Apropos of the owner/renter discussion
This story about Fannie and Freddie has many interesting details (including the cost of cutting foreclosed lawns in AZ). Among those details is that the two entities (taxpayer supported) continue to favor ownership over rentership with taxpayer support–even beyond interest deduction. A good policy of redistribution? A doubtful policy of good money after bad?
http://www.nytimes.com/2010/06/20/business/20foreclose.html?hp
“Fannie and Freddie are editing the results of the housing boom at public expense, removing owners who cannot afford their homes, reselling the houses at much lower prices and financing mortgage loans for the new owners.”
“Foreclosures punch holes in neighborhoods, so residents, community groups and public officials are eager to see properties reoccupied. But there also is concern that investors are buying many foreclosures as rental properties, making it harder for neighborhoods to recover.
“Real estate agents tend to favor investors because the sales close surely and quickly and there is the prospect of repeat business. But community advocates say that Fannie and Freddie have an obligation to sell houses to homeowners.”
Why was the federal program to allow the lender and the homeowner to renegotiate the motgage to reflect the new property-value reality such a non-starter? That sounds like a better outcome to me than having the government (us) absorbing the losses on these properties.
Obviously Fannie and Freddie (both federal programs that date back to the 1930′s and up until 2008 ran well enough it seems) had a lot to do with the housing meltdown.
It is neither prudent nor fair to loan money to people whom you know cannot repay the note. Yet that is exactly what the Feds and congress encouraged and in some case told banks to do.
The fact is that not everyone should own a home. If you cannot afford a house but you want to own one, you should rent and save your money and – if you like – buy a home you can afford, only when you can do so.
That seems simple enough.
However the politically correct view in the late 90’s and through the Bush years was that ownership should be encouraged. That is fine and good, but it should not be “encouraged” At-All-Cost. Every American owning his or her own home is not and should not be a high national priority.
If however, two federal programs say to bankers, “loan money to this group of non-quialified borrowers, and if they do not pay, we (the Feds) will cover your losses”; that obviously is a recipe for disaster.
The facts on the ground were that real estate brokers, who are usually the ones to recommend the mortgage broker were in cahoots to fake the buyers eligiblity so they, realtor and mortgage broker could collect their commissions.
Two things about the Times’s story:
Per Ed Gleason: Aren’t real estate brokers still doing this at least in the story? We can hope they’re being more careful about eligibility but are they?
And then, what is to keep someone who couldn’t afford the house they had from buying another one (or the same one) now that prices have fallen. Maybe that’s a plus for them, if they can afford it. Is it fair?
Are we in “too big to fail” territory here? Would the housing market in at least some regions (e.g., Arizona the site of the story) completely collapse if Frannie and Freddie didn’t keep on financing?
The first wave of foreclosures back in 2007/2008 were because of badly underwritten loans. Some were predatory loans (like the Household and Countrywide mortgages) but others were just unaffordable. Part of the problem was that sometimes the financing for these homes were characterized more like that of investment properties: we’ll give you these special rates for a couple of years, then when the “real” rates kick in, your home value will be much higher by then, and you can just refinance. I guess you could call some of the buyers greedy, but maybe they were just really eager to own a home, and were willing to let the “experts” convince them they could afford it.
The later foreclosures/delinquencies were folks who lost their jobs because of the economic collapse.
If the distressed property is a primary residence (not an investment property), I think the best solution is to find ways where possible to keep the owner in place. That might mean refinancing the mortgage so they can afford it, or even converting the property to some kind of affordable housing where the current owner has a life estate, or a lease- to- buy deal where they could reacquire the home down the road.
To Margaret’s fairness point, in figuring out solutions, we need to think about not just what’s fair to the homeowner, but what is best for the broader community. If keeping delinquent owners in their homes prevents widescale foreclosures, it might be in the best interests of the community to do so, even if it provides a windfall to some undeserving owners. Not fair but probably the best approach.
For those who get to keep their houses at a reduced mortgage, or those who get to buy on Freddie and Fannie’s dollar, maybe we should think of these as “wind-fall profits” for the poor and middle class; like the wind-fall profits of executives at Countrywide and Goldman-Sachs. Spread the wealth!!!
Margaret: how about ‘preferential option for the poor?’ Granted, a person in over the head in a $500K house iusually sn’t among the poorest of the poor, but compared to the large financial institution that holds the deed to the house – possibly as part of a portfolio worth many billions, and with an army of lawyers and collection agents at its dispoal – the mortgagees are powerless.
To continue with my previous thought: as I understand this story, Fannie and Freddie have assumed these tens of thousands of homes that were already in default – the original owners have already lost them. Should we presume they’ve already been evicted?
This entire program – quite possibly the most expensive piece of the bailout – sounds like a way to make the banks whole. What about the consumers?