REALTOR® Magazine-Daily News-Foreclosures Rock Fannie Mae and Freddie Mac

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Daily Real Estate News | July 31, 2007 | Foreclosures Rock Fannie Mae and Freddie Mac
Fannie Mae and Freddie Mac, whose shift into the risky mortgage market has been driven by the government’s affordable housing mandates, is faced with millions – maybe billions – in problem loans.

The Office of Federal Housing Enterprise Oversight estimates that 40.6 percent of Fannie’s portfolio, a total of $292 billion, is in loans for low-income borrowers, first-time buyers, and people living in mobile homes and economically distressed neighborhoods – all likely candidates for mortgage foreclosure. Freddie owns $68 billion of these loans, some 9.5 percent of its portfolio.

Unloading these properties is nearly impossible. Fannie has a Detroit house on the market for $7,000, despite the $59,000 outstanding on the loan. The property, repossessed in May, has been looted, with the kitchen sink and drainpipes stolen. Meanwhile, associate Debbie Leslie of Le Valley Real Estate has cut the price on a home Freddie owns in Flint, Mich., five times this year, from $10,900 to $5,250. The mortgage is $26,250. "We're waiting to see where the floor is," says Leslie.

The negative impact on Fannie and Freddie is predictable. Freddie upped its loan-loss reserves by $125 million the first quarter and reported a $211 million loss. Fannie, still recovering from the accounting scandal that rocked the agency, will undoubtedly have to report similar results when the company finally comes up for air long enough to file.

Source: Business Week, Dawn Kopecki (07/30/2007)