Freddie Macs Housing Heist
When given the chance to rigorously question Freddie Mac executives about their role in the ongoing housing crisis last week, the House financial services oversight subcommittee focused instead on the housing giants lavish dinners and conferences.
Red meat indeed, but not a line of questioning that is likely to get to the bottom of the country’s housing mess, much less solve it. Subcommittee members should have directly questioned Freddie execs about a little known policy that’s having a big impact on the housing recovery. While taxpayer handouts continue to flow to Freddie Mac, the government sponsored enterprise has developed a new tactic to shift blame for its own profound failures to professional homebuyers and property rehabbers.
Previously, investors who purchased toxic assets from the failed institution were required to disclose their intent to resell the property. But Freddie Mac now claims it has discovered a new type of fraud, perpetrated by homebuyers who fail to disclose the amount of resale value. Think of a potato farmer suing McDonald’s for not disclosing the price of french fries, and you get the idea.
Freddie says its goal is to protect American taxpayers. Where this vigor was years ago when Freddie let taxpayers foot the bill for garbage loans who knows? Really, Freddies attempts to undo legitimate home purchases is nothing more than an attempt to prop up the myth that it was real estate investors, not Freddie Mac, who caused the housing crisis.
Freddie officials are careful not to say failure to disclose the resale price illegal. Why? Because it’s not. Still, earlier this year Freddie imposed a ban on resales of distressed properties by professional home buyers. Which begs the question: how can Freddie tell a buyer what to do with a property once it is sold? Unlike Freddies false claims of fraud, this one has some precedent, starting with the Magna Carta.
Distressed homeowners and communities feel the collateral damage of Freddies decision to stop investor driven short sales. While not a perfect option, short sales are far preferable to foreclosure. Abandoned properties remain in disrepair without home rehabbers to fix them, and serve as a perfect host to criminal activity. Contractors, real estate agents, title insurers and buyers are all losing jobs and income.
The damage does not end there. Besides a job killing piece of overregulation adopted by an institution with no authority to make housing policy, lets add lawsuit abuse to the list. Freddie is using the false claim of fraud as a gateway to examine transactions that occurred long before it implemented its ban on resales. If the investigation reveals any technicality calling the transaction into question, civil lawsuits will follow. This is Freddie Macs plan for housing recovery.
True recovery of the housing market begins with the transition of distressed inventory to the retail market. For decades, distressed property professionals have served this need, saved at risk homeowners from foreclosure, salvaged homes and communities decimated by economic downturn, and provided essential liquidity to the market. Without these services, the housing market will remain stagnant and taxpayer exposure will increase exponentially.
In many ways, distressed property professionals present the only tangible solution to current housing market problems. Removing the restraints Freddie has placed on homebuyers would not be radical change, but rather a restoration of law and recognition of the value of private market solutions.
With federal regulators poised to join Freddie Macs fishing expedition, it’s time Congress exercises some oversight. This issue is a litmus test for any politician claiming to support job creation, tort reform, small businesses, the American taxpayer, and an end to bailouts. Freddie must be forced to abandon its policy of restricting resales of properties purchased by investors. Freddies investigations into what it has conceded is not a crime must stop. And to protect taxpayers, Freddie must disclose the value of its notes, its true assets, so taxpayers have a thorough and accurate accounting of the risk theyre under.
Without immediate Congressional action and an affirmative rebuke of this policy, the housing market will remain on the verge of collapse. Congress must decide whether it, or Freddie Mac, makes housing policy and whether institutions that receive taxpayer money should be given a competitive advantage over the private market.
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The Distressed Property Coalition (DPC) is a private lobbying effort dedicated to making it easier to buy and sell residential real estate. DPC is comprised of real estate agents, professional homebuyers, and information marketers who sell products and services to distressed property buyers and sellers. DPC engages members of Congress, federal agencies, federal regulators and the White House on a variety of policy issues to improve the environment for buying and selling residential real estate.
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