Are Fannnie Mae and Freddie Mac doing more harm than good?

Looks like Fannie Mae and Freddie Mac have decided to play Santa Claus this year. The two mortgage giants have decided to freeze all of their foreclosures that are scheduled to happen between now and the new year.

“The two companies say they will halt foreclosure sales between Nov.
26 and Jan. 9, while they evaluate whether borrowers qualify for a new
loan modification program.

Fannie and Freddie’s loan modification
plan aims to help abate the foreclosure crisis by aiding homeowners who have fallen at least three months behind on their payments, but only if
their loans are held by the two companies.”

This qualifies as a brilliant PR move, but in reality actions like this are just as liable to do more harm than good. Ask yourself two questions:

1. Is this going to stop people from getting foreclosed on, and allow them to renegotiate their mortgage? and…
2. Is this a benefit to the economy and the housing market?

Aside from the sentimental goodwill of it all, we’ve got some serious problems with this decision. This is not a decision to stop the foreclosure, but rather a decision to delay it. Delays which *should* help people renegotiate their note.

Anybody know the percentage of people who successfully renegotiate their note after 3+ months of delinquency? Or the percentage of re-negotiated notes that fail anyways? (here’s a hint, 50% of owners who get “modifications” end up getting foreclosed on anyways!)

If you’re delinquent on your note by that much, there’s a good chance you simply won’t be able to afford getting current again….

Don’t think this buys you more time to get your short-sale ratified, either. If you’ve got something on the table with fannie/freddie, they’ve been known to delay foreclosure in order to let a deal settle, so that may be extra time you could have asked for anyways. BIG WHOOP.

So odds are that this won’t really HELP many people save their home (and it won’t help anyone who’s working with a lender other than fannie/freddie), so will it stop them from being thrown out into the snow on Christmas Eve? They didn’t say they would halt eviction filings (Which typically take about a month) on homes they had foreclosed on, so it’s still possible to get thrown out the week before Santa comes if you were foreclosed on at the beginning on November. As Ebenezer Scrooge said: Bah, Humbug!

It’s obvious they’ve given the newsies a nice little holiday PR piece, but this is going to create trouble in the next few months. This little stunt will make market inventory volume fall artificially, and make the market look like it’s getting better. Once they start foreclosing again, they’ll be 2 months behind, which means a flood of properties on the market simultaneously, NATIONWIDE, and foreclosure rates and stats will spike again. When foreclosures jump up, people panic, assume the worst, run around like headless chickens; you name it, they do it.

When the market is seen as more unstable (and prices fall harder than anticipated in Q1 ’09) due to this freeze, you know who to thank. While I understand the need for trying to modify so many of these loans, why are we risking the already weak housing market with another potential blow? It’s like a boiler building steam. If you don’t open the release valve, pretty soon it’s gonna blow.

~Jonathan Benya- Realtor
Century 21 New Millennium
9405-A Chesapeake St
La Plata, MD 20646
301-609-9000
301-653-8116
Charles County Real Estate Blog