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Housebuyer beat me to this story in the comments:
"NEW YORK (Reuters) - Fannie Mae and Freddie Mac are in discussions with U.S. government officials to join government programs aimed at reducing mortgage balances where borrowers owe more than the values of their homes, the Wall Street Journal reported on Tuesday citing people familiar with the situation."I've kept this post by Calculated Risk in the back of my mind since last August: Nonsense Rumor on Fannie and Freddie.
I thought at the time that it sounded like a political rumor as well, but I was more suspicious than he that there was a grain of truth in it.
More here from the WSJ: Fannie, Freddie Pressed on Mortgages
35 comments:
I always cringe when I hear stories like this fannie/freddie may start reducing balances
As a renter it sucks to be paying a higher tax rate (no mortgage deduction) and then see your tax dollars going to pay off other peoples mortgage so housing continues to be unaffordable to the renters...
hb,
I agree that this is completely inequitable. The thing is that it may substantially reduce losses. It depends, of course, on who takes the loss ultimately - the taxpayer?
The responsible have ALWAYS paid for the irresponsible (bankruptcy, shoplifting, tax cheats, etc.).
housebuyer, that is awful. Fingers crossed that they don't actually do this. I can't think of a more unfair thing for them to do.
The govt is amazingly good at creating moral hazards. Let's hope somebody stops this.
Kevin-
Agreed. I don't mind when banks reduce principal, because they are doing it because they think it is prudent for their shareholders. With Fannie and Freddie it probably isn't prudent for the taxpayers (their effective shareholders), but rather it may happen as an attempt to try and win votes for the 2012 elections. You never really know why Fannie/Freddie are taking actions.
Underwater owners represent something like 10% of the country. To spite the 90% and reward the 10% for their irresponsible/bad choices is below contempt, and will not be viewed well come next election.
The reasons the banks aren't doing this is because it's far more expensive than letting them go into default. Example: of 100 underwater owners, 50% will walk. Do you take the losses on just those 50, or do you reduce the principal on all underwater houses at double the cost? This is largely why the banks won't go this route, and it's absolutely abhorrent that the govt-subsidized lenders are attempting it. All the more reason why F&F need to be destroyed.
Could someone please call this seller and tell her "your price is too high! Taking your house off the market and putting it on again at about the same price isn't going to make any difference."
This is the same seller that had a million open houses. Earth to seller: cut the price. In this price range, people don't want to settle for a busy intersection, far from metro, and a dated looking house with little back yard.
I can't believe Realtors take on clients like this.
Delusional
Once again the best this administration seems to be able to come up with is a massive wealth redistribution in favor of a group they have decided to favor.
"Oh those poor poor 'homeowners!' They agreed to pay more for a house than it is currently worth... time for everyone else to cut them a check..."
Ace,
In the seller's defense, the listing price history shows that over the last 2 years the listing price has, in fact, dropped over $500,000. Just say'n...
My $0.02
But mytwocents, look at how long it has been for sale for less than $1 mill.
Ace,
What's a fair/good price in your opinion? I don't follow that area but the price looks reasonable to me.
They shot themselves in the foot with that initial price (1.4 or 1.5) and have been chasing the market down. Had it been priced as it is now from the start, I would guess it would have sold long ago.
If you start way too high it turns people off completely and then when you later reduce, the listing is "stale" or stigmatized. People think something is wrong with it or it would have sold.
Maybe it will sell at the current price but it probably would have gone higher if initially priced at 1.1 or so.
Why agents bother? Some try to "buy" a listing by telling a seller what they want to hear and after some time passes they press hard for reductions. It's a trick but it plays to the seller's greed. Other times a seller insists on a certain ask price despite being told it won't sell. You'd have to ask an agent why they would take a listing like that.
As I mentioned above, it seems reasonable to me. Obviously there is no urgency for the seller.
It looks alot like my house. There is a reason that dining room has no buffet or china cabinet. I have the same size and it's a little tight.
VA_I, if the current price were reasonable, someone would have bought it within the past 6 months, because it has been listed at essentially the same price since June of this year. So the market has spoken.
I don't know whether the initial price has much effect now. Real estate agents like to say that setting it too high means the seller gets a lower price than s/he would have gotten had it be priced at market value initially. But they don't have any way to show that for certain, unless they have several identical houses that go on the market at the same price, all at different prices, which rarely occurs.
My guess would be that it will sell in the high 800s, or that the seller will rent it out or ultimately pull it off the market altogether without selling it. For all I know, she could have gotten offers in the mid 900s but rejected them.
oops, I meant "at the same time" not "at the same price."
Obviously there is no urgency for the seller.
If there is one thing I've learned over the past four years, it's that this statement is synonymous with "the seller is greedy and delusional".
Ace,
I've seen alot of houses over the years that were overpriced to begin with and my opinion, fwiw, is that is a devastating mistake.
Kevin,
It's not "greed" to test the waters or hold out for a certain price and withdraw the property if you don't get it. It's business.
I have property I would not sell for less than X, regardless of what an agent tells me. I'll keep it.
HB, Are they thinking about SS selling back to the orginial owner instead of trying to market to a new SS buyer? If you are paying 600,000 loan a house where 75% of your neighbors have sold SS what would it hurt to SS back to the orginial owner. I'm sincere in my question. I haven't really thought much about this issue to what the pros or cons would be to non-home buyers, i.e. renters such as yourself.
Arkey-
The main reason why I don't think you should short sale back to the original owner is that it creates a lot of moral hazard and usually doesn't make financial sense. For the moral hazard aspect you are basically having a bunch of fiscally responsible people pay for someone who has not been fiscally responsible. Even if the bank will get the same amount of money SS it to someone else at least the original buyer has to pay for their bad investment by losing their house and having their credit score take a hit. If the bank just reduces principal they keep their house and their credit score is not hit because it is not a true default on the loan.
As for the financial part it is very difficult to find out who would have walked away vs. continued to pay their mortgage. If a program like this opens you will have a lot of people apply and have their mortgages reduced even if they would have otherwise continued to stay in their house making their payments.
I think Arkey's idea is interesting. Would the moral hazard be reduced if the sell-back owners' credit took the same hit as if they had to short sell to someone else?
Part of the reason for the concern may be for the responsible neighbors of the houses where recent buyers are underwater. As the buyers walk away or are foreclosed on, the properties are uncared for and neighbors who didn't cause the problem are adversely affected.
That said, I also tend to be resentful of the irresponsible and do not want them bailed out and prices artificially supported.
VA_I, I hope you and the agents are right about the initial price problem, because one house I have my eye on is somewhat like the Glebe Rd. house in (bad) pricing strategy. It's been sitting for a long time, with a large price reduction somewhat recently, but it needs a lot of expensive updating and repair, and is still overpriced. So I'm hoping that most others will write it off, and if and when the owner is really ready to sell it, the price will be better than it would have been. But it's not the perfect fit for me, and so I'm still looking (and saving).
HB
the trick is we shouldn't have writedwns we should have Cramdowns.
In a writedown, the Taxpayers bailout cretinous bankers with bribes (HAMP, HAFA)
in a cramdown the Bank takes a haircut and the Debtor files bankruptcy.
The Debtor crashes their credit rating, the bank loses capital,
it's a desperation ploy on all sides.
if the Bank loses enough, then they file bankruptcy.
Lather Rinse Repeat.
Ace-
Hitting their credit would help although I would also like the bank to get some portion of equity when the house is sold assuming the seller makes a profit.
Pat-
Seeing that Fannie and Freddie own the mortgages how would the owner going BK give banks loses not fannie/freddie. Unless you are saying that fannie should push the bad loans back to the bank that originally underwrote it. The other option is that Fannie could default on its obligations (although the government has fully backed its bonds)
HB
well originally to be "Conforming" you needed to put 20% down, or have PMI so, the seller takes a hit,
then it used to be banks had 10% equity so they would lose on portfolio losses.
now if it was Fannie and properly underwritten fannie would take the hit against equity.
and, yeah I think it's wrong for the taxpayers to be underwriting fannie.
the fannie bondholders needed a haircut
pat-
I think it would have been acceptable to force Fannie/Freddie bond holders to take losses a couple of years ago, I am not sure this is reasonable anymore. The Federal government has said they will back all of Fannie and Freddie's bonds, so a lot of people have bought these bonds over the last few years because of this guarantee. It wouldn't be particularly fair for the government to break its promise and force losses on these bond holders, but not force losses on the governments other bond holders (e.g. treasury/TIPS holders)
Contrarian I think people in this area have already decided to rent instead of buy. I work with a church program to find housing for low income people in Arlington, including those who had short sales or foreclosures. Rents in even the cheapest part of the Columbia Pike Corridor have gone up this year. I know Pat pays $1,000 for a 2 bedroom but that is not the market rate now. Hopefully more investors will buy up some short sales and foreclosures and put downward pressure on rental prices.
reecon,
It depends on how much vacant inventory is out there. Clearly, there is little in the pipeline and it takes years to deliver new projects.
A recent check of areas where I have rentals shows virtually no inventory in the lower-end ($1,500 and below).
It's a good time to be an investor and the longer people remain afraid to buy, the better for me.
VA & all-
Are you seeing many new projects where you are living. Housing for ~1000+ people is hitting my area in the next 2 years, but that is obviously not normal. I am curious if anyone else is starting to see major construction projects starting. The orange line corridor could definitely use additional and I am curious if/when people think the projects will start. Last time I was in Ballston I also saw a huge construction project, but I don't know if it is going to me offices, condos, or rentals.
hb,
I am not aware of it in my area (the Dulles Corridor). It could be happening to some degree. Commercial financing seems to be loosening.
As far as the new metro stations in Reston and Herndon, it's my understanding that zoning hasn't even been started. If that is the case, we are years out.
I've already mentioned my small research project on current availabilty of rental housing in locales of interest to me.
Also, anything "new" is going to carry an appropriate price tag and may do as much to lift nearby rents as to drop them.
VA-
Agreed. I am just curious whether builders are paying attention to the fact that the housing market is still decent in the Nova area. In most of the countries they can build nothing new for a couple of years and there wouldn't be a problem. If nothing new was built here for a few years we would start to have housing shortages. A lot of the big projects take 2-3 years to complete so I was interested to see how much they have been starting over the last year.
There continues to be planned development in the Potomac Yard area (north of it primarily).
See (for example):
Alexandria
Arlington
HB -- FWIW, it looks like there are 2 huge projects going up in the Carlyle section of Alexandria (near old town, between the king street & eisenhower ave metro stops).
It appears that Jim Zell is putting up a 30+ story building in mixed use develoment, which is supposedly going to include 230 residences.
There is another block being developed nearby, but no word on what type of use is planned.
Also, the pdf linked at the Arlington site I linked above describes developments in all areas of Arlington, including Clarendon and Nauck, for example.
HB and others waiting to buy..Granted, I'm just an old woman but when I see Bonds sell off coupled with rising gold and oil prices, I see the big boys trying to shelter from higher interest rates. I don't have a dog in this fight just some unsolicited advice to those that think the current interest rates is a long term given.
Ace,
A quick glance shows alot of activity, but very little delivery in the next year or so.
Also, it is difficult to assess impact on inventory w/o some insight into population/job growth.
Many of these projects seem years out.
I was told that stuff planned for the Wiehle Metro is years away and will be expensive as hell.
VA_I, I think that's because the Arl. report shows projects currently in early stages. For projects that have recently been completed or are near completion, probably the quickest way to get info is to swing by the areas. The N. Potomac Yard projects that have been completed are mostly expensive condos (along with office space, etc.), rather than affordable housing, due to the very close proximity to DC, and in some cases, to existing metro stops.
sorry for the deletion; I misread Arkey's post and my reply made no sense.
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