Is Freddie Mac Betting Against You?

The Government-Owned Mortgage Company, Freddie Mac who specializes in helping homeowners get affordable mortgages, has reportedly been "betting" against homeowners. The "bet" comes in the form of investing in securities called "inverse floaters" that will receive all the interest payments from specified mortgage-backed securities. Basically, the bet will pay off if people cannot refinance. The shocking thing is that these investments are actually legal.

If people were to pre-pay their old loans and refinance them to receive cheaper new loans, Freddie Mac would lose money. However, the more people that cannot refinance, the more money Freddie makes because it will receive money from these older loans with higher interest payments.

The thing that is causing such an outrage among Americans is that Freddie Mac, and it's counter-part Fannie Mae, are not privately owned entities anymore. They are part of the government since Congress adopted them in 2008. Therefore, these highly offensive investments that Freddie is making to generate profit are using taxpayer dollars. You are paying for them to bet against you. Many Americans are already blaming these companies for the housing boom and the subsequent bust, so adding this bet to the picture does not make for happy citizens.

Popular opinion in the finance world is that the number of foreclosures would drop if Americans could refinance their high-interest rate loans. Freddie Mac is supposed to help with that. They actively campaign to get borrowers to realize the benefits of refinancing. However, this is not profitable for them which is where these bets have come into play. Despite Freddie's activity, though, President Obama himself has recently mentioned his commitment to helping homeowners with their mortgage worries.

In his State of the Union Address, he noted that he will be sending a plan to Congress that would give "ever responsible homeowner the chance to save about $3,000 a year on their mortgage by refinancing at historically low rates." Obama even promised that there would be "no more red tape. No more runaround from the banks."

So what do you think? Relief for homeowners is promised, but will it happen? Do you think it should be illegal for this government-owned company to be "betting" against you as a struggling homeowner?

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Economic Struggle: Underwater Mortgages Hindering Job Search

Many American homeowners are finding it increasingly difficult to apply for jobs because of their housing situation. Homeowners who are strapped to the mortgage of an underwater home seem to be having difficulty leaving it. This means that job relocation rates are suffering.  The number of people who are willing to relocation during this recession is at 13.2%, but the average relocation rate since 2009 has been around 7.9%.

Despite needing jobs in this rough economy, many are forced to stay where they are and pass up far-away employment opportunities because of their mortgages and financial burdens. This in turn effects employer's long-range growth. Once they run out of local options, they will need to rely on those willing to relocate  in order to prevent their company's expansion plans from stalling, which would ultimately effect the economic growth of the country. Unfortunately at this point, most employers will not cover an employee's relocation costs and even fewer will help lessen the impact of selling an undervalue home. All of these factors add up to very little incentive for a job seeker to take a chance on moving to a new location.

It seems as though moving really is a last resort for the majority of job seekers. There are not many who are willing to take such a big loss on the sale of their home for a job position that may not last long or pay off well. Overall, people are a bit stuck. This could be one of the biggest obstacles for Americans in this economic recovery.

Hopefully the American people will take advantage of all the mortgage help that is being offered lately such as the impending bank deal that will help those facing foreclosure to restructure their loans. There's also HARP's new guidelines that are allowing homeowners to refinance at today's lower mortgage rates. And if absolutely necessary, Freddie Mac will be allowing unemployed borrowers an additional 6 months of forbearance on their mortgages.

So if you are one of the homeowners who feel stuck because of a lack of job opportunities and the impossibility of leaving your home, hold tight. The help is coming. Recovery is on the horizon. Here's to hoping that it truly will help Americans to climb back out of the holes caused by unemployment rates and underwater mortgages.

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Outlook for the Housing Market in 2012

As of December 2011, unemployment rates fell to their lowest level in three years with the addition of 200,000 jobs. This means good news overall for the real estate market since the country's economy is beginning to improve. This recovery is essential for the housing market and it is expected to continue throughout 2012. As we reported earlier, the Fed has announced that interest rates will not be raised until 2014 in the hopes of continuing in this economy recovery. The interest rates are currently at historic lows and are expected to stay that way to ensure a slow but steady rise by the end of the year. Therefore, taking out a mortgage is a very affordable thing at this time.

Predictions for the 2012 housing market include these continued low interest rates as well as the stabilization of home prices. This should lead to an increase in home sales: roughly 12% of existing homes and 74% of new homes; and there will also be a rise in inventory mostly due to increased foreclosures throughout the country. Distressed properties will make up about half of all home sales. There will also be an improved short-sale process so we can further avoid foreclosures. Homeownership rates are expected to continue to fall. Foreign and domestic investors will be likely to buy 25% of homes. And there will be an increased reliance on real estate agents in 2012. We will continue to report on these matters to see if these predictions pan out over the next year.

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Federal Reserve: No Rate Hikes until 2014

According to the U.S. Federal Reserve, interest rates will not be raised until at least late 2014. This is even later than investors were expecting. They are doing this in an effort to support the economy's recovery.

The Central Bank says that the unemployment rate is still elevated throughout the country, however inflation is expected to remain somewhat consistent with stable prices. If economic conditions change, the Fed could actually adjust this time frame, but it is expected that the Fed will not change its record-low rate for nearly three years. So this is good news! We should have low rates for quite a while to come.

While the unemployment rate stands at 8.5%, meaning that some 13 million Americans are still unable to find work, the Fed is optimistic about the unemployment rate for 2012. They expect the U.S economy to grow at a 2 percent annual rate this year.

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Current U.S. Unemployment Rates

Because Housing and Jobs are so closely related, it is important to watch for changing trends in the Unemployment level. The chart below displays current levels of Unemployment by state.

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Reported $25 Billion Deal Reached between Banks and AGs

As we mentioned yesterday, this $25 billion deal between the five largest banks in American and U.S. State Attorneys General nationwide will make it easier for those facing foreclosure to restructure their loans. The final draft of this agreement has been submitted for review.

This settlement would apply to privately-held mortgages that were issued between 2008-2011. It does not, however, apply to loans held by GSEs Fannie Mae or Freddie Mac. This means that nearly 750,000 homeowners could get the principal amount of their mortgages written down by $20,000.

Under the terms of this deal, $17 billion would be used toward reducing the principal that homeowners owe on their mortgages. Also, $5 billion would be placed in a reserve account for various state and federal programs. Part of that money would cover checks that will be sent to nearly 750,000 homeowners that were affected by deceptive foreclosure practices, amounting to $1,800 each. The final $3 billion would be dedicated toward the refinancing of homes nationwide at 5.25 percent. This proposal is expected to be adopted within a few weeks.

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Congressional Push for Fannie/Freddie Principal Reduction

Congressional Democrats are currently pushing for a Fannie Mae and Freddie Mac Principal Reduction. If a settlement with banks isn't helpful enough for homeowners, they want a federal housing regulator to write down mortgage principal for these government-backed loans.

The federal government is actually very close to coming to an agreement with mortgage servicers that could help nearly a million homeowners. The deal would require the nation's five largest banks -JP Morgan Chase, Wells Fargo, Bank of American, Citigroup and Ally Financial- to spend more than $25 billion to help borrowers who had signed off on foreclosure paperwork without reviewing the documents properly.

It is not yet clear who would be eligible for this settlement that would offer 1 million borrowers an average of $20,000 in principal reduction.

If this settlement doesn't help those who are with Fannie Mae and Freddie Mac, more than likely the Democratic lawmakers will continue to push the Federal Housing Finance Agency (FHFA) to provide homeowners with these principal reductions. They especially want to help those who owe more than their houses are worth.

This settlement is expected to be the largest principal reduction of the housing crisis and will hopefully boost the economy and housing market. However, this deal could take several more weeks to complete. The White House was hoping for a resolution by Christmas, but they are now hoping it will be resolved by Tuesday's State of the Union address. They want to have all 50 states sign on to a final deal but they may not meet that goal.

For more information about this, view our source.

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