If you are a Realtor or short sale negotiator who has done a short sale with Fannie Mae as the investor during the last few months, this blog post will likely raise a question or two. For everyone else, it will definitely also raise an eyebrow or two. Government conspiracy theorists are certainly not a rarity in this day and age. Depending on who you speak to, many of our fellow citizens can come off as paranoid and irrational when speaking about all the secret plans they seem so sure our government and those in power are plotting and planning. While the theory I'm proposing on here is certainly not up to par with the New World Order, Illuminati, One World Government folks, it is certainly some concerning and valid food for thought, especially for those of us in the Real Estate and Mortgage industry. Take a few minutes to read this blog post, and you'll likely agree and come to find that this really isn't about a conspiracy theory, but a very real and disturbing trend that is happening in our housing market right now.
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Lets take a step back here and set the stage. Over the last five to six years, we have seen real estate prices plummet in virtually every market across the country. This reality of the depressed housing market is certainly no secret. In many areas, prices have declined to as low as thirty cents on the dollar. Several years ago, As things became more and more depressed, our government stepped in. Both Fannie Mae and Freddie Mac, who back the majority of our residential mortgage loans, were completely bailed out by the US government. This forced overtaking was something that our government had to do, as the imminent collapse of Fannie and Freddie would have meant the complete collapse of the housing and finance industry, likely permanently. This was extremely important, as instead of giving bailout loans to Fannie Mae and Freddie Mac, like the auto industry or the banks, they actually took complete control of these organizations. Our government then established the Federal Housing Finance Agency (FHFA) to "oversee" these organizations which are now referred to as Government Sponsored Enterprises, or GSE's. Since then, the FHFA consistently dictates policy to these Government Sponsored Enterprises that still back over 60% of residential mortgage loans and completely control the secondary mortgage market.
Now back to the present. Fantasic news headlines in much of the country that in many of the markets that were hardest hit, prices now seem to get going up almost as quickly as they were once declining. Inventories are low, demand is high, properties are getting multiple offers from buyers paying over list prices the minute they come on the market. But for those in the industry such as myself who are active in the short sale and distressed property niche, an interesting and disturbing practice that has been taking place.
In very recent times, just in the past few months, short sale agents across the country have been having difficulties with Fannie Mae short sales. To be more specific, the difficulty has been with wildly inflated appraised property values that Fannie Mae has been insisting on for short sale properties. For those who may not know, we are not talking about regular appraisals, traditionally ordered by a buyers lender in order to justify a purchase price. In this case, we are talking about appraised values that Fannie Mae places on properties, ordered by them and completed by their own appraisers, utilizing their own appraising and property valuation methods. Utilizing these over inflated appraised values, Fannie Mae then demands more money for these short sale properties from patient buyers. Anyone starting to smell the stink yet? Does this stink smell a little similar to the stink we all experienced several years ago with inflated buyer appraisals from before the housing market collapse?
For the most active short sale agents across the country, the past few months have produced quiet a few headaches with Fannie Mae. It seems virtually every property valuation and appraisal done by Fannie Mae for a short sale is at least 10% or more above current market value. Values so inflated, that there are typically no comparable sales at all to come remotely close to justifying their prices. Prices so high, that it most cases it would be virtually impossible for a buyer to find a loan and get an appraisal that would match the property values and prices that Fannie Mae is demanding. The ironic part, is that these same buyers' loans who are purchasing these properties would of course eventually be sold off to... You guessed it, Fannie Mae! Because of the massive number of loans backed by Fannie Mae, this is widespread and is effecting a very high percentage of current sales. I manage a short sale broker network of over 12,000 agents and have directly assigned thousands of listings to agents in every State. This is happening everywhere, and is also happening with Fannie Mae bank owned properties as well, as many agents are also reporting. And when it comes to disputing these inflated values, it can be quiet a challenge for real estate agents and short sale processors to convince Fannie Mae to change their mind and sell the properties for actual market value. Even more frightening is the reality that after rejecting short sales by demainding their over inflated, false "values", when Fannie Mae does finally foreclosure on home owners, they are strongly encouraging buyers to use Fannie Mae HomePath financing, where an appaisal isn't even required!
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Put two and two together, read between the lines, and it makes perfect sense that this is just Fannie Mae's and our policy dictating governments' valiant and likely effective attempt at mass, government controlled real estate price fixing. Control the supply (market inventory), control the demand (interest rates ect), and then control prices and force up property values by demanding more money. Fannie Mae and Government controlled real estate price fixing. The tail wags the dog, and the dog has no clue what is going on. A perfect example of the reality that housing has become completely socialized, but with the illusion that its just all part of the market cycle. Just my two cents, for what its worth.
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