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Fannie Mae Unsold $5 Billion Homes Bring Peril to Shareholders
July 23, 2008 (Bob Ivry and Sharon L. Lynch - Bloomberg)
Fannie Mae, the largest U.S. mortgage finance company, couldn't find a buyer who would pay $6,900 for the three-bedroom house at 1916 Prospect St. in Flint, Michigan. So broker Raymond Megie, who is handling the foreclosure sale, advised cutting the price to $5,000.
Megie still couldn't sell it. ``There's oversupply,'' he said. The home sold in 2005 for $110,000.
Fannie Mae acquired twice as many homes through foreclosure in the first quarter as it sold, regulatory filings show. Unsold properties may weigh on the company's stock, which lost almost half its value since June 5, said Moshe Orenbuch, managing director of equity research at Credit Suisse Group AG in New York. Late payments on the company's home loans, a harbinger of foreclosures, almost doubled in the past year.
Together, Fannie Mae and Freddie Mac, the two biggest U.S. mortgage finance companies, owned a record $6.9 billion of foreclosed homes on March 31, compared with $8.56 billion held by all 8,500 U.S. commercial banks and savings and loans. Foreclosed houses sell at an average discount of about 20 percent, according to economists Ethan Harris and Michelle Meyer at New York-based Lehman Brothers Holdings Inc. At that rate, the two mortgage companies stand to lose $1.39 billion on the foreclosed houses they currently own.
``Progress on this is probably one of, if not the single most important economic process right now,'' Orenbuch said. ``With prices decreasing, it's better to get rid of houses quickly.''
AntiSpin: Let's rewind and replay that last bit: ``With prices decreasing, it's better to get rid of houses quickly.'' You don't suppose the drive to get rid of houses quickly is putting downward pressure on prices, do you? They don't think so.July 23, 2008 (Bob Ivry and Sharon L. Lynch - Bloomberg)
Fannie Mae, the largest U.S. mortgage finance company, couldn't find a buyer who would pay $6,900 for the three-bedroom house at 1916 Prospect St. in Flint, Michigan. So broker Raymond Megie, who is handling the foreclosure sale, advised cutting the price to $5,000.
Megie still couldn't sell it. ``There's oversupply,'' he said. The home sold in 2005 for $110,000.
Fannie Mae acquired twice as many homes through foreclosure in the first quarter as it sold, regulatory filings show. Unsold properties may weigh on the company's stock, which lost almost half its value since June 5, said Moshe Orenbuch, managing director of equity research at Credit Suisse Group AG in New York. Late payments on the company's home loans, a harbinger of foreclosures, almost doubled in the past year.
Together, Fannie Mae and Freddie Mac, the two biggest U.S. mortgage finance companies, owned a record $6.9 billion of foreclosed homes on March 31, compared with $8.56 billion held by all 8,500 U.S. commercial banks and savings and loans. Foreclosed houses sell at an average discount of about 20 percent, according to economists Ethan Harris and Michelle Meyer at New York-based Lehman Brothers Holdings Inc. At that rate, the two mortgage companies stand to lose $1.39 billion on the foreclosed houses they currently own.
``Progress on this is probably one of, if not the single most important economic process right now,'' Orenbuch said. ``With prices decreasing, it's better to get rid of houses quickly.''
``We are very careful to ensure our properties are not driving market values down and they show well,'' Beckles said. ``Our challenge is like everyone else's from a volume perspective: maximize recovery and minimize credit losses, and balance that with making sure we're not driving down property values and not destabilizing neighborhoods.''
Part of the difficulty for all owners of foreclosed property, and not just Fannie Mae, is a shortage of qualified agents in the field who can sell the homes efficiently, said Jesse Ramirez, a broker associate at Re/Max Partners Real Estate in Corona, California.
``They are all recent college grads without experience,'' Ramirez said. ``They have 300 files each and they're overwhelmed. They don't understand how the typical transaction goes. These people didn't have jobs two years ago, not doing this.''
Now we have government sponsored enterprises (GSEs), or if the Foreclosure Prevention Act of 2008 passes, just "the government" competing with lenders whose loans they should never have purchased, to sell homes in competition with home owners who mistakenly bought homes on the theory that markets have anything to do with home prices in America. Part of the difficulty for all owners of foreclosed property, and not just Fannie Mae, is a shortage of qualified agents in the field who can sell the homes efficiently, said Jesse Ramirez, a broker associate at Re/Max Partners Real Estate in Corona, California.
``They are all recent college grads without experience,'' Ramirez said. ``They have 300 files each and they're overwhelmed. They don't understand how the typical transaction goes. These people didn't have jobs two years ago, not doing this.''
Everyone was pretty happy about the government subsidy of the US real estate industry that started under FDR in the 1930s, accelerated with tax give-aways under Reagan 1986 and under Clinton in 1997 when these caused prices to go up, up, up. Now that the price fixing scheme has failed, as they always do, everyone is screaming bloody murder.
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