Wednesday, June 23, 2010

Robbery Royale at Fannie Mae

Karl Denninger of the Market Ticker had a bit today on Fannie Mae giving everyone the green weenie. It’s worse that what he stated. Fannie Mae has a delaying tactic. They have a deed for lease program where you can rent back your property from them at the current market rental rate. Here is a Link. So, instead of a walk away home that gets stripped, you have a home that is being lived in by the previous owner. The lease is for one year and that could extend for many more if you read the tea leaves.

This program delays real estate from hitting the market in the form of a foreclosure. The inventory is eased into the market gradually instead of all at once. This is the hidden inventory that everyone talks about. The other thing is their great financing program for new buyers, here is a link.

If you read their boilerplate carefully, you don't need to pay for an appraisal, which costs dollars. My question, would the property appraise for what they are trying to sell it to you for? Probably not, it is called rip off the poor and uninformed, sell them that dream of home ownership. A dollar down moves you in. If you look this gift horse in the mouth, you would walk away.

Fannie will give you 3 1/2 percent of the home’s value for closing costs or whatever. You need to have 3% down, but you could get a check cut for 10% of the home’s value for repairs. Oh goodie free money.

Here is an article I wrote showing my frustration with what they were doing two years ago link . The couple that bought this home both worked at a movie theater making $8 per hour. They got $10,000 for repairs and spent it on a bike and a pick up. It ended up going back to the bank (Fannie Mae). It only cost them a dollar to move in.

The thing to take pause at here are the Realtors. Commissions are 6% so we know whose raking in the real money.

I use to sell VA repos, and that was on an auction basis. High bid won. Now we have a candy ass program; Fannie Mae will finance your dream, if you agree to pay their price. The people at Fannie Mae need some jail time.


Rob said...


It's hard to figure out why anyone would want to buy a house with 20 percent down when they are giving them away.

Ohio Loan Officer said...

HUD is utilizing a different tactic now to dispose of their FHA foreclosures:
They are listing the homes WAY below market value to generate a frenzy and multiple offers. The last several deals I have been involved with the home ended up selling for up to 45% more than the offering price. By doing this the homes are only on the market for a couple of weeks and the reasoning is they will sell at what the market will bear whether they price them high and come down or low and get competing offers driving the price higher.
Here is the most recent sale I am financing: 5 year old home that sold in 2005 brand new for $130,000. The house needs some cleaning up and new carpet but it is generally in decent shape. HUD's offering price was $57,000. There must have been a 100 showings in two weeks. My guy offered $80,000 and got it. Once it is fixed up a bit they figure it will be worth at least $90,000 even in this market.

HUD has another purpose to their madness-- you see, they offer new FHA financing on these homes but if the sales price is more than that "appraised" offering price the buyer needs to come up with the difference in additional downpayment cash. We can get around that if we do a FHA 203K rehab loan that will improve the property IF we can get a new appraisal for the higher amount.

Jim in San Marcos said...

Hi Rob

I agree. All Fannie and Freddie are doing is buying time by passing the home onto someone else for a while.

I think that investors have to be a big part of this market. All of the investor real estate I sold years ago, the banks wanted 20% down.

Jim in San Marcos said...

Hi Ohio Loan Officer

I looks like HUD is doing a good job out there.

10 years ago in California you could always tell a HUD repo--it was the one with the plywood nailed over the windows.

HUD and VA financing all but disappeared out here when real estate went sky high. The VA repos were my favorite, you got both sides of the commission, the full 6 percent.

Loan officers use to be everywhere out here, you have to look real hard to find one now.

Glad to see that you are doing good. Thank you for the input.

Anonymous said...

The future is looking bleak to many who are at least aware of where things are going. The majority of this country is still clueless or in denial. Most will get caught out and suffer negative consequences. Only the smart ones who can adapt will make the necessary changes so that they can survive, and some thrive, in the new future.

Govmt, in collusion with the banks, has to come up with all sorts of tricks to keep those foreclosures coming out in a slow, controlled fashion. If they just let them all flow out, prices would depress hard and fast and the housing market would be toast for decades. With another 5M foreclosures coming, whatever tricks they use, they still won't be able to stop another 20% average drop in US home values over the next 1-2 years. We may wind up with home values slowly going down, sometimes going sidewards, for the next 5-10 years. Appreciation will be a memory from days past, not to be seen again (except for only a few regions in the USA) for decades-- or maybe a lifetime. We only can guess as to when residential real estate will actually bottom... a few years? 5? 10?

The last thing that we would want is to own a home now or in the near future. The American Dream has become the American Nightmare. Who wants to pay a mortage, insurance, property taxes, maintenance and repairs when you can put all the money into YOURSELF (education, new skills, anti-aging and health treatments, etc.).

We're moving out of our rental and going into a motorhome for full time living. We'll follow the warm weather and visit friends and family, and live economically. We can run our internet based businesses from our motorhome for decent income. We have no debt, minimal possessions. We converted everything we have into cash and we have that cash working for us at 20%+ annual return (loaning to residential rehab/resellers, and our money is safely secured by the properties). We'll keep building up our cash and staying in cash until the deleveraging/debt destruction/deflation is over and the inflation begins--at which time we'll put our cash into tangible assets and ride the inflationary wave.

We are streamlined and ready to deal with the crashing economy and whatever the future brings. Hope to profit from it too. Gotta turn things (crazy and corrupt government, etc.) to your advantage.

Riding off into the sunset,
The Cowboy Millionaire

Jim in San Marcos said...

Hi Anon 11:04

"Happy trails to you" as Roy and Dale use to say.

I think you will do OK, I wish you the best of luck.

Take care.