GSEs and their REOs

[moh malekpour]

http://www.housingwire.com/2008/07/23/bloomberg-discovers-the-REO-industry/

It costs creditors such as Fannie Mae 2 percent of the value of the property every month in taxes, insurance, utilities, lost revenue, maintenance, management and cleanup after vandalism, Williams estimates.

Williams is referring to what’s known in the trade as cost of carry, and I’ve seen estimates ranging from 2 to 2.5 percent of unpaid principal balance — not “the value of the property,” as Bloomberg suggests, which would suggest declining carry costs right now in many markets when the exact opposite is taking place. I’ve also started to see cost of carry estimates reach up to 3 percent in certain cases lately, depending on where a portfolio of loans is concentrated and the investor behind a deal. In Fannie and Freddie’s case, the cost of carry is probably on the higher end of the spectrum, since the GSE’s disposition operations like to actively repair and maintain properties (part of selling to owner/occupants, as opposed to investors).

But cost of carry isn’t the only reason that loss severity is likely increasing for the GSEs — home price declines are eating away at any recovery value tied to the property itself, as well, and it’s doubtful that either GSE will hold onto properties long enough to see property values recover.

While the GSEs don’t disclose loss severity — and that’s one change I’d love to see made, given that these are government-regulated entities, after all — the above should illustrate why loss severities have been rising in the private-party market. I’d doubt that Fannie and Freddie are immune from a similar jump.

Nor are they immune, apparently, from an influx of inexperienced agents that are easily able to get REO listings assigned simply because of the sheer volume or work to be had:

Part of the difficulty for all owners of foreclosed property, and not just Fannie Mae, is a shortage of qualified agents in the field who can sell the homes efficiently, said Jesse Ramirez, a broker associate at Re/Max Partners Real Estate in Corona, California.

“They are all recent college grads without experience,” Ramirez said. “They have 300 files each and they’re overwhelmed. They don’t understand how the typical transaction goes. These people didn’t have jobs two years ago, not doing this.”

 

[Randolph Kinney]

If the GSEs don't cook their books to make their losses look better than they are, as we go forward by quarter, the losses will increase significantly.

 

[Marcia Langley]

The feds, regulators, et al are complicit with the financial institutions in cooperating in keeping as much off the balance sheets as possible for the purpose of still trying for what could be later called a soft landing.

If the truth all came out at once, last week would seem like a bull market.

I am terribly afraid of what the unknown losses are and will be but I am equally afraid of it all crashing down in one day.

I'm glad I'm not the one(s) calling the shots.