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Diluted real estate values by Fannie Mae

August 23, 2011

Fannie Mae and Freddie Mac are selling hundreds – possibly thousands – of foreclosed properties in metro Detroit for far less than they seem to be worth, a practice that leaders say is driving down neighborhood property values and weakening neighborhoods. But this could happen anywhere, even in the Cape Coral Real Estate market.

In some instances, properties listed by the government-financed mortgage giants are becoming snapped up by private investors, then re-sold within days or weeks for far much more dollars.

Neighborhood officials blame the federal government – which took control of Fannie and Freddie in 2008 at a price to taxpayers of at the very least $141 billion – for performing little to quit the fire sales.

“It’s an unconscionable practice,” said Oakland County, Mich., Treasurer Andy Meisner. “It’s fiscally irresponsible from their perspective because they’re finding pennies on the dollar, and it’s fiscally reckless from our perspective” simply because Fannie and Freddie “are nearly single-handedly … killing our property values.”

Meg Burns, chief of policy in the Federal Housing Finance Agency, which regulates Fannie and Freddie, acknowledged the two businesses are eager to sell foreclosed homes as quickly as probable. But she said the aim is always to stop vacant homes and neighborhood deterioration, not to destroy property values.

A Detroit Totally free Press investigation, including an analysis of more than 700 genuine estate transactions within the past year, finds that Fannie and Freddie are selling foreclosed homes, on typical, for one-third much less than the homes’ already-deflated market value in some places, and at much less than half of marketplace value in other neighborhoods.

Critics say the low list costs are part with the companies’ rush to get foreclosed houses off their books even though U.S. taxpayers are still covering the mortgage giants’ losses, three years soon after the federal government bailout.

In February and March, 34 Fannie and Freddie properties in Southfield, Mich., had been sold by the mortgage giants for 55 percent of their marketplace value, on average, property records show.

In Farmington, Mich., and Farmington Hills, Mich., 30 houses sold at 66 percent of their industry value.

And 75 Fannie and Freddie homes in Warren, Mich., sold for an typical of 45 percent of their marketplace value.

The cost tags on some home sales were equally jaw-dropping. Take these examples in Oakland County:

• A foreclosed Ferndale house having a industry value of much more than $70,000 was sold by Fannie for $11,100 in February.

• A Waterford residence valued at $73,000 was sold by Fannie for $8,619 in January.

• Freddie sold a Milford Township home on five acres for $101,000 in 16 days. Its marketplace value was practically twice that: $194,300.

Oakland County Deputy Executive Bob Daddow known as the sales a “travesty” which have helped house values fall by a third given that 2007, costing local governments tax revenues.

“It crushes our budgets. … We’re totally revamping government as we once knew it,” Daddow mentioned.

Critics say Fannie and Freddie can sell properties far below their value simply because, under the terms of the companies’ 2008 taxpayer bailout, taxpayers cover the price of their losses.

Moreover, since the mortgage giants dominate the nearby industry of distressed property sales, ordinary homeowners and other sellers of foreclosed properties are forced to compete with their prices, further driving down property values and neighborhood tax revenues.

The situation is particularly acute inside the region’s poorest cities. In Detroit, 49 Fannie properties sold this summer at 22 percent of marketplace value, on average.

And across Wayne County, Fannie Mae properties went at fire-sale rates, records show:

• $2,500 for an Ecorse house that is valued at $60,000

• $45,000 for a Livonia residence valued at nearly $100,000

• $11,000 for a home in Westland valued at $56,400.

Wayne County Executive Robert Ficano mentioned the U.S. Treasury Department, which is bailing out Fannie and Freddie, ought to investigate the sales and “hold individuals accountable for things that just don’t make widespread sense.”

Similar complaints echoed from Macomb County, Mich.

“It’s fundamentally clear to me that the federal government is … dumping them in the marketplace,” Warren Mayor Jim Fouts mentioned with the residence sales and also the blight that follows. “It’s developing some unacceptable troubles for cities like Warren,” which is situated in Macomb County.

Across Macomb County, Fannie Mae appears to be selling on the cheap: $29,000 for a Fannie property in Harrison Township valued at $152,240; $18,000 for a Fannie property in Eastpointe valued at $64,120.

Burns, the official at the Federal Housing Finance Agency, disputes that the mortgage giants are dumping properties, arguing they’re merely attempting to stabilize neighborhoods by keeping properties from sitting empty.

“Our overarching concern is vacant properties sitting in the marketplace for too lengthy.”

An FHFA spokeswoman, Corinne Russell, added that Fannie and Freddie have procedures to ensure that sales of foreclosed homes are “sound and that each and every effort is made to preserve the assets, helping to defend the community from destabilization and decline.”

Fannie Mae spokesman Andrew Wilson stated the firm usually bases its listing price on an appraisal and the recommendation of a broker.

“Once a value has been established … our advertising efforts are mainly focused on finding buyers for our properties at a cost that promotes neighborhood stabilization,” he stated. “Our No. 1 goal is to sell to owner-occupants who will move into the neighborhood and help to stabilize the community.”

Wilson declined to answer other questions about Fannie’s practices or address the metro Detroit residence sale data compiled by the Detroit Free Press.

Freddie spokesman Brad German mentioned he rejected “assertions that we’re selling at uncompetitive rates.”

Nationally, during the very first quarter of 2011, German said Freddie Mac properties sold at 92 percent of industry value, as determined by market sales.

“We stand by our pricing and advertising strategy, which is helping us reduce losses while becoming excellent stewards of taxpayer resources and supporting the housing market,” German mentioned.

German also took concern using the Totally free Press analysis, arguing that the assessed value of a property does not usually capture elements that may lower the price the house is ultimately sold for, such as the existing condition with the property as well as the industry.

But Dearborn, Mich., appraiser Jumana Judeh stated assessed value – used in component to figure property taxes – remains “an superb reflection of the market.”

Wayne State University law professor John Mogk, an professional in actual estate and urban development, also referred to as assessed values a valid benchmark and “a reasonable normal to utilize.”

In Michigan, the assessed value is supposed to be half the market value of a property. Independence Township, Mich., appraiser Louise Braun used twice a home’s assessed value as her benchmark to compare Fannie and Freddie sales of foreclosed homes against the sale of other single-family houses in many Oakland County communities.

• In June, as an example, Fannie and Freddie foreclosures sold at 67 percent of the marketplace value in Berkley, on typical. Non-foreclosed houses in Berkley sold at 96 percent of market value, on typical.

• Fannie and Freddie homes in Orion Township and Lake Orion sold, on typical, for 70 percent of their value. Non-foreclosures sold at 114 percent of industry value.

• And in Independence Township and Clarkston, the Fannie and Freddie homes sold, on typical, for 76 percent of marketplace value, compared with the non-foreclosures that sold for 108 percent of industry value, on typical.

Georgia Institute of Technologies accounting professor Charles Mulford, who research how companies report their finances, said Fannie and Freddie really feel no compulsion to maximize profits now that they are controlled – and subsidized – by the government. The organizations, he mentioned, are a lot more thinking about getting troubled mortgages, such as foreclosed homes, “off the books so they are able to start anew, making new loans, loans which are much more profitable.”

Dwayne McLachlan, president of the Michigan Assessors Association as well as the Pittsfield Township assessor, mentioned the impact of depressed home sales on communities might be devastating.

“All it takes is 1 low sale in a neighborhood to corrupt that industry for that (subdivision) or website condo complicated,” stated Braun, the Independence Township appraiser.

Time and once more, location property records show, investors are snapping up low-ball listings by Fannie and Freddie and turning a speedy and sizable profit, an indication that the mortgage giants are listing the properties for far too little, actual estate experts stated.

Ted Phillips, executive director with the United Community Housing Coalition, a Detroit advocacy group for low-income housing, stated he has seen Fannie Mae refuse to allow homeowners to remain in a property for less than what they owe on a mortgage – only to sell the property to an investor for far less than what the struggling homeowner had offered to pay.

“Then you’ve got another slum rental property in the community. If they’re using tax dollars, why aren’t they employing tax dollars efficiently?” he mentioned.

“Even the worst slum landlord understands that standard concept. Why wouldn’t you take the $10,000 from the homeowner? But they are going to take $2,000 or $3,000 from an investor?”

Freddie Mac sold a Warren property on March 15 for $31,000. The home resold 10 days later for $45,500. The city says no creating permits were pulled, indicating that it was unlikely the buyer produced any large improvements before reselling the house at a 47 percent profit.

Fannie Mae sold an Auburn Hills, Mich., residence in June 2010 for $45,000. It was resold for $129,900 in January. No permits were pulled on that home, either.

That property was among 38 Fannie and Freddie properties that were resold, or “flipped,” in Oakland County throughout the very first four months of 2011. The houses fetched, on average, twice what Fannie and Freddie received for the houses.

While resales by investors may help stabilize housing prices, critics say the U.S. taxpayers who bailed out Fannie and Freddie are the ones being shortchanged when these houses are listed for much less than what they may possibly fetch.

“It’s another indicator the selling cost just isn’t representative with the market,” mentioned Philip Mastin, director of assessments and equalization for Wayne County, who mentioned Fannie and Freddie homes are getting resold at practically double the original cost in his county.

Listings of Fannie and Freddie properties show that the mortgage giants were ready to sell some houses for much less than what comparable properties in the identical neighborhood fetched, records show.

For instance, Fannie listed a four-bedroom property in Troy, Mich., at $141,000 in March, despite the fact that 4 comparable or smaller properties nearby sold for roughly $160,000. The Fannie house was available on the market for three days ahead of it had a buyer for $170,000 – practically $30,000 above its list price.

Freddie Mac was willing to take $153,900 for a property in South Lyon, Mich., last spring, although there was a almost identically sized home in that subdivision listed at the exact same time for $193,000 and a smaller residence for $164,900. Freddie got $155,000 for its property; the other sellers got $179,000 and $165,500.

German, the Freddie spokesman, stated the mortgage giant’s properties sell in an average of 110 days nationally. But in metro Detroit, Freddie’s own numbers show that its properties are selling far far more swiftly – in roughly 50 days. Property specialists say that indicates the houses are listed too low.

With the 72 houses that Freddie contracted for sale in Oakland County in April, 58 had been available on the market for less than a month prior to buyers signed contracts, based on information compiled by Braun.

One with the Freddie foreclosures, in Springfield Township, Mich., was supplied in the Multiple Listing Service at 9:19 a.m. on April 11 for $38,900 – despite the fact that its industry value was $123,000. Within 24 hours, somebody had a contract to purchase it for $42,500.

Judeh, the Dearborn appraiser, mentioned homes normally require three to six months of marketing and advertising. “And if you do not marketplace them effectively, it becomes dumping, not selling, and there’s an enormous difference,” Judeh stated.

Through Might, house rates in metro Detroit have fallen 38 percent because 2000, based on the S&P/Case-Shiller property cost index. As Fannie and Freddie contribute towards the downward spiral in property values, tax revenues fall, too.

In Eastpointe, property values have dropped 54 percent because 2008, and Linda Weishaupt, assessor and deputy city clerk, blames foreclosures for much of that decline.

Because 2009, property values have dropped 21 percent in Rochester Hills, Mich., and the city expects yet another 10 percent reduction over the next two years, said Keith Sawdon, city finance director.

Erik Ambrozaitis, a Rochester Hills Realtor and mayoral candidate, said the decline in revenues is “the crisis. The roads in front of my house are starting to crumble. As a Realtor, I’m deeply concerned. As a homeowner, I’m really concerned. As a former council member, it is a disaster.”

Mastin, the Wayne County official, said even if home costs recover, communities won’t recoup lost revenues quickly.

“We will never be able to recover what’s been lost,” Mastin said. “What’s been taken away has been taken away.”

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