Jul
Fannie, Freddie, Foreclosures
Lots of news today about Fannie Mae and Freddie Mac and the possibilities they may be insolvent. Stocks keep getting hammered and various government agencies keep announcing they aren’t in trouble, they just need a little help to make it through a “rough patch”. So, maybe it isn’t really news, but spin to keep the problem from getting worse.
The problem with government sponsored entities is how risk is expected to be absorbed by the government, which means the taxpayers, but the profits are kept internally to be distributed to the employees and shareholders of those GSEs. Not too many business models have that sweet arrangement where you really can’t lose no matter what stupid risks you take.
While I don’t like the fact there will be some forms of government intervention to prop Fannie and Freddie up, I realize the necessity of keeping mortgage funds flowing to prevent extreme distress in the housing markets. Oh, but wait, even if the mortgage funds keep flowing, that isn’t going to prop up real estate prices, is it? As long as real estate prices, which are pretty much dictated by real estate buyers, continue to decline, there will be increased numbers of defaults and foreclosures.
This all reminds me of the classic Circus act with clowns attempting to put out a fire. Lots of running around putting out one fire only to have two others spring up in it’s place. Mindlessly humorous in that setting, but not so funny when we’re dealing with a large economy.
Hey…I work for a Southeast Michigan nonprofit that works to prevent foreclosures. We work with lawyers, brokers, MSHDA, financial counselors, etc. to do budgets, refinances, and work out deals with lenders. (Mostly it comes down to the last one, lately. It wasn’t always so bad, but as you probably know, there’s almost no mortgage money left in this state for refinances.)
Anyway, I’m doing research on the Freddie/Fannie issue, and I was hoping you might know something that would help us…My organization is calling yesterday “Black Monday”, because at 9 a.m. sharp, the phones went crazy with banks calling to tell us that all deals were off. We lost about ten workouts yesterday that, on Friday, we thought were done deals. And let me tell you, calling families to tell them that is not a fun gig.
Do you have any idea how what happened over the weekend could cause banks to back out en masse from mortgage workouts? Until we know what they’re thinking, there’s no way we can come up with a solution that might address it and get them to work with us again. (It’s one of the paradoxes of our work that banks insist that foreclosures cost them all this money (40K is a number I hear often) and that they’d love to avoid them; yet when you offer a deal where they can keep the mortgage active by sacrificing a few thousand dollars max, they almost always turn you down flat. Unless you have a good lawyer to argue and negotiate with them, it’s nearly impossible lately to get even a modest workout.)
Something about the Freddie/Fannie situation and/or bailout has got banks thinking that for some reason, they’d rather let everything foreclose, and it’s devastating to hardworking families trying to recover from job losses and/or bad mortgages! If you know anything that might help us understand and address this situation, that’d be wonderful.
Thanks,
July 15th, 2008 at 10:04 amMarie L., Administrator
Better Financial Alternatives of Michigan, Inc.
(a Michigan Nonprofit Corporation)