The Latest Housing Crash Gimmick: Fannie's "Sale-Rentback" Nightmare
The situation in housing is taking a turn for the surreal. As of tomorrow, bankrupt Fannie Mae will offer deadbeat housing speculators, aka homeowners who bought at the market peak and now can't pay their mortgage, the option to live in their foreclosed upon home while renting it out on a month-to-month basis from the government. As the WSJ reports, "borrowers-turned-tenants will be able to sign leases of up to 12 months and will pay market rents, which in most cases are lower than the cost of mortgage payments." The catch: Fannie will be able to hold the home as not listed for sale. In essence the shadow inventory of millions of zombie houses will skyrocket overnight, further complicating any objective analyses of how many houses are available on the market (the answer: many, many more than you think, but the exact number escapes us). And with housing still collapsing, and jobs still non-existent, more and more people are likely to take advantage of this latest taxpayer subsidized boondoggle. It is clear now that the Fed will do everything in its power to attempt a reflation of the previous housing bubble, instead of wiping the slate clean. Taxpayer losses be damned: there are investment banks with horrendous balance sheets that need bailing out.
Some more from the WSJ:
Fannie Mae wouldn't say how many homeowners it expects will take
advantage of the program. The company acquired 57,000 properties
through foreclosure during the first half of the year, bringing its
total real-estate owned inventory to 63,000 properties valued at $6
billion. The rental program will allow Fannie to hold inventory off
of already saturated housing markets and makes a bet that the housing
market will be stronger one year from now.
And from some deeply probing, permabullish and procyclical commentary that could come from any of a handful of hedge fund managers who implded last year when the market did the unthinkable and actually corrected:
"I'm sure Fannie is hoping that when they sell the properties, the
values will be higher," says David Berson, chief economist for PMI
Group Inc., a private-mortgage insurer. "A year from now, we should be
a year further into the economic recovery, and housing demand will be
stronger…That will allow you to release homes that have been foreclosed
upon but not put on the market."
While there apparently are some stupid things known as application guidelines, Fannie is sure to take a page from the operations of CFC, New Century and all the other bankrupt companies that considered the popping of the housing bubble a purely theoretical construct:
The move by Fannie follows a program by Freddie Mac that began
offering month-to-month leases to owner-occupants who had lost their
homes to foreclosure. But Freddie continues to market those homes for
sale. The Fannie Mae program differs in one important respect:
foreclosed homes won't be listed for sale. In February, both companies
began allowing tenants whose landlords had lost their properties to
foreclosure to sign month-to-month leases.
Borrowers will have to show that the monthly rent is less than 31%
of their gross income. The program, which will use a professional
management company to handle maintenance, will allow borrowers to renew
their leases on a term or monthly basis and properties that are sold
during the lease period will include an assignment of that lease to the
Some have been so bold as to question the logic of this latest extend and pretend manoeuvre. Then again, if the full staggering size of the shadow inventory were to come to light and buyers were to realize that they have 100 homes to pick from instead of one, the so called housing pick up would disappear as quickly as all those agency bonds that the Fed has singlehandedly gobbled up and no more are left:
In recent months, some industry analysts have been puzzled over why
more homes haven't been put up for sale as the rate of borrowers who
default climbs higher. Well-intentioned efforts to keep families in
their homes have led to delays that some analysts believe is prolonging
the mortgage crisis by creating a "shadow" inventory of pent-up supply
that will ultimately hit the market.
That has prompted some to question the logic of keeping homes off of
the market at a time when demand for bank-owned properties has been
soaring. The number of foreclosed properties for sale in Las Vegas, for
example, has fallen to a less than three months' supply, according to
SalesTraq, a local real-estate research firm. But housing demand
typically falls in the winter, and the number of foreclosures continues
to grow. "We're past the peak of when you would want to sell," says Mr.
At the end of the day the question as always is who wins and who loses. And in the ongoing escalation of the conflict between Wall Street and Main Street, it is once again no surprise on whose side the Obama administration has decided to position itself.