Fannie Mae National Real Estate Price Fixing is Here

     If you are a Realtor or short sale negotiator who has done a short sale with Fannie Mae as the investor during the last few months, this blog post will likely raise a question or two.  For Fannie Mae Real Estate Price Fixingeveryone else, it will definitely also raise an eyebrow or two. Government conspiracy theorists are certainly not a rarity in this day and age. Depending on who you speak to, many of our fellow citizens can come off as paranoid and irrational when speaking about all the secret plans they seem so sure our government and those in power are plotting and planning. While the theory I'm proposing on here is certainly not up to par with the New World Order, Illuminati, One World Government folks, it is certainly some concerning and valid food for thought, especially for those of us in the Real Estate and Mortgage industry.  Take a few minutes to read this blog post, and you'll likely agree and come to find that this really isn't about a conspiracy theory, but a very real and disturbing trend that is happening in our housing market right now.

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     Lets take a step back here and set the stage.  Over the last five to six years, we have seen real estate prices plummet in virtually every market across the country. This reality of the depressed housing market is certainly no secret. In many areas, prices have declined to as low as thirty cents on the dollar. Several years ago, As things became more and more depressed, our government stepped in.  Both Fannie Mae and Freddie Mac, who back the majority of our residential mortgage loans, were completely bailed out by the US government.  This forced overtaking was something that our government had to do, as the imminent collapse of Fannie and Freddie would have meant the complete collapse of the housing and finance industry, likely permanently.  This was extremely important, as instead of giving bailout loans to Fannie Mae and Freddie Mac, like the auto industry or the banks,Government Real Estate Price Fixing they actually took complete control of these organizations.  Our government then established the Federal Housing Finance Agency (FHFA) to "oversee" these organizations which are now referred to as Government Sponsored Enterprises, or GSE's.  Since then, the FHFA consistently dictates policy to these Government Sponsored Enterprises that still back over 60% of residential mortgage loans and completely control the secondary mortgage market.

     Now back to the present.  Fantastic news headlines in much of the country that in many of the markets that were hardest hit, prices now seem to get going up almost as quickly as they were once declining. Inventories are low, demand is high, properties are getting multiple offers from buyers paying over list prices the minute they come on the market.  But for those in the industry such as myself who are active in the short sale and distressed property niche, an interesting and disturbing practice that has been taking place.

Fannie Mae inflated BPO     In very recent times, just in the past few months, short sale agents across the country have been having difficulties with Fannie Mae short sales.  To be more specific, the difficulty has been with wildly inflated appraised property values that Fannie Mae has been insisting on for short sale properties. For those who may not know, we are not talking about regular appraisals, traditionally ordered by a buyers lender in order to justify a purchase price.  In this case, we are talking about appraised values that Fannie Mae places on properties, ordered by them and completed by their own appraisers, utilizing their own appraising and property valuation methods.  Utilizing these over inflated appraised values, Fannie Mae then demands more money for these short sale properties from patient buyers.  Anyone starting to smell the stink yet? Does this stink smell a little similar to the stink we all experienced several years ago with inflated buyer appraisals from before the housing market collapse?

Fannie Mae Inflated appraisal     For the most active short sale agents across the country, the past few months have produced quiet a few headaches with Fannie Mae.  It seems virtually every property valuation and appraisal done by Fannie Mae for a short sale is at least 10%-20% or more above current market value.  Values so inflated, that there are typically no comparable sales at all to come remotely close to justifying their prices.  Prices so high, that it most cases it would be virtually impossible for a buyer to find a loan and get an appraisal that would match the property values and prices that Fannie Mae is demanding.  The ironic part, is that these same buyers' loans who are purchasing these properties would of course eventually be sold off to... You guessed it, Fannie Mae! Because of the massive number of loans backed by Fannie Mae, this is widespread and is effecting a very high percentage of current sales. I manage a short sale broker network of over 12,000 agents and have directly assigned thousands of listings to agents in every State.  Trust me when I say that this is happening everywhere, and is also happening with Fannie Mae bank owned properties as well, as many agents are also reporting.  And when it comes to disputing these inflated values, it can be quiet a challenge for real estate agents and short sale processors to convince Fannie Mae to change their mind and sell the properties for actual market value.

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     Put two and two together, read between the lines, and it makes perfect sense that this is just Fannie Mae's and our policy dictating governments' valiant and likely effective attempt at mass, government controlled real estate price fixing.  Control the supply (market inventory), control the demand (interest rates ect), and then control prices and force up property values by demanding more money.  Fannie Mae and Government controlled real estate price fixing.  The tail wags the dog, and the dog has no clue what is going on.  A perfect example of the reality that housing has become completely socialized, but with the illusion that its just all part of the market cycle.  Just my two cents, for what its worth.


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Comment by Anthony Sherman on January 18, 2013 at 3:21pm

I hope this article and issue gains some serious traction.  It has been discussed in several other posts in the SSN over the past 6 months,.  We lost several FNMA SS files last year due to this same issue here in the Phoenix Market.  Yes, home prices are on the rise here and while I understand Fannie and Freddie want to see higher prices to minimize their losses, I do not understand why they are not accepting these short sales which are at current market value. 

Fannie REOs have been over priced in this makret for well over a year now.  I am also starting to see over valuation with Freddie Mac REOs but since Freddie does not have the Home Path Lendng option, they are more willing to reduce contract price to match appraisal value on their REO properties. 

What I find most interesting is in the recent months announcements have been made about how Fannie and Freddie both have streamlined their short sale processes.  So what...the home owner and buyer will get a quicker response to let them know their market value purchase contract is being denied because Fannie and Freddie want 10-15% above market value???  Property then goes to foreclosure, relisted as REO property 10-15% above market value. then eventually re-sold back at market value.  It's very frustrating!  If this is the policy for Fannie and Freddie moving forward, why bother with trying to process one of their short sales?  It is a waste of time for all parties involved and we certainly are not helping distressed homeowners. 

Comment by Ben Benita on January 18, 2013 at 3:07pm

It may also be in how their BPO strcture is established, though I have NOT researched nor verified.

I do know with 100% certainty there ARE certain BPO agents that DO IN FACT get the short sale property listing if it goes to foreclosure.....

"In Theory" they could have their valuation come in on the high side in order to help force a foreclosure obviously.

not saying they WOULD, but they certainly COULD (like the rest of us, they too have bills to pay, mouths to feed, cars to pay for.....)

As always, just need to know WHO to complain to and how to make a "professional fuss" over poor servicing or a bad valuation.

Keep fighting....GREAT POST MR. LINKENAUGER.....see everyone on the cruise!!!

 

Comment by Mike Linkenauger on January 18, 2013 at 3:01pm

I bet those through Homepath don't have a problem appraising!  Just wait, the next step, especially with Fannie Mae now outsourcing short sale listing assignments, is that they'll offer the SAME buyer incentives on short sales! Appraising at 20% above market value won't be a problem, as long as Fannie Mae appraisers are used!!

Comment by Michael M Phillips on January 18, 2013 at 3:00pm

Perfect observation.  I have experienced this exactly over the past few months, as well as them making ridiculous promissory amounts to the homeowners.  Amounts equal to the deficiency.  What's the purpose of the short sale?  Through experience, everyone needs to hold their ground.  They eventually come around as they know short sale over foreclosure saves them millions.  Also, in terms of value, I have learned never submit an offer for less than you know and can PROVE to be the value.  If they come back with a ridiculous value, contest it.  The best of us are the best problem solvers, NEVER QUIT. 

Comment by Elvia Bahena on January 18, 2013 at 2:56pm

Short Sale through Fannie and Freddie are not the only ones who are having appraisal issues. The same goes for their REOs.  You get one into escrow and it doesn’t apprise – some of the asset managers want the buyer’s to pay the difference. The biggest price fix is through Fannie - use Home Path lending (which is Fannie) and the appraisal is waived.

Comment by Tamilyn Simard on January 18, 2013 at 2:44pm

Mike, I could not agree with you more. I am going through this exact problem with a Fannie owned loan. Their appraiser came back with a figure that cannot even comp out for my short sale listing. Their figure is 15% off of what is selling in the area. Last month I represented a buyer going FHA on a FNMA owned property and the FHA appraisal came back 20% lower than their list price. FNMA actually dropped their price to the buyer's appraised price and we closed escrow. But you are right on the money Mike, this is happening and I have experienced twice just in the last 4 weeks. As Brokers, It seems to me we need to be adrressing this issue as quickly as possible with the NAR and our local associations legal departments. We are a voice that can and should be heard. It appears that their nasty tactics are back since the Government lawsuits have all been settled. There is no one that they have to be accountable to and its dejavue all over again.

Comment by Mike Linkenauger on January 18, 2013 at 2:21pm

We would be fighting the government.  NOT an easy task.  Remember however, between us here and partnerships with other organizations, we have access to reach virtually every active short sale agent in the country, should a national effort ever be spearheaded...  But... I think its futile!

Comment by Amos Elroy on January 18, 2013 at 2:16pm

Hmmm, you may have a point there in a way.

The only thing is that Fannie Mae also suffers from the foreclosed property inventory they help to build up, and that can't be good for the market either. Could it be offset by the driven up prices in the marketplace?

Comment by Evelyn Santiago on January 18, 2013 at 2:09pm

Spot on!  Just tried doing a Fannie Mae short sale with SunTrust.  Despite everything going along rather smoothly everything fell apart last week.  Besides the fact that SunTrust foreclosed on the property last Thursday without telling myself, Loss Mitigation Dept. or homeowner they also sent the homeowner a notice that the offer was insufficient by over $35K.  All my comps showed we were right at market value for a home that was in the middle of a rehap and still had a kitchen to be finished, master bedroom flooring to be done, light fixtures, trim and some other details.  Cash offer from buyer for $240K - Fannie Mae price $275K....homes that were in move in condition were not getting those prices!

 It's going to be a very challenging year for us!

Comment by Jason M Halliday on January 18, 2013 at 2:04pm

Hey Mike,  

 

I love the fact that you have the integrity to post this on the network.  This is a major problem.  I closed 43 short sales last year and lost 5 of them.  the 5 I lost were all FNMA and all because of price fixing.  Showing objective appraisals to fnma everytime...and they chose to foreclose on all of them and relist as REO and then reduce the price back down to the original short sale offer later on.  If anyone has the tenancity to file a lawsuit...I and my sellers would be happy to jump on board.  I have all of my files documented extremely well.  I figure with the 1000's of short sales we do across the nation...it would be easy to find 2-3,000 examples to present to the attorney general and other governing parties. 

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