Lisa Simpson
Jul 27,2010
In: Foreclosure

Fannie and Freddie Cross Swords with Washington

Fannie and Freddie are crossing swords with Washington.

Fannie and Freddie are crossing swords with Washington over energy saving loan programme Washington has earmarked $150 million from the stimulus funds for helping house owners to fix their residences with energy saving devices. The loan would be realized through them through tax benefits covering a period of 20 years. But Fannie Mae and Freddie Mac are baulking at this plan.

The two government entities guarantee half the mortgages of residential houses in the country. They are concerned that if the house owners default then the tax liens would get first priority when a foreclosure sale will take place. This would hamper their own interests in realizing dues.

The contradiction between two government departments has led to an impasse with the state government withholding the energy related programmes. Yet it was vital for giving an incentive to the manufacturers of new energy saving devices that would have created jobs while saving energy in the long run.

Last May Fannie Mae and Freddie Mac sent letters to lenders. The letter from Freddie Mac read, “The purpose of this industry letter is to remind seller/servicers that an energy-related lien may not be senior to any mortgage delivered to Freddie Mac”.

But confusion prevails and the lenders are not sure about handling units that carry these energy liens. Those who support the programme are afraid that the lenders who are reliant on Fannie Mae and Freddie Mac for buying their residential loans would now demand that the full lien be cleared prior to issuing the fresh loan.

The instance of Deke DeKay of Healdsburg of California can be cited as an example. He sold his residence in Geyserville last May. DeKay had bought a foreclosed house for investment purpose and fixed it up with new heating systems. He availed of $11,000 from the programme run by Sonoma County. DeKay said, “We thought this would be an interesting way of upgrading the home’s energy efficiency without adding to the purchase price. Then right before the close of escrow, the bank discovered this stuff”. Fannie and Freddie refused to sanction the loan with clearing of assessment dues first.

DeKay is today a worried man. His house is weighed down with a lien of $25,500 for installing of energy saving devices set up in 2009. It would now be impossible for him to refinance the unit.

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