przycinek.usa
15.05.08, 04:17
NO BIDS, EVERYBODY DOWN!
On Monday, May 5, I read an article by Las Vegas banker Doug French.
French reported on an auction for foreclosed houses. It was quite a
show. It had a professional auctioneer. It had hype. It lacked only
one thing: a single bid. There was nothing. The lenders had all
placed minimum bids on the houses, and there was not one bid at or
above the minimum bid. So, the lenders took back every property.
On Tuesday, May 6, at the other end of the country, my wife stood at
the courthouse steps in a small town in Georgia. The town is a semi-
rural suburb of Atlanta. My son-in-law is moving there. My wife went
to see what would happen at an auction of foreclosed properties.
There were several people offering properties. Each of these people
carried stacks of papers on the properties for sale. There was not
one bid. The lenders took back every property.
Over the weekend, my son was attending a real estate seminar in Las
Vegas. John Schaub was one of the speakers. My son reported to me on
May 4 regarding a story one of the speakers had told. This story
tells all.
The speaker said a friend of his who is a professional investor in
homes spotted a foreclosed home in his town. He went to the lender
to see if he could buy it. He was told by the local representative
of the national bank that had foreclosed that the local bank had no
authority to negotiate a sale. "Who can?" he asked. The national
office. It had not yet released the property for sale.
The guy really wanted to buy the house. So, he got on a plane and
flew to the bank's division that is in charge of all of the bank's
foreclosed properties. The division is in the Midwest. He went to
the building and located the office. The door was locked. He banged
on the door. A uniformed guard opened the door. The guard told him
that the bank does not deal with the general public. So, he flew
home.
Within two months, vandals had stripped that home of everything
moveable. It was probably worth at least 25% less than before the
guy took his plane trip. It is lowering the value of homes on the
same block. It is lowering the real estate appraisers' estimates for
the homes in the immediate area.
This is happening all over the country.
The lenders are huge, centralized conglomerates. They bought pooled
packages of real estate loans. This was all very scientific, the
lenders were told. It diversified risk.
This crisis is not like previous housing crises. There is no local
banker who made the loan with his bank's assets. There is therefore
no highly motivated local seller of a foreclosed property. There is
no one locally with the authority to negotiate. Centralization
lowered costs getting into the deals. It has dramatically increased
costs of getting out.
My son-in-law looked at a foreclosed house that is being offered for
sale for $127,000. He was able to find out that it was repossessed
with a mortgage liability of $80,000. The repossessing lender put
$15,000 into the house to get it ready for sale. The lender wants to
make over $30,000 on the transaction. So, the property gets no bids.
These people are babes in the woods. They have never been through a
housing recession. They weren't around in 1991. They surely weren't
around during the savings & loan crisis of the mid-1980's, when
Congress intervened with taxpayers' money to bail out the over-
leveraged industry. They have not read of bidders at auction buying
homes with their credit cards, as happened in Houston.
There are today over 18 million empty houses in the United States
today. Of these, 650,000 are in foreclosure.
Under these circumstances, lenders should be aggressively
negotiating to get new buyers to take over the payments. They should
be dropping prices to market levels. If they don't, vandals will
strip these houses of everything movable.
But the foreclosure system is paralyzed. The locals have no
authority to negotiate. The distant bureaucrats are insulated from
reality. They dream of a government bailout. They don't want to sell
at the newer, lower prices, because this will force them to write
down their loans' value. They refuse to declare losses that the
market has already imposed.
The foreclosure market is in paralysis. No one in charge knows what
to do.
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