Fannie Mae and 'Shadow Inventory'

[david austin]

The latest genius idea to pull the wool over every Americans eyes is going to be called a 'Sale Rent-back'

The way this works is Fannie will allow foreclosed upon homeowners to sign month to month leases to stay in their homes. Owners can sign up to 12 month leases based on a standardized market price (TBD how they come up with that one but it will almost always be less than the mortgage) that will allow them to keep their home until things turn around (TBD as well in reality... but FNM is saying 12 months from now).


Its no secret that banks are letting foreclosed homes go on with tenants living in them for one reason... the banks dont want to take the home on their books. This creates what they call 'shadow inventory'. This nationwide inventory is thought to number in the tens if not hundreds of billions in residential home value. These potentially (likely) dead loans would require the banks to mark their loss. This would obviously crimp the balance sheet and data would give every reason for a consumer looking to buy to wait or offer a much lower price. Essentially this would bring the so called housing turnaround to a complete standstill. *As an aside... This is why banks arent lending but rather hording cash.

GSEs setting rents to millions of homeowners. I will let the theories run from there.

[name change request]

or it could be about giving people an option to stay in their home if they can't make the mortgage payment

[Hey Bubu]

maybe one is a positive after effect of the other.

[david austin]

Theres a reason homes go to foreclosure.

But hey... In the end its you and I who are subsidizing it

[david austin]

Some points to think about.

1) The GSEs are likely to be completely nationalized within the year. Why this hasnt happened already is a mystery. *Point dealing with this later

2) What happens to the state of the property. If you are in foreclosure you sure as hell arent keeping the home up to par.

3) What is to keep someone from skipping their rents? Likely nothing... other than millions and millions spent on processing all of this mess in the first place

4) What happens to local taxation? If you partake in this plan you hand the deed over to the government. Interesting that locals cannot tax federal owned land.

All the while nobody is required to show the note as under-performing in any manner to anyone.

Go for transparency and accountability!!

[name change request]

well the way you talked about it, it sounded like they would rent it for 12 months and hopefully take it back after that and start paying their mortgage again.

[david austin]

Originally Posted by name change request

well the way you talked about it, it sounded like they would rent it for 12 months and hopefully take it back after that and start paying their mortgage again.

Theres that word hope again.

You really think is going to happen? Again... theres a reason homes go into foreclosure. All this does is kick the can further down the road... at your expense.

[Sinner]

if a person can't pay $1200 for mortgage then how are they gonna be able to pay $1000 for a lease?

I thought most banks would work w/ a person to keep them from foreclosing?

[name change request]

if people can't make a mortgage payment right now, chances are it's simply because they are either out of a job, or their hours got cut back or something along those lines...

that should be temporary... and thus they should be able to get their house back.

these are families we are talking about. i don't know that many single people who own homes.

[david austin]

Originally Posted by Sinner

if a person can't pay $1200 for mortgage then how are they gonna be able to pay $1000 for a lease?

You wont be getting that call about that job working for the government.

I thought most banks would work w/ a person to keep them from foreclosing?

They will... generating fees along the way... knowing full well the new note is likely to fail at a later date.

Theres a saturation point at which you have to just reset the damn thing... and that isnt going to happen as long as the government keeps allowing people/banks to kick the can in 'hopes' that things will get different.

Yes people... this time it IS different.

[david austin]

Originally Posted by name change request

if people can't make a mortgage payment right now, chances are it's simply because they are either out of a job, or their hours got cut back or something along those lines...

that should be temporary... and thus they should be able to get their house back.

these are families we are talking about. i don't know that many single people who own homes.

Joel, if the banks really cared about the people in question they would reset the note at a market value as to allow for a performing note for years going forward. This, however, wont happen because it requires a marked asset (at a loss).

The only thing that is happening is peoples mortgages are turning into credit card like revolving trap doors. If you are underwater by 20%+ a refi for interest savings doesnt really help to any tangible degree. By turning your home over to the government for a year you arent doing anything other than providing a vast mess of paperwork headache. If you are that underwater then you should walk away completely. Rent for however long and buy something you can afford with traditional (Non exotic arms/loaders/jumbos) loans.

The ONLY reason this is happening is to keep the banks from having to show true loses... And that wouldnt look very pretty at all to the whole 'recessions over' and 'road to recovery' headline.

Joel... when has it ever been about 'the people'?

[Hey Bubu]

Originally Posted by david austin

Theres a saturation point at which you have to just reset the damn thing... and that isnt going to happen as long as the government keeps allowing people/banks to kick the can in 'hopes' that things will get different.

Yes people... this time it IS different.

I agree, however everyone is so tied up playing this current game that the reset button is not going to be handed over that quickly. It looks as though further collapse from the inside is the only thing that will reset the playing field, and that may not happen until all of us get F'ed really hard in the long run.

[PETA]

Originally Posted by david austin

The latest genius idea to pull the wool over every Americans eyes is going to be called a 'Sale Rent-back'

The way this works is Fannie will allow foreclosed upon homeowners to sign month to month leases to stay in their homes. Owners can sign up to 12 month leases based on a standardized market price (TBD how they come up with that one but it will almost always be less than the mortgage) that will allow them to keep their home until things turn around (TBD as well in reality... but FNM is saying 12 months from now).


Its no secret that banks are letting foreclosed homes go on with tenants living in them for one reason... the banks dont want to take the home on their books. This creates what they call 'shadow inventory'. This nationwide inventory is thought to number in the tens if not hundreds of billions in residential home value. These potentially (likely) dead loans would require the banks to mark their loss. This would obviously crimp the balance sheet and data would give every reason for a consumer looking to buy to wait or offer a much lower price. Essentially this would bring the so called housing turnaround to a complete standstill. *As an aside... This is why banks arent lending but rather hording cash.

GSEs setting rents to millions of homeowners. I will let the theories run from there.

Kinda deprives would be buyers of the benefit of permitting the homes to go on the market doesn't it? Helping to reinflate the bubble. What lesson do we take from this? Sign a note you cannot pay and hope the tax payer will rescue you when you default?

[david austin]

Originally Posted by PETA

Kinda deprives would be buyers of the benefit of permitting the homes to go on the market doesn't it? Helping to reinflate the bubble. What lesson do we take from this? Sign a note you cannot pay and hope the tax payer will rescue you when you default?

That is one lost benefit of shadow inventory. Its deprives actual buyers of not only the true market value but proper selection.

In the end you are right. We reward failure because we refuse to take the bitter pill that is... failure.

[PETA]

Originally Posted by Sinner

if a person can't pay $1200 for mortgage then how are they gonna be able to pay $1000 for a lease?

I thought most banks would work w/ a person to keep them from foreclosing?

many will... costs a lot to foreclose in order to take a hit on the property.

if the home-owner can demonstrate adequate income to meet debt service banks will happily take the missed payments and just tack them on the the back end of the note.

However, the issue is more often fools that took interest only notes that adjusted hoping to earn equity from the market value going up and refinancing who found out neither was possible

Originally Posted by david austin

That is one lost benefit of shadow inventory. Its deprives actual buyers of not only the true market value but proper selection.

In the end you are right. We reward failure because we refuse to take the bitter pill that is... failure.

The motive is sound... we want to be compassionate. The problem is that the concept is thought through step one and then thought of no further.