Fannie Mae And The Ghost in the Machine

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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.

Related: Unforeseen Hurdles for the Housing Market?

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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?

Related: How to Buy a Foreclosure : The Comprehensive Guide

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

About Author

Tracy Royce

Tracy (G+) is an Arizona Short Sale Realtor, Investor, Rehabber, and Foreclosure Expert. She also is an avid blogger, vlogger and consultant on all things Arizona Foreclosures.


  1. Great article Tracy. I think every real estate agent that has been doing short sales for at least a couple of years has come across everything you mention about Fannie Mae. I certainly have..

    How do we hold these entities responsible? Great question that numerous short sale agents on a couple of short sale agent forums have been asking for over a year now. Those of us in the know have blogged about it with details but the “Voice of Real Estate” is certainly not helping out.

    Enjoy the new automatic Streamlined Loan Modification process that Fannie Mae & Freddie Mac just rolled out. 😉

      • Because I haven’t seen a thing from the “Voice of Real Estate” mentioning any of the issues you have brought up. Maybe I have not been paying attention… but I don’t think so because the issues can be found on the short sale agent forums and I’m sure there would be some links for reference if there was anything being mentioned.

  2. Tracy:
    I can’t believe you’re still fighting the ghost. You are one strong woman; they have defeated me. We don’t do short sales or pre-foreclosures in our office anymore. I feel TERRIBLE for the seller but, as you said, “To battle with them on an individual level is nearly impossible.” When we find one that we do think we can (perhaps) help, we turn it over to a legal firm here in town who handles them.

    We have been so upset, so disappointed, so frustrated, so FURIOUS at the ridiculous bureaucracy that we finally had no more time to wrestle the beast. I have written articles on the fact that Fannie receives payoff from mortgage insurance, then again from government bailout money, then again when they sell on the retail market so it’s actually NOT in their best interest to work with the borrower who’s losing their home. Why don’t they just admit that and stop the charade?

    All of it, every last dime that goes to them comes from us – the taxpayer. The last step in the road of humiliation and disrespect.

    You’re right, “the appearance of neglect & contradiction seems to be of intention, not ignorance.” It is intention. This has been going on long enough that, if it was going to be corrected, it would have been. It is a HUGE money maker for powers much larger than we, so it is not going to change anytime soon (ever?!?).

    Going forward, if you discover any chinks in the armor, any Achilles heal, please let us know. I have stopped searching.

    Thanks for your great post and know you are not alone in your angst.

    • Hi Karen,

      Pre-foreclosure has remained my modality of choice to target. It’s not every deal that get’s this sort of sickening prognosis, however, I do preface the deal by having a conversation with sellers that this sort of thing may happen to them.

      I am very adamant about making no guarantees, but I also will not turn people away if they need assistance. I have a team in place so my time into the deal is minimized.

      Any Achilles heel would be found through profound lobbying and public push back I feel. Ask a million agents and homeowners to rally around a contracting sub-market they’re glad to see go, and organize and petition for reform, and see it through to implementation. Likeliness?

  3. . We have been in the REO business for 12 years. Fannie and Freddie are just the WORST! They buy all the RMBS to the tune of 80 BILLION a month. We live near the Chicago area. They (Fannie & Freddie) preserve and just let the home sit empty. They are not letting all the inventory out. As the home just sits. What do you think is happening to the home? ROTTING away. How much will that hurt the property value when they go in the home and after YEARS of sitting try to run water,gas and electric and roof leaks. All are very expensive to fix. The way things are going we will never find true zero(the bottom). They have put many people out of business and help only a few. This is what the TRUE GOVERNMENT looks like. A pig with lip stick! Sorry but this is not helping anyone, just kick the can again.

  4. I think one of the biggest complaints, be it Fannie, Freddie, Wells Fargo or any other lending institution is what appears to be very little accountability for their actions. Anyone dealing with distressed homeowners has heard the stories and see how they intentionally don’t even attempt to make some sort of deal work for the homeowner. Or given their inventory, move them to a home that would be a slightly lessor value and easier for the homeowner to support the payments. It’s frustrating.

  5. Great post. It does require “doggedness” i am still handling a few, but I am seeing greener pastures somewhere else… after all I am running a for profit business an despite the pleasure I get from “sticking it to the man” and helping the distressed home buyer, I still need to build my wealth…

  6. Shari Posey on

    Have you ever looked at the beneficiaries of NAR’s Political Action Committee? It’s online. It’s divided almost 50-50% between Democrats and Republicans and nearly every single member of Congress is getting some contribution. I don’t think NAR wants to tackle this because Congress doesn’t want to tackle it. Bank stocks are pretty popular investments among Congressional members. Even though the rest of us are “the American Taxpayer PAC” we don’t have that kind of influence over much of anything. It’s terrible for me to feel this way, but if 60 Minutes can’t make a difference than I don’t think I would be able to.

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