"FANNIE MAE IS OUT IN THE LAUNDRY SHED SCRUBBING THEIR UNDERWEAR." 

FANNIE MAE:  "Fannie Mae has a federal charter and operates in America's secondary mortgage market to ensure that mortgage bankers and other lenders have enough funds to lend to home buyers at low rates. Our job is to help those who house America."

Obviously, Fannie Mae is not on the job.

I believe that the inability of Fannie and Freddie to step in to buy more loans and increase the conforming limit to something that would help a lot of folks refinance their loans when their ARMs adjust is one of the saddest and most frustrating sub-chapters in this entire mortgage mess. 

Why doesn't Fannie Mae step up to the plate and help??  Perhaps a bit of the recent history of Fannie Mae will shed some light: 

              "Fannie Mae engaged in "extensive financial fraud" over six years by doctoring
              earnings so executives       could collect hundreds of millions of dollars in bonuses,
              federal officials said yesterday in a report that portrayed a company determined to
              play by its own rules."  Washington Post, Wednesday, May 24, 2006

While Franklin Raines was cooking the books at Fannie to increase his and his crony's bonuses of multiple $millions, Fannie probably lost the ability to do anything that would help in this mortgage mess of monumental proportions.  Now, can someone please tell me why Franklin Raines is not going to jail?

A LITTLE HISTORY.  Following the attack on the United States on September 11, 2001, as the Federal Reserve slowly but relentlessly lowered interest rates and did everything else they could to spur the economy.  Lower and lower interest rates made buying a home very attractive.  Pretty soon, since our real estate market is interest rate driven, anyone who wanted to buy a home, did buy a home and we just about ran out of homes to sell.  As would occur in a market economy, prices of homes went up.  Fixed rates didn't increase that much, but ARM products and other designer loans increased. 

Hardly a month went by that I didn't get an e-mail announcement from respectable mortgage companies about the "Alt-A", special "No-Doc" and other special instruments.  The mortgage companies I refer to will usually rely on the buyer's credit score for loan approval.  No money?  No problem.  With a good credit score, you could get a mortgage loan.  History had shown that, if folks had a good credit score, they were a very good risk.  The higher the credit score, the lower the risk and the lower the intrest rate.  Fannie Mae streamlined the Desk Top approvals to a point where we could have a loan approval in about an hour.  Unfortunately, during this period, average prices of homes were increasing dramatically. 

What's in the future?  I'm not optimistic.

Unfortunately, the focus in my area has now changed from "prices need to come down so buyers will start buying again" to "no one is buying because the mortgage companies are in trouble."   I still believe that prices and the extraordinary increases in prices between 2002 and 2006 has been the cause of our financing problems.  One questions is, if prices had remained stable with normal 3-5% appreciation, would financing have evolved with the designer loans we now see in trouble??  I don't believe so.

2002    Montgomery County, MD           9,179 Homes SOLD        @ $300,294 Average price        
2003    Montgomery County, MD           9,309 Homes SOLD        @ $339,480      "
2004    Montgomery County, MD           9,942 Homes SOLD        @ $394,624      "
2005    Montgomery County, MD         10,131 Homes SOLD        @ $464,227      "
2006    Montgomery County, MD           8,204 Homes SOLD        @ $524,770      "
2007    Montgomery County, MD           6,795 Homes SOLD        @ $554,870      "

I'm not smart enough to fathom the solution.  I can only report what I see and hear.  I still believe that the price of homes is the problem. 

JUST LOOK AT THE NUMBERS.  NUMBERS DON'T LIE.  Prices in our area have increased almost 100%.  However, incomes in our area have increased by an average of about 18%.  There's a disconnect.  The high price of real estate could be handled as long as interest rates remained low.  But, they didn't.  Back in 2003-2004, our buyers could get an ARM with an interest rates of 4.5%.  Those loans haven't adjusted yet.  When they do, the home owners are going to be faced with a much higher rate.  Question is, will they be able to find a loan. 

Of course, not everyone who purchased a loan in the past 5 years is in trouble.  Many have 15-30 year fixed loans.  Many have sufficient income and credit scores to do what they need.  However, it appears that there are a significant number of home owners who do now or soon will need to refiance who will be in trouble.  We aren't concerned about the investor buyers.  They took the risk. 

I don't believe that the average home buyer, the residential home owner occupant, understood the risk.  They took the opportunity to move up to the area they had dreamed about, where the public schools were ranked high, where commuting would be worth the time and gasoline costs because their family would have their dream home.

After all, the experts all said that prices would continue to go up and interest rates would stay low for the forseeable future. 

Didn't they??