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Anecdotal Evidence That Banks Are Hiding Depressed High End Real Estate
Why are Banks Hiding High End Residential Real Estate? Real Estate Channel
- Without the FTB tax credit, the housing market is receiving
artificial demand and price support from the FHA loan guarantees and
banks sitting on mortgages of homes once valued at $300,000 - Banks in areas that were severely damaged by the downturn in
domestic real estate (Cook County, Illinois, Miami-Dade County, Florida,
Orange County, California) have significant inventories of homes worth
more than $300,000 that they will not put on the market, even after
foreclosures lasting more than 2 years
According to Bruce Krasting over at Zero Hedge, the FHA is “Officially Broke” anyway: FHA – “We are Officially Broke” After perusing the data above, one would wonder why… (Link to FHA/FR)
SUMMARY: A recently issued independent actuarial study shows that the Mutual Mortgage Insurance Fund (MMIF) capital ratio has fallen below its statutorily mandated threshold.
More Reggie Middleton on Residential Real Estate:
As I Made Very Clear In March, US Housing Has a Way to Fall
Recent Mortgage Loss and Credit Performance Commentary
This is the public version of our quarterly review of Alt-A and
subprime mortgage performance sourced from the NY Fed and FDIC data.
All paying subscribers can access the entire document here: 4Q09 Alt-A and Subprime commentary (452.33 kB 2010-05-21 05:49:09).
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Eternal,
For a large percentage of the market, the banks have nothing to do with these loans. They sold them off to FNMA, FHLMC, HUD, and FHA. Banks can continue to exist without any worries as long as the interest rate environment continues with the FED tweaking the yield curve. Banks are conduits, they issue and then package asset-backed securities that are then sold to you and I.
The ones that are closing - small banks - were heavy into consumer loans, and commercial development projects that got them sideways with deliquencies.
One would think, but the general decline in T.A.R.'s suggest otherwise. And that doesn't cover their exposure to the deriviatives built upon these.
The only reason it's the small banks which are being closed is because the FDIC has limited funds; it can only cover the small-fry. If they followed the same guidelines, at least some of the larger banks would be shut down as well. But the FDIC can't do that, as that would run into the Trillions, which can't be covered, even with the Treasury's $500 Million Line of Credit to the FDIC.
Pretty sure it is the difference between liquidity and solvency. The insufficient value of assets on the books of the banks may very well mean that the banks have a negative book value by mark to market. However, as long as the banks are able to get more money from someone or create more money out of thin air, they have the ability to lend and pay salaries/bonuses/bribes.
Historically a lot of this seemingly happened through Ponzi sale and resale (think Private Equity and inflation). IMO, the problem is that the skin of the soap bubble has for a time become too thin and more soap needs to be added before more air can pump it up.
The banks essentially paid nothing for the real estate inventory and the money they created would be retired when the principle of the mortgage was paid back. There should be no pressure for the banks to start selling the properties if they can just write off the loan as noncollectable.
The banks make HUGE profits on delinquent, short-sold and foreclosed mortgages, sometimes as much as 35 to 50% of notional value!!! Watch this 4-minute video to see how: http://www.youtube.com/watch?v=ssl5yb7FewA
That is a straight forward explanation...
Liquidity vs solvency is a pretty good way of putting it. There's also a third option, other than writing it off. They rewrite the loan, reducing the payments and lengthening the term. They then put the larger amount due on their books as an "asset" which is far greater than the value of the house. Such actions were reported on doctorhousingbubble.com this week, IIRC.
Counterbalancing this are the costs associated with servicing the property. Taxes, for one. And maintenance. But this game can go on for as long as the Feds can monetize their debt, which is probably for quite a while longer.
Truley a narrow vision as if "the banks" being Ok makes the economy OK. That is the problem with the current activities called "problem solving" these days.
This does not take into account the ratios of initial problem and debt created to cover the problem. The tail wags the dog here. For every problem residential mortgage he taxpayers are on the hook. So what Reggie is saying now we are going up to the second and third tiers of mortage problems. The First tier being the "great unwashed masses" had great numbers of problems and mortgages, but the value in these second and third tier mortgage problems and foreclosures may be greater than the first.
Add in the fact that the goobermint spends about 10-15 dollars on the mortages to every one dollar in value. I am not talking about mark to market or mark to fantasy, but all the secondary porgrams as mortgage mods, foreclosure protection, and another army of goobermint minions to rally against the problem.
I think he is correct and he usually is, but it is the problems that reverberate across the entire economy that is started by a small 5-7% of the economy now gobbling up over $14 trillion in debt and $600 in currency derivatives.
That is all bad. But this is another chapter, and then there is CRE ....
I think you might be misunderstanding what is going on. The original goal of the federal reserve was to roll most of the banks into a couple giant entities, and they appear to be close in achieving this goal. Secondly, they also wanted to get additional powers from congress to sieze any institution that it needs to, which has already occured in finreg. Finally, if and when the inflationary approach fails (and they know it is), the fed will eventually sieze these large institutions, wipe their debts (and most of public's), and then proceed to hide/bury it on its shadow balance sheet.
In short, the federal reserve is not as dumb as most make them to be. Their mindset is in decades, though, rather than months like most traders are.
So . . they just put the morlocks' homes on the market after the foreclosure, never the elois'?
Soylent green is fiat currency.
The Time Machine , great book and movie , great satire on just giving the markets a little more time . um.... isn't that what extend and pretend is?
Come on Reggie, be a bit more optimistic! According to Leo we are far too gloomy and doomy here at ZH, so I am sure you have overlooked something ;-). Banks are fine, showing great profits and improved results. Balance sheets are being repaired and the economy is booming again. No problem whatsoever, just be patient and the bad assets will turn into good assets. It's sheer magic!
Don't forget those Chinese solars!
I'm rolling the i-ching on the outcome of that then consulting the bones.