The Residential Real Estate Crash Index Message Board

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Strategies & Market Trends : The Residential Real Estate Crash Index

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From: Think4Yourself	10/9/2007 10:50:49 AM
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Just wanted to throw out a thought that has been going through my head for the past month, but which I have not seen anywhere else. We all know about the ARM's are resetting higher, that they are peaking now and early next year, and the expected wave of foreclosures. We all know the builder situation, that the builders are undercutting homeowners, and that the builders are still building more homes than they are selling. Everyone who knows what they are doing in this industry understands this stuff. A lot of people also understand that the banks and mortgage companies have offloaded most of their risk to investors, through investment vehicles such as MBS. OK, the next expected disaster is a massive wave of foreclosures and auctions. Who gets hurt and does it help anyone? WHO IT HURTS Investors holding MBS gets hurt for obvious reasons. Builders get hurt. Puts downward pressure on prices and increases inventory/competition Sellers of existing homes get hurt for the same reason. Buyers get hurt if they rush in without doing their homework. They benefit if they get a good deal. Banks and mortgage lenders get hurt in that any mortgages they are holding might go bad. They also have to deal with the foreclosed homes, which may be auctioned off at a substantial loss. WHO IT HELPS At first blush it looks like no one benefits. On closer examination one realizes that all those foreclosed homes will be auctioned off. That's certainly good for the auctioneers at least but there is another beneficiary. Unless all the buyers are paying cash (ROTFL!) they are going to take out new mortgages to buy the properties. That's new business for the banks and surviving mortgage lenders, and at higher rates than their current mortgage portfolio. It's also a new batch of fees and commissions. Banks and mortgage lenders who successfully offloaded their portfolio risk on investors stand to benefit handsomely by what is about to happen. If the current buyers are flippers then the lenders will get ANOTHER round of fees and commissions in another 12-24 months. I believe this is why the financials have already bottomed. This is why I covered, why I started buying banks and mortgage lenders about a month ago, and why I am still looking for bargains today.

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