Fannie and Freddie’s $10 Million a Month on Lawn Mowers, and Other Costs
As I’ve noted on the blog, since the government took over Fannie Mae and Freddie Mac in September 2008, their roles in the housing market have changed dramatically. They aren’t profit-motivated, but stability-motivated, a government liquidity instrument to make sure mortgages remain affordable despite the credit crunch and housing crash. Whereas their primary business used to be buying up mortgages on the secondary market, they now spend considerable resources dealing with and selling hundreds of thousands of foreclosed homes. Over the weekend, The New York Times’ Binya Appelbaum had a good piece describing just how Fannie and Freddie work under their government conservatorship, as landlord and caretaker and market-maker.
For one, their scale of involvement in the housing market is massive. “Fannie Mae and Freddie Mac took over a foreclosed home roughly every 90 seconds during the first three months of the year,” the piece notes. “They owned 163,828 houses at the end of March, a virtual city with more houses than Seattle.” Most of their activity, naturally, is concentrated in the sand states (Nevada, Arizona, Florida, California) and Michigan, where most foreclosures take place. “The two companies together accounted for 17 percent of real estate sales in Arizona during the first four months of the year,” Appelbaum reports.
And bailing out Fannie and Freddie might end up costing the federal government more than bailing out the financial sector: “So far the tab stands at $145.9 billion, and it grows with every foreclosure of a three-bedroom home with a two-car garage one hour from Phoenix. The Congressional Budget Office predicts that the final bill could reach $389 billion.”
The piece also notes that Fannie and Freddie do not just eat the costs of foreclosed homes. They pay to take care of them:
Selling a house generally costs the government about $10,000. The outsides are weeded and the insides are scrubbed. Stolen appliances are replaced, brackish pools are refilled. And until the properties are sold, they must be maintained. Fannie asks contractors to mow lawns twice a month during the summer, and pays them $80 each time. **That’s a monthly grass bill of more than $10 million. **All told, the companies spent more than $1 billion on upkeep last year.