By Julie Schmit and Stephanie Armour,
Taxpayer-funded Fannie Mae and Freddie Mac have spent more than $2 billion this year on foreclosed property expenses after acquiring tens of thousands of homes through foreclosures.
The mortgage giants owned more than 240,000 foreclosed homes on Sept. 30, they reported last week. That's about 25% of all lender-owned homes in the U.S., according to RealtyTrac.
Fannie and Freddie, which buy mortgages from lenders and package them into securities to sell to investors, own or guarantee half of all U.S. mortgages. Together, they have more than twice as many foreclosed homes now as they did this time last year, with a combined value of $24 billion.
The U.S. Treasury has invested $148 billion in preferred stock in Fannie and Freddie — and received almost $17 billion in dividends — since taking them over two years ago. Their losses have narrowed, but further Treasury investments are expected. Excluding dividends, the government's cumulative cost could range from $142 billion to $259 billion by December 2013, estimates their regulator, the Federal Housing Finance Agency. Invested...come on!
The longer foreclosed homes stay on their books, the larger taxpayers' expenses will be. "Taxpayers are covering their losses. We are the ultimate deep pocket," says Lawrence White, a New York University economics professor.
As of Sept. 30, Freddie Mac owned 74,897 foreclosed single-family homes, up 82% from a year ago, according to its third-quarter financial report. From January through September, Freddie spent $842 million — vs. $480 million in the same time last year — on properties acquired in foreclosures. Costs include legal fees, insurance, taxes, cleaning and maintenance, Freddie said last week.
Fannie owned 166,787 foreclosed single-family homes on Sept. 30. Its foreclosed property expenses approached $1.3 billion from January through September.
Those include costs to clean and maintain homes and accounting adjustments reflecting reduced values of those properties, says Fannie spokeswoman Amy Bonitatibus.
Freddie and Fannie set limits on what they'll pay companies to clean and maintain homes or real estate firms, who hire contractors to do the work. Freddie, for instance, pays up to $400 for an initial cleaning of a foreclosed property and up to $125 to have the grass cut twice a month in the summer.
Freddie's and Fannie's property costs are likely to rise as more houses go into foreclosure.
Properties also may take longer to sell because of state and federal investigations into whether foreclosure documents were properly executed.
That could "prolong the foreclosure process nationwide and may delay sales," Freddie said in its third-quarter report.