Objective real estate investors have been saying it for years: government-controlled Fannie Mae and Freddie Mac have been involved in questionable practices when it comes to mortgage regulation. And now, there’s significant support for this position in the major press. According to a Washington Post article published this morning, the two GSEs set the precedent for fast, perhaps overly-effective and aggressive foreclosure methods that ultimately led to Foreclosure-Gate and the robo-signing fiascos currently being endured and investigated on multiple fronts throughout the country.
In 2008, Fannie Mae and Freddie Mac “named an exclusive group of law firms that would rapidly carry out…filing legal paperwork to remove homeowners from their homes.” Prior to this time, this type of step was “unprecedented,” the reporting team says. Now, while many lenders followed suit and created their own foreclosure issues, the “heart of federal and state probes over faulty foreclosure practices that now threaten to further undermine the housing market” is squarely located with Fannie and Freddie. According to an anonymous source, the GSEs not only “urged swift foreclosures,” but also green-lighted a firm that had engaged in documented, “legally questionable practices.”
In further efforts to speed the foreclosure process, the GSEs offered incentives and threatened fines on law firms and servicers that took too long to foreclose, while neglecting to implement safeguards for the homeowners themselves. When asked about the existence of these safeguards, Fannie Mae associate general counsel Susan Reid simply stated, “I don’t know of any policies and procedures.”
It seems clear that other lenders and lawyers took their cues from Fannie and Freddie when it came to their foreclosure processes, but that does not change the fact that each individual corporation should have installed some type of protections to insure that foreclosures were valid. Do you think Fannie Mae and Freddie Mac should bear a greater burden of blame than other lenders involved in the robo-signing scandals?
Thank you for reading the Bryan Ellis Real Estate Letter. Your comments and questions are welcomed below.
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Let’s face it, it is another case of too much government with gillions of rules and regs that were not being monitored by anyone…all the laws in the world are useless if they are not being monitored.
I have stated years ago on this forum; Fannie and Freddie were corrupt, did not know what they were doing and are run by mostly idiots! I still stand by my statements then! Sounds like many are coming around to my point of view on these agencies. The difference is more people now are starting to see them as the real criminals they actually are.
Yes, they are at the heart of this mess, they were tasked with being at the heart of this crisis, and they are still working at staying at the heart of this crisis going forward.
They have not really changed one thing they are doing, still screwing with the housing market and not in a good way. Until Fannie, Freddie, HUD and other government agencies are dissolved, we are and will be at great jeopardy in this country economically. They control too much money; they have no care for individuals, and no concern about the country or rule of law.
We are in increasingly serious trouble in the United States, we are very close to the edge of the cliff, and if we do not make some substantial changes to our entire monetary policy, it will not matter what real estate is worth soon because none of us will be able to afford it.
There is no blaming…bottom line, if you don’t make your house payment, you will be foreclosed! PERIOD! Whether it will take 6 months, 1 year, or 5 years, your house will be foreclosed! So make your house payment that you agreed to when you took out your loan!
When the government get involve,you can bet it a recipe for a screw-up.
Well said Chris!
And adp0052 I am quite impressed with your ignorance on how things really work in the Real World!
Make it a great Holiday Season,
Mark
There is a built-in secondary mortgage market in the form of Freddie Mac and Freddie Mae.
Why is this significant? It’s at the very HEART of the issue. You see, when you or I go get
a loan, from let’s say, one of the giant banks, or a local Savings and Loan, and let’s say it’s
for $300,000. The bank gives you the money, and generates about $9,000 in origination costs.
So, why would a bank keep a loan at 4% interest, for $300grand, for a 30year time period, during
which time, the borrower may default at any point, because 30 years is a LIFETIME. Why would I want
to make almost no interest income, which is why I lend money as a lender, and for 30 years
have my cash layed out, and also face possible default by the borrower? I, as a lender,
am interested in IMMEDIATELY selling the loan, which is a note, which is a type of security instrument,
and IMMEDIATELY re-couping my $300,000 in cash and have ability to lend all over again. I instead,
pocket the $9,000 origination costs, and I’ve got my wad back all over again, because the
loan is SELLABLE to Freddie Mac or Freddie Mae.
That’s the problem, the banks are in the ORIGINATION business, not in th loan SERVICING business.
They have no SKIN in the GAME. 3 months after they give the borrower his money, they get
all of it back, less their origination costs, and get to do it all over again with another borrower.
IF there WAS no Freddie Mac or Freddie Mae, each Savings and Loan and each bank would have to KEEP
the loan they lend, and earn money slowly, over time, in the form of steady interest payments from
the borrower, over a 30 year time span. That’s in fact, how it USED to be. If the banks were
forced to keep the loans they make, and had no way to easily resell them and turn them around
for quick cash, they would first of all, question every loan much more than they do, and secondly,
interest rates would have to rise, to make it attractive for banks to lend money.
Would you lend $300,000 to somebody for 30 years at 2% interest? Why lend? So unless the banks
can make a REASONABLE profit, of 6% or 7% interest, over 30 years, they have no incentive in lending.
So, the secondary mortgage market is an important aspect of keeping cash liquid and in-play in the
economy, instead of only the rich getting houses, and not the middle class, because banks would be
too afraid to make loans and lend out their capital if they couldn’t quickly recoup it by selling
loans to another entity.
The only entity that can absorb that much paper (notes), is in fact the GOVERNMENT, the very
originator of money and the regulator of the value of money in the first place!
So to recover their wad, the secondary mortgage market has to in fact, sell the notes for cash, to
replace cash-flow, with actual CASH. It’s a liquidity problem. So, while I’m not justifying by
any means why Freddie Mac or Freddie Mae did what they do, they are in panic mode. They in fact
became the ONLY secondary mortgage market and thus, they need to get into liquid money, not
paper notes, that may, or may not be actually worth something in the form of an questionable income stream.
If however, the BANKS WERE FORCED to take back questionable loans they originated in THE FIRST PLACe, and buy this bad paper back, then Freddie Mac and Freddie Mae wouldn’t be so desperate to use WET funds instead of paper cash flow based funds on the balance sheets, but not in actual liquid cash.
SO I say: FORCE THE BANKS TO KEEP 41% OF THE LOANS THEY ORIGINATE. Make they BUY BACK all the bad
loans they sold to Freddie and Fannie and we wouldn’t have this problem in the first place!
Force the BANKS TO HAVE SKIN IN THE GAME-don’t blame Freddie or Fannie!
No! Financial institutions have their own set of ‘best practices’ rules, which are and have always always been designed to adhere to governmental regulations. Foreclosures are a closely regulated process with varying rules from state to state. I would wager that financial institutions, being fully aware of the questionable mortgages they underwrote and later resold to unknowing investors, were the last to want to see Fannie and Freddie step up the process.
Let’s face it, it is another case of too much government with gillions of rules and regs that were not being monitored by anyone…all the laws in the world are useless if they are not being monitored.
I agree with Chris, and adp0052 to a certain degree. The US gov’t has too much control. If we go back in history the US gov’t was set up for the people and by the people. That has changed and is becoming a dictatorship instead of a democracy. The gov’t has too much control with all of these bail outs with corporations and banks. Where will it end? It will not because the plan is a take over of human rights and anything else. While this once of a great country continues to deteriorate. Think about it…what freedom do we really have when we are being forced to agree with medical insurance that pays for abortion (Planned Parenthood-a cover up for killing now that we have the 2nd largest abortion clinic in the world in Houston, TX. I have yet to figure out how they came up with the name Planned Parenthood?), the Attorney General of NY was the one that had the say so of the loans for the entire country without any vote from the people, and there is a lot more that some do not know about.
My reason for agreeing to a certain degree regarding adp0052′s comment the homeowners should make their payment is true. I believe most people that buy a home do not understand that those are legal documents they are signing. It’s hard to believe that so many do not understand no matter how many times it is explained until they lose their home. Then many destroy the home by tearing it up and removing appliances, plumbing, etc. It’s crazy behavior. I do not understand why those that do this are not put in jail for destroying the property. Then there are those that are truly having financial hardship and could use an extension to get on their feet again, even if it’s through refi’s. Which is more economical to help those that are in a financial crisis due to a job loss and/or medical or to sell it for almost nothing through foreclosure.
For example: I receive auction notices such as a nice condo to start a bid at $1k and a $2500 deposit and it’s worth about $70k. How about a home that appraises at $100k+ and the bidding starts at $10k. That is insane and that is why I believe the homeowner should be helped in a refi. The homeowner should be accountable for all their money on budgeting and the upkeep to be given another chance. Where will itend? Only God knows! If this country will turn from it’s wicked ways and repent, God will be merciful.
It doesn’t matter who is to blame. Just wish they would get out of the way and let us clean it up.
Let’s blame Freddie and Fannie for ALL our problems. Folks, just as there’s no free lunch, there is no one-size-fits-all solution to any problem.
Fannie and Freddie played HUGE parts!! These GSE’s always had the backing of the US government. Try to make as much money as you can on the open market but if you incur losses, Uncle Sam will bail you out! For years, GSE’s tried to act rationally with the blank check they were given. When rationality went out the window and there was not a loan that either GSE would not buy, the gatekeepers, in effect abandoned their posts. That’s not criminal but it sure was STUPID!!! Greed only made the stupidity more eggregious. Actions by insiders (government and private)sure left their footprints as well.
NOTE: The bailout of AGI was definitely distasteful but it had really grown to the point of being TOO BIG TO FAIL–world-wide M&A’s run amok!!! M&A’s are getting on a roll once more!! Of course, the first law of the market is BET WHAT YOU CAN AFFORD TO LOSE!!! We don’t need a government to tell us what that is! Players beware!!!!