Gardiner, Ore. – Lower income home owners fighting foreclosure here in this former mill town of Gardiner -- that’s been hit hard by years of depression and now recession -- are now telling family and friends to get help from the Federal Housing Administration (FHA) as “the best means” for financing a new home purchase over Fannie Mae that's become a source of frustration here in this depressed home market.
It’s no secret that lower income homeowners, here along the central Oregon coast in the hamlet of Gardiner are upset with Fannie Mae for not helping them more to stall the rash of foreclosures that’s driven people out of their homes up and down the coast. To help remedy the situation, these homeowners are telling others to try the FHA “because they may offer a better deal.”
FHA mortgage help being considered by many these days
While there’s plenty of home buying advice on TV and the Internet these days, one piece of advice about FHA mortgage assistance is popular these days. According to Robert Van Order, the FHA played a major role in aiding the housing market during “the economic collapse in 2008 and 2009.”
Van Order, a professor of finance and co-author of the George Washington University School of Business has been telling media money programs that home loan limits were “raised to help people gain access to credit in the country’s high-cost markets.”
At the same time, Van Order said the “FHA has remained a popular mortgage source for borrowers who don’t have a large down payment.”
In turn, he said those who are strapped for funds to put money down on a new house can turn to the FHA over Fannie Mae.
“FHA has certainly been the predominant way of doing low-down-payment mortgages in the past couple of years by far,” the finance expert asserted.
FHA over Fannie Mae for those with lower incomes
The term “conforming mortgages,” is commonly used in real estate circles for those mortgages that can be bought by Fannie Mae or Freddie Mac.
According to a Eugene-based mortgage consultant – who’s now recommending FHA over Fannie Mae for those who are on a very tight budget, but still want to purchase a home – “Fannie Mae wants more for down payments than FHA. However, you will have to pay more in those closing fees that could be in the high thousands.”
For example, the mortgage expert said FHA requires those wanting to purchase a home to pay a 1% “upfront premium.” However, he noted that this one percent in fees can be “included in the overall loan amount.”
Moreover, a report to Congress by the Mortgage Bankers Association notes that most lower income people wanting to purchase a home want a deal with “low-down payments.” Thus, they go to Fannie Mae over FHA because FHA help can result in higher monthly payment.
Still, the Mortgage Bankers Association told lawmakers that “75 to 80 percent of FHA purchase loans are for first-time home buyers.”
Foreclosures more common as recession lingers
Home ownership conflict has become a natural state of affairs here in this former mill town located along the Oregon coast’s Pacific Coast; thus, it’s no surprise that the recession has hit the housing market hard, but what’s surprising are home owners pointing to what they call Fannie Mae’s “dirty little secret” of giving better breaks and customer service to banks and investors than to those who are struggling to keep their homes after a rash of recent foreclosures.
Lower-income home owners here in Gardiner – a severely economically depressed community with a “historic district” that dates to 1870 – once worked at a thriving “International Paper Mill.”
The paper mill operated from 1963 to 1999, and was considered to be one of the largest employers on the southern Oregon coast. The mill’s massive spread of buildings – that served as the only industry in the town – were all demolished in 2006. What remains is a shattered small town with one bar, one post office, one volunteer fire truck and dozens of homes with threats of foreclosure signs dotting their lawns.
Fannie Mae not catering to its mission, say low-income homeowners
Fannie Mae is a publicly traded company which operates under a congressional charter that directs it to channel efforts into “increasing the availability and affordability of homeownership for low, moderate and middle-income Americans. However, a fair and customer oriented Fannie Mae is not what Norman and Viki Burnett found when they went to Fannie Mae for assistance.
“If you look around Gardiner and up and down this coast, and inland where most home owners are lower income, you see these darn foreclosure signs on the property and that’s just not right,” says Norman Burnett, who’s lived in town since the mid-1970’s.
Walking around the Burnett’s property, it’s clear that the retired couple is proud of their home by the many do-it-yourself projects that have turned this cottage into a very nice little home. Still, home ownership and the American Dream is like gliding clouds, fading in and out of the heavens with the Burnett’s “rig” now filled up with their personal belongings as eviction time nears and the bank sits ready to claim the property.
“There’s nothing we can do at this point,” explains Viki Burnett whose husband said “she’s come unstrung, and at loose emotional ends” over the loss of their homes.
He then reveals a view from locals about “Fannie Mae’s dirty little secret” where they claim Fannie Mae is no longer leveling the playing field, so to speak, and “giving the banks the breaks and not the little guys.”
In turn, the Burnetts and others -- up and down the Oregon coast -- are telling family and friends to go the FHA for help when buying a new home "because Fannie Mae is not what it once was for the working man."
Fannie Mae’s practices under fire for not being fair
According to a congressional report, Fannie Mae must “level the playing field” and be “fair” when it purchases qualifying mortgages from lenders and sells securities backed by mortgage loans to investors.
Fannie Mae, the largest source of home mortgage funding in the United States, purchases mortgages and mortgage-backed securities from financial institutions and guarantees timely payment of principal and interest to buyers of Fannie Mae-issued mortgage securities.
“When a bank lender delivers a pool of mortgage loans to Fannie Mae, Fannie Mae creates a Mortgage-Backed Security in exchange for the loans. The lender can hold the mortgage security in its own portfolio or sell it to investors, stated congressional guidance,” stated a congressional report on Fannie Mae practices.
Fannie Mae responds with a foreclosure “workout programs”
While the Burnett’s and other lower income home owners along the southern Oregon coast went to Fannie Mae for help long before banks sent foreclosure notices, the help was mooted by “a lack of real customer service,” say locals who have washed their hands of asking Fannie Mae counselors for help.
In turn, one homeowner produced something called “Fannie Mae’s Foreclosure Workout Programs.” This Fannie Mae guide explains that “in order to qualify for any workout option from Fannie Mae, homeowners must have experienced a financial hardship.”
However, local Fannie Mae customers say the “real solutions” are not always offered to borrowers who have not experienced what “Fannie Mae considers as a real hardship.”
For instance, the Burnett’s said Fannie Mae gives no quarter to such things as a death in the family, or mental distress, or being laid-off, or not being able to find work in a region that’s been in the 20 percent or higher unemployment category for the past three years.
In brief, the Fannie Mae guidance states that “hardship must be involuntary in nature and involve a reduction in income or increase in expenses.”
“It says that but what this paper says and what Fannie Mae did for us is a different story,” asserts the Burnett’s who say, instead, Fannie Mae simply “set the bank on us when they learned we were in trouble.”
In turn, a Fannie Mae representative said it divides its “work out” options into two specific categories, with the first being dubbed “Special Relief Measures” that’s more or less meant for homeowners experiencing a “temporary financial setback.”
Thus, the Burnett’s ask: “What’s temporary” in this time of recession?
Fannie Mae’s second category to avoid foreclose is called “Loss Mitigation Alternatives” that it states are “designed to assist borrowers who have had a more substantial change in their personal finances.”
“That may be all well and good, but if you depend on Fannie Mae to watch your back, than you better load your rig as we have. You have to fend for yourselves and that’s the secret Fannie Mae is not talking about,” adds the Viki Burnett.
While the Burnett's angst with Fannie Mae is understandable, there is some hope with deals that the FHA can offer, say local mortage experts.
“Using the FHA as your means to finance a home is something that people need to look into a great deal because the federal government is aiming to reform the mortgage market right now and there’s a lot of pros and cons for both FHA and Fannie Mae help for home buyers,” added the Eugene mortgage expert.
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