Homes for Rent, $208 a Month: A Plan to Save Fannie Big Money
A recent Federal Housing Finance Agency report on Fannie Mae and Freddie Mac confirms that the two government-sponsored enterprises now own some 200,000 single-family homes.
Originally designed to be facilitators of the national mortgage market, these companies came by their massive real estate portfolio by foreclosing on properties whose owners had fallen behind on their mortgages.
But they're not thrilled about it, and you shouldn't be, either.
The Obama administration is working to get Fannie and Freddie to unload their real estate holdings on the market tout de suite, but so far, they aren't having much luck. While the companies have succeeded in selling off hundreds of thousands of homes, every month they end up with thousands of newly foreclosed properties.
Simply put, the boat has a hole in it -- no sooner do Fannie and Freddie bail one bucket of homes back out into the market, than another few thousand new foreclosures flow right back onto its balance sheet.
A Million Here, a Billion There (and Look Over There -- a Trillion!)
As a result, Fannie and Freddie -- two companies that have already cost taxpayers $170 billion in direct bailouts, and nearly a trillion dollars more in Federal Reserve purchases of mortgage-backed securities -- are continuing to siphon away millions more in taxpayer funds due to the cost of maintaining the foreclosed-upon properties they own.
According to ABC's Power Players, the cost of simply keeping the lawns mowed runs upward of $40 million annually across Fannie and Freddie's vast real estate empire. And that's just the start of it. Add in the expense of keeping these properties maintained -- painting walls, maintaining the plumbing, and planting perennials in the garden to keep "curb appeal" up -- exceeds $500 million a year.
Defending the expenditures, Fannie Mae argues that the spending is necessary to keep its houses maintained and competitive in the housing market so that they can sell quickly. Ultimately, the company says, all this spending will end up saving taxpayers money by helping to fetch higher prices when the houses do finally sell. In the meantime, however, taxpayers are getting stuck with $2,500 a year per house in maintenance expenses (that's $500 million divided by 200,000 homes).
Jobs R Us
There are any number of ways to view this story. For example, spending $40 million on lawn maintenance, and another $460 million and change on associated home upkeep, sounds like a pretty sizable jobs program the government has got running here.
Homebuilders, on the other hand, are likely less sanguine. Companies such as Pulte (PHM), Toll (TOL), and Ryland (RYL) would probably prefer the government let its 200,000 house inventory rot, making their own offerings of new-built construction look the more attractive by comparison.
Uncle Sam: A Lousy Landlord?
For taxpayers, though, the question is simply this: Why are we spending $500 million a year to maintain these houses, and just hoping that the higher resale values will help us to recapture the cost... eventually? Why aren't we making some attempt to cover the cost today?
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Consider: The $2,500 annual cost of maintaining one of these properties breaks down to about $208 a month. Meanwhile, real estate market analyst Reis estimates that the monthly cost of renting even a small apartment in America averages $986 a month nationally. This appears to leave at least $700 worth of wiggle room between what it costs the government to maintain a home prior to sale, and the rent the feds could charge to keep a home occupied and maintained (partly at the renter's own expense) up until sale.
Rather than sinking half a billion dollars annually into a national money pit, the smarter move -- and one that could help a lot of foreclosed-upon former homeowners put a roof back over their heads -- is to rent these properties out. Charge $208, $308, anything up to the market rate, and use the rent to cover Fannie's and Freddie's maintenance costs.
Side benefit? The renters can mow the lawns for free.
Motley Fool contributor Rich Smith holds no position in any company mentioned.
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