Posted on 01/08/2006 1:49:06 PM PST by ex-Texan
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, according to an analysis of real estate data by The Sun News.
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, president of the Fortune Academy of Real Estate in Myrtle Beach. "All it takes is a few real creative and less-than-honorable mortgage people to get them in trouble."
The foreclosures haven't cost taxpayers directly because Fannie Mae and Freddie Mac mortgages aren't backed by the federal government as some people believe. But what happens to those companies determines the fate of the nation's housing market because Fannie Mae and Freddie Mac hold or guarantee nearly half of all mortgages in the U.S.
Although a taxpayer bailout isn't guaranteed if either company defaults, most investors think their government charters imply Fannie Mae and Freddie Mac would get the same type of protection savings-and-loan institutions received when they collapsed in the 1980s.
If that happened, taxpayers could be on the hook for billions of dollars in bad loans.
S.C. officials are investigating whether some Laurel Woods loans were fraudulent. It isn't clear if any of the loans Fannie Mae and Freddie Mac purchased are among those being investigated.
The investigation by the state's Manufactured Housing Board, prompted by a series of reports in The Sun News, focuses on home sellers and mortgage brokers who might have falsified down payments and included misleading financial information on mortgage applications to help buyers get loans for which they otherwise would not have qualified.
David Bennett, the housing board's administrator, said the investigation is wrapping up and the board could discuss the findings at its April meeting. He said the findings might be turned over to the FBI or other law-enforcement agencies for criminal prosecution.
Fannie Mae spokesman Alfred King said the company has several policies in place to guard against fraud and predatory lending. But Fannie Mae largely relies on the lenders to ensure those policies are being followed. "Lenders must represent and warrant that their lending practices comply with Fannie Mae guidelines," King said. "Fannie Mae also provides guidance to its lender customers on how to prevent and identify fraud." Losses take toll on lenders
At least 110 families have lost their homes to foreclosure in Laurel Woods since 1999. Private finance companies reclaimed most of the properties.
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.
Fannie Mae and Freddie Mac took losses totaling $1.8 million on the 35 homes they resold. The companies still own at least 11 foreclosed homes in Laurel Woods with mortgages totaling $1.1 million.
The foreclosures and losses could be higher because Horry County property records and the Grand Strand's Multiple Listing Service database aren't always complete. The foreclosures have lowered Laurel Woods' property values and made it more difficult for residents to sell their homes and for buyers to find financing, real estate experts say.
The companies' foreclosures and increasing debt, which topped a combined $1.7 trillion last year, are among the reasons critics of Fannie Mae and Freddie Mac, including Federal Reserve Chairman Alan Greenspan, say they worry about the possibility of a large-scale default and taxpayer bailout of the mortgage companies similar to the savings-and-loan crisis of the 1980s.
Fannie Mae and Freddie Mac also have been embroiled in accounting scandals since 2003, in which at least $9 billion in losses weren't recorded to make the companies appear more profitable to investors.
David Tice, whose Prudent Bear Fund mutual fund makes money by short-selling stocks that Tice thinks are about to lose value, told Barron's magazine in November that Fannie Mae is on the edge of a downfall because it has purchased too many loans made to buyers with marginal creditworthiness.
"We believe there's a housing bubble," 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."
Companies public-private
Fortune Academy of Real Estate's Maeser said he doubts taxpayers ever will have to bail out a failing Fannie Mae or Freddie Mac. But he says the mortgage companies might have grown complacent during the robust housing market of the past few years.
"When the market is going along smooth and values keep rising and you've got buyers out there, you can make a lot of mistakes that resolve themselves," Maeser said. "But there's a point where the market gets so easy for you that you let your guard down. You start getting creative lenders out there, and Fannie Mae and Freddie Mac do less policing to make sure the loans are within stringent guidelines. They're ultimately getting stuck with those bad loans."
Fannie Mae, or the Federal National Mortgage Association, was created in 1938 as part of Franklin Roosevelt's New Deal. Its purpose was to provide banks with federal money for home loans in the wake of the Great Depression. Fannie Mae was privatized in 1968, when it started operating as a public-private hybrid called a government-sponsored enterprise. Fannie Mae operates under a congressional charter. It also generates profits for private investors.
Freddie Mac, or the Federal Home Loan Mortgage Corp., was created in 1970 so Fannie Mae wouldn't be able to monopolize mortgage buying.
Fannie Mae and Freddie Mac don't make loans to consumers but instead buy existing mortgages from banks and finance companies. They either hold the loans or package them and sell them to investors as mortgage-backed securities.
Fannie Mae is, by far, the larger of the two companies. It held the mortgages on 33 of the 46 Laurel Woods foreclosures.
Lenders, neighbors 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.
More typical examples include: Freddie Mac foreclosed on a home at 8541 Woodfield Drive in October 2003 that had an outstanding mortgage of $95,045, according to court records. Freddie Mac sold the home in December 2003 for $30,975, according to the Multiple Listing Service - a 67.4 percent loss.
Fannie Mae foreclosed on a home at 8182 Woodland Drive in November 2004 that had an outstanding mortgage of $119,145, according to court records. Fannie Mae sold the home in March for $45,300, according to the service - a 62 percent loss.
Freddie Mac foreclosed on a home at 8476 Knollwood Drive in November 2004 that had an outstanding balance of $100,470, according to court records. Freddie Mac sold the home in February for $60,000, according to the service - a 40.3 percent loss.
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, according to the Multiple Listing Service. 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, located at 8177 Woodland Drive, 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 such sales can hurt all of Laurel Woods' residents because appraisers judge a home's value, in part, by what similar homes in the same area have sold for.
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."
I had my house forclosed. After I sold it. The sharp lawyer got 25 thousand dollars from the VA for 10 hours of work. I think that when you hire a lawyer to write a document, he purposely puts in errors to make a space for the next lawyer to profit.
ya'll be careful out there.
"I had my house forclosed. After I sold it."
What, did you stop making payments before closing the sale or something? I must say, I'm rather incredulous. Please elaborate.
I stopped making the payments after the sale.
I paid off the loan, but the VA hadn't gotten the paperwork yet. This troll was working as a freelance agent for the VA. the VA paid him. Your tax dollars at work.
Or, more aptly, "Bargains coming! Fire sale coming!"
Are these modular homes? What is the development like? If you could afford to live there, would you? Many factors go into situations like these.
Are these modular homes? What is the development like? If you could afford to live there, would you? Many factors go into situations like these.
"I stopped making the payments after the sale."
If the home was sold and title had changed hands, then there was no note left to foreclose.
Heh...when I was house shopping in the Overland Park, KS area in early 2005, my loan officer kept telling me that I qualified for a $1,000,000+ loan if I wanted to buy a lot of house.
I'm a single guy who travels during the week so I couldn't fathom what I'd do with a 5,500 sq foot house with finished basement and 1/3+ acre yard and a 3 car garage.
I opted for a $139,000 condo instead.
"Are these modular homes? What is the development like? If you could afford to live there, would you? Many factors go into situations like these."
The developer of Laurel Woods, outside of Myrtle Beach, South Carolina, died in 2003. He was working in conjunction with a mobile home dealer, offering land/home packages. They were financing the properties themselves, apparently requiring little or no documentation. Paperwork was shoddy. The developer's bank foreclosed on everything when his heirs fell behind on their own payments, which also affected a large number of people who had bought from him, because he held the notes.
Thanks for the information. That doesn't sound like a trend to me.
"at least 46 homes worth $4 million in the Laurel Woods neighborhood since 2002"
I think you might be misreading this ... the total value of foreclosures was $4 million, and the number of foreclosures was 46. Individually, that would be an average of $86,956.52 per property, not $4 million each.
" That doesn't sound like a trend to me."
No, but it's handy for naysayers, who assume, wrongly, that nobody would bother to Google such a story for background.
You ARE right! ;-)
It ain't gonna happen, so the poor management of Fannie Mae and Freddie Mac and the ill prepared mortgagees isn't going to be an issue.
Should it become an issue?
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