Fannie Mae, Freddie Mac play role in rapid foreclosures

Fannie Mae, Freddie Mac play role in rapid foreclosures

March 11th, 2012 in Opinion Free Press

"Greed" is Washington politicians' all-purpose accusation when a financial institution takes any adverse action -- especially when it comes to foreclosures that hit millions of homeowners the past few years.

Too often ignored is the federal government's direct role in the foreclosure crisis. Among other things, the government pressured lenders to make loans to risky borrowers.

But government-controlled mortgage giants Fannie Mae and Freddie Mac are also a big part of the reason why borrowers with relatively small loans are being foreclosed on far faster than borrowers with big loans.

"[B]anks tend to keep larger mortgages on their books, while smaller mortgages are more likely to be bundled into securities and later resold to investors with backing from Fannie Mae and Freddie Mac," The Wall Street Journal reported. "Fannie and Freddie ... set strict foreclosure timelines and will fine mortgage servicers that are found to be needlessly delaying the foreclosure process."

What's the result of Fannie and Freddie's push for rapid foreclosures? Well, it takes on average 611 days for foreclosed homes to be repossessed if their loan balances are below $250,000. But it takes 792 days before a home on which more than $1 million is owed is repossessed.

So a person with a smaller mortgage will likely get to stay in his house six months fewer than a person with a large mortgage -- and Fannie and Freddie are largely to blame for that disparity.

Yet politicians continue to blame the housing mess almost entirely on the private sector, not government.

That's grossly misleading, at best.