Loma, Colo., is a small town, a very small town indeed, but one that Louise Davidson had called home until she was until she was evicted in April 2012 by Fannie Mae, the owner of her mortgage. Like millions of other homeowners her case is emblematic of the Kafkaesque struggles that homeowners face when trying to deal with the forces of Foreclosure Inc: the constellation of Mega-Banks, servicers, legal foreclosure mills, REO management and support services and, of course, the bloated Soviet-style bureaucracies, aka Fannie Mae and Freddie Mac.
I ended up writing three American Banker blogs about Louise Davidson because there was something poignant and brave about her struggles that, now in retrospect, seemed doomed from the start. Louise Davidson lived alone with her four cats in a house that had been owned by her parents and, like millions of others when the economy took a nosedive in 2008, she tried to do the right thing, contacting Bank of America, the servicer, asking about mortgage modification options. Although exhausting her unemployment benefits she continued to make partial mortgage payments, then found out that in the midst of modification discussions with Bank of America her home had been sold at foreclosure to Fannie Mae. It became part of the Fannie's huge so-called shadow inventory of REO's ("real estate owned") and in their eyes Louise her cats and her possessions had overstayed their welcome.
With an early April date set for the eviction I tried to get Fannie's spokespeople to explain why they were hell-bent on throwing the poor woman out on the street when (and here it gets interesting), waiting in the wings was Jorge Newbery of American Homeowner Preservation, a socially conscious outfit dedicated to keeping homeowners in place through an affordable payment plan and he was committed to helping her avoid dislocation (it was a petition he circulated on change.org that originally caught my attention). Even one of Fannie's mortgage brokers on site, Elizabeth Birmingham -- who had the unenviable task of placing an eviction notice on the property -- took up her cause trying to ring both a bit of compassion and common sense out of Fannie. She agreed to take on a new role as a buyer/broker for AHP's offer on behalf of Louise. "I contacted the listing agent," Elizabeth told me. "Unfortunately it was out of his hands and in the hands of Fannie Mae. Fannie did not budge on allowing a contract that would restore Ms. Davidson to her family home."
So, on April 7, 2012, Louise Davidson ended up on her front lawn, worn and shell shocked, looking more like a citizen of the old Soviet Union that had just been dumped for no apparent reason behind barbed wire in the Gulag.
Makes no sense, right? But it's all Alice in Wonderland when dealing with the so-called Government Supported Enterprises ("GSE's") where logic takes a back seat to political jockeying and where it looks better on the balance sheet to dump thousands of foreclosures in bulk to investors rather than negotiate a sensible deal with an individual homeowner.
The aforementioned Elizabeth Birmingham, now an ex-Fannie mortgage broker, pointed out that "the listing and selling process mandated by Fannie Mae is/was clumsy, inefficient not to mention inept," adding, "I have watched a property with a reasonable offer be rejected to have a lesser offer accepted several months later." In Louise's case the church next door wound up purchasing the property, a somewhat inexplicable transaction, given the competing offer by American Homeowner Preservation and where, according to Elizabeth, "an owner occupant is usually given priority over a non-owner occupant."
Most ordinary Americans know little about Fannie or Freddie and I'm sure if you stopped a person on the street and asked them what a GSE is they'd probably respond with "isn't it a medical test," or maybe "yeah, it's a high school equivalency degree." But between the two they own or guarantee something like 60 percent of the nation's mortgages and if you go to Fannie's online website you'll find the agency touting its devotion to avoiding foreclosure. But when you probe a bit deeper, another darker agenda reveals itself. The dirty little secret: Fannie the foreclosure factory. Examine Fannie's "retained attorney list" outlining state by state, which law firms get the GSE's seal of approval for carrying out foreclosure dirty work. Fannie also provides guidelines for the shock troops, making it clear the time frames, again, state by state, they expect the eviction process to be complete. If a firm can't meet the deadline they suffer financial penalties.
The power of the GSE's is legendary, well-documented in Gretchen Morgenson and Josh Rosner's best-seller, Reckless Endangerment. The book reveals the unmatched ability of those in the GSE executive stratosphere to get what they want, politically, from beltway politicians. While former Republican presidential hopeful Jon Huntsman did make dismantling the Fannie Mae/Freddie Mac duopoly part of his campaign platform, GOP nominee Mitt Romney stayed strangely silent on the issue during the campaign. Ditto, President Obama and while the administration has lobbed a few softballs; mainly pleas for principal reductions directed at the Federal Housing Finance Agency -- which oversees the GSE's -- they've simply bounced off the thick skin of acting director, Ed DeMarco. DeMarco has been a lightening rod of sorts for anti-foreclosure activists who've repeatedly called for his dismissal, but it seems that the FHFA boss has political survival skills akin to those of Iron Joe Stalin.
So Fannie Mae and Freddie Mac continue their nonsensical march toward foreclosure resolutions refusing to consider any sort of innovative solutions; seeing better bottom-line outcomes through programs that sell off bulk foreclosures to investors wanting to rent them out rather than put them back on the market (so much for the ideals of "home ownership" espoused by the legions of housing economists employed by the GSE's).
Louise Davidson hasn't given up yet. She's started a Facebook campaign and is exploring her legal options in light of the recently announced bank settlement, which may or may not provide some relief (Bank of America, her former servicer, is party to the agreement). Louise Davidson's anger is of a quiet sort but her determination to wring some sort of justice out of Foreclosure, Inc. is relentless and in this respect she's Fannie Mae's worst nightmare.
Joel Sucher, a filmmaker with Pacific Street Films in Hastings-on-Hudson, N.Y. is working on Foreclosure Diaries, a documentary about the financial crisis and has blogged on foreclosure related issues for both American Banker and Huffington Post.