NO BIDS, EVERYBODY DOWN!

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.


news.goldseek.com/LewRockwell/1210746153.php
    • polarbeer Re: NO BIDS, EVERYBODY DOWN! 15.05.08, 18:50
      No i oczywiscie jak zwykle zapomineli o lokalnych podatkach
      • przycinek.usa HA! To dopiero poczatek. 16.05.08, 03:34
        Nikt na swiecie nie zdaje sobie sprawy co sie u nas szykuje.
        Panuje blogie samozadowolenie. Zreszta lokalnie tez nikt sie niczego
        nie spodziewa. Cholera, gdybym mial wiecej czasu, to napisalbym
        jakis komentarz do tego, ale nawet juz mi sie nie chce.
        Polecam kolejny dobry tekst tutaj:
        Thursday, May 15, 2008
        More On The Banking System
        From Bernanke's speech today....
        ""They have taken a lot of losses. They are also being very
        protective of their liquidity because they are unsure of the
        possibility of additional off-balance sheet assets coming onto their
        balance sheets and therefore they are being rather conservative in
        making new loans which has implications for the broader economy,"
        Bernanke said."
        There 'ya go.
        What did I post this morning?Yep.
        See, the banks know the game.
        They have an alleged "wrap" on all these "assets" which allows them
        to "claim" that their credit book is all "money good."
        Same deal for places like Fannie and Freddie that have roughly $5
        trillion of mortgage paper in their "credit guarantee" book, with a
        fair bit of it at LTVs over 80%. They claim "money good" because the
        mortgage insurers wrote policies (swaps, effectively) against the
        potential failure to recover the full loan balance.
        The problem is that essentially none of these swaps are any good.
        That's the bad news.
        The worse news is that the situation is going to get worse over
        time, not better, because home prices are going to continue to fall,
        not rise, for at least another one to two years, and before they
        bottom we will see the long end of the interest rate curve start to
        rise too, which will put further downward pressure on prices.
        The NAR (which has been all pollyannaish until recently), Fannie and
        Freddie are all predicting double-digit additional percentage
        declines, and Case-Schiller is on board with that too.
        As this occurs it "uncovers" more and more exposure in the insurers
        (swap writers) which in turn results in more degradation of the
        credit book, which in turn causes the real cost of mortgage money to
        rise.
        This in turn causes more home prices declines which........
        Here's the thing - in "normal times" being a MI company is a license
        to print money, just like writing swaps is. If the "base case" is
        that only 1% of all prime mortgages default, and you only insure the
        top 20% of the note, then you only lose if the default happens
        before the note drops below the principal value.
        In a normal market this is unusual - you might only have to pay on
        1/2 of 1% of the loans you write. Same thing applies to swaps - in
        the recent past we had a year where there were essentially no
        corporate defaults!
        But in this market it is anything but normal, because the default
        percentage rises to 2 or 3%, and you have to pay on most of them,
        and corporate defaults are rising too!
        The underlying model that firms have used to price this risk is
        mathematically unsound in a declining home price marketplace.
        Specifically, the model relies on the assumption that you will only
        experience losses on 1% or so of the loans and for the most part
        price appreciation will prevent you from having to pay as the
        foreclosure sale will recover most or all of the deficiency.
        Neither of these assumptions are valid in today's market!
        Here's the proof (click for a larger view):
        Note that we have $142 billion worth of exposure "off prime" with
        21% of it delinquent 60 days or more yet it was all rated "AAA" at
        origination.

        Most 60+ delinquencies will foreclose. The 2nds and HELOCs are
        essentially total wipeouts in an environment where home prices are
        declining as foreclosure nets you nothing since the balance exceeds
        equity.

        Now take a look at the real losses likely to be seen here. Assume
        we're talking that most of the 21% delinquent on the $142 billion
        goes "boom", we have $30 billion in exposure. Being nice and
        allowing a recovery of 50 (hopelessly optimistic) we have $15
        billion in losses.

        The problem is that MBI, Radian and Ambac's market cap combined is
        less than $4 billion.

        So we have $11 billion in "forward, unrecognized and uncovered"
        losses but Freddie is going to raise $6 billion? Yes, I know, they
        have some capital cushion, but is it really wise to invade that when
        the problem is nowhere near over?

        We also haven't accounted for losses in the prime book - at all. And
        how much of that "prime" is really prime and not "Fast and Sleazy"
        paper that was sold to them as prime but in fact is Alt-A?

        See, this is at today's home prices and loss experience - but both
        Freddie and Fannie are predicting further home price declines, which
        will feed into more delinquencies.

        The bottom line is that the claimed "credit guarantees" are crap and
        this is only Freddie, which has less exposure than Fannie (they were
        nice enough to publish a pretty table that made this pretty easy to
        put out there for 'ya.)

        You can extend this problem to both the investment and commercial
        banks; the basic problem remains the same - the so-
        called "guarantees" represented by these OTC swaps and
        other "derivative devices" are worth nothing as the money simply is
        not there to make the payments.

        Once the first blowup bankrupts the guarantors everyone else is
        immediately running uncovered.

        There is no way out of this box. We have had a nearly-10-year run
        where all this paper was written in a mispriced environment under
        the premise that the music would never end.

        Bernanke has admitted that he knows this in that the banks
        are "hunkered down" and unwilling to put more exposure out in the
        market because they know what is coming.

        But Bernanke is compounding the error by not forcing institutions to
        take down their leverage.

        You force them to take down leverage by demanding that they either
        prove their swap and "insurance" counterparties can pay against the
        most pessimistic assumptions in the current environment or those
        policies must be declared "worthless" and your assets then have to
        trade on their underlying credit quality.

        If he was to do so then we would find out who is swimming naked (and
        there would be plenty of people who are) but the bleeding would stop
        in the banking system because once the trash paper is sold it's not
        your problem any more - it is now owned by whoever bought it.

        Remember folks - if hedge funds want to bet on recovery of this
        paper and buy it for 80 cents on the dollar on alleged "money good"
        paper, and they're wrong, we do not get a systemic failure.

        People who are risking their own capital get to either make or lose
        money.

        But if the banks continue to hold this paper trying to get "par" for
        it rather than take the losses now and they are wrong we all get
        screwed because Bernanke has literally loaded over $400 billion
        dollars of this trash on The Fed's balance sheet, and to bail that
        out, if it becomes necessary, will require transferring that bad
        debt to the United States Treasury with catastrophic results.

        Worse, if this blows up in our faces you'll find that you suddenly
        need 50% down to buy a house, because nobody in their right mind
        will loan on more than half of the underlying collateral value.

        This happened during The Depression for this exact reason - what do
        you think a development like that will do to house prices?

        Bernanke is gambling with our future by refusing to act to force the
        deleveraging to take place now through recognition that these swaps
        and "insurance" policies are, in aggregate, worthless.

        Congress, for its part, is sitting back and fiddling instead of
        insisting that the truth of these firm's financial positions be
        recognized and the underlying credit quality be the basis upon which
        they trade.

        It's time for you to either stand up and raise hell or shut up,
        because come the July Recess, which is only about a month and change
        aw
    • przycinek.usa California: 1000 aukcji dziennie 16.05.08, 04:28
      latimesblogs.latimes.com/laland/2008/05/foreclosure-flo.html
      California's foreclosure crisis passed another ominous milestone in
      April, when more than 1,000 foreclosed homes were auctioned off
      every weekday at courthouses across the state, the auction tracking
      firm ForeclosureRadar reported today.

      The April total of foreclosure sales at auction
      • polarbeer Re: California: 1000 aukcji dziennie 16.05.08, 05:01
        Ja wlasnie wrocilem z kaliforni. Bylem w LA przez tydzien... muszie przyznac ze
        rozumiem dlaczego tylu ludzi tam sie pakuje
        • przycinek.usa California to raj 16.05.08, 06:05
          O rany, szkoda, ze nie powiedziales, ze jedziesz.
          Zabralbym cie lodzia na Channel Islands.
          Moze zobaczylibysmy jakies wieloryby?

          Ja nie zamienilbym LA na nic innego w swiecie!
          To raj! Najlepszy klimat, najwieksze atrakcje. Bajka.
          Myslalem, co bedzie - gdyby zacznely sie tumulty popaprancow i latanie po
          dzielnicach i palenie domow. To wtedy, moze, zastanowilbym sie nad przeprowadzka
          na jakies wyspy.
          • polarbeer Re: California to raj 17.05.08, 04:41
            Ja nic nie pisalem, poniewaz sie obawialem ze nie bedzie na nic czasu
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