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How Fannie, and you, bought a hapless house

The history of single townhouse in a Washington suburb shows how a chain of bad decisions left taxpayers in effect as investors in Fannie Mae — and in a lot of foreclosed properties.
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The American taxpayers own Yellowstone, Yosemite, the Grand Canyon, dozens of parks, monuments, wildlife refuges, forests, pastureland, government complexes and historic sites. And now, for all intents and purposes, the American people are the major stakeholders in a little townhouse at 14746 Barksdale St. in Dale City.

The titular owner is Fannie Mae, which the U.S. government effectively subsumed this month, though the legal machinations are still ongoing. With the Treasury backing Fannie Mae, taxpayers have a huge interest in the fate of the mortgage giant's assets. They include the 1,296-square-foot, two-level, three-bedroom, 1 1/2 -bath house on Barksdale.

The most recent owner, Phyllis High Jones, refinanced the house through Countrywide Home Loans in 2006, taking out a $208,000 mortgage that would gradually inflate to $226,000. That same year, Fannie Mae bought the loan from Countrywide. Then the housing market collapsed in Prince William County. Jones defaulted this year. The townhouse went up for auction, but there were no takers. Fannie Mae had no choice but to become the buyer of record -- sale price $226,000.

This summer, Fannie Mae tried to sell the townhouse for $149,000. Still no reasonable offers.

The price has now been lowered to $84,900.

Chain of bad decisions
Although this modest townhouse is just one tiny entry on the vast balance sheet of the mortgage industry, it offers a glimpse of how a chain of bad decisions, some made by ordinary people, some by overly aggressive lenders, some by huge financial and mortgage companies, have created a historic meltdown in the housing market that imperils the U.S. economy and has led to a frantic bailout effort by the government.

The federal government does not actually own Fannie Mae and fellow mortgage titan Freddie Mac, but that is something of a legal nicety. The taxpayers are poised to become, in effect, 80 percent investors in both companies, as well as in the insurance giant American International Group.

At the base of this vast financial pyramid are actual bricks and mortar -- tangible assets in the form of houses and condominiums. The fate of these properties is now a public concern. No tenant? Roof leaking? Graffiti scrawled on the exterior? Or has someone tended to the house with love and care? Will the mortgage companies drive a good bargain, or perhaps hang onto the property and rent it until the market recovers?

These sorts of issues could ultimately increase or decrease the losses incurred by the Treasury. In some sunny scenarios, the government could turn a profit.

In the past, housing misfortunes affected individual people, individual banks, individual investors. In the new era, everyone is in this together.

"This is a crazy thing to lay on the taxpayers," says Jay Jack, a real estate agent in Dale City.

'An ugly duckling'
He is, in fact, the man trying to sell 14746 Barksdale. And he is the first to acknowledge that it is no dream home.

"It's kind of an ugly duckling," he says. "That's why it hasn't sold. It's not the homiest of places to walk into. It doesn't make you feel warm inside."

It presents itself well enough, with a brick face on the lower floor and newly painted wood siding above. Inside, it is plain, rather old-fashioned. The kitchen is cramped, and there is a ground-floor half-bath barely bigger than a violin case. The back yard is tiny.

But Jones, the most recent owner, had the house repainted in the past couple of years and added a new gas heating system. She upgraded the doors and windows. The house feels solid -- it has good bones, as they say in the business.

It is not a dump -- and the price is spectacular.

"REDUCED, REDUCED, DID I MENTION REDUCED!" says the real estate handout on the kitchen counter.

Jack says most of the visitors have been investors, waving cash and offering "significantly" less than the $84,900 asking price.

Change of hands, fortunes
The townhouse was built in 1972 by a company owned by Cecil Don Hylton, the founder of Dale City. It proved immediately enticing to a young Marine Corps lawyer named Kenneth B. Satlin. Satlin's mother had recently passed away, and he used his inheritance to snap up 16 properties in and around Dale City, including 14746 Barksdale.

He paid $23,100 for it. He recalls that his monthly mortgage and taxes came to $160, and he could rent it out for $220.

"For a kid who grew up in the projects of Brooklyn, hey, this was nice," he said.

Satlin had to sell in 1983 after he went through a divorce. The townhouse traded hands a couple of more times before winding up in 1993 with Jones, then known as Phyllis High Leigh. She paid $75,000 for it.

She lived there for five years and, along the way, got married. Jones and her husband moved to a new house and rented the townhouse on Barksdale. It was her main investment, and it proved a good one for a while. On Jan. 1, 2004, the county reassessed the townhouse at $129,400, and then the number jumped in one year to $173,100. By Jan. 1, 2007, the assessment had spiked to $238,400.

In the meantime, her marriage ended and she found herself raising three young children as a single mother. One day she received a letter from Countrywide, she said. The company pitched the merits of refinancing, and she decided to make the leap. In June 2006, she took out a new mortgage for the Barksdale house. She put some of the money, she said, into sprucing up the property, and used about 15 to 20 percent of the loan to help her start a new home-care business in addition to her full-time job in information technology.

"Unfortunately, I got a bad loan," she said. She said it was a "negative amortization" loan. After a year of making her payments, she realized that the principal was increasing rather than decreasing.

"I should have educated myself more, and I didn't," she said.

She also had bad timing: Her loan coincided with the tanking of the housing market in Prince William County.

In 2005, the county had 52 foreclosures. In 2006, the number jumped to 282. In 2007, there were 3,344.

Through August of this year, there were 5,485.

Rental market goes bust, too
Jones rented out the house until last September, but she had to raise the rent dramatically -- from $900 to $1,500 -- to try to cover the escalating mortgage. When her tenant moved out, she was unable to find a new one. With thousands of empty homes, the rental market was going bust like everything else.

"Once on the foreclosure track, it was a fast track to take it away from me," Jones said.

She defaulted on the loan this past spring.

This has left Fannie Mae in a position it does not want to be in. The company as a matter of policy does not want to own houses or be a property management company. But the housing crisis has left Fannie Mae as the owner of 54,173 properties as of June, according to the company's most recent filing with the government.

The company will not discuss its strategy for selling 14746 Barksdale. But spokeswoman Lorraine Voles offered a broad outline of the Fannie Mae approach: "We get an appraisal. We may get an opinion from a broker. We set the value. And then we see what happens. We're affected by the same things as every other homeowner."

One townhouse a few doors down from 14746 Barksdale recently sold for $119,000, a neighbor said.

The bottom-feeders are out in force.

"This is a good time to buy, so they are hitting the market with a vengeance," says real estate broker Erick Blackwelder.

'The worst I've seen'
Carlos Labiosa, the resident manager of the neighborhood association, said that there are 185 homes in the neighborhood, and that maybe 50 or 60 have gone through foreclosure. But it is still a nice place to live, he said. The streets are clean. The homeowners pay a semi-retired person to pick up litter. The biggest problem has been the county's recent crackdown on immigrants, he said. Many were here legally, and they still left.

"They were afraid. 'I'm going to get in trouble with the county. County doesn't want Hispanics; I'm going to leave,' " he said. "They were legal, and they left -- because of intolerance, hatred, division."

The president of the homeowners association, Nick, who declined to give his last name, has been here since 1972, one of the few who stuck it out all these decades.

"It sucks. It's the worst I've seen since I've been here," he said.

He said he thinks about leaving.

"But I have nowhere to go."

Satlin, the original owner of the Barksdale townhouse, said he spent many years buying and selling real estate, but ran into problems a few years ago with Florida properties that went bust. His real estate dealings are over, he said.

He is now a driver and tour guide for the Old Town Trolley.

Staff writers Dina ElBoghdady and Nick Miroff and staff researcher Magda Jean-Louis contributed to this report.