Fannie Mae to Start Foreclosure Process on Reverse Mortgage Defaults

…are you sure about that?

June 6th, 2010  |  by Neil Published in Reverse Mortgage Daily

Against the backdrop of a recent New York Times story about borrowers in the forward mortgage world electing to stop paying their debt – and living sometimes for years cost-free – concerns in the reverse world about prolonged defaults is drawing more attention, and some official government action.

To wit: Fannie Mae (NYSE:FNM) reportedly has been reminding reverse servicers they must follow HUD guidelines regarding tax and insurance defaults for HECM customers. In the past, Fannie has elected not to have servicers follow these established guidelines – that is, beginning foreclosure when taxes, insurance or maintenance are not current – because of so-called “headline risk.”

 Now, however, servicers have been instructed to submit troubled loans to HUD to get approval to start the foreclosure process. Once approved, a demand letter is sent to the borrower(s) who has six months to cure the default. After that, the servicer must start the foreclosure process – one exception is when a borrower refuses to take necessary curative action, at which time the foreclosure process begins immediately.

“Tax and insurance defaults have gone up dramatically in the last few years,” says one servicer, who believes reactive changes now “would turn us into collection agencies.”

At the moment, the industry is waiting for HUD to issue a promised Mortgagee Letter regarding tax and insurance (T&I) defaults. An agency spokesman told RMD: “FHA is working closely with Fannie Mae and servicers of reverse mortgages to develop a plan to notify seniors of the delinquency and provide the necessary support and outreach to these seniors to find solutions to bring delinquent taxes and insurance current.”

Considering low default balances

According to Ryan LaRose, chief operating officer of Celink – a reverse mortgage servicer – an industry committee “presented HUD with a white paper awhile back that included industry recommendations for how to deal with the existing T&I default population. It included an analysis of the loan’s LTV [loan-to-value] and took into consideration those borrowers with a low default balance and put them into a ‘monitoring’ program,” according to LaRose, who is a member of that committee.

“If FHA is smart,” says another servicer, “they will approve foreclosing on high claim amounts because [if they don’t] the situation will come back to haunt us,” he warns, adding: “Fannie wants more loans assigned to HUD.” What’s missing in all this, he says, “is that the industry has no real loss mit program for seniors.”

In the aggregate, T&I defaults are relatively small. HUD’s Erica Jessup puts the current number at less than 2 percent of all reverse mortgages extant. Cheryl MacNally, national sales manager, senior products group, Wells Fargo Home Mortgage, puts a finer point on those numbers: “If we have someone in T&I default for only $500, we don’t want to foreclose [especially] if they have a 700 FICO score – we don’t torture them” with foreclosure threats. However, MacNally predicted that as more full draws are taken on reverse mortgage balances, “T&I defaults will increase.”

As to the aforementioned headline risk, John LaRose, CEO of Celink, expresses concern “over the possibility of thousands of senior homeowners being placed into foreclosure by the end of the year. The timing could not be worse,” he declared, because “those who have a proclivity for making negative comments about our industry could be energized to be even more aggressive in their attacks on us,” said LaRose.

Written by Neil Morse

Banks Have Recognized 60% of Expected Loan Charge-Offs: Moody’s

Gee, and here I thought that the Federal Reserve bought $1.4-$2 *trillion* of them! Let alone Lehman and its 50 billion in subprime mortgages that it “hid” (and what about all the other TARP/Federal Reserve member banks??)

BY: CARRIE BAY 6/3/2010 DSNEWS

n its latest quarterly report on credit conditions of the U.S. banking system, Moody’s Investors Service says banks’ asset quality issues are “past the peak” butcharge-offs and non-performers continue to eat away at profitability and sheer fundamentals.

Based on Moody’s market data, banks’ non-performing loans stood at 5.0 percent of total loan assets at March 31, 2010.

Moody’s says U.S. rated banks have already charged off or written-down $436 billion of loans in 2008, 2009, and the first quarter of 2010. That leaves another $307 billion to reach the rating agency’s full estimate of $744 billion of loan charge-offs from 2008 through 2011.

In aggregate, the banks have recognized 60 percent of Moody’s estimated total charge-offs and 65 percent of estimated residential mortgage losses, but only 45 percent of projected commercial real estate losses.

In the first quarter of this year, the banking industry’s collective annualized net charge-offs came to 3.3 percent of loans, versus 3.6 percent of loans in the fourth quarter

of 2009, Moody’s said. Despite two consecutive quarters of improvement in charge-offs, the ratings agency notes that the figures still remain near historic highs, dating back to the Great Depression.

According to Moody’s analysts, the decline in aggregate charge-offs was driven by commercial real estate improvement, which “we believe is likely to reverse in coming quarters,” they said in the report. A similar commercial real estate decline was experienced in the first quarter of 2009 before charge-offs accelerated through the rest of the year.

“The return to ‘normal’ levels of asset quality will be slow and uneven over the next 12 to 18 months,” said Moody’sSVP Craig Emrick.

But Emrick added that “Although remaining losses are sizable, they are beginning to look manageable in relation to bank’s loan loss allowances and tangible common equity.”

U.S. banks’ allowances for loan losses stood at $221 billion as of March 31, 2010, which is equal to 4.1 percent of loans, Moody’s reported. Although this can be used to offset a sizable portion of remaining charge-offs, banks will still require substantial provisions in 2010, the agency said.

Moody’s says its negative outlook for the U.S. banking system is driven by asset quality concerns and effects on profitability and capital. The agency’s ratings outlook is also influenced by the potential for a worse-than-expected macroeconomic environment, Moody’s said.

“More severe macroeconomic developments, the probability of which we place at 10 percent to 20 percent, would significantly strain U.S. bank fundamental credit quality,” Moody’s analysts wrote in their report.

FINALLY!!! Supreme Court of Florida DENIES FORECLOSURE MILLS Ben-Ezra and Katz, P.A.’s Motion for Rehearing and Shapiro and Fishman, LLP’s Motion for Rehearing

via 4ClosureFraud

RE: Verification of Complaints

NO MORE EXCUSES

Supreme Court of Florida

THURSDAY, JUNE 3, 2010
CASE NOS.: SC09-1460 AND SC09-1579
IN RE: AMENDMENTS TO THE FLORIDA RULES OF CIVIL PROCEDURE IN
RE: AMENDMENTS TO THE FLORIDA RULES OF CIVIL PROCEDURE – FORM 1.996
(FINAL JUDGMENT OF FORECLOSURE)

In light of the revised opinion, Ben-Ezra and Katz, P.A.’s Motion for Rehearing and Shapiro and Fishman, LLP’s Motion for Rehearing or Clarification are hereby

DENIED

IN RE: AMENDMENTS TO THE FLORIDA RULES OF CIVIL PROCEDURE

REVISED

DO YOU HAVE A FANNIE MAE LOAN?

Fannie Mae Announces its Own Foreclosure Prevention Plan Under HAFA

by AUSTIN KILGORE HousingWire

Tuesday, June 1st, 2010, 5:07 pm

[Update 1: Corrects current cash incentives for Treasury HAFA]

Fannie Mae (FNM: 0.94 -2.08%) announced its version of the Making Home Affordable Foreclosure Alternatives (HAFA) program Tuesday, implementing the program for all conventional mortgages that are held in Fannie’s portfolio, that are part of an mortgage-backed security (MBS) pool with a special servicing option, or that are part of a shared-risk MBS pool for which Fannie Mae markets the acquired property.

The Fannie Mae program takes effect August 1, 2010 and is designed to mitigate the impact of foreclosures on borrowers who are eligible for a loan modification under the Home Affordable Modification Program (HAMP) but were unsuccessful in obtaining one, Fannie said. Like the Treasury Department‘s HAFA program, servicers cannot consider a borrower for HAFA until the borrower is evaluated and eliminated from eligibility for a Making Home Affordable Modification Program (HAMP) workout plan.

Also like the Treasury program, Fannie Mae will offer servicers cash incentives for completed HAFA transactions, $2,200 for short sales and $1,200 for deed-in-lieu of foreclosure agreements. Borrowers are also eligible for $3,000 in incentives.

That’s more than in the Treasury’s HAFA program, where servicers are eligible for $1,500. Under the Treasury program, borrowers receive $3,000. In addition, the investor is also eligible for a maximum of $2,000 incentive.

Participating servicers will be required to report on their Fannie Mae HAFA activities to both Fannie and the Treasury and the program sunsets on December 31, 2012.

After announcing the program in October 2009, Treasury’s HAFA program began in April. The Fannie Mae HAFA program is the latest in a string of programs designed to help borrowers avoid foreclosure. In addition to HAFA and HAMP workouts, Fannie Mae is letting some distressed borrowers stay in their homes as renters, under the deed for lease (D4L) program.

Under D4L, the homeowner-turned-renter is required to pay fair market rent to stay in their home for up to 12 months. The renter must have enough income to sustain a 31% income-to-rent ratio and rental payments are not subsidized by Fannie Mae, but could include renters eligible for Section 8 payments.

Also, in March 2010, Fannie Mae instructed its servicers to consider an “alternative modifications” for all mortgages that did not qualify for a permanent conversion under HAMP. That “Alt Mod” program, which sunsets on August 31, 2010, is similar to HAFA.

Write to Austin Kilgore.

The author held no relevant investments.

ARE FORECLOSURE MILLS Coercing Buyers for BANK OWNED homes? ARE ALL THE MILLS?

YOU MUST use Sellers Title Company! If you BUY before 6/30 I will give you an extra 3.5% towards your CC!
YOU MUST use Sellers Title Company! If you do by 6/30 I will give you an extra 3.5% towards your CC!
Found this in Trulia but it may get deleted once this is posted. It’s ok …thanks to Baby Jesus I saved it! But it goes exactly like this:

fannie mae owned.bank property. property is vacant.all offers requiring financing must have preapproval letter.all cash offer require proof of fund(see attachement).this property is eligible for home path renovation mortgage-as little as 3% down.buyer must close with seller closing agent(david j. stern law offices,p.a).investors not eligible for first 15days.*for showing instr please read broker remarks* note:offers must be submitted using attachment.close by 30 june and receive extra 3.5% in closing cost

Looking further into this I noticed the following:

  • Still in the name of the owner
  • NOT named under any REO
  • Home last sold for 245K
  • Now listed at 120K

Here is the BIGGEST:

I found a Bank-owned packet for this “SPECIALLY SELECTED” Agent/BROKER in many other REO’s and in this package it states the following:

9) Which title companies are the sellers and who do I make out the earnest money deposit to once offer is verbally accepted?

a. PLEASE LOOK ON MLX REMARKS FOR TITLE COMPANY. MLX WILL HAVE ONE OF THE FOLLOWING:
i. David Stern, P.A.
ii. Marshall C. Watson, P.A.
iii. Smith, Hiatt, & Diaz, P.A.
iv. Butler & Hosch, P.A.
v. Shapiro & Fishman, P.A.
vi. Spear & Hoffman, P.A.
vii. Adorno & Yoss, P.A.
viii. Watson Title

ix. New House Title (This is registered with FDLG address 9119 CORPORATE LAKE DRIVE, SUITE 300 TAMPA FL 33634)

10) Can the buyer use their own title company or must they use the title company selected by seller?

a. The buyer MUST HOLD ESCROW with Fannie Mae Title Company as stated on MLX.

NOW are we unleashing another dimension to this never ending SAGA?

We recently found out about WTF!!! DJSP Enterprises, Inc. Announces Agreement to Acquire Timios, Inc., Expand Presence Into 38 States , so is this a way for the Mills to Monopolize on the sales of these properties??

HERE IS same Agent/Broker for a FLORIDA DEFAULT LAW GROUP property:

THIS IS FANNIE MAE HOMEPATH PROPERTY.BANK OWNED.ALL OFFERS REQUIRING FINANCING MUST HAVE PREAPPROVAL LETTER. ALL CASH OFFERS REQUIRE PROOF OF FUNDS. THIS PROPERTY IS APPROVED FOR HOMEPATH AND HOMEPATH RENOVATION MORTGAGE FINANCING-AS LITTLE AS 3% DOWN,NO APPRAISAL OR MORTGAGE INSURANCE REQUIRED! ** FOR SHOWING INST PLEASE READ BROKER REMARKS** YOU MUST SUBMIT OFFER USING ATTACHMENT! INVESTORS NOT ELIGIBLE FOR FIRST 15DAYS.CLOSE BY JUNE 30 TO BE ELIGIBLE FOR EXTRA 3.5% SC. EMD: FL DEFAULT LAW GROUP.

Here is another same Agent/Broker for MARSHALL C. WATSON property:

FANNIE MAE OWNED.BANK PROPERTY. PROPERTY IS VACANT.ALL OFFERS REQUIRING FINANCING MUST HAVE PREAPPROVAL LETTER.ALL CASH OFFERS REQUIRE PROOF OF FUNDS(SEE ATTACHEMENT).THIS PROPERTY IS ELIGIBLE FOR HOME PATH RENOVATION MORTGAGE-AS LITTLE AS 3% DOWN.BUYER MUST CLOSE WITH SELLER CLOSING AGENT (LAW OFFICES OF MARSHALL C. WATSON).INVESTOR NOT ELIGIBLE FOR FIRST 15DAYS.*FOR SHOWING INSTR PLEASE READ BROKER REMARK* NOTE:OFFERS MUST BE SUBMITTED USING ATTACHMENT.CLOSE BY JUNE 30 TO GET 3.5% EXTRA IN CLOSING COST

Does the JUNE 30th Closing Day have any significance??

MAYBE it’s because of this? MERS May NOT Foreclose for Fannie Mae effective 5/1/2010I am just trying to make sense of this…Is there a grace period that followed?

  • What “if” the BUYER selects their own Title company? Does this eliminate their chances of ever even being considered as a buyer?
  • Why even bother to state this?
  • Is this a way for the selected Agent/ Broker to find the buyer and discourage other agents or buyers from viewing?
  • Was this at all even necessary to state?
  • Is this verbiage to coerce agents to get a higher commission rather than pass down the incentive of 3.5% towards closing cost “if” under contract by 6/30?
  • Why do investors have to refrain from buying for the first 15 days?

Coercion (pronounced /koʊˈɜrʃən/) is the practice of forcing another party to behave in an involuntary manner (whether through action or inaction) by use of threats, intimidation, trickery, or some other form of pressure or force. Such actions are used as leverage, to force the victim to act in the desired way. Coercion may involve the actual infliction of physical pain/injury or psychological harm in order to enhance the credibility of a threat. The threat of further harm may lead to the cooperation or obedience of the person being coerced. Torture is one of the most extreme examples of coercion i.e. severe pain is inflicted until the victim provides the desired information.

RELATED STORY:

LENDER PROCESSING SERVICES (LPS) BUYING UP HOMES AT AUCTIONS? Take a look to see if this address is on your documents!

Tracking Loans Through a Firm That Holds Millions: MERS

Kevin P. Casey for The New York Times: Darlene and Robert Blendheim of Seattle are struggling to keep their home after their subprime lender went out of business.

By MIKE McINTIRE NYTimes
Published: April 23, 2009

Judge Walt Logan had seen enough. As a county judge in Florida, he had 28 cases pending in which an entity called MERS wanted to foreclose on homeowners even though it had never lent them any money.

Into the Mortgage NetherworldGraphicInto the Mortgage Netherworld

MERS, a tiny data-management company, claimed the right to foreclose, but would not explain how it came to possess the mortgage notes originally issued by banks. Judge Logan summoned a MERS lawyer to the Pinellas County courthouse and insisted that that fundamental question be answered before he permitted the drastic step of seizing someone’s home.

Daniel Rosenbaum for The New York Times R. K. Arnold, MERS president, said the company helped reduce mortgage fraud and imposed order on the industry.

“You don’t think that’s reasonable?” the judge asked.

“I don’t,” the lawyer replied. “And in fact, not only do I think it’s not reasonable, often that’s going to be impossible.”

Judge Logan had entered the murky realm of MERS. Although the average person has never heard of it, MERS — short for Mortgage Electronic Registration Systems — holds 60 million mortgages on American homes, through a legal maneuver that has saved banks more than $1 billion over the last decade but made life maddeningly difficult for some troubled homeowners.

Created by lenders seeking to save millions of dollars on paperwork and public recording fees every time a loan changes hands, MERS is a confidential computer registry for trading mortgage loans. From an office in the Washington suburbs, it played an integral, if unsung, role in the proliferation of mortgage-backed securities that fueled the housing boom. But with the collapse of the housing market, the name of MERS has been popping up on foreclosure notices and on court dockets across the country, raising many questions about the way this controversial but legal process obscures the tortuous paths of mortgage ownership.

If MERS began as a convenience, it has, in effect, become a corporate cloak: no matter how many times a mortgage is bundled, sliced up or resold, the public record often begins and ends with MERS. In the last few years, banks have initiated tens of thousands of foreclosures in the name of MERS — about 13,000 in the New York region alone since 2005 — confounding homeowners seeking relief directly from lenders and judges trying to help borrowers untangle loan ownership. What is more, the way MERS obscures loan ownership makes it difficult for communities to identify predatory lenders whose practices led to the high foreclosure rates that have blighted some neighborhoods.

In Brooklyn, an elderly homeowner pursuing fraud claims had to go to court to learn the identity of the bank holding his mortgage note, which was concealed in the MERS system. In distressed neighborhoods of Atlanta, where MERS appeared as the most frequent filer of foreclosures, advocates wanting to engage lenders “face a challenge even finding someone with whom to begin the conversation,” according to a report by NeighborWorks America, a community development group.

To a number of critics, MERS has served to cushion banks from the fallout of their reckless lending practices.

“I’m convinced that part of the scheme here is to exhaust the resources of consumers and their advocates,” said Marie McDonnell, a mortgage analyst in Orleans, Mass., who is a consultant for lawyers suing lenders. “This system removes transparency over what’s happening to these mortgage obligations and sows confusion, which can only benefit the banks.”

A recent visitor to the MERS offices in Reston, Va., found the receptionist answering a telephone call from a befuddled borrower: “I’m sorry, ma’am, we can’t help you with your loan.” MERS officials say they frequently get such calls, and they offer a phone line and Web page where homeowners can look up the actual servicer of their mortgage.

In an interview, the president of MERS, R. K. Arnold, said that his company had benefited not only banks, but also millions of borrowers who could not have obtained loans without the money-saving efficiencies it brought to the mortgage trade. He said that far from posing a hurdle for homeowners, MERS had helped reduce mortgage fraud and imposed order on a sprawling industry where, in the past, lenders might have gone out of business and left no contact information for borrowers seeking assistance.

“We’re not this big bad animal,” Mr. Arnold said. “This crisis that we’ve had in the mortgage business would have been a lot worse without MERS.”

About 3,000 financial services firms pay annual fees for access to MERS, which has 44 employees and is owned by two dozen of the nation’s largest lenders, including Citigroup, JPMorgan Chase and Wells Fargo. It was the brainchild of the Mortgage Bankers Association, along with Fannie MaeFreddie Mac and Ginnie Mae, the mortgage finance giants, who produced a white paper in 1993 on the need to modernize the trading of mortgages.

At the time, the secondary market was gaining momentum, and Wall Street banks and institutional investors were making millions of dollars from the creative bundling and reselling of loans. But unlike common stocks, whose ownership has traditionally been hidden, mortgage-backed securities are based on loans whose details were long available in public land records kept by county clerks, who collect fees for each filing. The “tyranny of these forms,” the white paper said, was costing the industry $164 million a year.

“Before MERS,” said John A. Courson, president of the Mortgage Bankers Association, “the problem was that every time those documents or a file changed hands, you had to file a paper assignment, and that becomes terribly debilitating.”

Although several courts have raised questions over the years about the secrecy afforded mortgage owners by MERS, the legality has ultimately been upheld. The issue has surfaced again because so many homeowners facing foreclosure are dealing with MERS.

Advocates for borrowers complain that the system’s secrecy makes it impossible to seek help from the unidentified investors who own their loans. Avi Shenkar, whose company, the GMA Modification Corporation in North Miami Beach, Fla., helps homeowners renegotiate mortgages, said loan servicers frequently argued that “investor guidelines” prevented them from modifying loan terms.

“But when you ask what those guidelines are, or who the investor is so you can talk to them directly, you can’t find out,” he said.

MERS has considered making information about secondary ownership of mortgages available to borrowers, Mr. Arnold said, but he expressed doubts that it would be useful. Banks appoint a servicer to manage individual mortgages so “investors are not in the business of dealing with borrowers,” he said. “It seems like anything that bypasses the servicer is counterproductive,” he added.

When foreclosures do occur, MERS becomes responsible for initiating them as the mortgage holder of record. But because MERS occupies that role in name only, the bank actually servicing the loan deputizes its employees to act for MERS and has its lawyers file foreclosures in the name of MERS.

The potential for confusion is multiplied when the high-tech MERS system collides with the paper-driven foreclosure process. Banks using MERS to consummate mortgage trades with “electronic handshakes” must later prove their legal standing to foreclose. But without the chain of title that MERS removed from the public record, banks sometimes recreate paper assignments long after the fact or try to replace mortgage notes lost in the securitization process.

This maneuvering has been attacked by judges, who say it reflects a cavalier attitude toward legal safeguards for property owners, and exploited by borrowers hoping to delay foreclosure. Judge Logan in Florida, among the first to raise questions about the role of MERS, stopped accepting MERS foreclosures in 2005 after his colloquy with the company lawyer. MERS appealed and won two years later, although it has asked banks not to foreclose in its name in Florida because of lingering concerns.

Last February, a State Supreme Court justice in Brooklyn, Arthur M. Schack, rejected a foreclosure based on a document in which a Bank of New York executive identified herself as a vice president of MERS. Calling her “a milliner’s delight by virtue of the number of hats she wears,” Judge Schack wondered if the banker was “engaged in a subterfuge.”

In Seattle, Ms. McDonnell has raised similar questions about bankers with dual identities and sloppily prepared documents, helping to delay foreclosure on the home of Darlene and Robert Blendheim, whose subprime lender went out of business and left a confusing paper trail.

“I had never heard of MERS until this happened,” Mrs. Blendheim said. “It became an issue with us, because the bank didn’t have the paperwork to prove they owned the mortgage and basically recreated what they needed.”

The avalanche of foreclosures — three million last year, up 81 percent from 2007 — has also caused unforeseen problems for the people who run MERS, who take obvious pride in their unheralded role as a fulcrum of the American mortgage industry.

In Delaware, MERS is facing a class-action lawsuit by homeowners who contend it should be held accountable for fraudulent fees charged by banks that foreclose in MERS’s name.

Sometimes, banks have held title to foreclosed homes in the name of MERS, rather than their own. When local officials call and complain about vacant properties falling into disrepair, MERS tries to track down the lender for them, and has also created a registry to locate property managers responsible for foreclosed homes.

“But at the end of the day,” said Mr. Arnold, president of MERS, “if that lawn is not getting mowed and we cannot find the party who’s responsible for that, I have to get out there and mow that lawn.”

Housing Market Update: When Will House Prices Recover?

Since they all seem to be talking out of their asses…let me be frank and speaketh Le Face! Not in 5 yrs…not in 10 years…maybe in 20 years from now!

Seeing the inventory of shadow “hidden” reo’s there is no near in sight!

Now why give any loans today? The housing market is going down, these homes will continue to head under water? Buy today…Loose Tomorrow mentality? Especially the FHA loans??

5465.0

Description: A sign advertising new homes for sale is seen on March 24 in Davie, Florida. (Getty Images)

May 27, 2010 | From theTrumpet.com
Not any time soon.

Remember when all those government economists and National Association of Realtors analysts were saying that housing prices wouldn’t recover until the first half of 2009? Then it was by 2010? Now the truth is coming out. No one knows when housing prices will recover—if ever.

According to mortgage-bond legend Lewis Ranieri, don’t expect a meaningful rebound in house prices for at least three to five years: “There is another big leg down and the question is how long does it stay.”

Don’t be quick to dismiss what Ranieri says, because he is possibly the one individual who is arguably just as responsible for America’s great housing bubble as former Federal Reserve Chairman Alan Greenspan (who lowered interest rates to record lows to try to get us to spend our way out of a recession), the politicians (who forced banks to lend to unqualified individuals) and the investment ratings agencies (that rated subprime mortgages as triple-A safe).

Ranieri was the high-flying Salomon Brothers trader who first packaged mortgages into bundles that could be sold and traded as securities on a national and international level. He was the man who institutionalized mass mortgage investing. His innovations back in the 1980s helped reduce the cost of mortgages for millions of people. But they also paved the way for the junk subprime lending that helped fuel the housing bubble.

Now Ranieri is saying to get set for more trouble ahead. Over the next 18 months, at least 3 million more properties will join the 5 million already in some stage of distress. “It’s an immense problem” that risks “flooding the market,” he said.

The market for mortgage-backed securities has virtually dried up since 2008. With so many people falling behind on their payments, investors have not been able to rely on the steady streams of income that mortgage bonds historically produce. Plus, with house prices plummeting, investors don’t even have the protection of collateral.

With such adverse conditions, investors don’t want to touch American mortgages with a 10-foot pole.

Normally this lack of investment demand would drive up mortgage rates and weed out weaker borrowers—thus allowing the housing market to return to investable conditions.

However, due to government intervention to prop up the housing market, there has been an unforeseen side effect. America’s pool of mortgages has actually become riskier for investors.

In an effort to prop up house prices in America and thus keep the big banks solvent, the government began massively encouraging more people to invest in homes: It changed tax laws, it used taxpayer money to modify loans for people who had borrowed too much, it offered first-time home buyers credits, and then extended the buyers’ credits again once they expired.

It even used taxpayer dollars to ramp up subprime lending—the same kind of risky lending that got the banks into trouble in the first place.

It was one massive taxpayer-backed effort to increase the pool of home buyers and thus demand for houses and house prices.

But the scheme largely backfired.

The government subsidies and handouts did encourage more people to buy homes—but mostly people who couldn’t normally afford homes on their own.

Look at the numbers. About 95 percent of the money used to buy homes in America today comes from the government. And guess which government organization issues the most loans. Is it Fannie Mae and Freddie Mac, the two government mortgage giants notorious for their low lending standards? No, it is a new government agency with even lower standards.

Meet the Federal Housing Authority (fha). You can get an fha-backed loan for a house with as little as 3.5 percent down. This is the most common loan in America today. If you include the government’s $8,000 first-time buyer’s credit (that just expired), the government was actually paying people to borrow taxpayer dollars to purchase homes.

“This is a market purely on life support, sustained by the federal government,” admits fha president David Stevens. “Having fha do this much volume is a sign of a very sick system.”

The fha backed more loans during the first quarter of this year than the $6 trillion Fannie Mae and Freddie Mac mortgage giants did! Those were your dollars being given to subprime borrowers.

If you were an investor, would you want to lend money to someone who could not save up a down payment? Would you lend to a family that required two incomes to afford the loan and still couldn’t save up a down payment?

Thus, the government is stuck with all the mortgages. It can’t stop giving money for loans, or the market will collapse, the economy will head down again and politicians will look incompetent. Yet at the same time, how long can the government afford to provide money for 95 percent of all home-buying activity in the country?

With America’s ballooning budget deficits, the days of government handouts may soon come to an end. When they do, don’t be surprised if house prices fall a whole lot further.

So when will a recovery come? No one knows for sure, but even Lewis Ranieri will likely be proved an optimist.

For the real reason America’s housing market exploded, and how to fix it, read “The Cause of the Crisis People Won’t Face.” •

Q & A: What’s Next for Fannie and Freddie? WSJ

MAY 24, 2010, 9:53 AM ET

By Nick Timiraos

It turns out that Fannie Mae and Freddie Mac, already becoming the most expensive legacy for taxpayers from the financial crisis, aren’t just too big too fail. As my column in Monday’s WSJ explains, they’re also proving too tough to reform.

Here’s a closer look at five common questions about what’s happening with—and what’s next for—Fannie and Freddie:

1. Why doesn’t the financial-overhaul bill address Fannie and Freddie?

The Obama administration says it’s too soon to take action to address the future of the housing-finance giants because markets are still fragile, and others have said the bill is already too complex without Fannie and Freddie in the mix.

Revamping the housing-finance giants, which own or guarantee around half of the nation’s $10.3 trillion in home mortgages, was never going to be easy. But the fact that, together with the Federal Housing Administration, the companies guaranteed 96.5% of all new mortgages last quarter has made the challenge only greater.

During the debate on financial-overhaul legislation, Republicans proposed measures that would have wound down the companies and limited the amount of further government aid. But the amendments didn’t specify what would take the place of Fannie and Freddie.

Both parties are “ignoring the issue,” says Lawrence White, an economics professor at New York University. Yes, markets may be too fragile for action now, but he says a plan now would give markets time to prepare for the future.

2. Why are Fannie and Freddie still losing money?

The companies have taken $145 billion in handouts, including $19 billion this quarter, from the U.S. Treasury so far, and that number could rise as foreclosures mount. Each quarter, as more mortgages go delinquent, Fannie and Freddie have to set aside more cash in reserve to cover losses if those loans end up defaulting and the homes they’re secured by go through foreclosure.

Nearly all of those defaults are coming from loans that the companies made during and immediately after the housing boom. Loans today have significantly tighter lending standards and should be profitable.

While losses could continue for several quarters, there are signs that delinquencies may have peaked during the first quarter. Fannie Mae and Freddie Mac each said that the number of its loans that were seriously delinquent fell in March, from February.

3. Why is the government still putting money into the companies?

Each quarter, the government injects new money into Fannie and Freddie to keep the companies afloat. That allows the firms to meet their obligations to investors, which keeps the mortgage market moving. If the government decided to stop keeping the firms afloat, that could send borrowing costs up sharply for future homeowners and could create new shocks for the housing market.

In February 2009, the Obama administration said it would double to $200 billion the amount of aid it was willing to put into each of the two firms. Then in December, it said it would waive those limits, and allow for unlimited sums over the next three years. The companies are now akin to government housing banks, with an independent regulator, but one that ultimately must answer to the Treasury Department, which controls the purse strings.

The current arrangement has raised concerns that the companies could continue to make business decisions that might lead to higher losses and that they wouldn’t be making if they were still being run for private shareholders. “Unregulated pots of money—that was a cause of their demise, and now we’ve taken that monster and turned it into a super-monster” with little independent oversight, says David Felt, a former senior lawyer at the companies’ federal regulator, the Federal Housing Finance Agency.

What would the mortgage market look like today without government support?

Consider the market for “jumbo” loans, or those too large for government backing. Rates on jumbos are around 0.6 percentage points higher than conforming loans. That’s nearly double the historical spread, but an improvement over the peak 1.8 percentage point spread during the financial crisis.

Lending standards are also much tighter for loans without government backing, and 30-year fixed rate loans are much less common. Mike Farrell, chief executive of Annaly Capital Management, estimates that mortgage rates today would be two to three percentage points higher without government guarantees.

What will ultimately happen to Fannie and Freddie?

Congress has to decide what it wants the housing-finance system of the future to do. “Everyone acknowledges that the model is broken, that the model was flawed, yet we don’t know how to run a mortgage market without them and we have nothing with which to replace the broken system,” says Howard Glaser, a Clinton administration housing official and housing-industry consultant.

Still, a consensus is growing between some academics and policymakers that the government will continue to play some role at least in backstopping mortgages. Recent testimony from top administration officials over some general insight into what the administration wants the future system to do.

What will ultimately happen to Fannie and Freddie?

Congress has to decide what it wants the housing-finance system of the future to do. “Everyone acknowledges that the model is broken, that the model was flawed, yet we don’t know how to run a mortgage market without them and we have nothing with which to replace the broken system,” says Howard Glaser, a Clinton administration housing official and housing-industry consultant.

Still, a consensus is growing between some academics and policymakers that the government will continue to play some role at least in backstopping mortgages. Recent testimony from top administration officials over some general insight into what the administration wants the future system to do.

There have been other clues: The Obama administration has made clear its view that the failure of Fannie and Freddie shouldn’t be pinned on government affordable-housing mandates, which suggests that any future housing-finance entities would continue to serve a role supporting that function. And an administration report on the foreclosure crisis said that better regulation of the entire mortgage market, and not just any government-related entities, would be a “high priority” for the future.

Readers, what do you think the government should do with the firms?

Threat of Shadow Inventory Diminishing: Barclays

Imagine what your value will be worth after all these “shadow inventory” is finally released. Again, I hold a real estate license and can tell you I have access to some of this shadow inventory and it is not pretty to look at. Barclays report below is only one source!

In Michigan they are demolishing homes like you cannot imagine…But I may know exactly why…”Greece” is a hint.

BY: CARRIE BAY DSNEWS.com

Analysts at Barclays Capital say the industry’s ominous shadow inventory is close to topping out.

New research published by the firm says the supply of homes nearing REO status, defined as 90 or more days delinquent or in the process of foreclosure, will peak this summer and then begin falling gradually as the market becomes stable enough to absorb 130,000 distressed properties a month.

“While we expect REO levels to remain elevated, the trickle of homes from foreclosure into REO implies moderate levels of inventory reaching market,” Barclays said in its report.

The company estimates the current REO supply to be 478,000 and expects it to rise to 536,000 by late 2011.

Barclays’ delinquency pipeline snapshot shows that as of February, there were 2.4 million mortgages at least 90 days past due and 2.1 million more already winding through the foreclosure process, which combined makes up a shadow inventory of 4.5 million.

It’s a daunting tally and could grow larger as foreclosure alternatives are exhausted, but Barclays’ model forecasts 4.7 million distressed sales over the next three years, with 1.6 million coming in 2010, 1.6 million in 2011, and 1.5 million in 2012.

The research firm notes, however, that an orderly liquidation of shadow inventory will require both “more robust household formation and job growth.”

Some market indicators, though, are looking favorable. This week, Fannie Mae reported only a minor increase in its March serious delinquency rate – 5.59 percent versus 5.51 percent in February. RealtyTrac also reported a 12 percent month-to-month decline in default notices for April.

Barclays says this data supports its forecast that the industry is only a few months away from reaching peak levels of shadow inventory.

Freddie and Fannie won’t pay down your mortgage: CNN

This is why you need a FORENSIC AUDIT…Find the missing pieces of possible violations! DEMAND IT!

By Tami Luhby, senior writer May 14, 2010: 3:58 AM ET

NEW YORK (CNNMoney.com) — Pressure is mounting on loan servicers and investors to reduce troubled homeowners’ loan balances…but the two largest owners of mortgages aren’t getting the message.

Fannie Mae and Freddie Mac, which are controlled by the federal government, do not lower the principal on the loans they back, instead opting for interest rate reductions and term extensions when modifying loans.

But their stance is out of synch with the Obama administration, which is seeking to expand the use of principal writedowns. In late March, it announced servicers will be required to consider lowering balances in loan modifications.

And just who would tell Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500) to start allowing principal reductions? The Obama administration.

Asked whether they will implement balance reductions, the companies and their regulator declined to comment. The Treasury Department also declined to comment.

What’s holding them back is the companies’ mandate to conserve their assets and limit their need for taxpayer-funded cash infusions, experts said. If Fannie and Freddie lower homeowners’ loan balances, they are locking in losses because they have to write down the value of those mortgages. Essentially, that means using tax dollars to pay people’s mortgages.

The housing crisis has already wreaked havoc on the pair’s balance sheets. Between them, they have received $127 billion — and recently requested another $19 billion — from the Treasury Department since they were placed into conservatorship in September 2008, at the height of the financial crisis.

Housing experts, however, say it’s time for Fannie and Freddie to start reducing principal. Treasury and the companies have already set aside $75 billion for foreclosure prevention, which can be spent on interest-rate reductions or principal write downs.

“Treasury has to bite the bullet and get Fannie and Freddie to participate,” said Alan White, a law professor at Valparaiso University. “It’s all Treasury money one way or the other.”

Though servicers are loathe to lower loan balances, a growing chorus of experts and advocates say it’s the best way to stem the foreclosure crisis. Homeowners are more likely to walk away if they owe far more than the home is worth, regardless of whether the monthly payment is affordable. Nearly one in four borrowers in the U.S. are currently underwater.

“Principal reduction in the long run will lower the risk of redefault,” said Vishwanath Tirupattur, a Morgan Stanley managing director and co-author of the firm’s monthly report on the U.S. housing market. “It’s the right thing to do.”

Meanwhile, a growing number of loans backed by Fannie and Freddie are falling into default. Their delinquency rates are rising even faster than those of subprime mortgages as the weak economy takes its toll on more credit-worthy homeowners. Fannie’s default rate jumped to 5.47% at the end of March, up from 3.15% a year earlier, while Freddie’s rose to 4.13%, up from 2.41%.

On top of that, the redefault rates on their modified loans are far worse than on those held by banks, according to federal regulators.

Some 59.5% of Fannie’s loans and 57.3% of Freddie’s loans were in default a year after modification, compared to 40% of bank-portfolio mortgages, according to a joint report from the Office of Thrift Supervision and Office of the Comptroller of the Currency. This is part because banks are reducing the principal on their own loans, experts said.

So, advocates argue, lowering loan balances now can actually save the companies — and taxpayers — money later.

“It can be a financial benefit to Fannie Mae and Freddie Mac and the taxpayer,” said Edward Pinto, who was chief credit officer for Fannie in the late 1980s.

What might force the companies’ hand is another Obama administration foreclosure prevention plan called the Hardest Hit Fund, which has charged 10 states to come up with innovative ways to help the unemployed and underwater.

Four states have proposed using their share of the $2.1 billion fund to pay off up to $50,000 of underwater homeowners’ balances, but only if loan servicers and investors — including Fannie and Freddie — agree to match the writedowns. State officials are currently in negotiations with the pair.

“We remain optimistic that we can get a commitment from Fannie, Freddie and the banks to contribute to this strategy,” said David Westcott, director of homeownership programs for the Florida Housing Finance Corp., which is spearheading the state’s proposal.