THIS STORY HAS BEEN FORMATTED FOR EASY PRINTING

Decision to take over Fannie, Freddie adding up

So far, taxpayers face foreclosure tab of $145.9b

By Binyamin Appelbaum
New York Times / June 20, 2010

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CASA GRANDE, Ariz. — Fannie Mae and Freddie Mac took over a foreclosed home roughly every 90 seconds during the first three months of the year. They owned 163,828 houses at the end of March, a virtual city with more houses than Seattle. The mortgage finance companies, created by Congress to help Americans buy homes, have become two of the nation’s largest landlords.

Bill Bridwell, a real estate agent in Phoenix, is among the thousands of agents hired nationwide by the companies to sell those foreclosures, recouping some of the money that borrowers failed to repay. In a good week, he sells 20 homes and Fannie sends another 20 listings his way.

“We’re all working for the government now,’’ said Bridwell.

For all the focus on the historic federal rescue of the banking industry, it is the government’s decision to seize Fannie Mae and Freddie Mac in September 2008 that is likely to cost taxpayers the most money. So far the tab stands at $145.9 billion. The Congressional Budget Office has predicted that the final bill could reach $389 billion.

Fannie and Freddie increased home ownership over the past half-century by persuading investors to provide money for mortgages. The sales pitch amounted to a guarantee: If borrowers defaulted, the companies promised to repay the investors.

Rather than making loans themselves, the two companies — Fannie older and larger, Freddie created to provide competition — bought loans from banks and other originators, providing money for more lending and helping hold down interest rates.

“Our business is the American dream of home ownership,’’ Fannie Mae declared in its mission statement, and in 2001 the company set a target of helping to create 6 million new homeowners by 2014. Here in Arizona, during a housing boom fueled by cheap land, cheap money, and population growth, Fannie Mae executives trumpeted that the company would invest $15 billion to help families buy homes.

As it turns out, Fannie and Freddie increasingly were channeling money into loans that borrowers could not afford to repay. As defaults mounted, the companies quickly ran low on money to honor their guarantees. The government, fearing that investors would stop providing money for new loans, placed the companies in conservatorship and took a 79.9 percent ownership stake, adding its own guarantee that investors would be repaid.

The huge and continually rising cost of that decision has spurred national debate about federal subsidies for mortgage lending. Republicans want to sever ties with Fannie and Freddie once the crisis abates. The Obama administration and congressional Democrats have insisted on postponing the argument until after the midterm elections.

In the meantime, Fannie and Freddie are editing the results of the housing boom at public expense, removing owners who cannot afford their homes, reselling the houses at much lower prices, and financing mortgage loans for the new owners.

The two companies together accounted for 17 percent of real estate sales in Arizona during the first four months of the year, almost three times their share of the market during the same period last year, according to an analysis by MDA DataQuick. The signs of their presence — small placards hung beneath the real estate agent’s sign — often are planted in the front yards of several homes on the same street.

Valarie Ross, who lives in Avondale, has watched six of the nine homes visible from her lawn chair emptied by moving trucks during the last year. Four have been resold by the government.

The population of Pinal County, where Bridwell lives and works, roughly doubled to 340,000 over the past decade. Developers built an entirely new city called Maricopa on land assembled from farmers. Buyers camped outside new developments, waiting to purchase homes. One builder laid out a 300-lot subdivision at the end of a three-mile dirt road and still managed to sell 30 homes.

Bridwell sold plenty of houses during the boom, then cut workers as prices crashed. Now his firm, Golden Touch Realty, again employs as many people as at the height of the boom, all working for Fannie Mae. The payroll includes a locksmith to secure foreclosed homes and two clerks devoted to federal paperwork.

Golden Touch gets more listings from Fannie than any other firm in Pinal County. Bridwell said he was ready to jump because he remembered the last time the government ended up owning thousands of Arizona houses, after the 1980s collapse of the savings and loan industry.

“The way I see it,’’ said Bridwell, whose glass-top desk displays membership cards from the Republican National Committee, “is that we’re getting these homes back into private hands.’’

Selling a house costs the government about $10,000. The outsides are weeded and the insides are scrubbed. Stolen appliances are replaced, brackish pools are refilled. And until the properties are sold, they must be maintained. Fannie asks contractors to mow lawns twice a month in the summer, and pays them $80 each time. That’s a monthly grass bill of more than $10 million.

All told, the companies spent more than $1 billion on upkeep last year.