Fannie Mae and Freddie Mac choose not to evict renters

I posted this as a comment to this article in the Wall Street Journal today.

Evictions on owner/occupants who have overextended their financial lives and are now in dire straits is much different than evicting renters who are current with their rent and have not violated a mortgage agreement.  The real issue is that taxpayers remain in the dark on these decisions by the GSEs (Fannie and Freddie) and ultimately come to some false conclusions.  I think the GSEs should publicly justify their decisions to avoid a deeper dive in taxpayer economic confidence.

The reality is that increased evictions will result in increased bailout of the GSEs from the government which hits all of us (taxpayers) who have chosen to live below are means.  We end up paying more (bailout money) when people are evicted; regardless if it is owner/occupied or renters.

The reason is that evictions result in empty homes that typically have been neglected by the occupants because they are in foreclosure and have no money to pay their mortgage, so they aren’t going to take care of the property either.  An empty home that has been neglected and must be rehabbed cost the GSEs much more money (our bailout money) than a “performing” home that the occupant is living in and is maintaining.  Empty homes might not be a huge issue in a good economy because private investors are typically there to buy these properties; however, the private money has dried up and homes are sitting empty for long periods of time, so the GSEs losses continue to rise as the house doesn’t get sold on the private market.

In this economic dip we will continue to see the GSEs come up with new policies engineered to keep homes occupied; be it owners or renters because it saves them (and us) money in the end.  I do however agree with most of you here that it is unfair that our taxes go up to support bailout efforts while those that made bad financial decisions seem to be getting a free ride from us.   I don’t believe any US citizen wants the Gov messing around with capitalism, but they would also agree that “letting them all fail” would lead to a much more grim economy that we are seeing today.

Transparency with mortgage originations and refinance

I follow Dan Green of The Mortgage Reports because he adds transparency to the world of mortgage.  It’s an interest of mine because I’ve spent the past 5 years providing software to some of the same mortgage servicers that he sells his mortgages to (I’m assuming here, but pretty sure).  The big difference is that the software we provide is to manage the overwhelming large default mortgage accounts that the servicers are facing in this economic dip.  Dan’s focus is new performing loans.

The focus of my post is to call attention to a post over on Dan’s blog that exposes some truths about published rates.  Those of us who have gone through the mortgage process understand that a mortgage is not just a matter of “locking in” a rate, but also having the cash to close the deal.  These extra fees and costs associated with a mortgage can often times break a deal up.

It’s a mixed bag of charges that involve all parties such as the mortgage broker, the mortgage company, the closing attorney, inspectors, surveyors, title companies, etc.  One of those variables that Dan points out are Points.  Points are percentages of the mortgage to be paid in cash to buy down the rate to a specific value.  Dan can probably define Points much better than I can, but my point about Points is that they can break deals up for people trying to refinance or buy a home.

As a mortgage consumer I think I can speak for most and say that during the house buying or refinancing process paying extra Points, charges, fees, etc is the absolute last thing that we want to hear to get the deal done.  Yes, rates are down, but as Dan makes clear, Points are up.

This is for two reasons I think: 1) Mortgage servicers are completely overwhelmed with the surge of refi’s so in order to catch up, they increase price (points) in hopes to reduce the number of people wanting to refi. 2)  Mortgage servicers have higher losses than they have ever experienced before because of foreclosures (the industry I’m in), so to help cover some loss they are trying to make cash through origination and refi points.

Its a give and take, but the more transparent mortgage companies and mortgage brokers can be with borrowers the more deals they will do.  Consumers are becoming more and more educated each day and less patient when things aren’t so clear.  My advice to the consumer is to ask as many questions as possible about what the total cost to close the deal will be.  My advice to the mortgage broker and mortgage servicer is to be as transparent with information as early in the deal as possible.  Realize that the internet has exposed your business just like many others and be a leader in sharing how your business works with the world.

Whether the consumer has lots of cash or limited funds, the common question will always be “what will it cost me”.  Be proactive in helping me as a consumer understand my costs, what can be negotiated and how you can help me.  You will win big in the end because if I trust you, I will be a life customer.

Best of luck in your mortgage journey

January16