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Fannie' Fake "Home Saver," a 41% Failure Rate



August 08, 2008 – Comments (5)

This Bloomberg article is scary.

Instead of writing down some loans when they go bad, Fannie is giving the homedebtors another loan to get them current on the first one. (Yeah, I don't know how that's legal/ethical/logical either.)

What the wishful thinkers in oversight are considering it is a "workaround" technique. Let's call it what it really is: an attempt to anchor in depreciating assets all those bagholders who would be better off walking away and leaving jingle mail. 

Best of all? A large number of the housing bagholders either know the extra dough won't help, or don't give a rats, and don't use it to stay current on those first loans! Giving deadbeats another loan to pay off the delinquent sum on the first one fails an astonishing 41% of the time.

Ticktock, everyone. How long until Hanky P. puts the taxpayers into Fannie?


5 Comments – Post Your Own

#1) On August 08, 2008 at 6:39 PM, DemonDoug (31.18) wrote:

By the end of the 4th quarter, no later.

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#2) On August 08, 2008 at 6:42 PM, jester112358 (28.24) wrote:

This quote from the article said it best:

 ``This whole mortgage modification business, and HomeSaver fits into it, remind me of a wonderful saying back in the '80s during the S&L mess: `A rolling loan gathers no loss,''' Bert Ely of Ely & Co., a bank consulting firm in Alexandria, Virginia, said today. 

Nice post.

 That's how California tried to get out of its debt problems:  issued more bonds, pushing off the time of reckoning into the future.  Could work, if we get that big earthquake geologists have been predicting for awhile!  Then the real estate depreciation problem takes care of itself. 

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#3) On August 08, 2008 at 7:14 PM, devoish (77.59) wrote:

Xmas gift to Obama?

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#4) On August 08, 2008 at 11:11 PM, rd80 (95.85) wrote:

From "offer the debt to cover borrowers' missed payments" it sounds like Fannie isn't passing out fresh cash, but rolling payments in arrears into this new loan. 

IOW, 41% of the time this is an accounting gimmick that delays when they have to take a write down on the loan.

IF (big if) all they're doing is rolling missed payments into a new loan, it's not much different than some of the workouts mortgage lenders routinely make and the only cost of failure is a few months delay in foreclosure.  For the borrower who planned on jingle mailing the keys, it's basically a few months rent free living.

IF (another big one) they're able to keep people out of foreclosure in 59% of the cases, there's some merit to the program. However, I see that 59% are current as of June for loans made in May.  Need a little more than a one month track record before declaring victory.

Need more info than what's in the article, but if I'm reading it correctly, the only new debt the homeowner takes on is for the back interest and late fees.  Hypothetical:  homeowner is 6 mos. behind on a $2500/mo mortgage.  homesaver writes them a $15k loan which is used to get payments current, no new money issued.

Fannie's accounting could be very, ummm, interesting - it's possible they just shifted a big writedown to a new $15k asset.  Neat trick.  Probably called 'fraud' if you or I tried something similar.To be clear, I have no idea how the accountants handle it, but....


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#5) On August 09, 2008 at 3:16 PM, nuf2bdangrus (< 20) wrote:

And other banks are chaning their accounting rules on what is considered pending chargeoff from 120 days to 180 days 9Wells Fargo) thus falsely  underreporting chargeoffs. 

The market will not respond so kindly when these things finally get written off.


FNM and FRE are corrput, incompetant, and have been unable for years to provide audited financial statements.  That any shareholder would own such garbage is beyond me.


Moreover, their failure will make mortgage rates go up when the rest of the world sees the US taxpayer on the hook.   

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