Fannie Mae: Helping or Hurting Homeowners?

Another instance of tax payer bailout dollars backfiring against the citizens of Main Street?

The Detroit Free Press went live with a controversial story yesterday that appears to suggest that Federal mortgage giant Fannie Mae has been pushing banks to foreclose on homeowners rather than continue negotiating loan modifications.

The Detroit Free Press disclosed that it has received 2,300 internal records and memos from Fannie Mae. These documents include some incendiary language that could be interpreted as advocating for lenders to proceed to foreclosure sales rather than allow time for modifications to be finalized.

Perhaps even more damning, Fannie Mae may have threatened lenders who waited too long before initiating foreclosure proceedings with penalties.

Members of the Michigan state bureaucracy aren't mincing words. Take a look at what Curtis Hertel, Ingham County Register of Deeds said in the Michigan Messenger:

"I am thoroughly disgusted by the actions of Fannie Mae," said Hertel, who is currently suing the mortgage giant over claims that they failed to pay Ingham county millions of dollars in title transfer taxes. "What these internal documents show is that while Fannie Mae was being bailed out by taxpayers they were systematically pushing for citizens to be foreclosed. The reason for this is even worse. Right now we as taxpayers pick up the cost of every foreclosure, because we pay Fannie Mae's loss in the foreclosure process. In other words they actually get paid more for a foreclosure than for a reasonable modification."

Fannie Mae spokesperson, Amy Bonitatibus, provided an official comment on the Detroit Free Press story:

"Fannie Mae has one of the country's largest foreclosure prevention operations. We have helped more than 874,000 homeowners avoid foreclosure through loan modifications and other workouts since 2009. We're committed to helping struggling homeowners and preventing foreclosures whenever possible and, when foreclosures are unavoidable, putting properties back to productive use to help protect property values. We have a responsibility to be good stewards of the resources we've been provided.
We hold servicers accountable and expect them to reach struggling homeowners early. We incentivize them to complete loan modifications. They don't get paid anything for foreclosing on a homeowner. Ultimately, our goal is to help families and stabilize communities, and build a stronger foundation for the U.S. housing market."

Bonitatibus insists that the Detroit Free Press mischaracterized the Fannie Mae memo written by Javid Jaberi, vice president of strategic servicing management, in which he lays out the company's "loss mitigation goals" for PNC-National City Mortgage Servicers. She says that these are not "mandates" but projections based on two years of number-crunching through the housing downturn.

Fannie Mae seems concerned that the examples used by the Detroit Free Press were delinquent 13 months to as long as three or four years, as if these folks aren't deserving of a loan modification because they are so far behind in paying their mortgage.

Good grief. There are folks who have commented on my Loan Modification Hell posts who have been waiting equally long for their lenders to transform their "temporary loan mods" into permanent ones. (If you recall, President Obama said it would happen after three on-time payments.)

It is generally accepted in the mortgage servicing world that seriously delinquent loans (those more than 90 days late with their mortgage payments) almost never "cure" (the industry jargon term for catching up on those payments) without some sort of serious help.

But I have heard from thousands of readers about how they've been denied loan modifications specifically because Fannie Mae was involved with the loan. (Check out the comments on Loan Modification Hell: The Horror Stories Continue for a taste.)

From my years of reporting on real estate, I know that Fannie Mae rules state that lenders have to stop foreclosure proceedings to try every way possible to get a loan modified.

I also know that this doesn't always happen. Loans slip through the cracks all the time.

The real question: Are those loans really slipping through the cracks or is Fannie Mae pushing them?
There are so many people who need help and so few who are being helped: 13.9 million unemployed, with an official unemployment rate of 9.1 percent. The true picture of unemployment and underemployment is nearly 17 percent.

But Fannie Mae has only approved fewer than 900,000 loan modifications.
When you look at the hurdles the mortgage servicers have created to loan modification - including poor and uneven training, not hiring enough people, technology that doesn't really seem to work, and not empowering people to make good deals happen - coupled with the hundreds of millions of dollars in bonuses on the table each year in this business, you have to wonder whether the loan servicing industry (which makes money while a loan is in default, and thus has an incentive to continue to leave borrowers there rather than pushing through a loan modification) has just decided to play the waiting game, reaping profits along the way.

Who cares if they hurt homeowners and even their investors?

I think it's entirely possible that Fannie Mae is suffering from an extreme case of poor communication. When you start warning people that information is confidential, you set up a scenario where someone is going to point the finger and say you're hiding something. Why should any of this information be confidential if all you're talking about is a regular projection based on past performance?

But there could be a lot more to the story.

As this story develops, there are a couple of possible outcomes should the allegations turn out to be accurate. If the law was not followed properly, thousands of foreclosures could be overturned. And on the larger scale of public opinion, already tipped toward anger at all things government, I'm wondering if we're nearing a tipping point of sorts.

I'm also amazed that a business that now owes the U.S. government more money than it could hope to repay in a decade of profits, still is traded on the stock exchange and holds out the hope that it might one day be a privately run company again.

Fannie Mae says if you need help with your loan modification, you should call 1-800-7FANNIE and someone will "research your loan." (If you try it, let me know what happens.)
Do you believe Fannie Mae was encouraging foreclosures rather than loan modifications? Are they helping or hurting homeowners?

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Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com and The Equifax Finance Blog, and is Chief Content Strategist at RealtyJoin.com, a community for real estate investors.

Ilyce Glink

Ilyce R. Glink is an award-winning, nationally-syndicated columnist, best-selling book author and founder of Best Money Moves, an employee benefit program that helps reduce financial stress. She also owns ThinkGlink.com, where readers can find real estate and personal finance resources.

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