Sunday, January 08, 2006

GSE's 'Take What They Can Get' On Defaults

Myrtle Beach Online has this report on foreclosed mortgages. "U.S. government-chartered mortgage companies Fannie Mae and Freddie Mac have foreclosed on at least 46 homes worth $4 million in the Laurel Woods neighborhood since 2002. In 29 of the foreclosures, Fannie Mae and Freddie Mac resold the homes within months for less than half of their mortgage value. Six of the homes were resold for between 50 percent and 60 percent of their mortgage value, and the remaining 11 homes haven't sold."

"The track record in Laurel Woods is a microcosm of the dangers Fannie Mae and Freddie Mac face when they rely on largely unregulated finance companies to ensure that borrowers are qualified for, and can repay, the loans they get."

"'Fannie Mae and Freddie Mac don't have a lot of control over the people out there approving these loans,' said Tom Maeser. 'All it takes is a few real creative and less-than-honorable mortgage people to get them in trouble.'"

"The Fannie Mae and Freddie Mac foreclosures, which took place between 2002 and 2005, were of mortgages those companies purchased from finance companies and banks that made high-risk, known as subprime, loans to Laurel Woods buyers."

"'We believe there's a housing bubble,' David Tice told Barron's. 'This whole phenomenon of lending with essentially nothing down to a lot of consumers scares the jeebers out of us. Fannie has been instrumental in helping that along. It's just a matter of when, not if, this real-estate bubble pops to what degree, and Fannie will be one of the companies most hurt.,"

"Fannie Mae and Freddie Mac sold the foreclosed homes in Laurel Woods for much less than their defaulted loan amounts, settling for as little as 18.2 percent of the amount owed in one case."

"In some cases, Fannie Mae and Freddie Mac sold the foreclosed homes to investors who then resold the properties for a profit. The home at 8476 Knollwood Drive, for example, was sold to a manufactured-home dealership that more than doubled its money when the home was resold three months later for $125,000. In another case, a land developer bought a home out of foreclosure from Fannie Mae for $47,500 in October 2003. The developer then sold the home a month later for $92,700, a 95.2 percent profit."

"'The homes are basically a write-off situation for Fannie Mae and Freddie Mac,' Maeser said. 'They sell it for what they can get and take their licks.'"

"Maeser said it could take years for Laurel Woods to rebound. 'They may never get their money back,' Maeser said, referring to residents and investors hoping to sell their Laurel Woods homes. 'It may be that they'll have to look at how much of a loss they're willing to take just to get out of the situation.'"


At 1:48 PM, Blogger MarknearSeattle said...

I am looking to buy a house for myself north of Seattle. How do I find houses that Freddie and Fannie have to sell? Thanks for any help.

Mark Near Seattle

At 9:00 PM, Blogger Out at the peak said...

If these guys are already dumping REOs for 50%-60% of value, what will they dump them for in 2007, 2008, etc? There must be other liens to consider that do hamper profits.


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