Henry Blodget, blogging for Yahoo Finance, posted an interview with money manager Barry Ritholz on Wednesday, discussing the millions of dollars that tax payers are on the hook for, due to bailout money provided to Fannie Mae & Freddie Mac. The video – as well as the corresponding article – is short, but it speaks volumes about the two mortgage giants. And like most articles about these quasi-government agencies that tend to fly under the radar, it’s certainly worth sharing/commenting on.
As relayed to Blodget by Ritholz, “Fannie and Freddie got a "blank check" from Treasury Secretary Tim Geithner at the end of the financial crisis. This blank check allows the housing giants to lose as much money as they want, with the taxpayer footing the bill.”
He continues, “Fannie and Freddie use much of this money to buy mortgages from Wall Street at what may be grossly inflated prices. This is a super arrangement for the banks, because they get to unload all their terrible mortgages at prices that won't produce losses. And it's fine for Fannie and Freddie because, well, because they have the blank check.”
Enraging, right? Surely there is no irony lost on comments made by Freddie Mac Executive Vice President Don Bisenius, last spring, when he posted a diatribe on the company website about the moral responsibility borrowers have to keep making their payments, in light of the growing numbers choosing to strategically default on their mortgages (a.k.a walk away).
Really Donnie, you’re going to lecture us on moral responsibilities? Consider the following: we have a client who needs to move cross-country, to care for an ailing relative. Our client is a retired schoolteacher, living on a fixed income. She has outstanding credit and has never missed a mortgage payment. Due to the collapse in the market, she can’t cover the deficiency, so she has to do a short sale. We submitted an offer – above fair market value – and received the following response from Fannie Mae:
“[Borrower] is current on their loan, there is no hardship.”
When we contacted Fannie Mae and advised them of the hardship our client had detailed in her “hardship letter”, they simply advised us that if a person is still current, they couldn’t be experiencing a hardship. If we want to move forward, she’ll have to go delinquent.
Imagine that.
The company (I group Fannie & Freddie together as one in the same) that lectures the masses on morality is essentially looking to reward bad behavior – go delinquent and we’ll talk.
Our client was trying to be proactive. She knew she wouldn’t be able to pay rent once she moved, while also covering her mortgage back here in Michigan, so she had the crazy idea that she could honor her obligation to Fannie until her short sale was approved. Truthfully, most of our clients do this and – despite what you might hear out there – most lenders will work with people who are still making their payments.
But not Fannie & Freddie.
So, we’ll fight them. Supposedly, changes to the various government programs out there had been put in place to stop forcing borrowers to go delinquent in order to receive loss mitigation assistance. We’ve been in touch with the congressional representative for the district where the property is located and will work with them – as we have in the past – to right this wrong. This may sound like an isolated story, but it’s not, it happens all the time.
While I’ve made no secret of my disdain for Fannie Mae & Freddie Mac in this blog, anyone who owns a home and pays taxes, needs to know how their hard-earned money can be/is being used against them. Fannie & Freddie are consistently among the most difficult investors to deal with when it comes to loss mitigation issues and no one really seems to notice or do anything about it.
So, I will continue to blog away and hope everyone who diligently reads this blog (yes, both of you!) spreads the word as well...
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