Today, Freddie Mac, one of the two largest owners of mortgages in the United States (along with sister company Fannie Mae), reported that homeowners who opted to take cash out when refinancing their homes during the fourth quarter of 2011 was at the lowest point in the 26 years the company has been keeping up with those numbers.

According to the report, less than 15% bumped up the amount of their loan by 5% or more. This constitutes a “cash-out” option in which the loan amount increases while the homeowners take cash from the home’s equity through liquidation.

To compare with historical trends for home refinancing, cash-out refinancing constituted 46% of all refinancing on average from 1986 to 2010.

Instead of using their home’s equity as a way to obtain cash, more homeowners are actually putting cash in, or decreasing the total amount of the new loan. These “cash-in borrowers” constitute roughly 49% of all homeowners refinancing their home, which is also a record. The new loans are roughly three-quarters the size of the old loan.

The remaining 37% of homeowners refinancing their homes left with the same loan amount. All told, homeowners going through a home refinance locked in an interest rate that was 1.4% on average – saving an estimated $2,700 the first year of the new loan.

The trend doesn’t sound surprising, as more and more homeowners – burned by sharp downturns in the housing market – are afraid to touch their equity, particularly with underwater homeowners littering the landscape. Such behavior ran rampant in the decade prior to the bursting of the housing bubble in 2007 and is one of the contributing factors to the record numbers of foreclosures that have hit every year.

Just how much money was taken out of homes that underwent homeowner refinancing? According to Freddie Mac, cash-out homeowners removed approximately $5.5 billion in equity form their homes, just 3% of the total financed amount. In the third quarter of 2011, those numbers were $5.6 billion and 3.7% – down from the peak historical levels of $83.7 billion and 31.1%.

Clearly, American homeowners are hunkering down on their equity and trying to conserve as much as possible – especially given how many foreclosure properties are caused by an inability to refinance out of high monthly mortgage payments due to having negative equity.

Figures for the first quarter of 2012 are still two months away but are expected to continue this trend.

Victims of the foreclosure crisis and underwater homeowners alike will be pleased to know that the federal government is extending the mandate for the Home Affordable Modification Program (HAMP) through 2013, and will also expand its role as the government continues to combat the housing crisis.

HAMP, originally created in 2009, was designed to help American homeowners avoid foreclosure by working with lenders to modify their mortgages. The theory behind the program was that homeowners could keep their properties – and stop foreclosure from creating more destructive home foreclosures in already-depressed markets – with lower, more-affordable monthly mortgage payments and principal reductions.

But, the $29 billion program has not been without its critics, who allege the program has been too limited, too underfunded, and too ineffective in preventing foreclosure properties from flooding the market.

Largely because of these criticisms, the Obama administration is seeking to fix these and other problems by offering additional financial incentives to lenders for principal reductions. This means thousands of American homeowners could see their monthly payments drop by having lower principal balances. Such a move could have a stimulating effect on the economy, especially since the administration will also offer financial incentives to Fannie Mae and Freddie Mac for modifications. Since the two programs account for the vast majority of mortgages currently owned, the impact could be significant.

Whatever the future impact, the past performance of HAMP has been less than desired. Out of roughly 1.7 million program applicants, only about 900,000 have had their mortgages permanently modified – and a significant percentage of those have fallen through since.

Some of this failure has been blamed on the nation’s largest lenders, including JPMorgan Chase, Wells Fargo, and Bank of America. Others point the finger at the mass of red tape and bureaucracy that has plagued the program’s administration.

Whatever the cause of the problem may be, the nation’s foreclosure rate – hovering around 3.51% as of October 2011 – is still far too high for a healthy housing market. Serious gains have yet to be made in removing foreclosure listings and having homeowners fill vacancies, primarily due to reluctance by big banks to lend to most prospective homebuyers. Loosening a still-tight credit market is one priority, as is an Obama initiative to sell blocks of distressed properties to private investors for rehabilitation and transformation into rental units.

At any rate, the besieged program has another year to perform before Washington becomes serious about pulling the plug.

With the foreclosure machine starting to pick back up, many have wondered exactly how many government foreclosures are out there – distressed properties that have been lost by their former owners and are now owned by Fannie Mae, Freddie Mac, or a host of government agencies under the auspices of the Dept. of Housing and Urban Development.

According to recent numbers, Fannie Mae and Freddie Mac combined hold more than 180,000 repo homes that have been taken via foreclosure. Even though that number has dropped by 18% from the second quarter, it is still quite high – way higher than a healthy market would dictate.

Additionally, each home is sold with an average discount of 56% of the unpaid balance – not just 56% of the full market value of the home. That means incredible discounts are to be had through foreclosure investing with the government and Fannie Mae and Freddie Mac.

Both government-sponsored enterprises are “owned” by the federal government, and with a relative organization, Ginnie Mae, in turn own the mortgages for millions of homes across the nation – approximately 90% of all home loans written in this country.

Fannie Mae did manage to sell more REOs than it owned, by a margin of 13,000, and is on track to clear out its inventory of foreclosed homes for sale in four years. Freddie Mac, by contrast, would take 15 years at today’s rates to clear out the inventory of foreclosure listings, even if more foreclosures did not enter the pipeline as they currently are.

It will be interesting to see how both agencies handle the influx of foreclosures and distressed properties that will hit the market soon as a result of a massive backlog and virtual processing freeze instituted over a year ago by banks after the foreclosure scandal hit the news. Neither were designed to function in such a role; they were originally intended only to ensure liquidity in the real estate market by purchasing original loans, thereby giving banks the financial freedom to turn around and create additional loans.

Instead, the government has become a landlord and property manager, and is underprepared for the task.

Nevertheless, a flood of foreclosures will hit the market and drive prices lower, creating numerous buying opportunities for investors who position themselves to take advantage of the situation. That could very well include receiving substantial discounts from swamped federal agencies to take foreclosures off their hands – which means enormous profit.

A recent report indicates that the National Association of Realtors spent over $7 million in the second quarter alone in lobbying efforts. From Congress to the Federal Communications Commission and Veterans Affairs, the National Association of Realtors targeted a wide variety or government organizations in their lobbying initiatives that focused on everything from foreclosures and taxes to industry regulation.

One of the focuses of the National Association of Realtors involves the maximum loan sizes that Fannie Mae and Freddie Mac, as well as the Federal Housing Administration will guarantee. Currently, the maximum loan size is $729,750. However, as of October 1st that number is set to drop to $625,500. Although this may not seem like a big deal to states with relatively low home prices; however, for areas with higher cost of living, such as New York, a fall like this could mean that many people could not receive loans for their homes.

With the continuous battles between the Democrats and Republicans, it is no wonder that the lobbyists are not having a hard time getting anything passed in Congress. With the continuous struggles over raising the debt ceiling that led to a decline in the United States financial scores across the world, raising the loan limit with a Republican led House may be nearly impossible. However, even Obama is willing to allow the limit to fall.

So the questions is—are organizations like the National Association of Realtors wasting their money in lobbying efforts with such a divided Congress? The answer could very well be "yes" If something as simple as raising the debt ceiling has a hard time passing Congress, how can key real estate initiatives even have a shot?

Either way, props to the National Association of Realtors for doing their part in trying to pass key initiatives to help homeowners and the real estate industry in such a pivotal real estate market. Hopefully their lobbying efforts will pay off and everyone in the country will reap the benefits.

The federal government’s forays into the real estate market have met with mixed results. Loan modification programs that cost billions haven’t had the impact many expected, and the (justified) investigation of fraudulent foreclosure practices with several big-name lenders has run into quicksand.

Then again, the federal government scored a home run with its first-time homebuyer’s tax credit in 2010 that led to a spike in new and existing home sales and temporarily propped up the housing market, so maybe a new venture – one involving mortgage loan refinancing – is a good idea after all.

According to news released today, the federal government is considering a plan to refinance mortgages at today’s lower rates – around 4% – through Fannie Mae and Freddie Mac, thereby potentially saving millions of Americans a lot of money on their home loans.

This could have a stimulating effect on the economy because lower interest rates equal lower monthly payments – which equals more money in the pockets of Americans to save or, more likely, spend.

Of course, such a plan, if fully implemented, would likely cost an obscene amount of money – which might not fly if the deficit-obsessed Congress has anything to say about it. The inevitable conflict over spending could be postponed if the administration uses funds that have already been appropriated; otherwise, any new appropriations for the program would likely run into a massive roadblock with the Republican-dominated House of Representatives.

This plan is likely part of a larger plan to stimulate the economy and spur job growth, and might be a key component of Obama’s much-speculated jobs plan that he plans to unveil in September.

What impact would this have on the market, and how are investors, homebuyers, and homeowners impacted? In theory, homeowners would benefit the most because they would directly save money on their mortgages that were taken out when the interest rate was much higher. Mortgages that date from 2005 at the latest would particularly be impacted, but even relatively-new mortgages would benefit and save money – provided there is no means-based testing of eligibility for the program.

Investors and homebuyers could also benefit, though, because one perceived benefit – stability – would help the real estate market ultimately recover. This means higher home values – which means more profit for investors and homebuyers who lock in their upside potential by buying relatively soon.

In the end, this plan is mostly built on educated speculation and is not a sure thing. With that being said, it is exciting to see what comes of it – and how the real estate market will respond if it does indeed come into play.

What’s Going On with Fannie Mae and Freddie Mac?
The real estate market, at the top, resembles the NBA: Crowded at the top with plenty of big-name players who occasionally find themselves in controversy and drama.

Two of the biggest players – Fannie Mae and Freddie Mac – have found themselves in the news a lot lately, leading some to wonder what, exactly, is going on with two of the largest taxpayer-supported entities in the country today.

Fannie Mae in Hot Water over Forced Foreclosures

This week, it was revealed that Fannie Mae has been quietly pushing foreclosures instead of loan modifications for many troubled properties in Michigan. Sources have indicated that Fannie Mae was not only encouraging foreclosures, but actually threatened penalties against officials who were, in the corporation’s eyes, not moving foreclosures along fast enough.

At the same time, Fannie Mae was testifying that it was doing “everything in [its] power” to keep foreclosures from happening.

Fannie Mae and Freddie Mac were also found to be unloading foreclosures at significant discounts, sometimes selling discounted foreclosures for as much as 66% of their market value.

Michigan officials reportedly are incensed and are considering legal action against the government-sponsored enterprises. It is not clear what impact that will have on the mortgage giants; chances are, they will continue to function as normal but will have their foreclosure operations severely curtailed. This is good news for homeowners, who will probably see a temporary reprieve from foreclosures if their mortgages are owned by either of the two companies.

Fannie Mae and Freddie Mac Own Over 200,000 Mortgages – And Counting

There is also news that Fannie Mae in particular has dramatically grown its real estate portfolio to include somewhere in the neighborhood of 200,000 foreclosures between it and its counterpart Freddie Mac. Not included in this number are properties contained in a new deal reached last week with Bank of America to purchase the bank’s real estate portfolio for a price of $500 million.

That seems like a lot of foreclosures for the government to essentially own, and it is. This news, combined with all the other developments that have emerged lately with Fannie Mae and Freddie Mac, casts doubts on the ability of the two enterprises to continue in their present form in the foreseeable future.

After all, taxpayers basically cover the expenses and holdings of both corporations. In today’s climate of deficit reduction at all costs, the workings of Fannie Mae in particular could result in a nasty public backlash against the GSE.

For investors and homebuyers, buying foreclosures should still be quite possible and profitable, especially if the government moves forward with its plan to essentially allow investors to purchase the keys to thousands of foreclosure properties and convert them into income-generating rental units.

Regardless, the situation with Fannie Mae and Freddie Mac will be one that will be closely followed in the weeks to come.

Credit rating agency S&P made international news Friday when it downgraded its assessment of the United States’ sovereign debt rating, lowering it one notch from AAA – the best rating – to AA+.

Today, it struck again, downgrading the debt rating held by government-sponsored entities Fannie Mae and Freddie Mac.

The agencies previously held a top rating of AAA, like the United States. Now, their rating stands at AA+ – still very high, but significantly lower than the rating it has carried for decades. As a result, questions have arisen regarding the cost of the move and the impact it will have on the market as a whole.

One big fear with real estate investors is that the price of mortgage loans will increase, because they are tied into the federal interest rate. Since it theoretically costs more to borrow money with a lower credit rating – theoretically because this scenario has never been put into practice until now – mortgage loans and the debt secured by them could also become more expensive.

The costs would more than likely be passed down to investors – if the above situation actually happens.

The market fell drastically when it opened trading today, going well below 300 points in the red and being on track for even larger gains as of 11am ET. But, Treasury yield rates – which would theoretically rise – actually fell, showing signs that the downgrade will not be as serious as some might think.

It is very likely that this move will not have a significant impact on the real estate market as it stands today. Everyday real estate investors and homebuyers probably will not see a noticeable rise in the cost of buying a home – and certainly not enough to make someone ready to buy a home change their mind.

Moves in the high-level credit realm usually take weeks to months to play out and trickle down to investors. Someone applying for a home loan today more than likely would not pay more than someone who applied for a home loan Thursday, before the credit downgrade occurred.

The takeaway is that investors who were going to buy last week should still buy and take advantage of terrific opportunities in the real estate market. Interest rates will likely remain low for quite some time, and the abundance of properties sitting vacant on streets all across America means time is still ripe for real estate investment.

However, for many homebuyers, that path to the American Dream has been stonewalled by the banks they so desperately need for affordable financing.

The truth is, unless you are paying cash, or have significant assets at your disposal and a sterling credit rating, getting lending approved for a home purchase is difficult. Every reputable lender has tightened its restrictions on how it decides who gets funding and who doesn’t. The end result is that a record housing glut exists, with millions of homes sitting on the market and a vacancy rate of 11%.

And since the recovery of the housing market depends on allowing as many people to buy homes as possible, a conundrum exists: How do you entice lenders – banks, lending companies, and federal agencies – into loaning more money for more homes?

The solution may come from the federal government, and it may arrive sooner than you think.

Dealing with the Foreclosure Backlog with Fannie Mae and Freddie Mac

The federal government has been quietly discussing a proposal to help homebuyers and investors gain access to more loans and credit so they can start buying properties and reduce the extensive foreclosure backlog and housing oversupply that exists.

The feds cannot simply order banks to start lending, however, so the solution involves using federal agencies and government-sponsored entities (GSEs) to provide incentives and security for lenders. The policy idea that is taking shape in Washington today involves the two largest GSEs: Fannie Mae and Freddie Mac. Under the plan – still being actively yet quietly debated in D.C. – the two mortgage purchasing companies will be required to loosen their standards for loans to investors, which would help inject desperately-needed liquidity into the market.

The government can make this move because taxpayers own both enterprises, ever since they were placed into conservatorship three years ago.

Will the Foreclosure Backlog Shrink?

Even with this measure, it remains up in the air whether or not the foreclosure backlog – somewhere in the neighborhood of 1 million homes – and the foreclosure inventory – around 1.9 million – will shrink.

To do so, buyers would have to have access to credit and financing in order to take advantage of foreclosure deals from all across the country. Banks would also have to begin processing foreclosures again – instead of sitting on them like they are currently doing.

Looser lending requirements will help to take care of the first, while the pending foreclosure settlement will help to deal with the second. In fact, banks could begin wholesale foreclosure proceedings again as early as a month from now – assuming the terms of a settlement are finalized.

If the government has its way, both processes could be underway soon. When this happens, homebuyers and investors need to position themselves to benefit from the large injection of foreclosures into the market that is sure to happen over the next year. Indeed, many analysts are predicting the bottom of the market between now and the first quarter of 2012.

Finding prime opportunities for foreclosure deals will be easier than ever before, and with a bit of light at the end of the tunnel, the upside potential for investors and homebuyers is crystal clear.

Tennessee in particular is leading the movement, with bills currently being proposed that will help banks by reducing the amount of public notice that they need to issue before a foreclosure begins. Currently, a bank must publish a notice of foreclosure at least three times in a local newspaper before the process can begin. That is one of the few laws that Tennessee has on the books to protect homeowners, and is one of only five states in the country that does not mandate a court review of a foreclosure sale.

Instead, the state views a foreclosure as a private matter between the lender and the homeowner.

The benefits for banks are obvious. With less notice, the foreclosure process is easier and less costly for a bank – which means a bank is more likely to initiate foreclosures and add to the foreclosure market. This means that homeowners will have less time to prepare for the sale.

From an investor standpoint, this means that there will be less advance notice of an impending foreclosure, which means that finding foreclosure opportunities could be more problematic. But mainly it is a measure, critics say, intended to make things easier on the bank and, conversely, more difficult on homeowners.

This bill will probably make things difficult not just for homeowners, but also investors and prospective homebuyers who want to look for foreclosure sales. Chances are, each foreclosure sale will have fewer prospective buyers, which means those with an inside track on an area will have an advantage.

The bill has just cleared committee, and is expected on the state floor soon.

Data provided by the Greater Tulsa Association of Realtors showed that a total of 529 non-foreclosed dwellings and foreclosed homes in Tulsa were sold in January, up from the January 2010 total by about 7%. Compared with December 2010, sales figures posted a decline of 20.3%. Local realtors stated that traditionally, home sales decline after December. However, most of them stated that the housing industry is showing signs of improvements as evident in strong holiday sales.

They added that Americans are more confident about the job market and the end of the elections also made things more settled. In addition, there are solid signs that non-foreclosed and foreclosed homes in Oklahoma will post higher sales figures in February as pending sales in January remained way above the previous month and year-ago levels. Pending residential sales totaled 828 during the first month of the year, higher than the 615 recorded in December and the 689 contracts posted in January 2010.

Realtors however, are hoping that prices will also improve in February as January selling rates tumbled from a month ago. Compared with one year ago, selling prices did record an increase. Freddie Mac foreclosures and other dwellings sold during the month had an average selling price of $150,350, down by 5.6% from the December 2010 price. The good news is that compared with January 2010, prices were up by 6.3%.

In terms of median selling prices, foreclosure homes and regular houses sold in January posted a rate of $125,000, declining by 2.7% compared with the previous month, but posting an increase of 5.9% compared with January 2010. Realtors also reported that sales of more expensive houses are picking up, with figures for January recording a jump from year-ago levels. Inventory of unsold houses also dipped from month-ago and year-ago levels.

Unsold regular dwellings, bank owned homes and Freddie Mac foreclosures dropped to a supply of 7.8 months compared with the December 2010 inventory of 10.5 months. January 2011 inventory also declined compared with January 2010 when the metro area had around 8.8 months of unsold residential properties. Realtors have stated that inventories will likely decline further in the coming months as spring home-buying activities pick up.

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