RealtyStore Real Estate Blog

The U.S. Government is actively moving to help individuals currently facing foreclosure. This is great news for the distressed homeowner and individuals who support the Government’s efforts, but it may be bad news for those who seek to purchase distressed real estate, particularly in the pre-foreclosure phase. The effect on the economy also remains to be seen.

The recent bill signed into law by President Bush will help an estimated .5 million home owners roll their loans into more affordable ones. Large banking institutions such as Bank of America and Wells Fargo are following the Government’s lead, putting holds on existing foreclosures for customers who may qualify for loan revisions under the new law.

The FDIC, who took over IndyMac Bank last summer, has been actively sending out offers to homeowners offering new loan terms and better APRs. The FDIC is also involved in an effort to help the troubled WAMU (Washington Mutual) receive a purchase offer from other large lenders. If history repeats itself, the take-over of Freddie Mac and Fannie Mae could mean an opportunity for other home owners in foreclosure to obtain new mortgages and rates.

An Associated Press writer provides the details behind the FDIC’s current focus:

“WASHINGTON - The government’s takeover of mortgage finance companies Fannie Mae and Freddie Mac should provide an opportunity to modify more home loans for troubled borrowers, a top government official said Wednesday.

“The takeover, announced earlier this month, will allow regulators to “take a look at the loans and see what can be modified,” said Sheila Bair, chairman of the Federal Deposit Insurance Corp., in testimony before a House committee.

“With 1.5 million foreclosures last year and 1.2 million already in the first six months of this year, the foreclosure crisis is accelerating, she said.

“‘There are still a lot of mortgages out there that need to be restructured and families that can still be helped,’ Bair told the House Financial Services Committee.

“Under her stewardship, the FDIC has rolled out a plan to help refinance delinquent homeowners into 30-year mortgages with interest rates currently capped at 5.9 percent. The FDIC introduced the program about a month ago after it seized IndyMac Bank.”

Read More…

Source: Fannie, Freddie takeover may help homeowners, Associated Press. Copyright 2008 MSNBC.com.

Last week, RealtyStore brought you the news that Fannie Mae and Freddie Mac CEO’s were being removed from their posts by the U.S. Government. To the disgust of many, both Daniel Mudd (former CEO) and Richard Syron had expected to receive multimillion dollar severance packages. The FHFA, assigned to handle the removal process, recently announced it’s determination not to issue the “golden parachute” (extra money the men could use to “get by” on until new employment could be found) as part of the mens’ severance packages, which also include pensions. Given the circumstances of their removals, granting the men severances has been deemed inappropriate.

“The announcement follows an “interim final regulation” issued on Friday for publication in the Federal Register which invites comments on the FHFA’s ruling. It states that no regulated entity can make or agree to make any golden parachute or indemnification payments without the agreement of the director who will take into consideration whether there is reason to believe that the recipient has committed any fraudulent act or omission, breach of trust or fiduciary duty or insider abuse that has impacted the regulated entity or if there is reason to believe that the recipient is substantially responsible for the insolvency of the entity, the establishment of the conservatorship and whether the proposed payment reasonable reflects the compensation earned over the period of employment or represents a reasonable payment for services rendered.

“The compensation package that was expected by the two executives included pension money as well as severance pay and it is unclear whether the conservator can interfere with the pensions.

“In an article in The Wall Street Journal James R. Hagerty speculated that the two had already lost much of their wealth through the collapse in Freddie and Fannie’s stock prices. The value of Mudd’s Fannie Mae stock is now worth $683,000 (and may realistically be without any value) compared to $23.7 million before the mortgage crisis.”

Read on…

Source: “GSE Executives Left to Bail Out Without Parachutes.” Copyright 2008 Mortgage News Daily.

09/08/2008

The Federal U.S. Government is taking over Fannie Mae and Freddie Mac, two companies identified as having played large roles in exacerbating the current real estate market slump.
CNN has the story:

“(CBS/AP) The historic takeover of Fannie Mae and Freddie Mac, which could come as soon as Sunday, moved to the forefront of the presidential campaign Saturday as candidates and congressional leaders seized on the enormous implications for taxpayers and the economy.

“Fannie Mae and Freddie Mac together hold or back half of the nation’s mortgage debt, and have played an increasingly important role in the real estate market since the credit crisis started in August 2007. A government bailout could cost taxpayers around $25 billion, according to the Congressional Budget Office.

“Treasury Secretary Henry Paulson and two other regulators are working on a plan to put the troubled mortgage finance companies into a conservatorship, and remove Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee.”

Continue…

Source: “U.S. To Seize Fannie Mae, Freddie Mac,” by CNN/AP. Copyright MMVIII, CBS Interactive Inc.

Billionaire Sam Zell made an interesting housing market prediction last week, saying that he expected home prices to bottom-out at the end of March 2009, but some economists believe otherwise. One such economist, Michelle Meyer with the Lehman Brothers Holdings Inc. in New York, does not feel so confident that housing market prices will stop falling by the end of 2009’s first quarter. Instead, she predicts that it will not fully bottom-out until the end of 2009 itself. Why might some economists feel this way? Despite the fact that home buying across the U.S. has lately risen, the number of available properties on the market continues to climb.

Bloomberg.com’s Shobhana Chandra provides the full story:

“Aug. 25 (Bloomberg) — Sales of previously owned homes in the U.S. rose 3.1 percent in July, a gain that masked further housing weakness as inventories of unsold properties increased.

“Resales advanced more than forecast to an annual rate of 5 million, with at least one-third of the purchases coming from foreclosed properties, the National Association of Realtors said today in Washington. At the same time, the median price dropped 7.1 percent from July 2007, and the number of homes for sale jumped to a record.

“Sales averaged a pace of 4.95 million the past three months, the same rate as the previous period, indicating that purchases may have touched a bottom. At the same time, the glut of houses for sale means property values will probably keep dropping, putting pressure on household wealth and consumer spending.

“‘Existing home sales have likely stabilized,’ Michelle Meyer, an economist at Lehman Brothers Holdings Inc. in New York, said in an interview with Bloomberg Television. ‘In terms of demand, we’re probably close to the bottom. In terms of prices, we don’t think we’ll see a bottom until the end of next year.’”

Read the full article, “U.S. Economy: Home Resales Rose More Than Forecast.” Copyright 2008 Bloomberg.com

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Seasoned foreclosure and real estate investor (and billionaire) Sam Zell predicts that the Single-Family real estate prices will have fallen as low as they can go by the end of Q1, 2009.

In addition to his prediction, Mr. Zell reminded Bloomberg television viewers in an interview on “Fannie, Freddie & Sub-Prime Crisis,” that even as foreclosures are on the rise and housing prices drop, there is a light at the end of the tunnel. What could possibly be so great about the current market slump, you might ask? Mr. Zell pointed out the correlation between housing price drops and housing affordability; as housing prices go down, the pool of people who can afford to buy real estate expands. That being said, Mr. Zell is not currently investing in real estate, claiming that he cannot impact that market enough to see a large return; he believes the current real estate market is “fairly priced.”

“Aug. 21 (Bloomberg) — Billionaire Sam Zell said the housing market could start recovering as early as next year and he’s focusing on investing in debt rather than equity.

“‘We believe that the opportunities, particularly in difficult situations, are in the debt,’ said Zell, who made his fortune building the largest publicly traded office and apartment companies in the U.S. ‘We have been focused on, not only in real estate but in corporate, identifying debt situations where it is trading at a discount.”

“Early next year the U.S. may see the bottom of the single- family housing market, Zell, 66, said in an interview today with Bloomberg Television. ‘I think it will be relatively fragile as confidence builds and it will take probably another year for confidence to be completely returned.’

“Zell is focusing on debt as the real estate recession deepens. Existing U.S. home sales fell to a 10-year low in the second quarter and the median price for a single-family house dropped 7.6 percent. Record foreclosures have brought on more than $505 billion in capital losses and asset writedowns worldwide and companies that lent money to homeowners and repackaged the debt into securities saw those businesses falter.”

Read the full article, “Zell Focusing on Debt Investing While Awaiting Housing Rebound” by Sharon L. Lynch and Greg Miles, Copyright 2008 Bloomberg.com

If you’re not already a RealtyStore member, sign up and start taking advantage of the current real estate market here.

Proof that hindsight is 20-20, a three-page report issued Tuesday, June 10, 2008, by the Washington Post made it clear that HUD is currently in the spotlight, given how many of their borrowers have entered or lost their homes to foreclosure. Not only are real estate professionals looking in their direction and shaking their heads, but now Congress is expected to consider changing HUD’s regulatory responsibilities, as well.

Carol D. Leonnig
Washington Post Staff Writer

“In 2004, as regulators warned that subprime lenders were saddling borrowers with mortgages they could not afford, the U.S. Department of Housing and Urban Development helped fuel more of that risky lending.

“Eager to put more low-income and minority families into their own homes, the agency required that two government-chartered mortgage finance firms purchase far more “affordable” loans made to these borrowers. HUD stuck with an outdated policy that allowed Freddie Mac and Fannie Mae to count billions of dollars they invested in subprime loans as a public good that would foster affordable housing.

“Housing experts and some congressional leaders now view those decisions as mistakes that contributed to an escalation of subprime lending that is roiling the U.S. economy.

[…]

“Congress is expected to vote before its Fourth of July recess on legislation that would strip HUD of its regulatory authority over Fannie and Freddie and give it to a stronger regulator.

“Fannie and Freddie finance about 40 percent of all U.S. mortgages, with $5.3 trillion in outstanding debt.

[…]

“HUD officials dispute allegations that the agency encouraged abusive lending and sloppy underwriting standards that became the hallmark of the subprime industry. Spokesman Brian Sullivan said the agency and Congress wanted to increase homeownership among underserved families and could not have predicted that subprime lending would dominate the market so quickly.”

Read the full story, How HUD Mortgage Policy Fed The Crisis: Subprime Loans Labeled ‘Affordable’.
Copyright 2008, Washington Post