Just look at all those hungry mouths we have to feed Take a look at all the suffering we breed So many lonely faces scattered all around Searching for what they need
Is this the world we created? we made it on our own Is this the world we devastated Right to the bone?
Queen -- Is This the World We Created?
When the housing bubble became apparent to policy makers in Washington, they realized there was only one way to prevent a catastrophic collapse in house prices: they had to take over housing finance. To that end they took the GSEs into conservatorship, and the federal reserve began buying mortgage-backed securities at prices the free market was unwilling to pay. With both the delivery mechanism under direct government control and the ability to print money with through the federal reserve, aggregate loan balances were maintained al levels much higher than otherwise would have occurred. This is the world of mortgage finance we created. The taxpayer is paying the bills.
Today, we are gradually returning to a free market in housing finance, but the government still dominates with well over 90% market share. The federal reserve has stopped buying mortgage-backed securities with printed money, and the government is scaling back it's loan limits. However, when the government took over the GSEs, it assumed the liability for all their bad loans; past, present, and future. The bills keep mounting.
Fannie Mae reported net loss of $8.7 billion in the first quarter, including a $2.2 billion dividend payment to the Treasury Department. The loss narrowed from $13 billion one year ago.
Fannie said still falling home prices drove losses during the quarter. The government-sponsored enterprise estimated home prices fell 1.8% during the quarter, even though some regions experienced gains.
The mortgage giant's regulator the Federal Housing Finance Agency requested $8.5 billion from the Treasury to eliminate Fannie's net worth deficit. Fannie now owes the Treasury $99.7 billion and so far paid $12.4 billion in dividends.
Its sibling company, Freddie Mac actually reported a profit in the first quarter and did not request funds. Together both Fannie and Freddie have pulled a total of $164.4 billion from the Treasury since entering conservatorship in 2008.
Despite the continued losses, Fannie Mae showed how vital its operations are to funding the housing market. It remained the largest issuer of mortgage-backed securities in the first quarter, purchasing or guaranteeing roughly $189 billion in loans. The company's market share dipped to 48.6% in the quarter from 49% in the previous period.
But Fannie said if the market shifts away from refinancing as is likely to occur as mortgage rates rise, market share will dip further.
A declining market share for the GSEs is exactly what we need. Eventually, their market share needs to fall to zero and the entities need to be eliminated. Realistically, that process won't begin in earnest until the housing market achieves a durable bottom, probably in 2012 or 2013.
While business could be declining, legacy issues are too. The serious delinquency rate on Fannie Mae loans dropped to 4.27% in the first quarter from 5.47% one year ago and 4.48% in the previous period. The company said modifications and other workouts, combined with foreclosures when other alternatives are exhausted, outnumbered new delinquent loans hitting its books.
That is a good sign. We can't bring down REO inventories until we stop adding to them. Of course, the vast majority of loan modifications will fail, and those properties will once again go delinquent, but by delaying the inevitable, it allows the GSEs to reverse the tide of delinquencies, but it also ensures the liquidation process will drag on far longer than anyone anticipates.
Fannie Mae CEO Michael Williams said "credit-related expenses" will remain high in 2011 as it remains exposed to falling home prices.
"As we move forward, we are building a strong new book of business that now accounts for 45% of the company’s overall single-family guaranty book of business," Williams said. "We continue to be the leading provider of liquidity for single-family mortgages and affordable multifamily rental housing while we remain focused on our responsibility to find solutions for distressed homeowners and their families."
The only solutions the GSEs are providing is to give free houses to delinquent mortgage squatters on the taxpayer's dime.
Freddie Mac sold roughly 31,000 previously foreclosed and repossessed homes in the first quarter, a new record for the company as both government-sponsored enterprises shed inventory from the end of last year.
Combined, both Fannie Mae and Freddie hold 218,000 REO properties as of the end of the first quarter, down from roughly 234,000 at the end of 2010, according to their filings.
In the first quarter of 2011, Freddie holds roughly 65,000, compared to its larger sibling Fannie, which holds 153,000 REO in its inventory.
While both GSEs made progress in cutting down this portion of the nation's inventory of foreclosed homes, which continues to drag down home prices, inventory has elevated since one year ago.
Both Fannie and Freddie held 163,000 properties in the first quarter of 2010, almost what Fannie holds currently by itself.
Repossessions at Freddie increased by nearly 1,000 in the first quarter, and the holding period for these homes averaged 191 days before being resold. This varies significantly from state to state, especially as servicers restart foreclosure processes in different areas of the country. Servicers paused the process late last year to correct procedural problems.
The GSEs are delaying processing many of their delinquent loans because they already have too many REOs, and they are delaying releasing their REOs because if they don't they will pummel house prices.
"We expect the pace of our REO acquisitions to increase in the remainder of 2011, in part due to the resumption of foreclosure activity by servicers, as well as the transition of many seriously delinquent loans to REO," Freddie said in its financial supplement.
by JON PRIOR -- Thursday, April 28th, 2011, 1:31 pm
The Federal Housing Finance Agency directed Fannie Mae and Freddie Mac Thursday to align their guidelines for servicing delinquent mortgages.
Previously, the government-sponsored enterprises maintained different requirements for how their mortgage servicers would treat these loans. But the FHFA forced an alignment to push servicers into engaging the borrower as soon as they become delinquent. The foreclosure process cannot begin if the borrower and servicer are working toward solving the delinquency in a good-faith effort, effectively prohibiting the practice of "dual tracking."
Under the new requirements, servicers must engage in a single track for considering foreclosure alternatives up to the 120th day of delinquency, according to the FHFA. Servicers must also perform a formal review of the case to confirm the borrower was considered before starting foreclosure. Even then, servicers are required to continue work with the homeowner on other alternatives.
Not only procedures, but incentives were aligned. Servicers for both GSEs will be rewarded and penalized the same under the new guidelines.
"FHFA's directive to align Enterprise policies for servicing delinquent mortgages should result in earlier servicer engagement to identify the best solution available for homeowners, given their individual circumstances," said FHFA Acting Director Edward DeMarco.
The FHFA said the updated framework will expedite borrower outreach, align modification terms and establish "a consistent schedule of performance-based incentive payments and penalties."
Now all the bad processes that encourage strategic default will be uniform. I don't see that as an improvement.
Fannie Mae CEO Michael Williams said the alignment is a major step toward an improved servicer process.
"This initiative will direct servicers to reach families earlier, communicate more frequently and clearly, and provide relief," Williams said. "Fannie Mae fully supports this Initiative, and we remain committed to stabilizing communities and building a stronger foundation for housing."
Freddie Mac CEO Ed Haldeman said the FHFA action will simplify the process for delinquent borrowers.
"Alignment of key servicing practices between our two companies will help servicers achieve these goals by enabling them to streamline their operations and more effectively target resources to distressed borrowers," Haldeman said in a statement. "For example, it will simplify the process for seeking help by giving borrowers one application to fill out and servicers one application to review for all Freddie Mac loan modifications and foreclosure alternatives."
The GSEs should be dismantled. They can no longer successfully function as a quasi governmental agency. Lenders would prefer to keep the GSEs around so lenders can continue with an origination model with no risk, but with the US taxpayer being on the hook for the foolishness of bankers everywhere, I doubt that model will survive much past the market bottom.
They went Ponzi too
Day after day, I see more loan owners and Ponzis than responsible owners who paid down their mortgage. Eventually, I will run out of these profiles because we haven't created any new ones in the last 4 years. With the credit crunch in August 2007, the mortgage equity withdrawal spigot was abruptly turned off.
Contrary to popular belief, the free money of mortgage equity withdrawal will not be coming back soon. In a rising interest rate environment, money is no longer free. Adding to debt adds to monthly bills. Only the steadily falling interest rates of the Greenspan era allowed refinancing of larger and larger amounts with the same payments. It also permitted borrowers to Ponzi themselves into unsustainable lifestyles which they now have to abandon.
Unfortunately, the general public knows none of this. Most buyers who overpaid for Orange County real estate over the last 4 years did so because they fully expect house prices to go up and lenders to resume handing out free money. Despite the crash, most wouldbe buyers consider California real estate to be a bottomless pit of gold.
Shevy and I have been advising people to look at a house as an expense not an investment. A mortgage is to be paid off, not added to or otherwise "managed." I harp on this day after day because I keep seeing people who lost their homes because they fell victim to the kool aid thinking in California. These people all had a choice, and they made the wrong one -- often multiple times with varying degrees of stupidity. Nothing can be done for these loan owners, but we can all learn something from their mistakes.
The owner's of today's featured property paid $377,000 on 12/14/2001. My records are incomplete, but it looks as if they used a $301,600 first mortgage (80% LTV), a $75,000 second mortgage, and a $400 down payment.
These people were very regular about their visits to the housing ATM. In April for four consecutive years, they extracted a little cash -- well, actually a lot of cash. Many people become accustomed to an April "windfall" when they get their tax refund. The forced savings of tax withholdings is the only savings many people have. These borrowers must have felt their tax returns were not big enough, so they borrowed themselves into oblivion.
On 4/16/2003 they refinanced with a $436,500 first mortgage.
On 4/29/2004 they obtained a $420,000 first mortgage and a $78,750 stand-alone second.
On 4/7/2005 they opened a $130,525 HELOC.
On 4/10/2006 they obtained a stand-alone second for $254,260.
Total property debt is $674,260.
Total mortgage equity withdrawal is $297,660. Not bad for a $400 investment.
Given that such a windfall has proven possible, it's not surprising that California real estate is so highly prized.
-$380 .......... Tax Savings (% of Interest and Property Tax) -$567 .......... Equity Hidden in Payment (Amortization) $191 .......... Lost Income to Down Payment (net of taxes) $89 .......... Maintenance and Replacement Reserves ============================================ $2,569 .......... Monthly Cost of Ownership
Cash Acquisition Demands ------------------------------------------------------------------------------ $5,500 .......... Furnishing and Move In @1% $5,500 .......... Closing Costs @1% $4,400 ............ Interest Points @1% of Loan $110,000 .......... Down Payment ============================================ $125,400 .......... Total Cash Costs $39,300 ............ Emergency Cash Reserves ============================================ $164,700 .......... Total Savings Needed
Property Details for 1 SOLANA #22 Irvine, CA 92612 ------------------------------------------------------------------------------ Beds: 3 Baths: 2 Sq. Ft.: 2000 $275/SF Property Type: Residential, Condominium Style: Two Level View: Park/Green Belt Year Built: 1975 Community: Rancho San Joaquin County: Orange MLS#: S657444 Source: SoCalMLS Status: Active ------------------------------------------------------------------------------ A superb opportunity to acquire this stunning and spacious Two-Story Townhome with Just One Common Wall for a great price. This home boasts an elegant front yard leading to the tastefully upgraded interior. The gourmet kitchen with granite countertops and matching appliances is a delight for every Chef. The crownmolding complements the high quality tile floors and the newer carpet throughout this bright and spacious home. Schedule a showing today to appreciate the charm of this welcoming home in a very desirable neighborhood.
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