Realtor Coaching & Training: freddie mac
More on the just released Case Shiller Home Price Index:
* US Home Prices have been rebounding since April 2009.
* Shadow Inventory…bank owned homes….are going to be a huge problem.
* Many buyers entering the market now because many people simply…feel better…more confident.
* Dr. Shiller thinks the banks Shadow Inventory could reverse the positive trend and there will be another 10% of home value loss in the next 24 months.
Agents, read this post about how to become a REO Listing Agent:
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Looking for a clear sign that the banks are preparing for the next surges in foreclosures?…look no futher.
The lenders are living in fear that the foreclosures waves will continue for at least the next 3-5 years….and the rate of strategic foreclosures (and short sales) will only worsen the housing market. Read about the epic increase in the so-called strategic defaults here.
In addition to what you are about to read in this post..here are other ‘ideas’ we know the lenders are testing across the nation to get the previous owners to move out (or their tenants)
1) 1% cash for keys offers…and more. For example, the foreclosure amount was $500,000. The initial cash for keys offer will be for $5,000…and if the current occupant still won’t move…expect the lender to INCREASE their cash for keys offer to $10,000.
2) Freddie Mac is experimenting with mortgage reinstatements. For example, someone ‘loses’ their home to foreclosure. So, legally its no longer their home. Normally, the move out and the home becomes a REO listing. As we reported several weeks ago Freddie Mac is now offering mortgage re-instatements to those defaulted borrowers. They are able to immediately secure another mortgage FOR the foreclosed amount…and the prevailing FHA rate. Yes, this means a just foreclosed on borrower can in essence keep their home with all the negative equity (and back taxes, HOA etc) wiped clean.
3) Fannie Mae has been quietly experimenting with leases offers. Allowing the former owner to lease the home back at market rates.
Seeking alternatives to the nation’s struggling foreclosure prevention efforts, federal and mortgage industry officials increasingly are looking for ways to get distressed borrowers to leave their homes voluntarily, without going through the expensive foreclosure process or a messy eviction.
Citigroup, for instance, plans to announce a pilot program on Thursday that would allow delinquent borrowers who don’t qualify for or decline mortgage relief the opportunity to stay in their homes without making payments for up to six months before turning over the keys, in return for keeping the property in good condition. The bank estimates that up to 20,000 borrowers in Texas, Florida, Illinois, Michigan, New Jersey and Ohio could be eligible.
I doubt if this will work. Ohio for example…a homeowner can now stay in their home for 1-2 years WITHOUT making a payment. Ohio laws (plus the huge back log of foreclosures) work to the benefit of those who can’t make their house payments. What the lenders want to do is make it so the homeowners won’t stay as long as they can….in other words, the offer to stay an additional 6 months for a Ohioan is actually not as appealing as their current options.
The program is just the latest amid a growing acknowledgment that foreclosure prevention efforts will fail to reach millions of borrowers over the next few years.
“This is a graceful way to move on with their lives instead of being foreclosed on and being evicted from their homes,” said Sanjiv Das, chief executive of CitiMortgage.
Agents, what you are reading is a crafty way for the banks to…save money. This has very little true benefit to the homeowner. Read into what is going on here…the lenders are offering homeowners….a DIL, Deed In Lieu Of Foreclosure. DILs have been an available option for borrowers but, lenders have been trying to force borrowers to apply for a loan mod etc. Agents, what lenders are doing is following the HAFA guidelines that take effect April 5th of this year….listen to the free 90 minute teleconference replay to learn about the new HAFA Guidelines NOW.
The Citigroup plan attempts to address some common industry complaints, including borrowers who leave their homes in disarray after foreclosure, requiring lenders to spend thousands of dollars fixing up the property before putting it on the market. Also, homeowners who owe far more than their homes are worth increasingly are choosing to “strategically default,” even though they can afford to pay their mortgage. The new program gives CitiMortgage more control over when distressed homes are put up for sale, bypassing clogged courthouses that have slowed the foreclosure process in many parts of the country.
Agents, lenders are offering this because of the new HAFA guidelines….be clear on that. Listen to the replay of the 90 minute Short Sale HREU CDPD teleconference now.
By avoiding a glut of foreclosures that could hit the housing market within the next 16 to 18 months, the program — if it is replicated throughout the industry — could help prevent another dip in home prices, Das said.
It would be a more orderly process “than if all of the foreclosed properties came crashing at some point in the cycle,” he said.
This means more REO listings. So, how exactly will this really do anything to prevent a glut of foreclosures? It won’t. Lenders are simply waving the white flag and accepting that the foreclosures are coming. Now, they are trying to save money. Remember, the average foreclosure costs the lender $50,000! Agents, learn how to become a REO listing agent. Watch the FREE Agent REO Secrets video and download the FREE Agent REO Secrets book. Earn your HREU RSD now.
Other initiatives have also emerged for borrowers likely to lose their homes. Fannie Mae and Freddie Mac, the mortgage financing companies, developed programs allowing former homeowners to become renters after a foreclosure or other proceedings. As part of its federal foreclosure prevention program, known as Making Home Affordable, the Treasury Department announced late last year that lenders would be eligible for $1,000 in exchange for allowing borrowers to sell their home in a short sale. In such deals, the borrower sells the home for less than the outstanding mortgage, and the lender forgives the difference.
Moody’s Economy.com has forecast that the number of short sales and transactions in which borrowers surrender their deed in lieu of foreclosure will increase more than 50 percent, to about 490,000, this year. That is just a fraction of the 1.9 million homeowners Moody’s has forecast will lose their homes to foreclosure this year, up from 1.7 million last year.
Yep, thats why we have been calling 2010..’The Year Of The Short Sale”. Agents, learn how to help others and make money now. Watch the FREE Harris Real Estate University Short Sale Secrets CDPD video and download the FREE Short Sale Secrets book.
But lenders have struggled to make many of these programs effective. The short sale is often lengthy and cumbersome for homeowners. In some cases, borrowers have second liens on the property, which can hang up the process. And lenders are sometimes suspicious of the potential for fraud if the home is sold cheap to a friend or family member of the borrower.
It’s unclear how rental programs for former homeowners are working. Fannie Mae launched its “Deed for Lease” program in November, offering borrowers a 12-month lease in return for turning over the keys to their former home and maintaining the property. A company spokeswoman said that it was too early to judge the program’s success, but that former homeowners who surrender their deed to avoid foreclosure — numbering nearly 2,000 through the third quarter of last year — would be eligible. Freddie Mac’s year-old program targets former homeowners after their foreclosure, offering them a month-to-month lease. It has not released specific data on how many homeowners have chosen this option.
Citigroup’s program goes further. It targets delinquent homeowners who do not qualify for mortgage relief. During the time the borrower is still in the home, they must continue to pay utilities, but in some cases, the bank may help cover some of the taxes, insurance or homeowner association fees. The borrower would also be eligible for transition counseling to help find a new home, and a minimum of $1,000 to help offset moving costs.
If there is significant demand for the program, Citigroup will expand it, Das said. “There might be complications that we haven’t thought about,” he said. “What happens if they don’t turn over the keys after six months or they don’t maintain their house like we would like them to maintain their house?”
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Freddie Mac is buying back the loans they have sold off to investors…when the borrower has missed 4 payments.
Here is how the process traditionally works:
Home buyer needs a mortgage——-> Loan Officer who works for ABC Mortgage originates a Fannie Mae mortgage for buyer/ borrower. ——–> ABC Mortgage has to follow the Fannie Mae lending guidelines in order for the loan to be a Fannie Mae loan. ———-> ABC Mortgage originates and closes the loan for the buyer. ———> ABC Mortgage becomes the servicer for the new FHA Mortgage. They collect the payments etc. ————> Loan is sold off to the secondary market.
Obviously, this is an over simplification. But, this is the process. Now, the problem comes in when ABC Mortgage didn’t follow the FHA Lending guidelines and issued a mortgage to a borrower who didn’t truly qualify. If the loan goes bad (4 payments) because ABC Mortgage’s not following the rules…then the Fannie and Freddie will force the originator (ABC) to literally buy the loan back. Remember, this is a ‘non-performing’ loan…no money is being collected.
(Lenders, feel free to post comments if my details are wrong)
We have also heard that Fannie Mae has hired hundreds of new auditors to ‘audit’ mortgages originated over the last 3-5 years. When they discover the originator (as in the back that originated the loan….) issued a mortgage and didn’t follow the Fannie guidelines…the originator is going to be forced to buy back the loan.
Think about all of this for a moment….all the flaky origination that has happened over the last few years may result in the originating mortgage companies actually being forced to buy back the loan they sold to Fannie Mae! How many of these lenders can afford to cover these bad loans?
Here is the story from CNBC.com
Government controlled mortgage finance company Freddie Mac says it will buy back troubled loans contained in securities it has already sold to investors.
The McLean, VA-based company said Wednesday it would repurchase mortgage loans in which borrowers have missed at least four months of payments. It did not disclose how much it would spend.
Freddie Mac guarantees the mortgage securities it sells. The company said buying the delinquent loans back would cost less than making those guarantee payments.
Freddie Mac and sibling company Fannie Mae have been run under tight government oversight since they almost collapsed in September 2008. They have required $111 billion in federal aid to stay afloat.
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Harris Real Estate University Students….watch this story.
One of the emerging Mega Trends in real estate is the very real possibility that Fannie Mae and Freddie Mac will be simply shut down…meaning, the governments role in mortgages would come to an end.
Do you think private investors (banks etc) will be jumping in to fill the void once Fannie and Freddie are abolished? Do you think that IF they do enter the market they will have easier or tougher lending standards?
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Harris Real Estate University students…you need to pay attention to what is being said in this excellent CNBC (Thanks Diana Olick) video:
Know that the topics discussed in this video will have a direct effect on our industry and your income:
You need to pay very close attention to these emerging topics: Abolishing the GSE’s and Principal Mortgage Writedowns.
This video will give you a clear indication of what the government is considering. You need to ask yourself what will happen if there is a new program to reduce principal mortgage balances and if at the same time the GSE’s are abolished. (Assume that if Fannie and Freddie are killed off that rates, terms and qualification standards will be dramatically altered).
These are epic…rule changers for our industry. Pay attention.
1) Fannie Mae and Freddie Mac are on a path of destruction. Many are calling for the GSE’s to be abolished!
2) NOW, the GSE’s are providing 75% of all new mortgages.
3) 3 proposed options: Nationalization of the GSEs, Improved GSE structure or turn them over to the private sector.
4) Combined with FHA Fannie and Freddie ARE the mortgage market. Private banks are not lending…no GSE’s….no mortgages.
5) Get this…112 BILLION that has been spent..that will never be paid back…and they are expecting another 112 BILLION in upcoming losses! (anyone out there still think we are near bottom?)
6) Principal mortgage writedowns are gaining momentum…10% off all mortgages 25% upside down…and 25% of all mortgages 10% upside down. In the US roughly HALF of all homes are owned…no mortgage. Of the other half…35% are now upside down.
Agents, if you aren’t listing and selling REOs now…what the heck are you waiting for? Watch the FREE Agent REO Secrets video and download the FREE Agent REO Secrets book NOW.
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Harris Real Estate University students (and future students) this evolving story about Fannie Mae and Freddie Mac being ‘ended’ will be THE most significant real estate industry rule changer…if it happens. ( we think it will!)
If these GSE’s are indeed abolished…mortgages rates will increase…mortgage lending standards will tighten.
For Example:
“If private banks were the only issuers of mortgage funding, the cost (interest rate) would blow up in a big way. To compensate, housing prices would get nuked. For example, a 30-year fixed mortgage at 5% with a $1,500 monthly payment will finance around $275,000 worth of house. The same $1,500 mortgage at 9% will only finance about $185,000.”
In other words, everything about real estate will radically change.
We will keep you on the leading edge of what is coming next…stay tuned.
Agents, if you aren’t listing and selling REOs now…what the heck are you waiting for? Watch the FREE Agent REO Secrets video and download the FREE Agent REO Secrets book NOW.
Here is an article from Fool.com
“This committee will be recommending abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance; that’s the approach, rather than the piecemeal one.” — Rep. Barney Frank, Jan. 22, 2010.
What if Frank isn’t just talking out of his rear, and Fannie Mae and Freddie Mac are really on a path to being put out of their misery? What would happen?
Your guess is as good as mine. Frank offered exactly zero details. Logically, major overhaul of Fannie and Freddie would either be:
- A complete eradication of their roles, ending government-backed mortgage securities and loan insurance.
- A continuation of their current roles, but only after being brought 100% onto the government’s books.
Here’s a rundown of each possibility.
1. Complete eradication
To the dismay of Randians everywhere, this possibility really seems like a dream. The odds of completely ending Fannie and Freddie’s roles in the housing market are about the same as completely ending Social Security.Why? Because despite the glaring flaws, the fact is there’s essentially no functioning mortgage market outside of government-backed issuance. This table gives an idea just how reliant the market is on the two:
Segment
Share of First Mortgages Outstanding
Fannie Mae 34% Freddie Mac 23% Banks and Thrifts 16% FHA/ VA 13% Private Label Securities 12% Source: Freddie Mac.
And that’s just the market share of outstanding mortgages. The market share of current mortgage issuance is even more lopsided. Fannie and Freddie combined currently make up about 70% of new mortgage issuance, with the FHA taking up close to 20%, for a total of around 90% reliance on these three government-backed vehicles.
Why such reliance? The best explanation is that large banks — like Citigroup (NYSE: C), Bank of America (NYSE: BAC), JPMorgan Chase (NYSE: JPM), and Wells Fargo (NYSE: WFC) — don’t have the appetite to lend directly to homeowners after being sufficiently wrecked by housing over the past three years. Also, with the yield curve the way it is, it makes sense for banks with a long-term outlook (I’d like to believe they exist) to invest in short-term Treasury securities instead of longer-term assets like mortgages. Wells Fargo recently admitted it’s doing just that.
Second, the market for private securities (like CDOs) packaged by banks like Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) is virtually extinct compared with prior years, because investors now know how dangerous they can be.
At any rate, know this: If private banks were the only issuers of mortgage funding, the cost (interest rate) would blow up in a big way. To compensate, housing prices would get nuked. For example, a 30-year fixed mortgage at 5% with a $1,500 monthly payment will finance around $275,000 worth of house. The same $1,500 mortgage at 9% will only finance about $185,000.
Few politicians want to explain to their constituents why annihilating home values is worth it — that’s why there’s very little chance that Fannie and Freddie’s roles will actually be eradicated.
2. Continued roles, fully owned by Uncle Sam
The most likely “new system of housing finance” Frank wants is a continuation of the government-backed mortgage market, but only after Fannie and Freddie’s assets and liabilities are brought entirely onto the government’s books.As it stands, Fannie and Freddie are essentially wholly owned wards of the state. But since both still technically hold private company status, the assets and liabilities don’t fall directly on public books. Seriously. Even though their balance sheets are funded and guaranteed by the public, the obligations don’t show up on budget deficit and national debt statistics beyond the incremental cash infusions given to keep the two afloat. (Everyone, go find an accountant and flip them off.)
Officially bringing these liabilities onto pubic books could increase the national debt (currently $12.3 trillion) by something like $7 trillion — roughly the amount of mortgages the two hold or guarantee, plus unsecured corporate debt.
This isn’t as bad as it sounds because the majority of these mortgages will stay current, or are at least backed by real estate. Nonetheless, metrics that investors and credit rating agencies use to judge the soundness of public finances (like debt-to-GDP and debt held by the public) would explode, possibly sparking a credit downgrade and scaring away the benevolence of foreign investors that trillion-dollar deficits so desperately need.
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Many agents are still confused about commissions when it comes to short sales.
Here is what is important:
1) If the INVESTOR is Fannie Mae or Freddie Mac the commission can’t be any greater than 6%.
2) There is an appeals process if you have any (or had any) issues collecting your commission as a result of the servicer (or more traditionally called ‘the Bank/ Lender/ Mortgage company etc) not paying you 6%. (this is assuming the listing contract that the seller signed was for 6%)
3) To learn if its a Fannie/ Freddie loan go here: http://www.makinghomeaffordable.gov/loan_lookup.html
As you know we have been offering short sale training for years and years now. We were the first national coaching company to teach agents how to do short sales…and we are by far the largest. Thousands of agents have received their HREU CDPD* (Certified Distressed Property Designation). We have made it easy for you to learn everything you need to know to easily list and sell short sales. Watch the FREE Short Sale Secrets video and grab your FREE Short Sale Book. If you would like to go ahead and enroll now for only $97 call 1-866-422-9497 or sign up here
Fannie Mae Confirms Short Sales Commissions Policy and Establishes Appeals Process
National Association of REALTORS® Government Affairs Division
500 New Jersey Avenue, NW, Washington DC, 20001In discussions between NAR and Fannie Mae, Fannie Mae has reconfirmed its short sale commission policy
and established a process for REALTORS® to follow if issues arise. On February 24, 2009, Fannie Mae sent
Announcement 09?03 to its servicers instructing them not to negotiate commissions on short sales below
the amount negotiated by the listing agent, unless the commission exceeds 6 percent.Private mortgage
insurance companies and second lien holders may still seek to reduce commissions. In response to
concerns raised by NAR that some servicers of Fannie Mae loans are unaware of this policy or believe it is
not binding, Fannie Mae has established a process for NAR members when short sale commission issues
arise.Step 1: Determine whether the loan is owned or guaranteed by Fannie Mae. Only the holder of the loan is
allowed to do this, so do so in the presence of your client or after obtaining their written permission.Use this website: www.fanniemae.com/loanlookup, or
If you don’t have convenient internet access, call: 1?800?7FANNIE (8am to 9pm Eastern Time)
Step 2: If the servicer is unaware of or disagrees with the policy, provide a copy of Announcement 09?03 to
the servicer and negotiate an appropriate commission based on the listing agreement (up to 6 percent).Step 3: Contact Fannie Mae if the dispute is not resolved directly with the servicer. Be prepared to provide
the property address, name of owner, and Fannie Mae loan number (if available):Call: 1?800?7FANNIE (8am to 9pm Eastern Time), or
Email: Resource_center@FannieMae.com.
Fannie Mae Announcement 09?03 (2/24/09)
https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2009/0903.pdf
AND FreddieMac’s Commission Guidelines….
Freddie Mac Issues Written Short Sales Commission Policy
National Association of REALTORS® Government Affairs Division
500 New Jersey Avenue, NW, Washington DC, 20001On August 20, 2009, Freddie Mac confirmed in writing that its servicers are not allowed to renegotiate short sales commissions. According to the policy, as a condition of the servicer’s acceptance of a short sale offer, servicers cannot renegotiate the sales commission below the amount agreed to by the real estate broker and the seller/borrower. However, if the negotiated commission exceeds 6 percent, servicers are required to limit it to 6 percent. This Freddie policy is consistent with Fannie Mae’s policy. Private mortgage insurance companies and second lien holders may still seek to reduce commissions.
NAR has asked Freddie to establish an appeals process for cases when servicers refuse to comply with Freddie Mac’s policy.
Freddie Mac Single-Family Seller/Servicer Guide Bulletin 2009-22 (August 20, 2009)
http://www.freddiemac.com/sell/guide/bulletins/pdf/bll0922.pdf
Fannie Mae Short Sales Commissions Policy and Appeals Process
http://www.realtor.org/wps/wcm/connect/4fb4f4804e824cf0a6e8e696c79aa288/government_affairs_fannie_short_sales_policy.pdf?MOD=AJPERES&CACHEID=4fb4f4804e824cf0a6e8e696c79aa288
NAR’s Short
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