County treasurer: Fannie Mae and Freddie Mac owe back taxes
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Kai Ryssdal: One can say this about the American housing market: at least it’s not getting our hopes up. Used home sales fell to a 14-year low last month. The two government-owned companies that are behind almost all the residential mortgages in this country are facing some challenges of their own. There’s an ongoing debate in Washington about how to reform Fannie Mae and Freddie Mac.
In suburban Detroit, there’s a multi-million-dollar lawsuit over unpaid taxes. And exactly where Fannie and Freddie sit on the spectrum of public company or private concern.
From Michigan Radio, Sarah Hulett reports.
Sarah Hulett: Like most states, Michigan has something called a real estate transfer tax. It’s paid when a property changes hands.
Andy Meisner: We’re standing out in front of a really beautiful home in Troy, Mich., that sold in 2008 for about $353,000.
That’s Andy Meisner. He’s the treasurer of Oakland County, north of Detroit. The brick home behind him has a three-car garage and a soaring entryway. The problem with this home and many others like it, Meisner says, is that it was sold in foreclosure by Freddie Mac — which, like its sister Fannie Mae, claims to be exempt from paying Michigan’s transfer tax.
Meisner: The total lost revenue on that transaction was $3,040.10.
Meisner says the mortgage giants owe the state and his county more than $12 million in real estate transfer taxes over the past six years. He filed a lawsuit last month challenging Fannie and Freddie’s tax-exempt status as government entities.
Fannie Mae was created by the government during the Great Depression to support home mortgage lending. It was converted to a publicly traded company owned by investors in the late ’60s. Freddie Mac launched in 1970 and went public 1989. Fannie and Freddie have been under government conservatorship since the financial crisis. Both declined to comment on the lawsuit.
Meisner says the companies are trying to have it both ways — enjoying the profits of a private company, and the protections of a government entity.
Meisner: If it walks, flies and quacks like a duck, it’s a duck. And Fannie and Freddie walk, fly and quack like private companies.
Whether Mesiner prevails will depend on the judge’s interpretation of state and federal law. Ann Graham is a professor at Hamline University in Minnesota, and an expert on banking law. She says there is a case for deeming Fannie and Freddie private.
Ann Graham: They actually have private shareholders who expect a profit. They have executives who are compensated on profits, just like any other publicly traded corporation.
One argument against, though, is Fannie and Freddie’s own charters, which exempt them from state and local taxes. Whatever the outcome of the suit, it’s already caught the attention of other local officials around the country.
Phil Ting: What we’ve seen is in local government we have really been stuck with the final bill on this foreclosure crisis.
That’s Phil Ting. He’s the assessor-recorder for the city and county of San Francisco. He estimates San Francisco is losing about one and a half million dollars a year in transfer taxes that would otherwise go to pay for things like police and roads.
Ting: What Oakland County has discovered is similar to what California is looking at, which is how one industry has gotten very, very preferential treatment in this process and it’s a question of: Does it really make policy sense?
Ting says he’d like to see a ballot initiative in California that would require the transfer tax to be paid when a homeowner defaults and the property reverts to a financial institution. He says he’s keeping a sharp eye on what happens in the Michigan lawsuit to see whether Fannie Mae and Freddie Mac might be subject to that tax as well.
In Detroit, I’m Sarah Hulett for Marketplace.
Ryssdal: You wanna know how the mortgage market works? We’ve got a video primer on Fannie, Freddie and the rest of the Mae-Mac clan. Paddy Hirsch is back with another Whiteboard explainer called “Meet the Maes.”
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