Saturday, August 7, 2010

I still can't believe we did not see this coming...........

Bill McBride takes a peek at Fannie Mae's inventory- here.

REO means 'real estate owned', which means the lender has
foreclosed, was the winning bidder at the Sheriff Sale auction,
and now has title to the property. (Or maybe the lender
accepted the deed in lieu of foreclosure- regardless the lender
now owns the real estate.)

Fannie Mae's REO inventory doubled between the second
quarter of 2009 and the second quarter of 2010.  For what
it is worth, it has quadrupled since 2007.

There is a whole bunch of taxpayer money tied up in this
REO.   But..............................

Before we get too upset with our government, it might be
useful to read Wikipedia's entry on Fannie Mae.  The relevant
section is here:

"The corporation's purpose is to expand the secondary mortgage
market by securitizing mortgages in the form of mortgage-
backed securities, allowing lenders to reinvest their assets into
more lending and in effect increasing the number of lenders in
the mortgage market by reducing the reliance on thrifts."

Fannie Mae has proven to be extraordinarily effective at
providing this core mission.  The ready availability of mortgage
money since the Savings and Loan Crisis of the late 1980's is a
testament to this effectiveness.

One could argue that it was foolish of the government to lower
lending standards in order to expand the pool of home buyers. 

We should just remember that it was that expanded pool of
home buyers that enabled the run up in housing prices in the first
seven years of the past decade.  And it was that run-up in
housing values that enabled so much of the consumer driven
economic growth of that same time period.

Fannie Mae et. al. threw a party.  Many of us experienced
considerable enjoyment at the party.  We just neglected to
remember that we would have to pay for the clean-up.

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