Fannie Mae and the flippers

As regular readers know, the Federal National Mortgage Association, a quasi-public corporation commonly known as Fannie Mae, is routinely one of the three or four largest filers of foreclosure deeds in Cuyahoga County.

Fannie Mae doesn’t lend money to homebuyers, so it doesn’t actually foreclose on them either. What it does is buy up mortgages from other lenders, providing what’s called a “secondary market”. This is essentially the same function performed by private securitizers; in fact, Fannie Mae was packaging its mortgages into “mortgage-backed securities” for years before Wall Street adopted the model. But Fannie Mae’s standards for the loans it will buy are supposed to be higher, so it’s generally assumed to be one of the good guys in the subprime/securitization foreclosure drama.

But Fannie Mae ends up holding a lot of properties as a result of mortgages originated and foreclosed by other institutions — 374 in Cuyahoga County at this moment, according to the Auditor’s database. A house with an FNMA-backed mortgage that goes into the sheriff’s sale with National City or US Bank as the plaintiff usually comes out the other end with Fannie Mae as the new owner.

What does Fannie Mae do with these properties? Generally, they sell them off through brokers. At the moment, for example, FNMA’s website lists 92 houses for sale in the city of Cleveland, at prices ranging from $4,900 to $114,900. (Go here and search for Cleveland.)

The Washington Independent’s Mary Kane wrote in January:

Most local officials in Cleveland reserve much of their ire for Fannie Mae, the government-sponsored enterprise that provides mortgage money…

Neighborhood groups complain, however, that Fannie Mae, more so than other lenders, aggressively sells off its properties to out of town speculators…

The Fannie Mae manager of foreclosed properties in Cleveland is based in Texas and wasn’t available for comment, a spokesperson said.

Fannie Mae enabling speculators and flippers? Oh yes. And here’s a new and striking case in point:

Since the beginning of 2008 Fannie Mae has filed deeds of sale for 211 properties in the county. 118 of these properties are in Cleveland and East Cleveland.

Of those 118 Cleveland and East Cleveland sales, 54 — almost half — were to something call “RECA Limited Partnership”.

What’s RECA Limited Partnership? It’s a South Carolina operation that buys houses to flip them, and invites others to do likewise. From their website:

RECA Limited Partnership buys real estate nationwide, primarily through bank REO departments. These properties are then resold “as is, where is.” All properties are sold for cash or with an Agreement for Deed…

Since 2002, the principals have purchased and resold hundreds of properties nationwide and have built a thriving investment and real estate firm.

Whether you would like to buy a single property or invest in dozens, RECA Limited Partnership has a great opportunity for you!

That’s about the clearest business-plan definition of real estate flipping I’ve ever seen — right there on RECA’s index page. (I presume Fannie Mae staffers have web access.)

The last dozen Cleveland transactions between RECA and Fannie Mae were filed on March 10 and March 12 — three on the West Side of the city, nine on the East Side. The Sheriff’s Sale prices listed for the twelve properties total $276,005 — meaning that their recent appraised values totalled as much as $414,000. (The Sheriff’s Sale minimum bid is 2/3 of the appraised value.)

RECA bought all twelve from Fannie Mae for $25,679. Not $25,679 each… $25,679 total.

Fannie Mae has a lot of good friends in this community, reportedly including Congresswoman Tubbs-Jones.

If you happen to be one of them, now might be a really good time to call up your friends at Fannie, point them to this post, and ask them what the hell they think they’re doing.

Sprechen sie Deutsche Bank? (Or, how do you say RMBS in German?)

At the close of business Monday — the close of business for 2007 — Deutsche Bank, a German corporation with no offices closer to here than New York City, was the “owner” of 970 Cuyahoga County properties. 616 of these properties are in the city of Cleveland.

All of them are, of course, foreclosed buildings or lots. Almost all are houses (many of which are multi-unit, which means the number of residential units in DB ‘s name is significantly larger than 970). And most, if not all, are vacant.

Who actually owns all these properties? Not Deutsche Bank, of course. Deutsche Bank is a trustee, a stand-in, for the real owners — large investors who bought shares in securitized investment pools of mortgages (Residential Mortgage Backed Securities, or “RMBS“es) created by the original mortgage lenders, and are now losing their shirts.

These real owners’ names don’t appear on the Auditor’s records. But you can often find some version of a RMBS’s name on the actual deed, or the Sheriff’s sale record. And then you might be able to deduce the name of the company responsible for servicing the property (i.e. disposing of it) by looking up the “pooling and service agreement” for that particular RMBS, which might be on line. If you’re lucky.

Remember when we did this for a house down the street from me?

Here are the real owners of a few other “Deutsche Bank properties” in Cleveland, picked at random:

• 1527 East 122nd St. — “Morgan Stanley Abs Capital I Inc Cdc Mor Cap Tr 2003-He3“
• 6611 Edna Ave. — “Argent Mortgage Loan Trust 2005-W1“
• 1355 East 88th St. — “Ameriquest Mortgage Securities Inc/Asset-Backed Pass-Through Certificates Series 2004-R11“
• 1268 East 115th St. — “New Century Mort Sec Inc Home Equity Loan Trust 2003 6“
• 3651 East 50th St. — “Long Beach Mortgage Loan Trust 2005-WL3 U.S. SEC Registrant”
• 6814 Hague Ave. — “GSAMP Trust 2005-HE3“

It seems at least two-thirds of the foreclosed houses for which Deutsche Bank is the named trustee are owned by RMBSes created (and originally serviced) by Cleveland’s subprime champ Argent Mortgage and its older sibling Ameriquest. Both companies have now gone belly up, with their servicing contracts absorbed by a Citicorp subsidiary, Citi Residential. But dozens of RMBSes bearing the Argent and Ameriquest names go marching on, under the Deutsche Bank flag.

Who are the others?

“GSAMP” is short for Goldman Sachs Alternative Mortgage Product. Goldman Sachs has created and peddled more than 50 RMBSes, one of which (not 2005-HE3, but also trusteed by Deutsche Bank) was dissected in this extremely enlightening Fortune article in October.

Long Beach Mortgage is a subprime subsidiary of Washington Mutual Bank of Seattle. There are at least thirty RMBSes under the Long Beach name, (and more than twice as many under “Washington Mutual”). Deutsche Bank seems to be trustee for most, if not all, of the Long Beach RMBSes.

New Century Mortgage was the nation’s second biggest subprime mortgage lender (after Countrywide) until it declared bankruptcy last April. It created more than 30 RMBSes before its demise, most if not all using Deutsche Bank as trustee.

Morgan Stanley is… well, Morgan Stanley. Huge investment bank and financial services company, currently writing off billions of dollars in losses from investments in RMBSes and other funky asset-backed securities. Among its hundreds of RMBS deals, in 2004-2005 Morgan Stanley created five investment pools of mortgages (apparently originated by Ocwen and Countrywide) with a company called CDC Mortgage Capital listed as “independent seller”. Deutsche Bank is the trustee of four of these pools and “custodian” of the fifth.

That’s just a small sample of the scores of RMBSes that now own nearly a thousand Cuyahoga County properties (with something like two thousand more in the foreclosure pipeline for 2008) just in Deutsche Bank’s name.