If you ever bought or even tried to buy a short sale you are aware of the problems and difficulty in completing the transaction. You might have wondered, “how could the banks be so obstinate?”
We now learn that even though the banks may have been difficult to work with, much of the problem came from the government in the name of Freddie Mac. “But, I thought the government wanted to help us,” you say.
Freddie went out of their way to paint the investors as the enemy. They issued policy letters describing potential mortgage fraud with the intention of making the investor out to be the criminal. The only problem was that Freddie itself was the real fraudster.
The truth is that Freddie Mac actually placed their bets against the housing crisis actually ever getting solved. Freddie made money whenever they were able to stop a short sale. Freddie benefited whenever the rest of us lost.
For more than a year, Freddie Mac has adopted numerous policies designed to prevent the private purchase of toxic assets and forced servicers to enforce these policies. Demands for unreasonable offers on short sales, delays in processing short sales, affidavits preventing resale of their properties after being rehabbed and deed restrictions on real-estate-owned properties restricting resale price are among the myriad obstacles private buyers face in trying to buy Freddie’s inventory.
Besides delaying the unwinding of the troubled entity, several of these policies may in fact be illegal. Restricting the ability of private buyers to resell their properties and attempting to dictate resale value constitute unreasonable restraint on alienation. In plain English, once Freddie sells one of its toxic assets, it has no standing in future transactions related to the property.
Freddie has attempted to justify these policies through a taxpayer-funded media campaign arguing that the act of buying, rehabbing and reselling a property constitutes a crime and is inherently an act of fraud. Both Freddie and Fannie Mae have worked with enforcement officials to convince them of this lie. To the embarrassment of these enforcement officials, Freddie left out one important detail: Every time it stopped a short sale, Freddie made money.