Fannie Mae and Freddie Mac mortgage giants are continuing to financially lose. In 2008 they were taken under wing by the Federal government. There was supposed to be regulation, and keeping an eye on things with this bailout money, but it looks like Fannie and Freddie may have become invisible.
The loss started by poor decision making in 2006 and 2007. Fannie and Freddie collected more than $1 trillion in alternative (alt-a) and other risky mortgages. This along with losing their control to Wall Street banks put them into the foreclosure market with huge numbers in 2007. Adding to this panic, they took on mortgages that did not even meet their own underwriting standards. The losses incurred from this poor decision making and other decisions on the companies part was the beginning of their spiraling downfall.
What did Mom say?
Don't run with scissors.
Wait 1/2 hour after you eat to swim.
If you put your hand in the fire, you will get burned.
Now Fannie and Freddie were responsible for loans they sold to investors with a guarantee of no default. Insufficient funds on Fannie and Freddie's part made it impossible to cover the pay outs.
Bush administration to the rescue!
The Treasury Department purchased 80% of the ownership. That rescue aside, the Federal Reserve purchased $1.2 trillion of the company's mortgage corporate bonds and securities. The Treasury Department has now purchased $220 billion mortgage securities. The agreement? Fannie and Freddie are to pay back a 10 percent dividend each year on funds they draw from their lifeline.
The pay back this far is $6.8 billion to the Treasury Department. How did they do that? By paying the Treasury dividends with money from the Treasury as they are still taking in tens of billions of dollars from, yes, the Treasury. Is it just me? Is there something not right here?
Both firms have $125 billion from the government and the Congressional Budget Office predicts they will drain another $380 billion. Wow, their tab is high! Bigger than the automakers and AIG!
Meanwhile, they have been doing what others were doing with bailout money, causing an outrage while this country was hobbling along the border of a financial crisis, getting worse.
Just recently Fannie and Freddie disclosed that for 2009 about $40 million went to executive compensation and bonuses. Their chief executives each took in more than $6 million for 2009 and about $2.5 million in bonuses.
Ok, who was not paying attention? That my friend came out of our pockets.
Yes, the taxpayer (you and I).
Fannie Mae and Freddie Mac approved more than 40,000 mortgage modifications in 2009. While this helped homeowners and they offered lower interest rates, the company put itself in the position again of losing income.
I have found over the years that if a loan is a Freddie or Fannie it can greatly effect the short sale process. It creates another entity that has to approve the short sale before a final written approval can be done. With the banks as slammed as they are and the timeline that creates, we do not need an extra step. That extra step can add on another 3 weeks to the already long drawn out process.
You also have to deal with the fact that they are government agencies and the rules and guidelines are black and white. While an investor can negotiate at whatever terms he deems appropriate, Freddie and Fannie must abide by the rules and regulations given to them by the government. Doesn't leave much room for the negotiation process which is what makes a short sale so awesome.
So where do we go from here? How do we protect the taxpayers and homeowners from foreclosure?
All we can do is hope for the best when it comes to all these government bailouts. However, we do need to realize the effect has on the business we are in and stay abreast of all the new information when it comes out. Knowledge is Power!!
Should we just say bye bye to Fannie and Freddie?
Get back to the drawing board and start new?
Is it likely we will see a full or any return on our investment?
What do you think?
To Your Success,
Hunter
Join me for my 3 Days Live Short Sale Training Event in Orlando, Fl May 21-23, 2010.
I will help you understand where we are in the market today and how you can help distressed homeowners and make MONEY!
I will show you how to make Short Sales easy and close deals
I will give you awesome techniques not used anywhere else.
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