they’re not individuals, it’s ironic that the first major case to give courts power also contains weaknesses, or flaws if you will.

  6. I vote for Jake Naumer in 2012.

    These are the kind of decisions we need.

  7. I just read the numbers again. Sheesh. I imagine most of those foreclosed homes that Fannie is reselling, probably named MERS as beneficiary, therefore legally the titles still belong to the poor borrowers.

    May one of us win big and win big for ALL of us.

  8. Yes the truth is painful to the distortionist interests.

    A solution (that will never happen) would be for each and

    every foreclosure to be auctioned for cash, and the

    defrauded homeowner be allowed the option of accepting

    guarenteed financing from the true creditor at that price,

    LOL at least you wouldn’t need an appraisal. LOL

  9. Amen, MIke.

    For this crisis to end, it is going to require divine intervention for sure. That very Kingdom that many of us have been taught to pray for, that’s what it is going to take. “Thy Kingdom come.”

  10. To truly see the problem, and where we are headed,
    we need to remember some history. It was 42 years ago, in June of 1968 when the “bright boys” in Congress decided to remove the “gold reserve” requirement from Federal Reserve Notes and allow
    banks to monetize the value of real estate.
    From that moment on, we were running our economy on “debt money”. As more and more debt
    was created, the money supply expanded and we had
    inflation. The bubble finally burst forty years later in 2008. In the last two years “debt destruction” has reduced the “debt money” supply by about 50% according to the Bank of England measure of M3.
    We are now in “free fall” deflation but no one wants
    to do the obvious and cut wages and prices, so since
    something has to give, unemployment will skyrocket
    while various levels of government and business go broke. Price and wage levels will have to fall back to
    the 1968 level before the crisis will end.
    The only thing holding up the price of gold is “fear”
    but eventually it will crash like all commodities and
    the dollar will soar in value. Neither the Fed nor the
    government can stop deflation. They can only get in
    the way and cause unemployment to soar. When they
    finally get out of the way, and allow a return to where
    we were in 1968, then the recovery can begin.
    In the mean time, it makes no sense to keep making payments on overpriced real estate. You
    probably own it “free and clear” right now because
    the lender went bust two years ago and is only being
    kept alive by government bailouts, which can not go on
    The crisis in the Gulf will only accelerate the deflation and make it much worse. Let’s all start
    praying for divine intervention and seek forgiveness
    for our stupidity and greed!

  11. Feel that my comment/question on a previous post has been answered here!

    “PJ, on June 20, 2010 at 5:26 pm Said: Your comment is awaiting moderation.
    2 Anonymous, trust your experience and expertise… but this still is not jiving with me… there seems to be a rather large monetary void here that is going unaccounted for.
    At this point the fiduciary obligation that has been piled on (to whom ever the debt buyer and or there front organization ) to local and state government for “property tax” has to exceed the value of return as property values continue to return to par value.
    I know… yup the artificial support of the “housing market” . In the end it is what it is…. as the old saying goes “you can not get blood from a stone”!


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