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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: 2MAR$ who wrote (79114)	9/6/2011 8:06:55 PM
From: TobagoJack	Respond to of 217825

just in Real Estate in the USA - from Darkness to the Abyss Ramsey Su September 2011 Did you hear that B&G Mortgage (Bernanke and Geithner Mortgage) is offering a new option ARM loan program? Interest rate is zero and repayment is optional. Other terms would be decided later. Government intervention has been off the charts since the bursting of the real estate bubble and they are not done. This week, Obama is expected to announce his new and improved grand plans. Pertaining to real estate, the trial balloons of the past few weeks have been confirmed in detail in this speech by Federal Reserve Governor Elizabeth Duke - Rebalancing the Housing Market. federalreserve.gov (If you are unfamiliar with these proposals, you may need to glance through the speech to know what I am talking about below.) This is the key sentence of her speech, in the second paragraph: So, in crafting appropriate policy responses, an important starting point is to carefully analyze what we're solving for. Policy makers should give that some thought. What are they trying to accomplish? Each round of policies has proven to be more destructive than the last and this upcoming round is no exception. There are two parts to the new plan: refinance underwater mortgages at lower rates and converting REOs into rentals. I can summarize the plan in one sentence: THROW MONEY AT IT. That is the plan. The money is going to come from B&G Mortgage (see previous email about Bernanke and Geithner Mortgage). Mr. G is going to create all the junk mortgages while Mr. B will buy them all up. THEY WILL NOT WORK. I can explain in detail why they will not work. I can propose ideas on what will work. In the end, it does not matter. I have no ability to alter decisions that have already been made. So it is far more pragmatic to analyze the potential outcome of these policies. The deterioration of a piece of property starts the day when a borrower decides to stop making payments. At that moment, all incentive to improve and maintain the property is gone. This cycle ends when the property is sold and the borrower removed. REOs are not sold at distressed prices. They are sold at prices that reflect the distressed condition, which may be physical, legal, or just obsolete. It is unreasonable to expect a property in neglected condition to sell for the same price as one that may show pride of ownership. The longer a piece of property stays in the deterioration cycle, the more severe the damage to the market. That is the primary mistake of all government intervention to date. Focus needs to be on how to shorten this deterioration period instead of prolonging it. The new plan is going to do more prolonging. Just like HAMP, there are going to be long delays just because of logistics. Giveaway criteria has to be formulated, followed by months, may be years of screening for eligibility. There will be mass confusion and fraud. Every borrower is going to want a lower mortgage rate, including me. Every borrower under water is going to re-evaluate their positions given the new choices. Would it be better to continue paying if the mortgage rates are lowered? May be defaulting is the correct move, then rent back the house at an even lesser housing cost? Servicers will once again have to process millions of applications with minimal financial incentives. They would not be told what is right but they will bear the blame for anything that goes wrong. Lenders who were reluctant to lend before would be even more reluctant now. They would be originating agency conforming loans with even more scrutiny, just to be certain that they cannot be put back due to some technicalities. How is this good for the real estate market? Properties that should be sold will remain in the possession of those who are already, or expecting, a government subsidy. This is also the first time that government intervention is moving into the rental market. Who are going to be buying the agency REOs and what conditions are going to be imposed on the buyers? I can easily see these properties sold at unreasonably favorable terms to quasi non-profit agencies and rent them out with no economic considerations. Could we see eviction intervention similar to foreclosure intervention? Why would borrowers who had not made a mortgage payment in years be interested in paying rent? Isn't free housing a right? The free market has offered the perfect solution. There are plenty of buyers in every metro area to gobble up REOs, especially the type of property the agencies have in their portfolio. There are owner users, flippers and investors who will fix up the properties and put them in the rental market. These are the perfect buyers who will pay top retail price and return the properties to the highest and best use. But that would be to simple for the government. I can also see a repeat of the RTC era when properties were pooled and sold in bulk to those with the most connection and influence, at unbelievable bargain basement prices. In the current arena, I would watch the Wilbur Ross Company who has James Lockhart as vice chairman , once the Director of FHFA. Unrelated to the upcoming Obama grand plans, the agencies filed suit against 17 major banks over the losses of the MBS sold to them. The timing is unfortunate but the statute of limitations is supposedly about to expire. These same banks are already facing civil suits from investors and possibly criminal charges by the Attorney Generals for their role in robo-sign. These are the same banks that the government is accusing of not making enough loans. These are the same banks that the government forced free TARP loans upon because they are too big to fail. Policy makers are playing with fire. Yes, the banks should be punished, so should the rating agencies and above all, so should Alan Greenspan for their respective roles in the fiasco. However, for the sake of the country, we need to stabilize the real estate market first and place blame later. If there is ever a need for an uniform approach to mortgage lending, secondary market and recourse, the time is now. The market needs clarity and stability. Lenders need some safe harbor guidelines. Investors need to know their rights. Buy/sell decisions need to be based on free market principles instead of anticipating the next government intervention. What is ahead? We know there can be no demand improvement without employment. At the moment, employment is heading down. Do not look to home construction to stimulate employment. There is excess supply. Any stimulus would only exacerbate the supply problem. There are nothing but dark clouds ahead. All my previous real estate opinions have proven to be overly optimistic. Investing is a war between greed and fear. For me, personally, fear is winning the battle today.