Fannie Mae Lip Service and Its Bad Press

We used to call them hypocrites but now we call them corporations or politicians because those are more polite words. Those words don’t necessarily expose the underbelly. For example, you know what lip service means, right? It means the lips are moving but the words that are coming out of those lips are meaningless. Some real estate agents would say that Fannie Mae is pretty good at giving lip service. But when it comes to being an advocate for home buyers, there is little actual support or action to back up some of Fannie Mae’s statements.

My mother used to say: forget what people say and look at what they do.

Fannie Mae has been under attack by all sides lately. Much of the criticism has had to do with the fact that in many situations Fannie Mae will over-estimate the value of a home, in particular, short sale homes. The theory is Fannie Mae over-estimates the value so it doesn’t have to deny the short sale, which might be its actual goal. If the value is too high to receive an offer or even appraise, then Fannie Mae can be assured that the short sale won’t happen and the home will go to foreclosure. When the home goes to foreclosure, it pops into Fannie Mae’s REO inventory, and Fannie Mae now has the opportunity to provide its own over-market financing, which can result in shoving more unsuspecting homeowners underwater the day the escrow closes. Don’t you love lip service?

Whenever I spot a home for sale in Sacramento that is offered with HomePath financing, the sales price is almost always 10% to 20% above market value. The beauty of HomePath financing is there is no appraisal to dispute the value. Home buyers can get suckered because they don’t know the value.

Well, now Fannie Mae has implemented a new procedure for short sales, most likely in response to the uproar from agents across the country. This new procedure now involves obtaining 2 appraisals on the short sale home. Fannie Mae hires its own Fannie Mae appraiser, the guy with the rose-colored glasses, and an independent real estate agent to do a BPO. Except the independent agent who does the BPO probably isn’t paid enough to do all of that work and completes the BPO in hopes that Fannie Mae will someday hire that agent as its own REO agent. Everybody has an agenda.

This way, regardless of what happens to the sales price, Fannie Mae can say it was proactive. It’s better than a poke in the eye with a stick, but it still seems like it might be lip service to me.