It is quite possible that in the not-too-distant future, huge banks, including FNMA, will control a large portion of America's housing as rental property, courtesy of you and me and the foreclosure crisis which the banks refuse to end and may in fact be fanning. And unless you own your home outright and plan never to move, you may end up as one of the renters, even if you'd like to own your own home.

I've criticized banks for letting houses drop into foreclosure instead of doing what it takes to keep them in the hands of their owners. (Deep down, we know the banks own the houses anyway, but there's at least a patina of ownership in the current system. Work with me here.) Unfortunately my new expertise arises out of necessity; I have been trying to short sell my duplex for nearly a year. Ask any real estate agent how his or her short sales are going to get a sense of how much the banks are stalling these things and how difficult it is.

The buyer is offering more than other comparable properties in the neighborhood have sold for but apparently not as much as Fannie Mae believes the property is worth. I have been concerned that if FNMA (the investor) does not accept the buyer's offer, then the property will drop into vacancy and be vandalized, which would be bad for the neighborhood and for the taxpayers who will ultimately be on the hook for the mess.

Today I encountered a new and chilling wrinkle. A person on the phone at Fannie Mae arily informed me that if the potential buyer for my property doesn't offer enough to meet Fannie Mae's requirements, Fannie Mae would probably foreclose on it, then hold it "for five years or so" and rent it out in the meantime.

I checked out the FNMA website, and sure enough Fannie Mae is setting up to be a giant rental company. And I mean giant. I don't remember the exact statistic but I think Fannie Mae and Freddie Mac hold 85% of all the mortgages out there (sorry if I am wrong on that number.)

http://www.fanniemae.com/newsreleases/2009/4581.jhtml

According to one newspaper article I read, "Many are hoping that other banks will follow Fannie Mae's lead." Now, on the surface this might seem like a fine thing. The program is described as a way to allow renters living in foreclosed properties to stay and sign a lease--20% of foreclosures have a renter living in them when they are vacated, and those people have to go somewhere. 

And that would be cool, if FNMA were doing it as a last resort, after going through all the other possibilites including short sales to willing buyers and independent investors at prices that the market will bear. (I'm not a huge fan of this "race to the bottom" mentality myself but lots of people are and if we're going to establish a bottom we'd best get going.)

But for FNMA and other banks to turn up their noses at reasonable offers and embark on a giant plan to effectively hoard housing until the "market comes back?"  Practiced extensively by the small number of enormous banks who still own mortgages, (bailed out but not "invested in" by taxpayers), this thing holds the possibility of price-fixing on a grand scale.

Imagine what will happen when everyone in America who is going to lose their first home or investment property loses it. (Sadly, they may not qualify for any of the half-hearted modification schemes that have so far saved some 85,000 folks from foreclosure in a sea of millions of vulnerable or defunct homeowners.) With huge numbers of homes held as REO Rentals, if you want to buy a home your choices may be to purchase it at Fannie's price--or be satisfied with renting--at Fannie's rate, on Fannie's terms, and from one of Fannie's property management companies. What will happen to neighborhoods--and to America's famed "pride of ownership" society? Something, for sure. 

I hope I'm wrong about this--but if it is indeed the banks' plan to just forget about doing much other than letting houses drop into foreclosure, be turned into rentals and "marketed for sale" at the banks' price, then paranoia is justified. 

What is going on?

Hi all,

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I'd appreciate it if you'd provide feedback in the form of comments and recommends. We're trying to figure out if the tool is useful, diagnose any issues with loading and viewing, etc. But most important, we're wondering if the tool itself is useful and how it might be improved.

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Thanks,

erica

The Homebuyers' Tax Credit may be working--but if it is, it's accomplishing precisely the wrong thing. Paying people to move when we need them to stay in their houses is completely wrongheaded. We should be paying people to stay. Housing is a lot more than the housing market, and until we factor that reality in to whatever attempts we make to fix this mess, nothing we do will really work.

Imagine you needed people to stay on a ship to stabilize it during a storm. Would you hand them $8,000 bucks each to jump into lifeboats and row away? No you wouldn't. Because pretty soon everybody would be off the boat, $8,000 bucks or not. The instability would get worse, and soon those who didn't bail on their own would be thrown off or sink with the ship.

Instead, you would pay people $8,000 bucks apiece to stay, provide assurances that we're all in this together, that the ship is worth saving. You'd offer them a cruise when all this is over, just to prove that you believe the ship has a future.

People--single home buyers and investors alike--bought houses during the bubble because they believed (incorrectly) that it was a good investment, but not just based on the numbers alone. Sure, there was a desire to make money, but more than that, home ownership has historically functioned on a meta level as a source of security and prestige, a bulwark against the increasing riskiness of society, and as the only way for most ordinary people to acquire something that passes for wealth. I'd submit that even the greediest scammers had this American Dream kind of thinking, which really seems quaint by comparison with some of the other thinking out there.
 
Of course, it's time to talk about bankers and traders, the people who set up the bubble, cheered prices upwards, and are now, with the help of high-level bailouts that pay out to banks and leave individuals to swing in the wind, cheering prices on down again. (By the way, I'd suggest that those who think this crisis is all about the price of houses are flat-out wrong.)

For a glimpse at what is happening, please see this blog and the links. As far as I can tell, it's written by real-estate agents who are trying to do short sales and are discovering that the way the bailout has been structured actually encourages banks to let properties fall all the way into foreclosure.

http://activerain.com/blogsview/1243528/is-the-fdic-killing-short-sales-

For the bankers and traders, housing itself is an abstraction and the housing market is the only thing that's real, which is precisely backwards. Many of them simply cannot understand that the prime reason people are walking away from their houses is that they have realized that their homes are now viewed as a commodity and a falling one at that. Those bankers and traders who do grasp this concept are so divorced from reality that they figure that any fool who would view housing as anything other than a tradable asset deserves to lose his or her home and whatever else isn't nailed down.
 
This is why buying out bad mortgages at the bank level and paying banks to clean up the mess without doing much on the level of individual home mortgages or individual homeowners is a disaster.

All the banks can do is facilitate more churn and get paid to do it--and make no mistake, the bailout pays them to do it, handsomely. The "New" Indymac gets paid more for a foreclosure than a short sale, but for either of these transactions they get paid far more than the amount for which they bought the loan. So where's the motivation to give some poor sucker a loan modification? Nowhere. (Which is why I'm so glad that Amelie was able to get hers.) The enormous destabilizing effects of the housing crisis aren't their problem--they pay lip service to it and move on to collect their checks.

Banks and traders make piles of money by squeezing a relatively small amount of cash out of as many transactions as they can gin up. They're not going to support anything that means fewer transactions. They've got their own version of the American Dream: it's called the Uber-American Dream, and it sure as hell doesn't include doing what's right for neighborhoods or individuals beyond the travesty of "customer service" that goes along with presiding over a fleecing of one type or another. (It does, of course, include justifiably large bonuses for the Uber-Fleecers.)

Way back when all this started, I maintained that the right thing to do would be for the government to go into the hardest-hit neighborhoods and pay people to stay in their houses. Pay half a mortgage payment for five years, do short refinances, partner with homeowners, write down principals, whatever it took.

For my trouble, I got derision and catcalls. I was shocked to learn that people would rather hand billions of dollars to strangers than help out the guy down the street and a few blocks over who bought a house with an ARM and then couldn't sell it before the interest rates skyrocketed. Even if it meant that that guy's disaster impacted the whole neighborhood. 

So the bailout for ordinary people didn't happen, we got the bank bailout instead, and a whole raft of people is now living elsewhere, wherever elsewhere is.

Please note: It Is Not Over. And it's coming to a neighborhood near you.

Having pulled the floor out of housing prices and further destabilized the least stable among us, the crisis is now moving into the more stable neighborhoods, where joblessness and stock market losses are accomplishing what ARMS and No-Doc loans did in the first wave--making it impossible for people to meet their obligations. Another bottom to fall out, more foreclosures, and more transactions for the banks as people from the next neighborhood up the line desperately try to downsize ahead of the wave. And so on.

Please people, insist that our leaders provide us with TARRP--Troubled Asset Relief for Regular People. Continuing to trust the banks with this is just more paying the fox to foreclose on the henhouses.