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Hampton Georgia (Pop. 5,300) Attacked by FDIC, FHA, Fannie and Freddie
The FDIC held a big auction this week of properties they own outside of Atlanta Ga. JP King
conducted the auction. The FDIC put up 187 properties for sale. The
results have not been released yet. I suspect that it might be an
interesting story when the numbers do come out. I reviewed some of the
available information and came up with some observations.
-Of the 187 properties listed by the FDIC 18 were located in Hampton, Ga. Zip 30228.
-FHA (Federal Housing Administration/HUD) is currently listing 32 properties in zip 30228.
-Freddie Mac has only 2 listings in 30228.
-Fannie Mae has 25 properties for sale in 30228.
-The total number of homes that the government has foreclosed and has for sale in Hampton Ga. is 78.
-The
FDIC is auctioning off the following home at 148 Makenna Drive; while
at the same time FHA is trying to off-load the same model at 202
Makenna. Note that the FHA notice suggests a Sale Pending at $84,000. I
will bet that the auction price for the FDIC is far less than the price
FHA got for its house. Therefore the FHA deal is going to crater.
-It is fairly clear from this that one part of the government,
FDIC, is killing the REO owned by other parts of the government. That
is insane. No one appears to be looking at the Federal REO problem and
attempting to make sense of it.
-The For Sale signs by the Feds
are all over the poor town of Hampton, Ga. What does this do to the
people who live there and own homes? For them Uncle Sam is driving down
local RE prices. What are those folks going to do when the price of
their home drops as a result of the liquidations by the Washington
crowd? They are going to default on their mortgages too. We know that
the biggest source of default in the current cycle is that borrowers
are so far underwater they have no economic incentive to pay. So they
don’t.
-Hampton Ga. is a troubled community. It was overbuilt
with fast money. What is particularly troubling for me is that FHA has
a 40% share of the government owned properties in this community. That
is a very big number. At the time these bad loans were made the FHA had
a 10% total US market share. Therefore the REO ownership is about 4X’s
higher than one would expect. Possibly the FHA just got unlucky with
it’s exposure to Hampton. But if one extrapolated from this it would be
easy to conclude that FHA has a very troubled mortgage book.
HUD’s
head Shaun Donovan has said that the FHA does not need a bailout. Their
exposure in Hampton Ga. makes that a question mark.
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Weren't these all chopped up and securitized? I wonder if they are selling howses with no idea where the paper is..
While deflation is being resisted by the Fed, Treasury and the Congress with every reckless tool in their possession, it's fair to ask: is deflation all bad?
And looking at a relatively new, 5/3 bedroom house that's going for $84,000 (and probably a lot less at absolute auction) the answer is no.
We've had all out war declared on savers for a generation now. If you didn't lever up on your home and plunge into risk assets, well, you got left behind.
Screw that. Accumulated capital should earn a pretty nice return but it hasn't because the Fed has sought to artificially manipulate interest rates down as it blew bubbles (in lieu of real economic output or prudent regulation). Debtors are going to get taken out by cratering home values, but is that a bad thing? Renting with a bad credit score sure looks like a lot better option than financial ruin so you can make massive payments to pigmen on an underwater house.
Deflation rocks.
Relative to the way this thing has been pumped up for years isn't it natural to collapse back down? I think so.
I may be in the minority but common sense
is confirmed by major and minor banks cutting lines and cards like crazy,
even for an 800 score. What ever time table they are on
only Geithner knows but they are chopping for a reason. Maybe the FASB
rules are coming back soon.
All buyers at auction are cash. This does not compete with the normal REO market. Hopefully smart investors buy the homes for cash and then figure out a way to make money on what is now an investment. General housing market is primarily based on credit between 20% down to 3.5% down. Some of these homes might show up as sales again as a flip if the market allows. This is the right thing for FDIC to do.
Hampton just up the road from Columbus. Atl is (was) spreading like wildfire I will see if I can get a local RE expert to comment -
Hey Moh or DCC if you read this will you please put in your 2cents since you are both very experienced in RE in the area.
Thanks.
Who are you going to rent these "units" to? Where are those people going to get jobs paying enough to give you the rent? Whoever said a house was an "investment"? A house is a cost, like an automobile. It costs you; it doesn't pay you.
I've thought about this for a long time as I sell Cal R/E backed muni bonds. This is a huge problem out here. The GSE selling hasn't really begun yet here but when it does Hampton, Ga. is going to seem tame. I know of a 100 developments in San Berdo and Riverside Counties where just inside the projects themselves (100-500 Homes) a healthy percentage have dropped off the key.
It's no wonder banks are disappearing right and left.
I attended a presentation recently by a mortgage bond fund manager who said people in his group had driven through relatively new neighborhoods in San Bernadino and Riverside counties where literally every house on some streets was in foreclosure. He referred to those areas as the epicenter of the housing bubble.
Yep, and when you consider the total tax impact it's nuts (some houses carry a tax burden of $10k off the bat). Plus it's hot as hell so you have to cool these places (huge utility bills). Developers counted on these people driving up to 1 1/2 hours to OC, SD or LA but with unemployment at around 20% NOBODY is buying except speculators.
So people will need a job that can justify living far out there at a nutty price.
House prices have fallen probably 50% so far.
But this is BEFORE the big dump by the GSEs.
It's gonna get worse.
Maybe they should give homes to the military or something useful rather than tear them down.
Ultimately, the mark downs passed through to MBS has to come one day.
That is the can that keeps getting kicked down the road.
Something north of 7% of all mortgages are now in default. About half of those will be repossessed and sold before this is over. That could get us to 4mm homes. If this country tries to auction off that many homes over the next 24 months all real estate values will fall. As a result there will be more defaults. That would probably sink a number of banks and put a terribly big hole in the deficit. Do we really want that?
The right side of my brain says that clearing the deck is the right thing to do. But the left side is troubled by the consequences of that action. That policy will cause a lot of pain and more of those unintended consequences we read about.
It is a big mistake to compare 2009 with the Resolution Trust effort back in the 80's. This is a much bigger and different problem. We have spent trillions trying to stabilize things. Maybe we have succeeded. Dumping these properties on an already weak market will not solve our problems. My guess is if RE falls by another 20% the D word will come back into vogue.
I just checked on one zip code in Ga. This story is/wil be repeated in 100drds of zips in the future. When it comes to your town you will not like it any better than the folks in Hampton.
D.C. is going to be the biggest homeowner around when this is over. We need a plan to deal with that. The fact that there is no plan to handle all of Washington's REO is what troubles me.
The hideous convulsions of a housing price bubble correction on FHA crystal Meth.
Many posters are not seeing the scope of the problem (or maybe they are and I am not).
Maybe this is how the universe will reward the clever... plenty of rental units to buy and let.
However, auctioning all this property is not like resolving the S&L crisis. It is more like triggering a stock market-type crash in the biggest investment families make: their homes.
If you have read any of my posts you would realize I do realize the extent of the problem, far better than most.
But what I also see is the extent of the damage being done to the economy by not resolving the problem quickly. By delaying the inevitable we are encouraging more and more government interference in an attempt to "solve" the unsolveable, and fostering individual behavior (walk aways, fraud, etc) that will damage our economy until it finally collapses.
Would a massive liquidation put us in a Depression? I think the question is moot, because we are in a Depression, regardless of what government manipulated numbers tell us. The question is, what course of action will get us out quickly?
IMHO, we need to get this mess over with as quickly as possible. We can take the pain. It won't be that bad. We have fought a Civil War and survived, we can survive a massive wave of REO house sales.
To keep kicking the can down the road, on the other hand, is going to kill us. We are already seeing evidence of it.
I'm with you. There's no stopping it. But the process may be controlled/managed in a good way. I just wonder if we are ready for the massive impoverishment of Americans that is to come.
I agree with other posters that FDIC is doing the right thing. One major reason why the US has always rebounded sharply out of recessions is the prohibition on "warehousing" defaulted collateral. Banks are required to liquidate any repossessed houses or other property within 2 years. The FDIC is required to liquidate as well. This releases assets back to those private investors with the capital and business judgement to use the assets to grow the economy. That promotes growth and a more balanced, non-state economy. The wrong thing to do is to warehouse bad assets, pretend the loans still have value, and report phoney numbers. That is what everyone but the FDIC is doing. Liquidation of bad assets helps the market find a more accurate price level. If we believe in markets, it's a good thing to do.
Jolly good to see you, LB. Pop in a bit more often, for a spot of Earl Grey and biscuits, and share your thoughts. Always appreciated.
Vis-a-vis rebounds, of course, government gerrymandering of statistics, banking deregulation, and artificially low interest rates maintained for years don't hurt either (none of those specifically FDIC's doing, of course). But those are proximal causes we're in this mess now isn't it? One wonders what under-the-table terms US Bank got to eat the bad assets of 9 failed banks today. FDIC is broke. I can understand the need to raise some cash.
I agree with other posters that FDIC is doing the right thing. One major reason why the US has always rebounded sharply out of recessions is the prohibition on "warehousing" defaulted collateral. Banks are required to liquidate any repossessed houses or other property within 2 years. The FDIC is required to liquidate as well. This releases assets back to those private investors with the capital and business judgement to use the assets to grow the economy. That promotes growth and a more balanced, non-state economy.
The wrong thing to do is to warehouse bad assets, pretend the loans still have value, and report phoney numbers. That is what everyone but the FDIC is doing.
Liquidation of bad assets helps the market find a more accurate price level. If we believe in markets, it's a good thing to do.
Bruce,
You have been posted over at LATOC.
http://www.lifeaftertheoilcrash.net/BreakingNews.html
The Hamptons on Long Island are where all the Wall St. ...holes live. So Hampton, GA. must be upscale, ha ha ha.
If the town's name is Hampton then it is probably an upscale town, ha ha ha. The Hamptons on Long Island are where all the Wall St. ...holes live.
FDIC is doing the right thing. Hit the bid, Bruce. I know this situation is really ugly and very sad, but the "fast money" lender caused the problem, not FDIC. The best approach is a quick liquidation and sale. But your point on FHA is entirely correct. Note that the Fannie default numbers are now at same level as the banks. What is wrong with this picture.
To the rc whalen above, would you be Chris Whalen?
Pop. of 10520 = 8,000. Prorated this would mean about 90 homes for sale if that zip looked like Hampton. What would happen if the FDIC auctioned 25 homes where we live? A disaster. If all 90 were dumped it would mean a bigger disaster. That is not a solution.
It would be temporary. All those houses would be sold and taken off the market.
If you planned to sell while the liquidation was going on, you would be screwed. But if you weren't, it is no big deal.
On the other hand, if the government leaks out the REOs over 3 years, you are screwed for 3 years, as you will be constantly competing with REO sales.
This is what we are seeing in places like Las Vegas - a "normal" seller has been screwed for the past two years running.
IMHO there is a direct correlation between the suppression of the REO sales and the duration of our current Depression.
Imagine the stimulus if millions of homes were liquidated in the next 6 months, and the new owners spent money and hired contractors to fix them up, bought new appliances, etc?
This REO suppression is all about saving the banks by allowing them to attempt to "earn their way out" of their insolvency. It is not about helping Main Street, but quite the opposite.
The homeowners in Hampton are already screwed. Are they better off living in neighborhoods of vacant houses with weeds in the front yard that attract criminal activity or with the houses being sold at rock bottom prices that enable them to be rented profitably to low income tenants?
Vacant houses, particularly in quantity, aren't going to get more valuable with time. The FDIC is ill equipped to hire and oversee companies to manage a massive inventory of vacant houses scattered all over the country. I agree with others here who say liquidation is the right thing to do.
I don’t know if the subdivisions in Hampton were fully built out or not. There was an article in the Atlanta Journal-Constitution in August on zombie subdivisions, where a handful of houses were finished in what were planned to be large subdivisions. The article says there are more than 150,000 vacant lots around the Atlanta area, most out in the distant suburbs like McDonough. That is 10 years of supply at a normal absorption rate. There is a slide show with some pictures to the left of the article.
http://www.ajc.com/business/volume-of-subdivision-vacant-109957.html
This AJC article says the Atlanta area has a 12 year oversupply of office space at the normal absorption rate with a healthy economy:
http://www.ajc.com/business/atlanta-s-vacant-office-176491.html?cxntlid=daylf_artr
Atlanta area retail developments are also being repossessed by lenders as vancancies rise and rents drop:
http://www.ajc.com/business/atlanta-retail-foreclosures-part-172055.html
Georgia has a lot of community banks with heavy concentrations in lending to real estate developers, which is why it has accounted for over 20% of the banks closed by the FDIC this year.
During the S&L crisis, the FDIC found that it obtained the best returns on ORE at the lowest cost to the receiverships through listing the properties for 90 days with a local broker, then selling those properties that had not received acceptable offers during the listing period through a public auction. This story neglects to say if the FDIC auction properties were previously listed. And since the story was posted before auction results became available, there is only speculation as to the auction sales prices, and any effects they may have on neighborhood pricing.
What is the FDIC supposed to do, wait years for the creation of yet another government entity to supervise the sales in aggregate, while the real estate deteriorates both physically and monetarily?
Dumb article.
It's like a mob style bust out. Sad.
Bruce,
If you are right, this is a hell of a discovery. All you are saying is the left fore tentacle, the left aft tentacle, the right fore tentacle, and the right aft tentacle, have no fcuking idea what is going on. If they are all gov investments (ie our investments) it is reasonable that they should be on some kind of common listing. Not only are they potentially driving prices further underwater and thus causing suffering and default in GA. BUT THESE FCUKING HOUSES ARE ASSETS BACKING LOANS YOU AND I HAVE MADE TO THESE SO CALLED (GEE ARE THE GOVERNMENT OR NOT??) ENTITIES. WE THE TAXPAYERS ARE SCREWED WHEN THEY SELL FOR LESS.
Props to Bruce from a former Hamptonite here.Yes the town is that small, but the problem is most certainly seen surrounding this city in Henry County and neighboring Clayton Co.Forclosure notices in the local newspapers go on forever.Hey Georgia doesn't lead the nation in bank closures for nothing.
Hampton is also near McDonough, GA--which is where many folks from Hotlanta own 2nd homes...or farms...
Forget Galleon: What about Goldman’s ex-boss?
It’s kind of amazing that with all the uproar over the Galleon business, nobody is making much hay over the recent revelations about the AIG bailouts, which make former Goldman chief and former New York Fed chairman Stephen Friedman look every bit as guilty of insider machinations as Raj Rajaratnam of the Galleon fund.
All of this matters for two reasons. One, it’s yet another example of how Goldman’s success isn’t attributable to how “smart” the bank and its employees are.
http://tinyurl.com/yl6ndco
Is that the same FDIC that forced wamu into JP Morgans arms when it had buyers on the line
McMansion. Trees look 2 or 3 years old. I still can't believe so many Americans were buying these things. Like Hummers I guess.
Hampton is located 25 miles to the south of the Atlanta. Its basically an Atlanta suburb. The Atlanta NASCAR track is located there. This isn't some small rural town like your title implies.
Never been to Hampton. Sure it is a nice place. The zip code info I used:
Population in July 2008: 5,295. Population change since 2000: +37.3%
Males: 2,542 (48.0%) Females: 2,753 (52.0%)
Median resident age: 30.7 years Georgia median age: 33.4 yearsZip codes: 30228.
Read more: http://www.city-data.com/city/Hampton-Georgia.html#ixzz0VTFx4qusAnother interesting article, but I disagree with the premise that the government should somehow manage their REO activity. The FDIC is doing the right thing - liquidate. The last thing we need in America is for the government to own substantial parcels of single-family homes. Cause pretty soon BHO and his crew will start getting funny ideas about what to do with those homes.
REOs are part of the market. Let the market clear.
Once again the FDIC shows moral superiority vis a vis the rest of the ying yangs.
I agree. It has to be done. They might even have to bulldoze some of them. Painful but has to be done.
+1
ghostfaceinvestah... that's a classic name
+2