From HW:
Freddie Mac vendors sold fewer REO properties in the third quarter than they did earlier in the year as nonperforming loans continue to climb.
More than 25,300 repossessed homes held by Freddie Mac sold in the third quarter, down 13.5% from the nearly 30,000 in the previous three months. It was also a 17% decline from the record-setting 31,600 sold in the first quarter.
At the same time Freddie unloaded the 25,300 REO, it repossessed another 24,300 homes back into the inventory. At the end of the quarter, Freddie held 60,000 REO on its books, which has been trimmed — as new foreclosures are completed — from 75,000 one year ago.
If the current trend holds, and the GSE reduces a net 1,000 REO from its inventory every quarter, it would take 60 quarters to unload its entire inventory — roughly 15 years.
Meanwhile, nonperforming assets continue to mount. These troubled mortgages totaled $127.9 billion, or 6.6% of its total mortgage portfolio, in the third quarter. That’s up 3.2% from the previous quarter.
To help manage the still mounting problem holding back housing and as an extension the overall economy, the Obama administration and the Federal Housing Finance Agency began asking market participants for ideas on selling these properties in bulk and even possibly renting them.
Before a House subcommittee Thursday, FHFA Acting Director Edward DeMarco reiterated that such a strategy will not be implemented nationwide but on a local level.
“We are not looking to develop a single, national program for REO disposition. We are most interested in proposals tailored to the needs and economic conditions of local communities,” DeMarco said. “We received nearly 4,000 responses to the RFI and are reviewing the submissions.”
What was that rule made in 2008 that allowed banks to keep the full value of their property while its in foreclosure and not have to write the value off?
Whatever that law is is what is causing this mess. Make the banks value their assets at their current rate and you’d watch the banks go into hyperdrive trying to foreclose on this properties.
I was thinking about this earlier in the week and I don’t think the accounting rule is the main problem. The bigger problem is now that Fannie & Freddie are in conservatorship they don’t need to perform well anymore – they can just keep asking for more money. In fact, if they foreclose too quickly, they will need to ask for an even larger amount of money leading to more public backlash. There is no incentive to fix this problem.
This is possibly the most misrepresented and misunderstood set of numbers from this mess I have seen to date.
Let’s see. I am an agency that guarantees mortgages. When one of the loans I guaranteed defaults and the property is taken back, I end up with the property. I then figure out what the property is worth, maybe clean it up a little, and I sell it. Good times or bad, somebody always gets in trouble and I end up with the property. I am in the asset acquisition, management, and disposition business all the time.
Right now, times are tough and I have had to staff up to cover a rolling inventory of about (gasp) 60,000 properties. Yep, out of the millions of loans I guarantee, I have had to take back so many homes that I have 60,000 in stock.
Although I am an inefficient GSE, handcuffed by silly government rules, I still sold over 25,000 homes in a month. Apparently, my 60,000 homes represent a little less than a two and a half-month inventory, given my sales record.
Alas, I took back another 24,000 homes, bringing me back up to….a two and a half-month inventory! A year ago, I had a three month inventory, but either there were fewer foreclosures or I sold more properties and I cut my inventory.
I hate to tell the author, but as long as Freddie guarantees loans, Freddie will always take back properties and run an asset acquisition, management and disposition department. This is not a 15 year problem, this is a part of the business model.
Saying this problem will take 15 years to resolve and implying “something must be done” only serves as fodder for the fools in the federal government that are being pressured to sell off these properties in bulk to favored investment firms. Whatever is left in the pipeline is going to come through at around 25,000 properties per month for awhile, not all at once. It may go up if there is a spike in foreclodures, but evenrually the rate will decline.
You can’t package and sell what you don’t yet own. Bulk sales will not change the numbers of properties Freddie will take back and have to process.
It looks to me like Freddie is doing a fine job of disposing of these properties in the retail market. Why not shut up and let them do the job?
Oops, just re-read the article. Substitute “quarter” for “month”. The 1,000 per quarter reduction and the extrapolation to 60 quarters is still bogus.
The retail market has absorbed and can absorb most of these properties. Dump the warzone stuff on the cities and/or the non-profits, or bulk sale them, but let Freddie and the market work through the rest of the inventory.
15 years of free rent. Sigh…
Author’s logic: http://xkcd.com/605/
Wait until you hear that Freddie CEO is getting cash bonus of $2.3 million on top of $900k salary!
Why would we give the CEO a $2.3 million bonus? Isn’t Freddie Mac asking for another $4.4 billion from the taxpayer?