Tuesday, October 05, 2010

The Freddie and Fannie Scam

So you want to buy a home. Where do you get the financing? Aren’t Banks just dying to loan short term funds at long term interest rates? Remember back to the Savings and Loan Crisis of the 1990’s, the Savings and Loan companies loaned short term funds at low long term rates. It worked great, until interest rates rose. It’s pretty hard to believe that banks today would venture to write 30 year paper at the lowest interest rates of the last 50 years. So from here, we can pretty well deduce that they won’t even attempt it.

Say you want to sell your home, the question arises, “sell it to whom?” There is no bank financing out there. What bank is going to do a home loan at 4 percent for 30 years when they can do a car loan for 7 to 9 percent for 5 years? Home loans are a lost cause. Of course, the car market isn’t on fire either, but on the other hand,  Freddie and Fannie are obligated to guarantee new home loans.

But wait one moment; it is different if you want to buy a home. Fannie and Freddie have a home for you with financing. Now how is that possible? They offer very low interest rates, with little or nothing down. The only catch, you have to buy one of their homes. The Federal government doesn’t have to write any new paper, they already own the homes, they guaranteed the loans.


The government people in charge of selling these Freddie and Fannie homes are unloading them onto anyone that can “qualify.” Remember way back in 2006, everyone was fogging a mirror, I guess this time it’s different. They even get to take it off their books once a payment is received. Of course, you have to remind yourself, all they’ve done is gotten someone else to take over the payments on a non-performing loan. Notice each sale reduces Fannie and Freddie's inventory. It’s kind of like selling life insurance in the suicide ward of a mental hospital—there is no problem with sales, but can you afford to stay in business?


Basically what we have here is a government program/scam that keeps prices artificially high by providing government financing at very low interest rates at prices close to what the home originally sold for. This way the government limits its losses on the GSE’s at the expense of the new home purchaser. The trouble with buying a Fannie or Freddie home is the fact that there is no real market, it is all artificial. The new owners have no skin in the game. These GSE’s are  praying for a miracle and increasing unemployment, is not the miracle they had in mind.

The quality of these new buyers is suspect, not to mention the price’s of the homes or the very low interest rates. And then there is that invisible inventory, I guess that’s the stuff that Fanny and Freddie don't own.

What would happen if the Congress tossed those two hookers (Fannie and Freddie) out in the cold? The taxpayers wouldn’t be buying any more homes in Detroit to bulldoze down. The present setup, is a little like charging a $1000 massage on your Visa card -- When your wife sees the bill, you get to pay for your mistake twice.

Copyright 2010 All rights reserved

25 comments:

Ohio Loan Officer said...

As a Lender trying to deal with liquidating Fannie and Freddie properties let me tell you--- IT'S A MESS!
The right hand doesn't know what the left is doing.
EX. I have a buyer interested in a Fannie REO. She wrote a FULL PRICE offer of $52,000. We waited and waited weeks for an answer. Then we are told Fannie was not accepting her offer because the property was listed with RealtyBid, an on-line auction service. We watched. After 3 weeks bidding ended. The house was not sold because the highest bid was $22,500 which did not meet the reserve requirement. So my lady went on-line and put in an after-auction bid of $30,000 and got the house.

So in other words, Fannie Mae just screwed the tax payers out of the extra $22,000 they would have got had they taken my lady's initial offer.

I don't want to mess up her deal, but after this thing closes I'm going to the press with the story.

Jeffrey said...

Our government is simply continuing the Ponzi scheme the mortgage industry started. Sell homes to ususpecting buyers with money that is only temporarily cheap. When rates inevitably rise and/or Fannie and Freddie are shut down, prices will fall another 20% leading to another massive wave of foreclosed inventory.

Jim in San Marcos said...

Hi Ohio Loan Officer

How did the commission work out when she won the bid at 30K? Did one Realtor get both sides of it?

As for the press, don't be disappointed if it turns out convoluted. The headline your liable to see is "Woman saves 22K at auction." Your story will be swept under the rug. Found money sells newspapers, incompetence won't.

Jim in San Marcos said...

Hi Jeffrey

I think there is more to it than that. Through our eyes, these buyers are "unsuspecting buyers." Through their eyes, we probably look like someone who can't spot a good deal when it's right in front of our eyes.

Then you have the female nesting instinct. This puts the husband in harness for the rest of his life.

But you're right, interest rates have to rise in the future and there are an awful lot of foreclosures still to hit the market. In the San Marcos area here, a 50 percent drop in prices would put housing back to 1998 values. Which seems more realist for a return on investment rental property.

Tyrone said...

Jim,
As long as you don't pay for those hookers using B of A's bill pay on credit, you're ok.

e-mail from B of A:
--------------
We appreciate your business, and want to make you aware of a change we have made to our online Bill Pay service.

There is no action required on your part.

As of September 30, 2010, customers can no longer use their Bank of America® credit card to schedule payments to merchants through our online Bill Pay service.

You may continue paying bills through our online Bill Pay service using a checking or money market saving account.

Thank you for being a valued Bank of America customer.

Jim in San Marcos said...

Hi Tyrone

I think my dog has one of their cards, and he can't read.

I have a relative who has 4 of their cards (same name different address)--probably won't bother her either. (true story) (she also has 16 other cards from various institutions and she is 80 years old--go figure!)

Do you get the feeling that B of A has been selling dynamite all this time and now they smell the sulfur from a burning match?

Ohio Loan Officer said...

WELL IT LOOKS LIKE MY LADY MIGHT NOT GET THAT DEAL AFTERALL---

Here is an e-mail I just got from the Administrator for Fannie Mae:

"Fannie Mae was recently informed of the existence of possible defects that may have occurred during the foreclosure of the subject property by their servicer, JP Morgan, that may raise questions about the insurability of the title of the subject property. The defect relates to the Affidavit of Indebtedness used in support of the foreclosure judgment. Until JP Morgan has taken the necessary legal action to remedy any defects, Fannie Mae is unable to proceed with the marketing, sale, offer negotiation, and closing of the subject property.
This asset is being taken off the market temporarily until we resolve potential title related issues. Once the property is again made available, you will be contacted and requested to resubmit your offer.

That could take years!

Like I said-- WHAT A MESS!

rob in NS said...

This has potential to cause major dislocation on economy of United States and by consequence the rest of world. Interesting times we live in. I'm guessing that this won't be headline news at 6 tonight though it should be...

Rob

rob in ns said...

I wonder if these things are related?

Richard Cordray, the Attorney General for the state of Ohio has filed a lawsuit in Lucas County (Toledo) Common Pleas Court against GMAC Mortgage and their parent company Ally Financial, in a suit which names Jeffrey Stephan, the infamous “robo-signer” who signed off on up to 10,000 foreclosures a month across the country with affidavits, without verifying the information in the foreclosure documents. The lawsuit alleges fraud on the part of GMAC, along with violations of the Ohio Consumer Sales Practices Act, in filing false affidavits to mislead the courts in what they describe as “hundreds” of Ohio foreclosure cases. And, the Attorney General is treating every single false affidavit filed in an Ohio court as a separate violation, with a fine of up to $25,000, plus additional restitution for the homeowner of an unspecified amount.

DeflationDude said...

The whole house of cards is coming down isn't it?

Once some of the unintended consequences and results of corruption begin to manifest, the slide to hell becomes faster and steeper.

It is not that things are going bad NOW. Things HAVE been bad for a very long time (covered by a government, corporate and public veneer) and finally the bottom is starting to fall out.

If anyone truly investigated The Fed, Congress, our government agencies, our banking and financial system, our rating agencies, etc. and uncovered the truth and published the reports of results to the general public, they'd be horrified and paralyzed with fear. We'd all fall into a new Dark Ages.

This is the Age of Pretense.

AIM said...

Jim,

With the Fed's purchase of mortgage backed securities and keeping rates low, the government offering money to new home buyers, Fannie and Freddie doing their thing, the banks being very slow in following up on all the mortgage delinquencies and foreclosures (non-performing assets) that they truly have... the prices of homes have been propped up.

A Cirque du Soleil juggler may be able to deftly keep many balls up in the air for quite a while... but he can't do it forever.

We're waiting for so many shoes to drop aren't we?

Jim in San Marcos said...

Hi Ohio Loan Officer

Sorry it didn't go as planned. You do have to wonder though, there is no real hurry to sell and recover as much cash as possible it the government is in charge of it. The private sector would have it sold in a heart beat to some illegal alien.

Jim in San Marcos said...

Hi Rob

I think the thing we are looking at here is the fact that the title company can't follow the title trail and because of that they will not offer title insurance. Selling a house without clear title just won't float through any escrow company around here.

In a foreclosure in California, it takes the banks about a year to get a clear title. This is just a guess on my part, it appears to take them a year to hang a for sale sign on the property after they get it.

Jim in San Marcos said...

Hi Deflation Dude

Maybe it's time to invest in a sturdy hand-basket.

I've often wondered what was the added advantage of using a hand-basket to get to hell. It's not like some sort of vacation cruise.

Of course, this sort of talk only upsets the relatives. We need to keep quite until after Xmas.

Jim in San Marcos said...

Hi AIM

I don't think that the banks own much of this crap. They may manage it for concerns many miles away.

Most mortgages are owned by people far away. It is rare to have one owned locally.

The bank managing it gets a monthly fee, so it is not in their best interest to be fast about anything. The monthly payment is pure gravy for doing nothing.

You're right though, this juggling act isn't going to pay the bills.

Tyrone said...

Denninger just posted this. These clowns in DC will not stop. And I can't believe Obama vetoed HR3808.

401K Theft
Democrats in the Senate on Thursday held a recess hearing covering a taxpayer bailout of union pensions and a plan to seize private 401(k) plans to more "fairly" distribute taxpayer-funded pensions to everyone.

Jim in San Marcos said...

Hi Tyrone

Thanks for the heads up. Karl Denninger is always a good read.

I think that the key words are "taxpayer-funded pensions." I interpret that as government employees\retirees.

The question you have to ask does Congress know a lot more than they are letting on to? (they don't want to start a panic unnecessarily) This move by them anticipates pensions payments in the near future that can't be funded as they stand now.

Tyrone said...

Jim,
I was fixated on the words "plan to seize private 401(k) plans".

And I agree that congress anticipates more than they are admitting.

What's next???

Jim in San Marcos said...

Hi Tyrone

The more I read that quote, "a plan to seize private 401(k) plans to more "fairly" distribute taxpayer-funded pensions to everyone" the more unsettling it sounds.

"Private 401K" and "taxpayer-funded pensions" are subject to interpretation.

I thought I knew what they were trying to say, but on second thought, I'm not the least bit sure. Color me confused.

Anonymous said...

I tried to buy a Fannie home just a few months ago. CASH! They accepted my offer, we signed the papers and gave our earnest funds. End of story right? NOPE! The next day they came back on us asking for our best and highest offer because they had received another offer. Crooked and not right in any way! Horrible business practices!!!

Ohio Loan Officer said...

True story---
A couple, a vet back from Iraq, his wife and their kids just closed on a Fannie Mae foreclosure house this past Friday. They moved in over the weekend.
This morning they get a call from the Title Agency that closed the deal. They are telling this family Fannie Mae will not sign the deed and the deal is off. They need to vacate the property immediately. It was a BoA foreclosure and so they cannot execute the deed.

I smell a lot of lawsuits. Of course the tax payers will pick up the tab for those too.

AIM said...

Desperate times call for desperate measures. Our misguided leaders and economists have no clue as to what is happening. They will take uninformed and desperate actions in an attempt to correct or maintain balance. The Keynesians are in power and will surely wind up destroying whatever little value remains in the USD.

Unintended consequences are starting to come to the surface. And this is just the beginning.

Our leaders are immoral, effete, incompetent, hypocrites. Authority has failed.

Let the great unraveling begin.

Tyrone said...

Our leaders are immoral, effete, incompetent, hypocrites. Authority has failed.

Let the great unraveling begin.


Sounds about right.

Tyrone said...

Saw this over at Gonzalo Lira's site. The part about the Senate's 'Voice Vote' is sickening. As Gonzalo state, the banks are their masters, not us.

Second Leg Down
...
The move by the United States Congress last week, to sneak by the Interstate Recognition of Notarizations Act? That was all the banking lobby—they wanted to shove down that law, so that their foreclosure mills’ forged and fraudulent documents would not be scrutinized by out-of-state judges. (The spineless cowards in the Senate carried out their Master’s will by a voice vote—so that there’d be no registry of who had voted for it, and therefore no accountability, the corrupt pricks.)
...
And it won’t matter if a particular case—or even most cases—were on the up-and-up: It won’t matter if most of the foreclosures and evictions were truly because the homeowner failed to pay his mortgage. The fraud committed by the foreclosure mills casts enough doubt that now, all foreclosures come into question. Not only that, all mortgages come into question.

People still haven’t figured out what this all means—but I’ll tell you: If enough mortgage-paying homeowners realize that they may be able to get out of their mortgage loan and keep their house, scott-free? Shit, that’s basically a license to halt payments right the f*** now. That’s basically a license to tell the banks to f*** off.

What are the banks gonna do—try to foreclose and then evict you? Show me the paper, motherf*****, will be all you need to say.

frakrak said...

Are you all p***ed off with the corruption yet?? While you still have a government get up to Capitol Hill and make sure the swill on the hill do something, anything (without violence of course!).

At least let them know you can still assemble in large numbers in public spaces !!!!!

The irony here is the greatest capitalist nation in the history of the world is either going to end up a socialist republic or a facist state, your choice, all you have to do is say and do nothing ...