Fannie Mae And The Ghost in the Machine

As a short sale and pre-foreclosure specialist, my prerogative and fiduciary is with distressed sellers. Working between sellers, buyers, lenders, HOA’s, 2nd lien holders, agents, attorneys, and title agents becomes something of a juggling act. However, the bottom line is that we offer solutions in the marketplace, for which we ultimately profit.

With my experience, I pride myself on a certain doggedness to get deals done. If anyone can make something happen, usually my team and I can.

However, on numerous occasions my Sellers have completed paperwork, turned in an offer, been plugged into one of these government short sale programs, and ultimately had it fail at the hands of the investor (ie Fannie Mae or Freddie Mac) for illogical reasons. Not that I am expecting bureaucratic programs to be logical, but the least of which I assume is that if there are guidelines in place, they’ll be followed. In this latest instance, the lender had everything they needed and was simply waiting on the value from the investor, who orders them. 3 weeks later with constant follow up, the valuations were never turned in because Fannie Mae was having “issues” with the vendors they hired to do the BPO/Appraisal, and consequently they were never turned in. No further explanation, and only blanketed replies to our multiple attempts to escalate the file. Now, the lender has declined the file and are allowing it to go to foreclosure because there is nothing further they can do.

If you’ve been working on or acquiring short sales, you may have ran into the same confusing scenario. Fannie Mae declining solid cash offers, over valuing properties, and basing comps (values) on only NON-distressed properties that have sold in the last year.

Now, if you are brand new, here’s a little about finding a quick value for a property. Typically you will want to pull comparables around the subject property that go back a maximum of 6 months, and take into account the situation of the (subject) property, as with the comparables. For instance, a completely rehabbed house that is a normal sale will be compared to other homes that have had updating and renovating that are also traditional sales. Foreclosures and short sales may be noted, as will trends. If the house is a short sale or foreclosure, then it will be compared to other short sale and foreclosure sales.

So coming back to the issue at hand with the sister Investor Fannie Mae, the appearance of neglect & contradiction seems to be of intention, not ignorance.

Ask Not What Your Government Can Do for You, Ask…

Since 2008 when it was taken over by the government, Fannie Mae has received billions of dollars in taxpayer bailouts. To this day, the quazi-governmental entities back nearly 2/3 of all mortgages in the United States. To battle with them on an individual level is nearly impossible.

They are also on the verge of paying out half of a $153,000,000 settlement from a class action lawsuit started in 2004. The basis of the litigation rests on the lack of transparency and manipulation of their accounting, and maximization of bonuses to executives. How the payout is being handled is riddled on where those funds will be allocated from; taxpayers may actually end up footing the settlement bill too.

Beyond that, Fannie Mae has been in the black again, assisted by what appears to be a rebounding market. Just last week they announced a “paper gain” of over $50Billion from writing up the actual value of tax benefits they had underestimated in the past.

Like, confessing in 2006 you had overstating your earnings by $6.3 billion?

Who’s Driving This Airplane, Anyway?

I’m not a conspiracy theorist. In fact, I’m not all that political. I’m just some person observing different events that are happening within my industry. In fact, hundreds of bloggers, agents, and investors have taken to the internet to write about this very thing. It’s hard to dismiss and shouldn’t be ignored.

If Fannie Mae takes back a home, of course they’ll recoop their loss through the mortgage insurance, since they’re insured. Those homes are then taken back and are offered to the new borrowers without any sort of appraisal. Arguably, this raises prices in the neighborhood since the homes are purchased at inflated values.

Happy neighbors, price gains, and cheap mortgage. Sounds like a win win, right?

Sibling Rivalry

Since an acceleration in sales tends to affect pricing on the upside, this appetite to go REO vs actually work out a win-win-win situation with the current borrowers is counter to what VP’s of Fannie Mae are stating publicly.

Looking forward, there’s already talk that Freddie and Fannie may be consolidated in the future. Whether they will become fully governmental or resolve to be a public company again, is not clear. The likes of both are concerning. Their current accounting procedures and true addition in the marketplace seem only to be self driven, not truly for the publics benefits.

I continue to do short sales, as well as other acquisition methods that best benefit homeowners, but there’s gaps in the system that are thought-provoking.

Am I being short sighted? How do professionals like you and I hold these sort of entities responsible when their current oligopoly status is headed towards a possible monopoly? There’s a lot of great minds here on BP and I’d love to hear your thoughts!

Photo: Nick Bastian Tempe, AZ

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.