Fannie ‘Mae’ Get A Spanking
Thursday, December 10, 2009
The spanking Fannie Mae is suffering has become intolerable.
The rumor several banks have agreed to streamline short sales is true and will certainly make the spanking a light one. How do I know? When I inquired why my calls were not being returned, for a few days in October, contacts at BofA told me they were being trained for a new program to expedite…something.
This ’something’ has something to do with…
- What affect Loan Modifications have on Fannie Mae
- How does streamlining Short Sales make any sense
- What is a Shadow Inventory?
- How does Macro Economics play a roll?
Foreclosures are Down
From RealtyTrac.…“November was the fourth straight month that U.S. foreclosure activity has declined after hitting an all-time high for our report in July, and November foreclosure activity was at the lowest level we’ve seen since February,” says James J. Saccacio, CEO of RealtyTrac. “Loan modifications and other foreclosure prevention efforts, along with the recently extended and expanded home-buyer tax credit, are keeping a lid on the most visible symptoms of the nation’s ailing housing market — foreclosures and home value depreciation.”
But! Loan Modifications are Failing
True, the temporary loan modification program just ended…opening the door for permanent modifications. That is if the temporary loan mod payment schedules were met by applicants, Right? Yes. That is not what is happening though. After the inexcusable delays, lost documents and lack of communication borrowers are giving up on this failed theory. Fannie Mae (may) be looking at a nasty spanking through increased foreclosures if alternatives aren’t implemented.
Shadow Inventory Myth or Fact
Have you heard the term ‘Shadow Inventory’ (SI)? The belief that banks have tons of foreclosures? Keeping them in the ’shadows’ as inventory? It’s true but, not the conspiracy many have theorized. I know of several cases where people are several months past the default deadlines and still have not heard from the Sheriff (meaning they have not been officially foreclosed on in practice). This is one way a shadow inventory is created.
Taking into consideration that modifying loans will not help those who can’t afford their payments, unemployment numbers comes to mind, it makes perfect sense that an expedited short sale process is the best solution.
Short Sales - The Next Best Thing to a Spanking
Since Short Sales net more money than REOs (foreclosures) it is reasonable to expect banks to promote them by doing… something like this.
Fannie Mae insures many mortgages and subsequently gets spanked for the losses following low net REO sales.
note: Watch for legislation changes next year. Fannie Mae holds an enormous amount of political leverage and the mid term elections are coming!
Removing the stigma that foreclosures place on the market, through short selling, stabilizes prices, reduces shadow inventory and improves the outlook as a whole. Perfect! download FHA short Sale Guidlines PDF
Macro Economics…my tiny brain version
Since you have read this far let me create a ‘big picture’ with my tiny brain. Banks are myopic to the degree that they are in the business to make money. Looking at Real Estate as being a single issue for the banks, makes us myopic.
A Real Estate investment is the single largest investment a person will make. When it fails to produce dividends (equity) it affects ones entire financial situation. This is no less true for banks.
Think about it..not only mortgages…they are battling delinquent credit cards, bad car loans, signature loans etc.. All leading to huge losses and fewer potential investors. The banks see what is on their horizon and are working to prevent it at all ‘cost’ (or loan from the taxpayer). Better save that for another time, so…
Fannie Mae (may) get a spanking, but it may be one of affection rather than discipline if the foreclosure fears are relieved. This can ONLY be done through the streamlining of short sales. Think I am wrong? Don’t bet on it.
related articles
Mortgage help coming slow to many
[...] Fannie Mae needs help [...]