I didn’t get to this on Friday, but last week a Bloomberg Businessweek report showed that Fannie and Freddie currently own a whopping $24 billion worth of distressed property ($24,000,000,000!). The amount of foreclosed property owned by the GSEs has quintupled in the last three years to 242,000 properties. According to the article, this accounts for a third of the total amount of repossessed homes in the United States. Michael Feder, CEO of Radar Logic, commented:
“The concern we have is less what Fannie and Freddie are showing at the moment as defaulted loans and more what’s in the shadow.”
Currently, the GSEs have attempted to sell repossessed properties at market value so as not to hurt community property values, not to mention devalue their own portfolio. This is causing REO property to build up more quickly than it can be sold. While not willing to get rid of their portfolio at cut-rate prices, Jane Severn, director of REO disposition at Fannie says they are not keeping any homes they own off the market:
“We don’t hold anything back that is available to be sold. We’re doing the opposite pushing our homes out to the market as soon as we can. We don’t have a shadow inventory.”
Foreclosures hit an all-time high in 2010 (despite a late-year foreclosure moratorium from some lenders over the robo-signing scandal), and are expected to eclipse those numbers in 2011. This will likely lead to even more REO in the hands of the GSEs. The trouble is that home prices are also expected to decline in 2011 as a result of the glut of unsold homes, the relative lack of demand for them, and continuing high unemployment. This means that the GSEs will continue to amass assets that are almost certain to continue to lose value. Since Fannie and Freddie are wards of the state, the taxpayers will be stuck with the equity losses (once again). Who knows, maybe we can take those 242,000 homes and create some sort of tax-payer time share program, with everybody who paid taxes in the last three years eligible to reserve a foreclosed property for a weekend sometime in the next fifty years.
Thusfar, Fannie and Freddie have been the recipients of $150 billion in bailout funds from the Treasury, and estimates of the total cost to bailout the housing behemoths range from $200-$400+ billion.