Fannie Mae and Freddie Mac have been hit so hard, they now own more than one out of nine foreclosed homes between them. This according to recent regulatory filings from the companies as well as data provided by RealtyTrac. The inventory of homes owned by the government-controlled mortgage companies has almost doubled in the last year. Fannie Mae owns nearly 65,000 properties and Freddie Mac owns almost 30,000. Together they own about as many homes as there are in the entire city of Madison, WI. And, because the companies halted the filing of foreclosures over the last 2 quarters, both expect their inventories to rise sharply in the next few months.
While providing hopeful news for strapped homeowners, as the companies will be enthusiastic to offer loan modifications and short-term loans, this could be bad for taxpayers. The management of distressed properties boils down to limiting the amount of money lost. Because their primary goal under the government's control is to aid in stabilizing the distressed real estate market, Fannie and Freddie will probably lose more than profit-driven firms would allow. In a move with results yet to be determined, they recently launched programs to keep those who've been foreclosed on in their homes by allowing them to rent the homes at the going rate. While Freddie will allow former owners rent indefinitely, Fannie will list the property for sale, and the former owner can rent it until it's sold.
Fannie quotes around 1,800 homes already eligible for their program, with hundreds mores lease applications currently being processed. Freddie declined to comment on how many homes are currently or expected to qualify for its program. But functioning as a landlord can be extremely difficult, especially without power to choose tenants. There are upkeep costs and many other issues, and market rate determined rent doesn't even cover property taxes in some areas. Under a best-case scenario, the companies will turn bad loans into income generating assets, with the value of their properties holding until the market rebounds. On the other hand, the companies' venture into the landlord business could go badly, costing taxpayers a lot of money. Freddie's program will effectively limit the rise in foreclosed properties listed for sale. Both companies have expressed a desire to increase their renting programs. The programs also will have the effect of limiting the fall of property values, as it limits how many homes will be hitting the market.
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