Monday, March 10, 2008

Fannie Mae, giving away free money

I ran across this gem on MSN Money today. It explains how Fannie Mae is doing a little creative damage control in order to not get stuck having to buy back bad mortgage loans that were sold off as Mortgage Backed Securities (MBS). Banks are often required to buy back loans that they have sold to Wall St. if the loans go bad within a certain amount of time. If the banks/lenders get the loans back then they are stuck with the losses when the house is foreclosed. Obviously banks don’t want this loss on the books and it looks like Fannie Mae has concocted a method of delaying the inevitable default. I’m sure they are just praying it holds off the default until after the buyback date expires. There solution is to hand out unsecured loans to delinquent borrowers so they can bring their accounts current. They are just giving away money! Unfrikinbeleivable….Do they really expect any of these people to pay this back?

http://tinyurl.com/3dqupm

Fannie Mae's new trick (from MSN Money)
Knowing the complete scope of this credit disaster is impossible because of the absurdly pliable accounting treatment accorded to financial institutions.
Case in point: Fannie Mae. Before excerpting one of the relevant passages from the company's latest quarterly financial report, let me cut to the chase with this explanation from a friend: "They take a delinquent mortgage loan and replace the delinquent part with an unsecured loan in order to circumvent the buybacks and mark-to-market consequences." That is the reality.
Here is how Fannie goes at lengths to sugarcoat it:
"We recently introduced a new HomeSaver Advance initiative, which is a loss mitigation tool that we began implementing in the first quarter of 2008. HomeSaver Advance provides qualified borrowers with an unsecured personal loan in an amount equal to all past due payments relating to their mortgage loan, allowing borrowers to cure their payment defaults under mortgage loans without requiring modification of their mortgage loans. By permitting qualified borrowers to cure their payment defaults without requiring that we purchase the loans from the MBS (mortgage-backed security) trusts in order to modify the loans, this loss mitigation tool may reduce the number of delinquent mortgage loans that we purchase from MBS trusts in the future and the fair value losses we record in connection with those purchases."
Obfuscation cannot change the big picture. The housing bubble -- which bailed out the equity bubble -- was in essence the economy. Now that we don't have the housing ATM or the jobs it created, the economy will continue to weaken.

10 comments:

Snob from Morgan Hill said...

Sounds like a bigger mortgage fraud. The borrowers will just get 6 more months of rent free living, and the buyer of the Mortgage backed security (Could be your pension plan) will just get screw. I am just estatic here, dollar plunges, $4.00/gallon of gas, gold going crazy, $5.00/gallon of milk. This is a third world country living is all about.

SpicyMcHaggis said...

I can do without the $4 milk, $4 gas and the dollar being worth less than the peso. I don't mind for a minute the real estate collapse. That entire thing was built on fraud. Just one big pyramid scheme was all it was. Unfortunately it seems to be taking the rest of the economy down with it.

Anonymous said...

been looking for about two years in Corona, dropping prices have seemed to slow a bit, last three houses we have looked into were sought after by multiple bids over the asking amount!...something is different this spring, I just can't put my finger on it.

Anonymous said...

it's called "the dead cat bounce"! The first wave of knife catchers is coming ashore. They will all be after the same few properties. I know most of the properties in Corona are growing roots they've been listed for so long. Anything attracting multiple bids must be the lowest priced home by a wide margin. These will bring down the comps. Give it time. Real estate moves at a glacial pace compared to other markets. Overall sales are still in the toilet, prices are still moving down and financing is getting harder for all but the lowest risk borrowers.

Anonymous said...

Prices in Corona will not bottom until they have hit LESS than $90/sf. No exception. Don't be someone else's knifecatcher.

Anonymous said...

Just and believe the prices in Cornona will come down. Summer is moving season so after Sept. 08 watch the prices fall like a crack-whore on Sunday Morning Mass. Ive watched prices in Moval (Pacific Iris) go from $300 to start in 03' to $450 in 06 NOW! there $360.
Fo-schizel it will come down.

dax said...

Unsecured Loans are the most convenient type of loan for those who don't have collateral

Anonymous said...

'last three houses we have looked into were sought after by multiple bids over the asking amount!...something is different this spring, I just can't put my finger on it.'


It's a common BS trick by realtards. There are no multiple bids.

Anonymous said...

is $132 a square foot a good price in Corona, 2005 home nice area, this is our dream house, we be living there for the next 15-20 years...wait or buy?

Mishi said...

There are definitely advantages having unsecured loans but it really depends on one's financial situation. Thanks for the info!