"Cash For Keys" Gone Wild..Fannie Mae's "Dirty Little Secret"

I had a rather disturbing conversation with a real estate agent who works primarily with Fannie Mae in my area.  The "cash for keys" program has been around in real estate for a long time but I didn't know a lot about it until last night.

We began talking about housing slowdown she started compaining about the rampant abuse of  Fannie Mae's "cash for keys" program.  Needless to say I was totally shocked(and sickened) at what I heard.

Before I continue, keep in mind that I have no hard details about the abuses of this program, and this may not be completely accurate because I only have the one source above.  I saw no documentation to confirm what I heard.

So let's continue.  So I started to ask lots of questions about the details of the program.  The Realtor got angry as she started giving me the details because she feels the taxpayer is being completely raped by the process. 

Using this program during normal times when the foreclosure rate is 1% on prime loans is one thing.  It's a whole different story today as our deficit deepens and foreclosure rates soar.

So here's how it works.  Deadbeat homeowners who aren't paying their mortgage are basically being bribed with hard cash from Fannie Mae to leave their house.

The money is for "moving expenses" and the number of dollars various depending on what the deadbeat says it will cost them to move.  She has seen the numbers range from $1000 up to $3700(which is the highest she saw).

The incentive for Fannie of course is once the deadbeat leaves they can then get the foreclosure process started so they can recoup what they can on the house, take the hit, and then move on.

At this point I wanted a little more detail.  So I asked:  "What about the banks that have done Fannie loans?  Are they being forced to take the loss via foreclosure?" The Realtor explained that the bank has the right to turn down "cash for keys" program. 

However, if they accept it, a price is set at a much lower value(based on what they believe it will list for as a foreclosure) and Fannie then buys the loan from the bank for the price they determined.  This is all done before the "cash for keys" is offered since Fannie is the one making the deal.

What angered her(and me) was how easy these deals are being approved at our expense(since we the taxpaers backstop Fannie).  She explained then explained how the "cash for keys" is executed.

The Realtor approaches the deadbeat buyer and asks them what it will cost them to "walk away" and move from the house(she added that many of these borrowers have not made a mortgage payment in 2 years).  The deadbeat then throws out a number like $3000.  The agency then goes to Fannie and gives them the number.

Without hesitation Fannie accepts the offer and the check is cut.  This Realtor told me she has NEVER seen ONE instance where Fannie has not accepted the offer from the deadbeat.  There is a limit to what can be offerd for moving expenses but whe couldn't recall it because she has never seen an offer turned down.

This whole thing made me SICK of course once I learned how the who thing works.  Why is the government cutting checks to people who have been living in a house for free for a year or two?  How do they have the right to throw around our taxpayer dollars like this? 

What's even more disgusting about this program is once word gets out among the neiborhoods that Fannie is cutting $3000 checks to get you to leave the home, half of the neighborhood follows(especially in the lower income areas according to this agent) as their homes fall further and further underwater.

She is now starting to worry that many homeowners in certain areas are going to just take the check and walk away. 

Folks, we have to start asking ourselves if this program should be continued at a time when borrowers are already tempted to say "screw it" and bail on their loans.

I asked her if all the banks are involved with this.  She said that they deal mainly with JP Morgan and Bank of America.  However, she did emphasized that this is a Fannie Mae program and the only way the bank participates is by dumping the loan to Fannie who then offers the "cash for keys" program.

The Bottom Line

So I guess we now have a "stealth" bailout for deadbeat homeowners.   The Realtor above told me that the industry calls this "Fannie's dirty little secret".

I'll tell ya, I get more and more disgusted the more I learn about the housing fraud.  The whole damn thing stinks to high heaven. 

BTW

This Realtor also added that the foreclosure moratorium has brought housing to a standstill in the area.

Today's newspaper headline confirmed her thoughts:

"Sales of existing homes in the Rochester region tumbled during the third quarter after the expiration of federal tax credits that drew thousands of buyers into the market.


"Data released Friday by the Greater Rochester Association of Realtors showed that resales in the 11-county region served by the organization fell 27 percent from July through September compared with the same period of 2009.

"Right now, what Rochester real estate is experiencing is post-tax credit shock," said Armand D'Alfonso, president and CEO of Nothnagle Realtors, the region's largest realty firm.

Data released Friday by the Greater Rochester Association of Realtors showed that resales in the 11-county region served by the organization fell 27 percent from July through September compared with the same period of 2009.

There were 2,664 closings during the third quarter, 964 fewer than a year earlier. Despite the slack demand, selling prices edged up by 1


"Right now, what Rochester real estate is experiencing is post-tax credit shock," said Armand D'Alfonso, president and CEO of Nothnagle Realtors, the region's largest realty firm.

"The phone totally stopped ringing after April 30," said Nunzio Salafia, an agent and co-owner of ReMax Plus in Brighton. "A lot of people did not buy because they were clinging to the hope that the government would do something," such as extend the credits, as happened once before."

Stay tuned.  The housing crash gets uglier by the second and prices are headed in only one direction: