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.

January30