When you are the nation's largest owner of foreclosed homes, even little things can get expensive fast. Such is the case for mortgage giant Fannie Mae, which as of March 31 had a mind-boggling 153,000 foreclosed homes on its books.
One example — mowing the lawn. Two men swoop in on a foreclosed town house in Lanham, Md., quickly mowing and edging the small front yard. Fannie Mae owns this home, so it's paying for the lawn crew to come every two weeks or so to keep up the curb appeal.
But it's not just this lawn. There are tens of thousands more. Fannie Mae officials won't say how many lawns it's paying to maintain, so we've done some back-of-the-envelope calculations of our own:
Say only half of the homes have lawns, a conservative estimate, that's still more than 75,000 lawns.
X 6 (a six-month grass-clipping season)
X 2 (mowing twice a month)
X $40 (a reasonable guess at how much it costs to mow a lawn)
= $36.7 million
Again, this is very rough estimate, but that's a whole lot of money to spend on lawn care.
An Expensive Upkeep
"This is just one of the costs that Fannie and the rest of us will pay to dig out of a very big hole," says Karen Petrou, who watches Fannie Mae's books closely at her firm Federal Financial Analytics.
When she says "the rest of us," she means it. Fannie Mae's tab from U.S. taxpayers is up to $86 billion since September 2008 when it was taken into government conservatorship.
In just the first quarter of this year, Fannie racked up $488 million in foreclosure-related expenses, including holding costs (insurance, taxes and maintenance); valuation adjustments for changes in market value; gains/loss when the property is sold; legal fees; eviction costs; weatherization costs to prevent the pipes from bursting; costs to secure the property; and repair costs.
At that town house in Lanham, Md., the repair costs will add up to nearly $15,000. Chipped bold paint colors are covered with a neutral tone; a stolen air conditioning unit and missing copper pipes are replaced; new light fixtures and wall-to-wall carpeting are installed.
"We want to make sure that we're comparable with the market or with the neighborhood," says Elonda Crocket, an executive at Fannie Mae who deals with managing its massive portfolio of foreclosed properties.
She says the goal is to stabilize the neighborhoods where they have foreclosed homes and to get the properties to a condition where first-time homebuyers can imagine themselves moving in.
"We want to make sure that we can maximize our return on the investment," she says.
In 2010, Fannie Mae did similar repairs on 87,000 foreclosed homes.
"It makes them — I think — indisputably the largest purchaser of paint and general appliances for these homes they're fixing up," says Guy Cecala, publisher of Inside Mortgage Finance.
But if you think mowing tens of thousands of lawns and buying acres of new carpet is expensive, Petrou says just imagine the alternative.
"If they don't maintain the houses, then the neighborhoods go downhill, other people are put at risk and the housing crisis gets worse because you have still more downward pressure on overall house prices," Petrou says.