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Fannie and Freddie, Now Home Improvers

by Elaine Schwartz    •    May 22, 2012    •    290 Views

By Mira Korber, guest blogger.

Last week I asked some house painters how their business was doing and I was a bit surprised to hear their answer. They couldn’t buy brushes and rollers fast enough to keep up with the numbers of jobs on the schedule.

I hadn’t realized that  house painting could be profitable in a tough economy. If you are painting the right houses, that is. Specifically, foreclosures.

Let’s go back to September 2008 to begin. On September 7th, the US government took over Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSE’s) that owned most of the bad debt associated with the subprime mortgage housing crisis. As home-owners defaulted on their loans, Fannie and Freddie could no longer afford to pay investors who had purchased the subprime mortgages, and tax payers took over their obligations through the government bailout.

Since the government takeover of Fannie Mae and Freddie Mac, it became responsible for the ever-growing number of foreclosed homes that accompany them. Because of this, Americans now own 200,000 foreclosures that will cost taxpayers $40 million in upkeep over the next year (Yahoo Finance).

In order to sell foreclosed homes, it makes sense that their appearances must remain coiffed, but that means taxpayers have a hefty lawn, flower-planting, and painting bill to swallow. A presentable house helps preserve already sinking home values, yet leaves everyone else in the neighborhood with burgeoning expenses.

Complicating matters, not all foreclosed homes are evenly maintained. A recent study cited in the WSJ  shows that houses in poor or minority are 42% more likely to have inconsistent maintenance than those in wealthier suburbs. (Speaking of which, a foreclosed property on my street — I live in a rural area — has not been touched in months.)

The Bottom Line: Even in a depressed housing market, some home-improvement businesses can capitalize on increased job opportunities because of the volume of foreclosures. However, as painters, landscapers, and handymen spruce up vacant homes, they aren’t cutting down on taxpayers’ grass maintenance bills.

Interesting sources on the subject can be found here:

Econlife, two years ago on foreclosures, Fannie Mae, Freddie Mac, and lawns. How minority communities and maintenance mix, from the WSJ.  NBC San Diego, on banks that aren’t properly maintaining foreclosures. Foreclosure.com, if you’d like some visuals on just how many foreclosures there are. Yahoo Finance article with recent stats. NPR on lawn mowing and foreclosure last summer.

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