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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."
Thanks for the link.
I'm in the same market, if you are referring to Northern Virginia, but you also have to be aware that we have just been in the slowest period of the year for home sales. That said, the market has slowed. Consumer confidence, jobs, and the economy should revive it by springtime. The country has taken a lot of licks, many of which have been inflicted upon us by our out of power politicians in their efforts to return to power. The media have accomodated them by painting as bleak a picture as possible, yet the facts outweigh the nay sayers.
KOOK ALERT!!!!
A 5,500 sq. ft house = chick bait
I opted for a $139,000 condo instead.
A $139,000 condo = step up from dorm room ;-)
"The media have accomodated them by painting as bleak a picture as possible"
My own local news daily, the Greensboro News & Record, has an utterly political and inaccurate article, front page and above the fold, prattling on about how badly things are going in the local residential real estate market, blaming high interest rates. But, I have been watching the market for over three years. Average days on market has declined to 70 days, from 120 two years ago. Appreciation is up, to nearly 7% for 2005, and is projected to climb over the next several years, as new companies open and more job opportunities arise. And, here's the real kicker ... in their own real estate section, for crying out loud, they're quoting rates from local banks and mortgage brokers, and the rate most frequently quoted, with less than half a point for origination, is 5.75%.
Oh yeah, 5.75% is a disastrous level of interest for a 30 year conventional. What a bunch of leftie idiots they are, at the N & R.
That's in today's paper, Sunday, January 8, 2005.
I'm not sure that when folks talk about a real estate bubble, they're referring to houses that average less than $100,000 each.
I don't think this article does much to advance the argument one way or the other.
Reports like this kinda make me wonder who got the inside tips that they could buy a home for 50 to 60% of what its worth. I bet a lot of the homes went to the same "invester"
The same scenario plays out with the Homes for Humanity group, when the person receiving the home can't pay the taxes and the home is foreclosed on.
Some people just don't understand economics. A case in point is the Minimum Wage, set at $7.50 an hour does not cost the employer $7.50 it costs him $10.00 and hour when you include labor expense.
What are the foreclosure numbers in your area? I'm looking for a vacation home and I sure wouldn't mind buying one a 75% of the value.
Can you please stop posting a link to "NewsPundit.net"...it has absolutely no relevance to this threa, nor any other where you incessantly (and I presume self-promotingly) post it.
Maybe you should change your screen name. I have yet to meet anyone from Texas who would want to be called EX-texan. Makes one wonder what you are ashamed of. Not to mention you are about as predictable as williegreen and his choo-choo posts.
That's just it, I'm trying to steer clear of the gold diggers.
Also, I have the best reason (which is true). I just say "I didn't get a house because I am waiting to marry the one who I will spend the rest of my life with so we can choose a house together and pick carpeting, wallpaper, etc -- TOGETHER!"
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