Banking Law

No Good Deed Goes Unpunished

In thrall to their politically correct masters, those entities formerly known as Freddie Mac and Fannie Mae (now simply referred to as Mary-KateandAshley) have adopted consumer-friendly policies that may be at odds with their interest in not only self-preservation (although the US Government will never let them fail, right?), but in collecting on the loans they buy and securitize. One of those new, improved policies is to allow renters of single-family homes that serve as collateral that Fannie or Freddie forecloses upon to remain in the home following completion of foreclosure. As a recent Wall Street Journal article notes, this is a 180-degree turnaround for the two agencies, which routinely kicked tenants to the curb following foreclosure. Tenant advocacy groups are going ga-ga over the new, improved Fannie and Freddie.

Real estate agents, on the other hand, think that the unintended consequence of Freddie's and Fannie's "I Heart Tenants" attitude is to make those homes harder to sell.

They say renting the homes could slow sales because homes don't sell as well with tenants living in them.

"Fannie Mae is in the business of financing homes and selling them, but now this change is going to result in properties probably remaining on the market," said Brett Barry, an agent with Realty Executives in Phoenix who sells properties that now include tenants eligible for a Fannie Mae lease. "Now," he added, "if someone calls me at 3 a.m. with a toilet malfunction or a roof leak, I'm responsible for handling that."

[...]

"If you've got a house worth $350,000 and rent it for $1,200, no investor is going to buy that," said David Peeples, a Tallahassee, Fla., real-estate agent. Because that monthly rent wouldn't cover the mortgage payments, he said, "The end result is that with a tenant, it's going to be unsellable."

Fannie and Freddie claim that, to the contrary, a house with a good renter in it will make these homes more attractive to investors. You know, the type of investors who defaulted on the loans on which Fannie or Freddie foreclosed. Only solvent investors. Or, at the very least, investors who can qualify for a loan to take the property off Fannie or Freddie's hands, after which Fannie and Freddie don't give a tinker's durn how good a borrower that investor might be. I guess Mary-KateandAshley assume that there must be a legion of investors chomping at the bit to get back into the single-family non-owner occupied investment game, and oodles of financing to bankroll them. If not, I hope the like being landlords. I wonder why they didn't think that when they were in the business of being profitable?

An unemployed management consultant once accused me on their blog of being both anti-renter and an elitist. I'll cop to the latter, but not the former. My main interest is that Mary-KateandAshley, now that they're wards of the American taxpayer, take actions that limit the pain for the overwhelming majority of Americans who paid our loans on time and now have to foot the bill for not only those who didn't, but for this potentially painful exercise in social engineering, as well. I hope it works, I honestly do. However, I doubt that we'll ever have reliable data provided by any responsible party to determine whether or not keeping renters in place makes sense. Not that the absence of such data will stop those with an ideological ax to grind from spinning the story to suit their purposes.

Full post as published by Bank Lawyers Blog on February 03, 2009 (boomark / email).