This page has been archived and commenting is disabled.
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.
»
- advertisements -
Regarding Goldtoothchimp's comment he did NOT say the tax cheat specifically, he said we need a Treasury Secretary, i.e. Timmy's resignation, and whoever replaces Eraser-head needs to clean this mess up.
+100
I picked that one out too Hansel. Forcing banks to compete against the FDIC is in our (the taxpayer) interest.
Time to file a FOIA to get the info released!! nice work!!
Yes. But FOIA requests can be stalled for a long time.
Far quicker would be to take a look at the public records when the transfer is made. It's a bit more of a pain to compile, but it has to be listed publically. That's one of the strengths of our Property Rights system.
"We'll have fun, fun, fun till the market takes our T-bills away."