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September 28, 2011

Inside Fannie Mae and Government Run Housing

It’s been three years since the federal government, under the direction of Treasury Secretary Hank Paulson, seized Fannie Mae and Freddie Mac in an effort to prop up the failing housing market.  Since then, the federal government has pumped $ 150 billion into Fannie and Freddie to keep the company afloat.  On top of that, Fannie and Freddie own approximately 250,000 homes that need to be sold.

So, do individuals have choices when dealing with the sale of Fannie and Freddie homes?  It depends.

As you can see from the below video, if you are a loan servicer, the government, through Fannie Mae is forcing servicers to go to the borrower and offer incentives.  As Diana Olick said in the video they are unfolding new procedures to “hold servi cers accountable.”  Whatever happened to holding the borrowers accountable?  How does placing pressure on mortgage originators help create new mortgages and sell homes?  Fannie is going so far as to assign penalties to servicers who “don’t do enough” to help distressed borrowers.

The head of the division in charge of selling Fannie Mae homes says in the video, “Our goal is to sell to as many owner/occupants as we can.”  That doesn’t sound friendly to investors who may want to buy homes and flip them for resale or investors who want to buy and rent the property out to someone who could not get a mortgage loan.

How does this policy help the millions of Americans, who have foreclosed and cannot get a mortgage, get back into a home?

Government As Landlord
In the second half of the video, Fannie Mae is considering renting some of their foreclosed properties.  They talk about how they analyze individual properties to determine how much they are worth and how much it may cost to fix it up to sell.  Apparently, these numbers show that it may be more lucrative to rent the houses out.

I find it interesting that Fannie Mae, based on their very comments in the video, don’t want to sell these homes to non-occupants, but they want to rent out the properties themselves.  So, the result of the foreclosure backlog is for the government to internalize profit and not allow the outside investment community to get their hands on these properties.

How is any of this an example of the free market?

In a final twist to government run housing, Fannie and Freddie was given the suggestion of improving the problem through incentivizing the investment community to participate in purchases.  However, they said they would prefer not to for the “returns on investment and the appraisal values of the neighborhood.”  

I find it interesting that government officials can constantly accuse the private investment community of greed, but withhold capital that needs to be privatized on the basis of “return on investment.”

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