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FDIC on REO Sales: Keep'em in the Dark!
In October the FDIC held a large auction of properties it had acquired
as a result of failed banks in Georgia. I thought this was an
interesting story and wrote about it
before the auction took place. It was my intention to write about it
again after the results of the auction were released. No such luck. The
FDIC has decided to keep us in the dark on this one. The following is
an email I got from JP King, the auction house who ran the Georgia
auction:
“Unfortunately,
FDIC has prohibited us from releasing any information regarding the
auction. We've been trying to get them to let us release the results,
but they have denied our requests. We aren't allowed to release any
details.”
I would have thought that the results
of a pubic auction of properties owned by FDIC would have to be
publicly disclosed. So why is the FDIC trying to cover this up?
The
answer is that the REO problem for the D.C. lenders and the FDIC is
reaching a crisis level. In spite of every effort to avoid foreclosures
the fact is that the number of properties owned by the Feds is rising
on a daily basis.
There are approximately 55 million mortgages
outstanding today. At least 10% will/have gone into default before this
is over. Of those half will result in foreclosure. These numbers create
an estimate of the Federal share of REO at about 1.5 mm homes.
Depending on unemployment and the economy going forward that number
could be much higher. Before this is over the Feds could own up to 5%
of all residential RE.
D.C. is struggling with this. The
Treasury Department has created HAMP and HARP, two programs designed to
restructure bad mortgages and keep homeowners in the house at all
costs. So far the results from these programs have been terrible. More
than half of the restructured loans re-default within nine months.
Fannie
and Freddie are going into the rental business with their REO. They are
charging “market rates” of rent to defaulted owners who are willing to
stay in the home. Given that market rents today are equal to the costs
of ownership I doubt that the new ‘Renters’ are going to be able to
make the payments. So this program is just delaying the recognition of
the REO problem. At best they have pushed the problem forward by one
year.
The FDIC, FHA, Fannie and Freddie all have their own web
sites for the properties they own. I think they are doing a good job of
advertising what they have to offer, but of course they can’t find
buyers. Unless a property is being offered up in an auction or at a
very distressed price it just does not sell. Ask anyone trying to sell
a house in any section of the country. If you sell today you have to
leave a lot of money on the table. What is clear is that when
properties are marked down to distressed levels, or there is an
auction, the demand is there. The buyers are vultures. You can’t blame
them for that.
We are in a vicious cycle. Lower properties
values create more underwater borrowers. Underwater borrowers have no
incentive to pay so they don’t. Defaults/foreclosures follow. The
liquidation of the resulting REO creates more downward pressure on
property values. The drop in values just leads to more underwater
borrowers and more defaults.
D.C. is well aware of these facts.
A recent letter from the American Bankers Association (ABA) to the FDIC
had the following to say on the topic. Read these words to say, “Stop
the liquidations! You are killing us!”
“The
prompt post-closing sale (auction) of real estate in depressed markets,
while understandable from the perspective of wanting to conclude a
resolution quickly, results in a lower price paid to the FDIC for the
assets. This further depresses the market prices obtained by other
banks trying to work through problem assets of their own.”
We
have already spent trillions shoring up the banking system. They have a
big REO problem too. Policies that hurt the banks and force them to
compete with the likes of the FDIC are not constructive. We are
shooting ourselves in the foot. So just this one time I have to agree
with the ABA position.
In my prior post on the JP King/FDIC
auction the comments were all in support of the FDIC. People wanted
price discovery and a rapid wind down of the government’s ownership of
residential RE. It’s hard to argue with that logic, except for the fact
that if we go down that road RE is going to fall another 25% and we
will be talking about the D word again.
With this as a backdrop
it is easy to understand the thinking at the FDIC in withholding the
results of the Georgia auction. They would be damned if it was
determined that the liquidations resulted in drops in RE values in the
communities where the auctioned homes were. (Trust me, that is what
happened)
But they should be equally damned for not letting
the public know what the results were. This policy is not in keeping
with the, ‘new spirit of openness in government’ that we keep hearing
about.
Secrecy is not going to work. The fact is we have four
major Washington based entities that combined have over $8 Trillion in
financial assets secured by real estate. There has to be a coordinated
plan to deal with the individual Agency’s REO problem. Uncle Sam is
already the largest property owner in the US; the holdings will double
in the next twelve months. That is too big a problem to keep secret.
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What is amazing to me is that you guys are not taking into account the home owner.
The banks can buy foreclosed homes at discount prices, but the banks will not lower the principle on the loans that home owners have ??
What a racket, we bail them out, complain about them not lending any money, but banks have the cash to go in and buy homes that people have lost for one reason or another.
I was/am capable of making payments on my mortgage, but not at the price that the mortgage was at. No way was the bank going to lower any principle off the note. I said "Let me know when you want me to move out . The house is yours"
Bank probably picked it up for half of what I owe on the damn thing.
Only in fricken Amerika.
And they want to manage my healthcare?? Not in my fricken life time.
Fricken bankers and gooberment officials who come up with these ideas ought to be tarred and feathered and dragged through ever main street in amerika
You, Bruce Kastring, are an idiot. A stupid fool. You can side with the banksters and try to protect their collateral all you want. You can bulldoze 5%, %10 or even 20% of the houses. You can give a $10,000 homebuying tax credit. You can even upgrade all houses to granite countertops. It doesn't matter. You money printers will realize that you can't fight the deflationary spiral we're in. OUR ECONOMY DOESN'T PRODUCE ENOUGH CASH FLOW TO SUPPORT THE LEVEL OF DEBT AND ITS ASSOCIATED COLLATERAL. I know it's an unpleasant thought but your McMansion, 401k, and job aren't worth what you think they are. I know the government told you they are but they're not. They're illusions created out of thin air. You'll know their real worth when measured in gold.
Are the actual properties even known?
WTF ????????????????
Do these properties have Assessors Parcel Numbers ? HELL YES !!!!!!!
Those are public records period. What kind of totalitarian bullshit is this?
I could go further but it's time to watch football, take my thorazine and ............ forget.
I live in Atlanta. I was looking for a new apartment these past couple weeks and had an interesting converastion with this one lady showing me a place. She was complaining about "the new foreclosure" in the area which she was going to check out after she was done with me.
Apparently all the RE folk in midtown were buzzing about this property because supposedly it was a great property in a great location with a price that undercut everything already on the market. She knew and all the RE folk knew that if this place was legit and sold for as low as it was offered they were likely to see a lot of other properties adjust lower.
I'm quite sure this story is playing out in markets all over the country. But if one property could be the nervous watercooler talk of ATL RE agents and get this woman to check it out at 9PM on a Sunday, clearly things are far more fragile that appear on the surface.
The internet has made RE such an easy game now. Most peeps find the place the want looking at pictures and addresses online and the next thing you now they have some half-baked agent trying to get them to sign commission rights paperwork.
The legwork has been reduced by 90%. If the industry went flat-fee you would probably get more agents that told you the truth. Instead, agents focus on salesmanship: books, tapes, seminars. It's not a service - it's a numbers game. So telling people how high the average home value is in the area becomes part of their self-esteem! Hilarious! Buy, buy, buy!
This agent probably wants you to think she is quick, hard-working ("Sunday evening? I've got nothing better to do!") and connected - the classic agent! Who knows the truth about the place - maybe there was a murder - there are questions, depending on the state, that agents are not required to answer if you haven't asked.
Until they start bringing every single available home back onto the market it's still a bubble - we ain't seen nothin' yet.
I guess the real estate thievery is underway !
the post says in the end the fed share of REO might be upwards of 1.5 million homes
at that number we could have used TARP to outright buy all those homes and maybe even have had money left over...certainly monthly mortgage payments could have been made for a decade
mabe the trillions the fed has expended trading treasuries in exchange for mark to myth stuff at the window...it might have been beter used to trickle up rathern than trickle down
What does REO stand for?
Riding the storm out and rolling with the changes.
Real Estate, Other
Where else ya going to put it on the books!
Once again we find an agency of auditors not understanding how to audit. Property sold in Georgia is subject to documentary stamp tax. The tax is based on the value of the sale.
Property sold in Georgia is recorded in the official records of the county of the sale. Simple searches of these public records by name, or date, or parcel number will direct you to the book and page of the deed and sale agreement. Fourth grade math is all that is needed to determine the purchase price of the parcel sold.
Each county tax collector provides on-line public access to tax information on every parcel of property in the county. Go there to see the history of ownership for any parcel.
A real auditor would have known that denying to the public any information about FDIC sales of real property was proof of rank stupidity.
Is it possible they sold them back to the banks that acquired the same failed bank and then paid the failed bank acquirer the difference in thenform of "loss sharing" from FDIC loss pool?
Write off property by selling it to the same bank u r making whole on the loss it takes....magic recap funding....double dip...
Ha, is that a call for more extend and pretend? Your whole RE bubble was on the back of the mispricing of risk. With conservatorship of FNM and FRE, the Fed purchasing trillions in MBS cruft, FHA being encouraged to provide 100% loans to any deadbeat borrower (soon to be enshrined in law), FASB allowing banks to pretend that there are no losses on their RE "assets" or even set aside reasonable provision for losses, FDIC "renting" properties to foreclosed "owners", ZIRP. All thats happening is this mispricing of risk is being transferred to government finance.
What cost extend and pretend? A complete failure of the USD?
When I was young and misguided I thought central bankers knew the value of prudence. Ha.
If people knew how inexpensively properties could be purchased perhaps there might be more bidders and a stronger auction. Less chance for inside dealings too.
Debt must be cleared. Are we children that the government must shield us from unpleasant truth? Why not unplug the internet and keep us under house arrest for our own protection?
Better to know and be constructively concerned than ignorant and fearful.
"Why not unplug the internet and keep us under house arrest for our own protection?"
They're working on that in Britain --
http://www.boingboing.net/2009/11/20/britains-new-interne.html
"Why not unplug the internet and keep us under house arrest for our own protection?"
The British are actually working on that.
http://www.boingboing.net/2009/11/20/britains-new-interne.html
Winner! They probably just gave the homes to their cronies.
WFC's upper management were squatting in beachfront homes having parties while the owners were at the soup kitchen
+1 "The rich are not like you and me, Jim Gatsby."
I don't think the cronies were terribly interested in living in that crap, but I like how you think!
It wasn't how cheap it was WHO it went to cheap.
Uncertainty in price is unlikely to lead to an increase in buying interest. Obviously, the reuslts must have been worse that expected, so we just reduce our expectations to some new, lower level. Perhaps lower than the auction results. I despair at the morons actions.
Simple enough solution: FOIA
How come that would be rejected? National security?
Or is there an embarrassment clause in FOIA?
If you read the Policy & Procedure manual for Banana Republics...
Section 32.3.33A- FOIA requests.
Drag out requests in court for a 3-5 year period or such a time that the information requested is no longer relevant.
Section 32.3.33G- FOIA requests.
Scan the documents and blackout digitally. Do not use a marker on document copies like Treasury.
Note to all Federal Employees: The US press possesses the capability and equipment to view text blacked out by magic marker under lamps and light tables.
So if they do anyway could that constitute whistleblowing?
Barney Frank was up in his district this past week with the HUD secretary and proposed, now get this, the government use TARP money to make loans to UNEMPLOYED homeowners. I call it subprime squared.
That's a brilliant Barney idea, simply deduct the loan payments from the extended unemployment benefits.
That makes perfect sense to me. Pay back the guys you put out of a job .Dont knock it till youre unemployed.Then do your gut check soap box rant begging them not to bail you out, youre man enough right?
You're unemployed (assumed employable), and you want another LOAN to tread water? What part of debt crisis don't you get. I appreciate the stress you must be under, but do your own gut check, ace. A Peronist populist game provided by the Banker Boy himself is not any sort of long term solution to your problem.
That makes perfect sense to me. Pay back the guys you put out of a job .Dont knock it till youre unemployed.Then do your gut check soap box rant begging them not to bail you out, youre man enough right?
Governor Duval Patrick wants to supply State College loans to ....Undocumented aliens.
Simple enough solution: FOIA
How come that would be rejected? National security?
I believe that the government's reluctance to allow this information to circulate is based on FDR's adage that "the only thing we have to fear is fear itself." This was uttered not in relation to WWII but in relation to the depression (1933 inaugural address).
However, this is somewhat disingenuous in that ignorance may be bliss but it is hardly invincibility. Our banks and markets can still collapse even if we are certain that everything is fine.
Since I live and Atlanta and own my house, I am sure that this info would not cheer me up but it might help me set a accurate price if I wanted to sell.
Our governments (local, state and federal) are all in denial about our true situation and what must be done to survive as a free society. We can "extend and pretend" for a while but eventually we must face reality, take our losses and try to rebuilt. However, why would anyone accept sacrifice if everything is fine.
It will be impossible to ignore or disguise the final collapse but I feel that no one will admit it is coming so we can mitigate its effects. This is very sad but I see no way out. Thanks to you and ZH for the info though...
Thank you for the article Bruce.
Chalk up yet another one for the Obama admin's claim to "transparency".
ABA and the associated banksters are right on this point. Mass liquidations by Uncle Slam and there goes the whole neighborhood. For the banksters, the ongoing depression in pricing places more of their performing paper in jeopardy down the road with strategic defaults.
The Georgia auction must have had a giveaway result and thus the silence.
So if these auctions are giveaways, then we must not let the peasants know, or they might all show up and buy back the very houses the Wall Street Kleptocrats just pushed them out of. That would be... government FOR the PEOPLE! Never! Never, never, never, never, not now, not noway, not never, not in the United Banks of America.
"ABA and the associated banksters are right on this point. Mass liquidations by Uncle Slam and there goes the whole neighborhood"
So what?? All that indicates is that the "whole neighborhood" is STILL overpriced! So the taxpayers should stay on the hook for that? Let the market clear, and let RE prices find their own levels.
Policies that hurt the banks and force them to compete with the likes of the FDIC are not constructive. We are shooting ourselves in the foot. So just this one time I have to agree with the ABA position.
So you think we should drag this out for a few decades instead of taking our medicine? This situation will never correct itself to the benefit of all parties involved. The prices the FDIC is getting for the houses it's selling are current market prices, no more and no less. If the FDIC holds off on sales, the banks get to cash out first and the FDIC and taxpayers end up holding an ever larger bag.
Why do we need secrecy to take our medicine? Because someone is stealing something from the taxpayers?
You are right Hansel. This could take a few decades if we do it wrong. Japan has been trying to figure it out for the last 15 years. They are no closer to a resolution.
I do think we need a policy to deal with this. We need to realize that there are five separate government agencies trying to offload bad real estate. That is no way to run this railroad.
I know it sounds crazy but we might be better off if we just bulldozed 5% of all housing. It would re-establish the balance we need and create new jobs to rebuild what has been torn down. We are, after all, the disposable society.
The 'solution' is not clear to me. There is no road that is cheap and easy. This is going to be a long and expensive journey.
Bruce Krasting said "I know it sounds crazy but we might be better off if we just bulldozed 5% of all housing."
You are crazy!
That's no different than what FDR did during the Great Depression plowing under crops and kiling livestock. Destroying productive assets trying to prop up asset prices is a fools game.
I'm a renter and want to buy a home, but prices are still way too high in my area. Just let home prices fall and the market will clear.
We need a functioning banking system, but that does NOT mean we need BAC, JPM, C, WFC, etc. let these greedy banks fail for making foolish loans.
What is really happening here is the taxpayers are just bailing out irresponsible bankers and home buyers.
The govt. tried a similar solution in the great depression when they paid farmers to destroy their crops and slaughter their livestock in an effort to raise prices. The modern-day equivalent 'cash-for-clunkers' is the same idea. It didn't work back then and it won't work now. Destroying wealth doesn't create wealth.
Houses were way too expensive because credit was too easy. Prices are coming down to match incomes, finally. Destroying good houses will only make housing less affordable.
Bruce,
I really appreciate your contributions, but bulldoze for the economy? At least the byproducts of C4C can be sold to someone (China).
"...if we just bulldozed 5% of all housing"
Conceptually, how's that different than what the lending complex is doing now? (ie. preventing foreclosures from hitting the marketplace thereby reducing supply)
Both approaches prop up prices and reduce the quantity of transactions.
(And if you "rebuild what has been torn down", you recreate the original problem--push supply back up)
Seems to me that the solution is to let the market clear--at lower prices & greater number of transactions. The major variable would be the rate of adjustment--too fast and you blow up too many balance sheets; too slow and you get Japan.
I have to agree with Hansel. All parties have to take their write-offs on bad investments. We need a full understanding of the magnitude of the loss and a prompt writedown. Otherwise, we're in for a lost decade.
Your point about secrecy was very good. The presumption today is that government action is secret unless there is large demand to make the information public. Hopefully, audit the Fed will change that.
BTW, I had to laugh at the HARP acronym. They are running out of original names and are now recycling ones from the cold war. I'll always think of it as the High Altitude Research Project.
Exactly. This is no different, in principle, than extend and pretend. Sticking one's head in the sand will NOT make the valuation problem go away.
The sooner the lenders take their hit--regardless of the consequences--the sooner we lay the foundation for true recovery.
I agree completely. Markets need to clear. The truth is that lots of debt needs default. BAC and C and WFC need to be winded down. Like Santelli said recently, "The biggest fraud ever perpeputated on the American people is the need to keep these 10 damn banks!!!!!"
We need someone is key positions such as the Treasury Secretary that can see the big picture and communicate it to the public. This extend and pretend will lead to the absolute worst result. That will be when the American citizens all thoroughly and completely disbelieve their government. Anarchy will ensue.
All of this nonsense is an attempt to avoid the pain that must be experienced in order for the market to clear. We have invented TARP, TALF, HAMP, etc., in an effort to forestall the inevitable. All we have done is HARM! Anarchy will indeed result if these "solutions" persist.
The Treasury Secretary? You think Tim G. is going to clear this up? Sorry to disappoint you. That is not going to happen. More than anyone in Washington Mr. Geithner is apposed to confronting the truth. From his efforts to gloss over the Bear Sterns debacle to all of his work on TARP he is the last guy you can count on to come clean.
Paul Volker could, but they have a muzzle on him.