Excellent article Mish..
Btw, just had a wonderful conversation with a gentleman (we'll call him Mike) this evening I met while grabbing a drink and some food. Turned out he's a trader/financial consultant so we naturally had something in common to discuss.
He also shared your views on deflation being more of a risk than inflation, so thought that might be worth something to you... ;0)
We spent quite a bit of time on discussing foreclosures and what will it take to create a floor under the deflationary spiral we're seeing. He had mentioned that he had proposed a plan to the "powers that be" (FDIC) that in situations where homeowner equity had declined to values below the outstanding mortgage amount, the banks should offer the following deal:
1.) The bank makes a deal with the homeowner to take over the title to the home and offer a lease, with option to buy contracts incorporated for a period of years. For each year of the option, so much would be paid to the bank at the time of exercising of the option. And, of course, there is no obligation to exercise and their home still winds up as REO, as would be the case with a foreclosure.
2.) The leasee would be under the obligation to maintain the property, and if it was discovered to be in disrepair, costs were be applied to their lease agreement. In this manner an incentive is offered to keep the property in good condition and maintain home value over a common rental situation.
The bottom line is that this gives the banks the ability to liquidate property over time, and not at firesale prices. Money is still paid on a monthly basis and the property kept up for eventual sale.
The question is how this would affect the balance sheets of banks?
Also, one other thing he mentioned was that he knew someone who was essentially in just such a situation. Apparently this fellow became unemployed and called his bank and informed them that he couldn't afford his mortgage anymore. The bank basically told him not to move out and keep the property in good repair and they wouldn't commence foreclosure proceedings against him.
So the question is if this is happening to this guy, the question is how many other foreclosures are being put off into the future by bankers who are trying to avoid having to immediately report these foreclosures.
And wouldn't "Mike's" recommendation work better in assisting the banks to unload these properties in an orderly, regulated manner over time?
Your views?
Hawk |
