Freddie Mac. Betting against home owners.

MaggieD said:

So you want Freddie to relax its underwriting standards back to the ridiculously low standards that got us into this mess to begin with? You know that sound of flushing you hear? That's taxpayer money going down the drain when mortgagees default. P.S. When we bail out Freddie, we're bailing out taxpayers.

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With the alternative being what? Having the homeowner walk away? How is that better? I noted it's a choice of picking between two evils.

We are NOT talking about giving people completely new loans at with unjustifiable lending practices. This is about refinancing.

So, IYO which is better. Refinance at the current market rate or walk away?

1Perry said:

With the alternative being what? Having the homeowner walk away? How is that better? I noted it's a choice of picking between two evils.

We are NOT talking about giving people completely new loans at with unjustifiable lending practices. This is about refinancing.

So, IYO which is better. Refinance at the current market rate or walk away?

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As I said, to Freddie, a refinance is no different than buying a new home. It's a completely new loan. For someone who has already walked away, I would not favor cutting them any slack at all. And that was the case with the Silversteins.

1Perry said:

Nothing in the article notes that their credit is any different than the day they bough their house. I could have a credit score of 810 and I owe $180,000 on a house that is now worth $120,000 because of the current market, I can't get a loan on it.

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Yes, their credit scores were in the toilet because of the short sale -- and that's exactly why they were given a high interest rate loan.

MaggieD said:

As I said, to Freddie, a refinance is no different than buying a new home. It's a completely new loan. For someone who has already walked away, I would not favor cutting them any slack at all. And that was the case with the Silversteins.

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I care less about cutting anyone a favor when they walk away. I'm not discussing that.

Yes, their credit scores were in the toilet because of the short sale -- and that's exactly why they were given a high interest rate loan.

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Again, I care less. I am not discussing people wanting to buy another house after walking away from one.

1Perry said:

I care less about cutting anyone a favor when they walk away. I'm not discussing that.



Again, I care less. I am not discussing people wanting to buy another house after walking away from one.

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If they are still in the house, and they've screwed their credit, it's still the same thing we're talking about. Default isn't necessary to screw up your credit rating.

lizzie said:

If they are still in the house, and they've screwed their credit, it's still the same thing we're talking about. Default isn't necessary to screw up your credit rating.

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It's pretty much a waste of time to discuss things when one side doesn't address all points.....I'll try once more though.

The options are this:

They get a refinance and stay in the house.

They don't and walk away.

Which is better?

MaggieD said:

This article is incomplete, to say the least. At most, it's deliberately misleading. Read this:



Freddie has underwriting guidelines. I think we all know what that means....minimum standards for when Freddie with accept a loan into its portfolio. Underwriting standards include things like debt ratio of the borrower, down payment requirements, minimum credit scores, et al. Makes sense, right? In fact, if they'd held to reasonable underwriting standards prior to the housing market collapse, it may not have even happened.

Freddie making it harder to refinance makes absolutely perfect sense. Look at the example they give us: the Silversteins. Most short sales are the result of refinancing into a lower rate (usually) while, at the same time, pulling money out of the equity of one's home. Like using the equity to pay off credit cards, etc., etc. If it wasn't for that reason, which is a poor excuse, then it's because they decided to sell their home and let the bank take a loss on their mortgage. Not exactly the way to endear one's self to Freddie...who probably even took the loss.

So Freddie says, "If you've had a short sale in the last two (or is it four...not really clear in the article), we aren't going to lend you any money. And remember, that short sale trashed their credit because it left their lender holding the bag.

This article, as I've laid this out here, in my opinion is deliberately misleading...or else written by someone who doesn't understand underwriting. Freddie is in the business of guaranteeing loans. It's their mission. They want to do that. But, hopefully, they've learned a valuable lesson: Don't lend money to people who can't buy lunch.

And, as for the Silversteins whining, look at it this way: Somebody buys a car through the finance company. After six months, they "turn the car in to the finance company" because they can't afford to pay for it anymore. Then they whine because they can't get another car loan.

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Oh, so Freddy Mac is making it more difficult to refinance through them, and the homeowner without good credit can't refinance anywhere else.

It seems to me that's how it should be. People with poor credit should be paying more than people with good credit. Credit shouldn't be overly easy to come by. People borrowing for mortgages that they couldn't afford was, after all, the main cause of the housing crisis.

One of the factors that sparked the great depression was easy credit also.

It's time individuals and government started living within their means, it seems to me.

Dittohead not! said:

Oh, so Freddy Mac is making it more difficult to refinance through them, and the homeowner without good credit can't refinance anywhere else.

It seems to me that's how it should be. People with poor credit should be paying more than people with good credit. Credit shouldn't be overly easy to come by. People borrowing for mortgages that they couldn't afford was, after all, the main cause of the housing crisis.

One of the factors that sparked the great depression was easy credit also.

It's time individuals and government started living within their means, it seems to me.

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That's a perfectly good arguement for how things should be done, but they weren't. The question now is how we handle it.

It's all about money! They knew long before hand that the housing bubble was going to burst. They even tried to pop it a few times. But too many other 'financial' reasons that kept it going. Of course their going to bet against their own customers, too much money to be made! Especially since they can't loose, thanks AIG!

Dittohead not! said:

I'm not sure I understand that either. How can they keep homeowners from refinancing at a lower rate? They can refuse to refinance themselves, of course, but there are tons of lenders out there. Why not go to the credit union or a private bank and do a refinance?

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Because no one has the 20% down payment that has been made legally mandatory by the Frank-Dodd bill.

The government is, "helping", us again.

MaggieD said:

Don't misunderstand. I'm in favor of the upside-down homeowner catching a break. It should have been done immediately. Right now, the housing market is suffering the Chinese water torture of all these short sales and foreclosures trickling steadily into the marketplace holding down housing values. In many areas of the country, rather than stabilizing, housing prices are still in a slide.

I actually agree with Perry. And the fact is, it wouldn't cost the banks even half as much as it's costing them now.

But, make no mistake, if banks actually did begin forgiving principle enmasse, the public would be outraged.

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The issue with those empty houses is greed, though. They WOULD sell...if the banks would move on them. Have you tried to BUY a short sale? Banks drag their feet, because they are making less profit on them. Essentially, they make the buying process as hard and tricky...and expensive...as possible, in order to try to NOT sell them...to hang onto them till the market starts making a comeback. Of course, they are legally REQUIRED to have them available for sale...but there are no rules on just how miserable they can make the entire process.

Let's look at some FACTS. No one is buying these houses at their CURRENT price, which is STILL bloated from the housing bubble. A house in a normal neighborhood, and 1/8th of an acre, that cost less than 1K to build back in 1953...should NOT be priced at over 200K today. That's a bubble price...and yet, that's what banks are asking for some of these houses, and MORE. So, they are not selling them. Which suits them just fine. A bank is losing nothing on the house by not selling, aside from some property taxes. Compound that issue with the fact that the banks are ALSO the ones that issue the loans, and have made that process damn near impossible for anyone making LESS than 80K a year (you need a WHOPPING 20% of the sale price of the house up front, and an average credit score of over 750)...and then mix in the fact that MOST of these houses are "middle class" houses....which, in CT, means anywhere from 150K to 350K, and you know what you get? The people that can afford to buy houses are also wealthy enough to buy the houses that AREN'T sitting in foreclosure...and the people that WOULD buy the houses that ARE sitting in foreclosures and short sales, can't qualify for the loans...what do you get?

Now, in NORMAL economics, when you have a product that is priced too high, and then fails to sell...you REDUCE the price, or go belly up. But not so with housing, because who owns them? Banks. And banks don't have to worry about going belly up, do they?

KevinKohler said:

The issue with those empty houses is greed, though. They WOULD sell...if the banks would move on them. Have you tried to BUY a short sale? Banks drag their feet, because they are making less profit on them. Essentially, they make the buying process as hard and tricky...and expensive...as possible, in order to try to NOT sell them...to hang onto them till the market starts making a comeback. Of course, they are legally REQUIRED to have them available for sale...but there are no rules on just how miserable they can make the entire process.

Let's look at some FACTS. No one is buying these houses at their CURRENT price, which is STILL bloated from the housing bubble. A house in a normal neighborhood, and 1/8th of an acre, that cost less than 1K to build back in 1953...should NOT be priced at over 200K today. That's a bubble price...and yet, that's what banks are asking for some of these houses, and MORE. So, they are not selling them. Which suits them just fine. A bank is losing nothing on the house by not selling, aside from some property taxes. Compound that issue with the fact that the banks are ALSO the ones that issue the loans, and have made that process damn near impossible for anyone making LESS than 80K a year (you need a WHOPPING 20% of the sale price of the house up front, and an average credit score of over 750)...and then mix in the fact that MOST of these houses are "middle class" houses....which, in CT, means anywhere from 150K to 350K, and you know what you get? The people that can afford to buy houses are also wealthy enough to buy the houses that AREN'T sitting in foreclosure...and the people that WOULD buy the houses that ARE sitting in foreclosures and short sales, can't qualify for the loans...what do you get?

Now, in NORMAL economics, when you have a product that is priced too high, and then fails to sell...you REDUCE the price, or go belly up. But not so with housing, because who owns them? Banks. And banks don't have to worry about going belly up, do they?

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Trying to purchase a home in foreclosure (or a short sale) in the Chicago area is a whore's nightmare. Make an offer. Wait two weeks or more for a counter. Banks are not organized. There's no one in a decision-making position. Everything's by committee, for God's sake. There is a very real carrying cost to banks sitting on these properties, though...and, of course, the foreclosure process itself if they have to go there.

Overall, I completely agree with you that banks have totally mishandled the process. A guy's upside-down to the tune of $300,000 mortgage versus $200,000 value. Bank forecloses. (That's where the real ****-up is.) People get to live in the homes for 12-14 months while foreclosure moves like a turtle....not paying their mortgage. Banks are losing THAT money...plus the legal fees to actually foreclose. Then they have to spend $10-$20,000 to get the house ready for sale...then they price it at their own whims instead of listening to Realtor values and it continues to sit. It must cost them $200,000 when it's all over. Orrrrrr, they could rework the mortgage with the current owners, forgive principle and only be out $100K. I can't figure it out.

lizzie said:

They shouldn't have financed in the first place if they couldn't afford to buy a house. If you can't afford the terms of a contract, never sign it.

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99% of the time, I am inclined to agree with this, but you can't just sit back and say that we aren't in slightly extraordinary times, no? Most folks having trouble now bought within their means...but unbeknownst to them, there was a crash looming that would result in them being unemployed, and in their home value going below the purchase value by over 150%.

I mean, look at me...I've now been out of work for over 6 months, and believe me, I'm as kung fu a guy as you're ever gonna meet on the internet, lol. I've been working since I was 15, and I have NEVER been unable to find a job, or out of work, for more than a week or two, tops. Even in areas with little commerce, like Greer, SC, I have been able to get work...based on my attitude, previous history, and rock solid references from previous employers. I'm the guy that married the prom queen, despite being a dragon lance reading nerd all through high school. I'm the guy that moved to CT from FL with about 800 bucks to his name, and 5 years later, I've got 2 new cars, a house, a son and a daughter. I'm a winner. I'm not saying this to say, hey, look at me, I'm awesome...I'm saying this to say that it's not simple apathy, lazyness, or lack of marketable skill sets that are keeping people unemployed in todays current economic climate. So, how did I end up unemployed? The business I worked for went out of business. You ask that question enough, and I'll promise you THAT is the answer you're gonna GET, in many cases. That, or the business shrunk, downsized, etc. Yes, SOME people bought too much house. SOME people took loans they really shouldn't have. But I think you'll find that the majority are people who took a loan within their means, and then lost their jobs. Through NO fault of their own. Those jobs were lost as a direct result of the housing market crisis, and the resulting recession. Should these people be the ones that have to pay for the mistakes of an administration YOU and everyone else helped into power? Should THEY be the ones that have to pay for the dishonest, scandalous, greedy business practices that caused this mess?

MaggieD said:

In the eyes of the lender, a refinance is no different than a new purchase. A short sale requires the cooperation of the bank wherein they realize they're not going to get all the money you owe, but they figure it's better to negotiate a loss than take it in foreclosure. The Silversteins were probably only able to buy another home because they were able to pay a really high interest rate. They surely wouldn't have qualified for standard rates...and should be delighted to have even gotten a mortgage. More than likely, that high interest rate loan was through a mortgage broker who had an investor who was willing to take the risk. Standard mortgage with lower rates? No surprise they can't get one.

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I doubt the Silverdteins are a good example of the majority, though. They sound like folks who flip houses...and use government backed loans to do so.

lizzie said:

Doesn't matter. I'm not willing to try and build it again. If people signed contracts to buy homes, then couldn't afford the terms, it was their shortsightedness that caused the problem. Now that they've screwed up their credit even more, there is absolutely no incentive for lenders to refinance, nor should they be forced into doing so. THe American taxpayer is already on the hook for far too much money in the way of bailouts.

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I hope you never make a big purchase, then lose your job due to the company going under, due to an economic collapse, due to poor policy making, and the fraudulent business practices that resulted, and find yourself in the "short sighted" bus. Because then you might have to see just what, exactly, your words taste like, and I doubt they'll taste very good to you.

Dittohead not! said:

Oh, so Freddy Mac is making it more difficult to refinance through them, and the homeowner without good credit can't refinance anywhere else.

It seems to me that's how it should be. People with poor credit should be paying more than people with good credit. Credit shouldn't be overly easy to come by. People borrowing for mortgages that they couldn't afford was, after all, the main cause of the housing crisis.

One of the factors that sparked the great depression was easy credit also.

It's time individuals and government started living within their means, it seems to me.

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Meanwhile, we're scrambling to get the big three to start tracking and issuing FICA scores on pre paid debit cars, lol.

So, no, sadly, that is NOT the direction we are headed.

Dittohead not! said:

I'm not sure I understand that either. How can they keep homeowners from refinancing at a lower rate? They can refuse to refinance themselves, of course, but there are tons of lenders out there. Why not go to the credit union or a private bank and do a refinance?

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As I understand it, nearly all lenders at the time were betting on homeowners failing. And while more sound, private banks are harder to refinance through or even finance through, and they were on the bandwagon as well. A friend refinanced through a local bank only to learn they sold the loan. He was furious. If he'd wanted to something not local, he'd have financed that way.

apdst said:

Because no one has the 20% down payment that has been made legally mandatory by the Frank-Dodd bill.

The government is, "helping", us again.

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The Frank-Dodd bill mandates a 20% down?

But the local builder is advertising 0% on houses they seem to be having trouble selling for some reason. How can they do that?

MaggieD said:

Trying to purchase a home in foreclosure (or a short sale) in the Chicago area is a whore's nightmare. Make an offer. Wait two weeks or more for a counter. Banks are not organized. There's no one in a decision-making position. Everything's by committee, for God's sake. There is a very real carrying cost to banks sitting on these properties, though...and, of course, the foreclosure process itself if they have to go there.

Overall, I completely agree with you that banks have totally mishandled the process. A guy's upside-down to the tune of $300,000 mortgage versus $200,000 value. Bank forecloses. (That's where the real ****-up is.) People get to live in the homes for 12-14 months while foreclosure moves like a turtle....not paying their mortgage. Banks are losing THAT money...plus the legal fees to actually foreclose. Then they have to spend $10-$20,000 to get the house ready for sale...then they price it at their own whims instead of listening to Realtor values and it continues to sit. It must cost them $200,000 when it's all over. Orrrrrr, they could rework the mortgage with the current owners, forgive principle and only be out $100K. I can't figure it out.

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I don't think it costs near 200K for them, though. Maybe 80K. Having the home owner sit in the house for free costs them nothing, because they were just going to let it sit empty, anyway. So, in essence, it's not losing money...it's just not making as MUCH money. Also, you make the offer, which COSTS you 1K just to make, and then you wait usually well PAST the 90 day time limit on that offer, just to get ONE counter offer. To me, that spells apathy, because they KNOW selling it NOW equal loss, or, to put it more accurately, LESS gain. Legal fees...they pay those already anyway. Most larger banks keep a tank of lawyers on hand, on the payroll. So, that's a cost that is already rolled into the normal operating costs. And then, on most shortsales, they spend 0 dollars...they don't even clean out the previous owners crap they left behind. My house came with an above ground pool in the garage, all in pieces...and a lawnmower, a few scattered tools in the basement, and a flee ridden mattress in the upstairs room. And I've seen much, much worse. 905 or more of foreclosed and shortsale homes are "as is", which also makes it hard...for first time home buyers...because, hey, we now need 20% of the total price of the home up front, UNLESS you go with the FHA loan. BUT, if you go FHA, you're home has to be "turn key". Has to pas an inspection...can't be a "fixer upper". Go figure.

apdst said:

Because no one has the 20% down payment that has been made legally mandatory by the Frank-Dodd bill.

The government is, "helping", us again.

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That's not right. Please show a link on that. 20% down payments are mandatory. It's being discussed as a rule change, along with other draconian rule changes...most likely won't happen.

Dittohead not! said:

The Frank-Dodd bill mandates a 20% down?

But the local builder is advertising 0% on houses they seem to be having trouble selling for some reason. How can they do that?

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That means that contractor likely has his own financier, who is willing to take that risk. Not sure, though.

KevinKohler said:

I don't think it costs near 200K for them, though. Maybe 80K. Having the home owner sit in the house for free costs them nothing, because they were just going to let it sit empty, anyway. So, in essence, it's not losing money...it's just not making as MUCH money. Also, you make the offer, which COSTS you 1K just to make, and then you wait usually well PAST the 90 day time limit on that offer, just to get ONE counter offer. To me, that spells apathy, because they KNOW selling it NOW equal loss, or, to put it more accurately, LESS gain. Legal fees...they pay those already anyway. Most larger banks keep a tank of lawyers on hand, on the payroll. So, that's a cost that is already rolled into the normal operating costs. And then, on most shortsales, they spend 0 dollars...they don't even clean out the previous owners crap they left behind. My house came with an above ground pool in the garage, all in pieces...and a lawnmower, a few scattered tools in the basement, and a flee ridden mattress in the upstairs room. And I've seen much, much worse. 905 or more of foreclosed and shortsale homes are "as is", which also makes it hard...for first time home buyers...because, hey, we now need 20% of the total price of the home up front, UNLESS you go with the FHA loan. BUT, if you go FHA, you're home has to be "turn key". Has to pas an inspection...can't be a "fixer upper". Go figure.

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Yeah, I think you're right. Closer to the $80,000...but don't forget that they lost $100,000 right out of the box when the homeowners defaulted on the mortgage. So we're at $180,000 loss v renegotiating with the homeowner and only losing $100K.

MaggieD said:

Yeah, I think you're right. Closer to the $80,000...but don't forget that they lost $100,000 right out of the box when the homeowners defaulted on the mortgage. So we're at $180,000 loss v renegotiating with the homeowner and only losing $100K.

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But they DIDN'T lose that money. Your typical, single family, middle classer type house costs between 50-70K to build, depending on state. That's total, materials, labor, etc. Add another...what, 10-20K for property, TOPS, and you got a house that costs the bank UNDER 100K. And they went and SOLD it for 250-300K. So, yes, it's a profit loss...but not a NET loss. This is what I mean when I'm talking about the bubble, and the monopoly fueled greed that keeps these houses unsold. They've recouped the cost to BUILD the house. Or, if you wanna talk about older houses, built in the 50s, 60s, 70s, etc...those houses were ALSO owned by banks. Banks have been in this business for a pretty long time now. And in the 50s, it cost UNDER 1 grand to have that same, typical house built, land and all! Even adjusting for inflation, that's some nice profit margins. In short, the house never loses. Banks don't lose money on houses...they only fail to make quite as much as "projected". And since we live in an economy to RUNS on tomorrows earnings, "projections", this IS, indeed, a problem. But who's? Mine? Or the banks? I'm not the one that advised to start counting chickens before they hatched...

KevinKohler said:

But they DIDN'T lose that money. Your typical, single family, middle classer type house costs between 50-70K to build, depending on state. That's total, materials, labor, etc. Add another...what, 10-20K for property, TOPS, and you got a house that costs the bank UNDER 100K. And they went and SOLD it for 250-300K. So, yes, it's a profit loss...but not a NET loss. This is what I mean when I'm talking about the bubble, and the monopoly fueled greed that keeps these houses unsold. They've recouped the cost to BUILD the house. Or, if you wanna talk about older houses, built in the 50s, 60s, 70s, etc...those houses were ALSO owned by banks. Banks have been in this business for a pretty long time now. And in the 50s, it cost UNDER 1 grand to have that same, typical house built, land and all! Even adjusting for inflation, that's some nice profit margins. In short, the house never loses. Banks don't lose money on houses...they only fail to make quite as much as "projected". And since we live in an economy to RUNS on tomorrows earnings, "projections", this IS, indeed, a problem. But who's? Mine? Or the banks? I'm not the one that advised to start counting chickens before they hatched...

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If a bank loans $300,000 to buy a house and has to liquidate it at $200,000 plus expenses, the bank that made the loan loses $100,000 plus expenses. What the house cost to build in the 1950's is immaterial. Your completely wrong here.

KevinKohler said:

But they DIDN'T lose that money. Your typical, single family, middle classer type house costs between 50-70K to build, depending on state. That's total, materials, labor, etc. Add another...what, 10-20K for property, TOPS, and you got a house that costs the bank UNDER 100K. And they went and SOLD it for 250-300K. So, yes, it's a profit loss...but not a NET loss. This is what I mean when I'm talking about the bubble, and the monopoly fueled greed that keeps these houses unsold. They've recouped the cost to BUILD the house. Or, if you wanna talk about older houses, built in the 50s, 60s, 70s, etc...those houses were ALSO owned by banks. Banks have been in this business for a pretty long time now. And in the 50s, it cost UNDER 1 grand to have that same, typical house built, land and all! Even adjusting for inflation, that's some nice profit margins. In short, the house never loses. Banks don't lose money on houses...they only fail to make quite as much as "projected". And since we live in an economy to RUNS on tomorrows earnings, "projections", this IS, indeed, a problem. But who's? Mine? Or the banks? I'm not the one that advised to start counting chickens before they hatched...

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Banks don't build houses.

If it cost the builder 80K to build the house, and the builder sold it for 200K, who gets the additional $120? Is that all profit to he bank? Of course not.

First, there's the cost of the property, then there are the various and sundry fees and taxes on builders. After that, the builder, not the bank, keeps a profit, if all goes well. The bank loans out the entire $200K less whatever down payment the buyer has. During the housing bubble, that down payment wasn't much.

So, if the house is now in default and is worth $100K, the bank has lost the other $100K.

KevinKohler said:

But they DIDN'T lose that money. Your typical, single family, middle classer type house costs between 50-70K to build, depending on state. That's total, materials, labor, etc. Add another...what, 10-20K for property, TOPS, and you got a house that costs the bank UNDER 100K. And they went and SOLD it for 250-300K. So, yes, it's a profit loss...but not a NET loss. This is what I mean when I'm talking about the bubble, and the monopoly fueled greed that keeps these houses unsold. They've recouped the cost to BUILD the house. Or, if you wanna talk about older houses, built in the 50s, 60s, 70s, etc...those houses were ALSO owned by banks. Banks have been in this business for a pretty long time now. And in the 50s, it cost UNDER 1 grand to have that same, typical house built, land and all! Even adjusting for inflation, that's some nice profit margins. In short, the house never loses. Banks don't lose money on houses...they only fail to make quite as much as "projected". And since we live in an economy to RUNS on tomorrows earnings, "projections", this IS, indeed, a problem. But who's? Mine? Or the banks? I'm not the one that advised to start counting chickens before they hatched...

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In developed areas of New England, that formula does not represent reality. We are experiencing real losses here.