Fannie Mae and Freddie Mac are driving down home prices and may be making the housing market much weaker than it actually is, according to the Detroit Free Press
In a series focusing on the Detroit metro area housing market, the newspaper said the two giant lending companies, now controlled by the federal government, are selling hundreds of foreclosed homes for as much as a third to 50 percent less than what they appear to be worth, in an effort to clear their books of bad loans as quickly as possible.
The report is indicative of what officials in other areas of the country have suggested of the two government-backed mortgage companies — and some private lending institutions — as housing prices have continued their decline nationwide.
Detroit officials are blaming the federal government, which bailed out Fannie and Freddie in 2008 at a cost to taxpayers of more than $141 billion, for allowing “the fire sales” to continue.
The officials say the loan giants have created a situation where taxpayers are continuing to lose money by covering loan losses, while private investors, who are scooping up the short-sale houses, are making a killing by reselling them at higher prices.
In defense of the practice, an official with the Federal Housing Finance Agency (FHFA), which regulates the two loan outlets, said the aim is to sell off foreclosed properties quickly to prevent neighborhoods where foreclosed home are sitting vacant from deteriorating.
The intention is not to destroy property values, Meg Burns, chief of policy at the FHFA told the paper.
But in an interview with the Free Press, Georgia Institute of Technology accounting professor Charles Mulford, said Fannie and Freddie will feel no urgency to maximize profits as long as they are subsidized by the government.
For the moment, he said, they are only interested in getting bad loans off the books “so they can start anew, making new loans . . . that are more profitable.”
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