The cost of seizing Fannie and Freddie surges for taxpayers
In his New York Times article, Binyamin Appelbaum discusses how the cost of seizing Fannie and Freddie surges for taxpayers. Fannie Mae and Freddie Mac owned 168,828 houses (roughly one new home every ninety seconds) at the end of March. Created by Congress, they have become “the nation’s largest landlords.”
Bill Bridwell, a real estate agent in the desert south of Phoenix, is among the thousands of agents hired nationwide by the companies to sell those foreclosures, recouping some of the money that borrowers failed to repay. In a good week, he sells 20 homes and Fannie sends another 20 listings his way. “We’re all working for the government now,” said Bridwell.
As it turns out, Fannie and Freddie were channeling money into loans that borrowers could not afford. As defaults mounted, the companies quickly ran low on money to honor their guarantees. The federal government, fearing that investors would stop providing money for new loans, placed the companies in conservatorship and took a 79.9 percent ownership stake, adding its own guarantee that investors would be repaid.
The huge and continually rising cost of that decision has spurred national debate about federal subsidies for mortgage lending. Republicans want to sever ties with Fannie and Freddie once the crisis abates. The Obama administration and congressional Democrats have insisted on postponing the argument until after the midterm elections.
Selling a house generally costs the government about $10,000. The outsides are weeded and the insides are scrubbed. Stolen appliances are replaced; brackish pools are refilled. And until the properties are sold, they must be maintained. Fannie asks contractors to mow lawns twice a month during the summer, and pays them $80 each time. That’s a monthly grass bill of more than $10 million. All told, the companies spent more than $1 billion on upkeep last year.
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