...so goes the Economy. With the FHLB, Fannie, Freddie, and every other governmental GSE experiencing large loan to value losses and inventory expansion, talks of the "V" recovery are a bit panglossian.
“For over a year now we have been saying that the GSEs and other Federal agencies will play a critical role in the success or failure of the housing recovery due to their huge holdings of foreclosed homes,” said Michael Feder, Radar Logic’s president and CEO. “Now their role is more critical than ever before. The potential cost to taxpayers resulting from the government’s current policies is enormous. We can’t help but wonder if there isn’t a better approach.”
Assuming an average mortgage balance of $200,000, the book value of these homes could ultimately reach $614 billion, according to Radar Logic’s report. In most cases, the government will have to sell its REO inventory at a significant discount, on average 40 percent less than book value, which Radar Logic says means taxpayers stand to lose $246 billion.
In addition, assuming a similar discount relative to loan value in short sales, if 25 percent of the government’s foreclosure pipeline is liquidated as a pre-foreclosure sale, taxpayers will lose another $88 billion, based on Radar Logic’s calculations.
Taking both short sales and REO sales into account, that puts total losses from the government’s holdings of distressed properties in the neighborhood of $333 billion.