Ever get the feeling that the deck is stacked against you. This Jan 31, 2012 article in the Seattle Times, Page 3, “Freddie Mac bets against struggling homeowners” justifies that feeling. If you’re self-employed, have less than 20% equity in your home, and currently have a mortgage interest rate in excess of 6%, don’t expect relief anytime soon. If you’re a stand-up-and-take-responsibility type person that believes in paying their debts even though you’re trapped in a non-competitive loan, Freddie Mac loves you. In fact, Freddie Mac has bet nearly $30 Billion of taxpayer money (your money) that you, and folks like you, will continue to behave exactly as you are now: keeping your head down, paying your bills, and praying for a break.
A Break. The best break you could hope for would be a relaxation of the qualification standards for current homeowners that would allow you to refinance into a 3.5-4.5% mortgage in spite of having less than 20% equity and being self-employed. Unfortunately, tax-payer-bailed-out entity that is Freddie Mac makes the rules. And they have a huge bet (using your taxpayer money) riding on your 6%+ mortgage. If you sell, refinance, or get foreclosed, Freddie Mac loses that bet….big time.
Then Again. You might think, “if I sell or refinance Freddie Mac gets their loan paid off right?” [Uh…sorry…..but this is really weird]. Freddie Mac, after they purchased all these 6%+ mortgages did something truly from bizzaro world: they sold the principal! Get it? They don’t get a dime if you sell or refi. Their bet (altogether now, “with your taxpayer dollars”) is 100% on the interest you pay, not the loan balance. You pay off that loan, their bet is gone.
How Did This Happen? Frankly, it seems no one knows. It is part of the bizzaro world finance that seems to be a tier or two above Wall Street and the one percenters. These things are happening on a level that no one seems capable of getting their arms around.
Next Up. Foreclosed properties and what to do with them.
For many, many years it has been an opportunity for the little guy to get ahead by going to the county courthouse steps and bidding on a foreclosed property that he hopes will improve his chances for a better life through careful planning and sweat equity. In the current climate of too many foreclosures this process is about to change.
It is being seriously discussed that hedge funds will be offered the exclusive right to purchase thousands of foreclosed properties in multi-billion dollar transactions with Fannie Mae and Freddie Mac. As the rhetoric typically goes, these properties will go for steep discounts because of the SIZE of the transactions. They will not be available to the little guy, or you, or me. But they will be sold to hedge funds for much less than you or I would be willing to pay because hedge funds are BIG. We’re little.
Supposedly there will be requirement that said hedge funds will be required to “manage” the properties they purchase for between 5 and 10 years, meaning they won’t be allowed to flip them right away. [I can only guess that there is a property tax deferment in this deal somewhere.]
So if all you had to do was keep the pipes from freezing, the birds out of the attic, the vermin out of the crawl space, and squatters out of the house, without paying taxes for 5-10 years, imagine the profit when you sell in 10 years, considering that you paid maybe $0.50 on the dollar at today’s prices. I think it would be along the line of …….GINORMOUS!
Ok, enough lofty chat. Back to work.
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