What's $800 Billion among friends?

There was supposedly a (rumor) proposal "floated" by the Obama administration (James Pethokoukis writes on Reuters) today  that the they may be planning to eliminate many/most/all underwater mortgages in a single swoop: (here's the actual article)

Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five (almost 1 in 2 here in Florida) – are underwater with negative equity of some $800 billion.

Hmmm...this would be just in time for the midterm elections...coincidence? I think not!

*Remember way back to Christmas when the administration lifted ALL loss limits on Fannie and Freddie...without comment, over a holiday weekend? Was this what they planned all along? (Read this old post)

The underwater mortgages would become Federal government debt (OUR debt) practically overnight. And, from what I understand, this could be done without Congressional approval...just a nod of the head from the Pres. and Mr. Geitner!

Many taxpayers would be understandably irate if such a thing were to come to pass. As Pethokoukis notes:
The political calculation is that the number of grateful Americans would be greater than those offended...

There are no real details to be found anywhere, and there are sooo many ways how this might work,:

• Would it be only for primary residences?
• Would you have to be delinquent?  Then if you are current, do you stop paying to qualify?
• What if you re-sell your home...do you owe back the money that was carved off?
• What about all of the borrowers who are not with Fannie and Freddie?
• What about 2nd mortgages/Helocs?

So, all of those bankers sitting with billions of underwater loans on their books would suddenly be "made whole" at the taxpayers expense...again. Probably lots of bonuses would ensue and prices of homes in the Hamptons would skyrocket!

However, all political opinions aside, this is the general starting point behind the idea I had more than a year ago to stop the continuing slide of home values and the subsequent disaterous effects it is having on our economy and our lives.

As Pethkoukis says, August 17th is a key date, as that is when the Treasury will hold a hearing on the future of Fannie and Freddie. Keep an eye on this blog.

And here is a comment I posted on one of the most interesting inside real estate blogs around, The Notorious R.O.B.

And as always...thanks for stopping by!

A threat from Fannie Mae?

A few days ago Fannie Mae announced policy changes designed to encourage homeowners to "work with" their lenders and explore alternatives to foreclosure as opposed to just walking away...some are calling it "strategic default".

Fannie Mae has publicly threatened to punish strategic defaulters by make them ineligible for a Fannie Mae backed loan for 7 years. Rumor has it that they will determine "strategic defaulters" (those that could afford to pay but chose not to) from non-strategic defaulters by pulling credit reports to see if the borrower was behind on their other obligations at or around the time of default/foreclosure.

The main foreclosure alternatives are loan modifications and short sales. We have been saying for months and months that in almost every situation, a short sale will be better for a homeowner than will a foreclosure.

A homeowner/borrower with extenuation circumstances or a documentable hardship who works out a foreclosure alternative with their lender could be eligible for a new mortgage in three years and possibly in as little as two years, depending upon the circumstances.

If you feel that you want to keep your home long term, and still have income to support a continued mortgage, tax and insurance payment, then attempting a loan modification may well be the best first choice. But if a loan modification is not approved or not what you desire, than a short sale may well be the way to go.

To see if you may qualify for the new HAFA short sale program, click the HAFA link to the right. But, by all means, explore your foreclosure alternatives and become aware of the ramifications of any avenue you decide on.

Fannie and Freddie get a visit from Santa!

In an oddly timed move, on Christmas Eve The Treasury announced what essentially amounts to a blank check for the potential bad debt of Fannie Mae and Freddie Mac. Prior, the Treasury had a $200 Billion (each) limit on bailing out the "insolvent" mortgage lenders. At the present time, the two, combined, have already drawn down a over $110 billion of the approved $400 billion.

Makes you wonder about the stability and equity of the $6 trillion dollars worth of loans on their books, doesn't it? If there was almost $300 billion still to go under their  existing "credit-line" but The Treasury lifts all limits...on Christmas Eve no less...that scares me a little bit (and should scare you too)...as a taxpayer, homeowner and real estate agent...

The news you DON'T hear...

4 mortgage giants on the ropes

At the same time as the biggest banks are repaying their government loans, four giant mortgage backers remain on government life support. American International Group, Fannie Mae, Freddie Mac, and GMAC, are not only unable to repay the government, they are still in need of infusions. They appear at risk of getting onto a debt merry-go-round, where they have to draw new money from the government just to keep up with their existing government debts. Fannie Mae recently warned, for example, that it could not pay the dividends it owes the Treasury, so “future dividend payments will be effectively funded with equity drawn from the Treasury.”  (Sound like a Ponzi scheme to you?)

Both Fannie Mae and Freddie Mac, which buy and resell mortgages, have used $112 billion — including $15 billion for Fannie in November — of a total $400 billion pledge from the Treasury. Now officials are discussing the possibility of increasing that commitment, possibly to $400 billion for each company, by year-end, after which the Treasury would need Congressional approval to extend it. Company and government officials declined to comment. Together, the four have been offered nearly $600 billion, and that lifeline could climb to nearly $1 trillion if the commitment to Fannie and Freddie is doubled, as some predict. What’s more, the companies seem short on persuasive strategies for extricating themselves from the government’s embrace.