More housing news about Freddie and Fannie this time. The interesting thing about this is that they obviously are not pushing short sales as hard as they should be, maybe some of those short sale initiatives aren’t working as planned?
The article comes courtesy of Michael Kraus, who makes a few interesting observations: (a more detailed breakdown of the numbers can be found at REO Insider Magazine)
The losses taken by Fannie Mae and Freddie Mac are becoming an old hat at this point. Every quarter, we expect to see a loss and an accompanying request for more money from the treasury (thus far we are up to about $150 billion). A slightly more novel phenomenon is the rapidly mounting number of REO properties owned by Fannie and Freddie.
Fannie and Freddie broke an ignominious record in the second quarter, they now have a record amount of REO inventory on their books. I imagine this is a record that will be broken several times in the future.
We agree, but what does this mean? Does it mean that the efforts of Fannie and Freddie to process more short sales is falling flat? We all know that short sales typically minimize losses for the lender.
Some quick facts about Fannie and Freddie’s REO portfolio from the article:
- Loan modifications are up 123 percent from last year, but REO inventory is rapidly mounting.
- Freddie’s single-family portfolio is up almost 85 percent, the multi-family holdings are nearly doubled.
- Forbearance agreements are up a staggering 655 percent.
- Short sales completed by Freddie are up 180 percent from the first half of 2009.
- Freddie did actually make money on REO in the second quarter, netting $40 million in profits, as compared to losses of $159 million in the first quarter.
There are a lot of other interesting facts in the article, which is worth reading in the entirety. The takeaway is this: REO inventory is stacking up at Fannie and Freddie, and likely is mounting at other lenders as well. This is yet another sign of the burgeoning shadow inventory, which will be ultimately make its way to the market. This overhang of houses will cause home prices to decline.
At this point, with all this inventory still out there, we might almost be ready to put a stake in the ground that 2011 will also be the Year of the Short Sale!
