Whoda ever thought you'd see this day, where the government has wasted so much
of the taxpayer's money ?

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http://www.stltoday.com/stltoday/news/stories.nsf/nation/story/E744C01438F6DB69
8625774700815937?OpenDocument

Fannie and Freddie tab is $146B and rising
By BINYAMIN APPELBAUM
NEW YORK TIMES
06/20/2010

CASA GRANDE, Ariz.  Fannie Mae and Freddie Mac took over a foreclosed home
roughly every 90 seconds during the first three months of the year. They owned
163,828 houses at the end of March, a virtual city with more houses than
Seattle. The mortgage finance companies, created by Congress to help Americans
buy homes, have become two of the nations largest landlords.

Bill Bridwell, a real estate agent in the desert south of Phoenix, is among the
thousands of agents hired nationwide by the companies to sell those
foreclosures, recouping some of the money that borrowers failed to repay. In a
good week, he sells 20 homes and Fannie sends another 20 listings his way.

Were all working for the government now, said Bridwell on a recent sun-baked
morning, steering a Hummer through subdivisions laid out like circuit boards on
the desert floor.

For all the focus on the historic federal rescue of the banking industry, it is
the governments decision to seize Fannie Mae and Freddie Mac in September 2008
that is likely to cost taxpayers the most money. So far the tab stands at
$145.9 billion, and it grows with every foreclosure of a three-bedroom home
with a two-car garage one hour from Phoenix. The Congressional Budget Office
has predicted that the final bill could reach $389 billion.

Fannie and Freddie increased American home ownership over the last half-century
by persuading investors to provide money for mortgage loans. The sales pitch
amounted to a money-back guarantee: If borrowers defaulted, the companies
promised to repay the investors.

Rather than actually making loans themselves, the two companies  Fannie older
and larger, Freddie created to provide competition  bought loans from banks and
other originators, providing money for more lending and helping to hold down
interest rates.

Our business is the American dream of home ownership, Fannie Mae declared in
its mission statement, and in 2001 the company set a target of helping to
create 6 million new homeowners by 2014. Here in Arizona, during a housing boom
fueled by cheap land, cheap money and population growth, Fannie Mae executives
trumpeted that the company would invest $15 billion to help families buy homes.


As it turns out, Fannie and Freddie increasingly were channeling money into
loans that borrowers could not afford to repay. As defaults mounted, the
companies quickly ran low on money to honor their guarantees. The federal
government, fearing that investors would stop providing money for new mortgage
loans, placed the companies in conservatorship and took a 79.9 percent
ownership stake, adding its own guarantee that investors would be repaid.

The huge and continually rising cost of that decision has spurred national
debate about federal subsidies for mortgage lending. Republicans want to sever
ties with Fannie and Freddie once the crisis abates. The Obama administration
and congressional Democrats have insisted on postponing the argument until
after the midterm elections.

In the meantime, Fannie and Freddie are editing the results of the housing boom
at public expense, removing owners who cannot afford their homes, reselling the
houses at much lower prices and financing mortgage loans for the new owners.

The two companies together accounted for 17 percent of real estate sales in
Arizona during the first four months of the year, almost three times their
share of the market during the same period last year, according to an analysis
by MDA DataQuick. The signs of their presence  small placards hung beneath the
real estate agents standard for-sale sign  often are planted in the front yards
of several homes on the same street.

Valarie Ross, who lives in the Phoenix suburb of Avondale, has watched six of
the nine homes visible from her lawn chair emptied by moving trucks during the
last year. Four have been resold by the government.

One by one, she said. Just amazing.

The population of Pinal County, where Bridwell lives and works, roughly doubled
to 340,000 over the last decade. Developers built an entirely new city called
Maricopa on land assembled from farmers. Buyers camped outside new
developments, waiting to purchase homes. One builder laid out a 300-lot
subdivision at the end of a three-mile dirt road and still managed to sell 30
of the homes.

Bridwell sold plenty of those houses during the boom, then cut workers as
prices crashed. Now his firm, Golden Touch Realty, again employs as many people
as at the height of the boom, all working exclusively for Fannie Mae. The
payroll now includes a locksmith to secure foreclosed homes and two clerks
devoted to federal paperwork.

Golden Touch gets more listings from Fannie Mae than any other firm in Pinal
County. Bridwell said he was ready to jump because he remembered the last time
the government ended up owning thousands of Arizona houses, after the
late-1980s collapse of the savings and loan industry.

The way I see it, said Bridwell, whose glass-top desk displays membership cards
from the Republican National Committee, is that were getting these homes back
into private hands.

Selling a house generally costs the government about $10,000. The outsides are
weeded and the insides are scrubbed. Stolen appliances are replaced, brackish
pools are refilled. And until the properties are sold, they must be maintained.
Fannie asks contractors to mow lawns twice a month during the summer, and pays
them $80 each time. Thats a monthly grass bill of more than $10 million.

All told, the companies spent more than $1 billion on upkeep last year.

We may be behind many loans on the same street, so we believe that its in
everyones best interest to aggressively do property maintenance, said Chris
Bowden, the Freddie Mac executive in charge of foreclosure sales.

Prices have dropped significantly. So by the time a home is resold, Fannie and
Freddie on average recoup less than 60 percent of the money that the borrower
failed to repay, according to the companies financial filings. In Phoenix and
other areas where prices have fallen sharply, the losses often are larger.

Foreclosures punch holes in neighborhoods, so residents, community groups and
public officials are eager to see properties reoccupied. But there also is
concern that investors are buying many foreclosures as rental properties,
making it harder for neighborhoods to recover.

Real estate agents tend to favor investors because the sales close surely and
quickly and there is the prospect of repeat business. But community advocates
say that Fannie and Freddie have an obligation to sell houses to people as a
place to live, creating new homeowners.

David Adame worked for Fannie Maes local office during the boom, on programs to
make ownership more affordable. Now with prices down sharply, Adame sees a
second chance to put people into homes they can afford.

Yes, move inventory, said Adame, now an executive focused on housing issues at
Chicanos por la Causa, a Phoenix nonprofit group, but if we just move inventory
to investors, then what are we doing?

Executives at both Fannie and Freddie say they have an overriding obligation to
limit losses, but that they are taking steps to sell more homes to families.

Fannie Mae last summer announced that it would give people seeking homes a
first look by not accepting offers from investors in the first 15 days that a
property is on the market. It also offers to help buyers with closing costs,
and prohibits buyers from reselling properties at a profit for 90 days, to
discourage speculation. Fannie Mae said that 68.4 percent of buyers this year
had certified that they would use the house as a primary residence.

Freddie Mac has adopted fewer programs, but the company said that it has sold
about the same share of foreclosures to owner-occupants.

The companies also have agreed to sell foreclosed homes to nonprofits using
grants from the federal governments Neighborhood Stabilization Program.
Chicanos por la Causa, which won $137 million under the program in partnership
with nonprofits in eight other states, plans to buy more than 200 homes in
Phoenix in the next two years. The group plans to renovate the houses, then
sell to local families.

The scale of such efforts is small. The home ownership rate in Phoenix
continues to fall as foreclosures pile up and renters replace owners.

But John R. Smith, chief executive of Housing Our Communities, another
Phoenix-area group using federal money to buy foreclosures, said that he tried
to focus on salvaging one property at a time.

I tell them, OK, you want to unload 10 houses to that guy, fine, he said. Now
give me this one. And this one. And one over here.

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