I hope everyone is enjoying their weekend.
I had an interesting dinner over the weekend with one of the Wall St. boys. I have learned through this source that Fannie and Freddie currently have over 22000 foreclosures just in the state of Florida alone!
Many on Wall St. are now offering proposals to Fannie and Freddie on what to do with them. I have learned through this source that one of the proposals being discussed is setting up a government sponsored program that places veterans from Iraq into these REO's with a grant from the government.
In other words, Washington would subsidize the 20-30% loss that Fannie and Freddie would take on these REO's with a grant for each veteran homebuyer. Its a win/win for both sides. The grant makes the house affordable for the vets and it would save Fannie and Freddie from taking massive losses. There are 1.5 million vets that will be coming back from Iraq so there are plenty of potential homebuyers.
Pretty brilliant isn't it? Remember, the best and the brightest are on Wall St. and they can't be underestimated. The banks are hiding massive losses, but they are already figuring out ways to make money on the destruction in housing. Investors placing bets that Fannie and Freddie are going down are making a big mistake. Its obvious the government has their backs.
I have written about how vulnerable Fannie and Freddie are with such small capital bases and questioned their ability to survive. However, after hearing proposals like the one above, you realize that DC won't allow them to go under.
The crude rally passes the dot.com bubble in terms of returns
I picked this up on Bloomberg today.
"June 13 (Bloomberg) -- The rally that drove oil to a record $139.12 a barrel last week surpassed the gains in Internet stocks that preceded the dot-com crash in 2000.
Crude rose 697 percent since trading at $17.45 a barrel on the New York Mercantile Exchange in November 2001, and reached 28 record highs this year. The last time a similar pattern was seen in equities was eight years ago, when Internet-related stocks sent the Nasdaq Composite Index up 640 percent to its highest level ever, according to data compiled by Bloomberg and Bespoke Investment Group LLC.
The Nasdaq tumbled 78 percent from its March 2000 peak, erasing about $6 trillion of market value, as investors concluded that prices weren't supported by profits at companies such as Broadcom Corp. and Amazon.com Inc. Billionaire investor George Soros and Stephen Schork, president of Schork Group Inc., say oil is ready to tumble because prices aren't justified by supply and demand.
``There's nothing different between this mania, the dot-com mania, the real estate mania, the Dow Jones mania of the 1920s, the South Sea bubble and the Dutch tulip-bulb mania,'' said Schork, whose Villanova, Pennsylvania-based firm advises the Organization of Petroleum Exporting Countries, Wall Street firms and oil companies on the outlook for energy prices. ``History repeats itself over and over and over again"
My Take:
Amazing isn't it? I love the quote at the end. We seem to never learn from our mistakes. One contact that I have on Wall St. has told me in the past that the street gets more and more reckless and stupid with each bubble.
If we hit a deep recession crude will deflate like every other bubble because demand will drop. Could this game still run to $200? Sure. However, to think it won't end like any other bubble at some point would be illogical.
The sad thing for homeowners is its a foregone conclusion that Wall St. has moved on from real estate and taken their money elsewhere. Wall St. has a brutal reputation of completely walking away when a game like housing is no longer profitable.
Wild specualtion in the oil markets only helps confirms this conclucsion.
The next time you see the pigmen sniffing around the housing market will be after the carnage has taken place and they can start buying up assets for pennies on the dollar.
The losses in housing when its all said and done are going to be stunning.
The sad thing is, we are nowhere near the bottom.
7 comments:
Jeff, IMO the problem with many of the REOs in FLA are that they are still far from employment centers and dependent on a built environment designed around cars. To-date, the vets who have returned from Iraq & Afghanistan don’t possess great interviewing skills, communication skills, or an employment history that’s compelling in a recession-whacked domestic economy. The major media has tackled this half-heartedly; I think they're unsure if they’re being unpatriotic by reporting on some of the dismal realities returning vets face. The recent cover story on mass-dispersal of psychotropic meds in the military didn’t help their cause any.
So.....isolating them in REO condos and gated communities where half their neighbors can’t even pay the association dues? Let’s pile on more stress: who's going to relocate their families to Florida? Whose gonna pay for gas to drive their kids to day-care?
Has anyone checked on how bad the average finances are of the families they're returning to who struggled while the vet was away earning less than $30k/yr?
AVL
I agree its not the best idea and Wall St. knows it too. Its also not whats best for the vets.
However, its a great way for the government to help bail out Fannie/Freddie and the banks without taking any political heat.
It would look like a very patriotic thing to do in the eyes of the public.
The real motive however is Wall St. attempting to save their behinds through using the government coffers.
Up until 2007 I lived in a military town dominated by a massive air force base where half my neighbors were always in the AF. These guys & gals are not going to take the bait if the GSEs try to 'ghettoize' them in REOs in economically un-viable parts of Florida, relative to their employability. This idea won't get enuff takers to make a blip on the radar screen for GSEs or Wall Street,IMO, though the media may run the program announcement as a "feel good' piece.
9and 2 continue beating this dead horse, and yes, interject some IMO politics )
How many vets are returning? McCain doesn’t plan to send them home soon and, given the realities of the US electorate, this remains his election to lose, not Obama's to win
If McCain does manage to lose, then, fighting & instability in Iraq will increase with every 'Jimmy Carter'-style naively-executed troop withdrawal by Obama. Oil futures will just love that escalation in instability and will spike as high as Obama’s approval ratings will fall, until junior finally connects the dots and back-pedals ‘Bill Clinton’-style from additional troop withdrawals (and his other ‘feel good’ promises).
Either way, no returning vets for REOs. Of course, by then, if we don’t pay these kids more money, their own existing homes will be swelling the ranks of REOs like the Mississippi River swelling river beds in Iowa. IMO
AVL
1.5 million vets have served in total. I tend to agree with you AVL. This is just a proposal. These things get shot down all the time.
Just trying keep my ears on the street and report things as I hear them. It will be interesting to see what comes of those REO's when this is all said and done.
A few weeks ago I looked at a RealtyTrac map of the foreclosures, REOs and defaults around the air force base I use to live near. Your blog gave me an idea: how about making the REO-to-Vets idea a 'local project' where the military acquires and 'land banks' foreclosed homes nearest each particular base nationwide. Then these houses can be used to provide housing for future active-duty military families and individuals, as well as vets. That way the guys still have access to their jobs on or near the base, and to the related military services. There are probably a growing plethora of REOs near our major bases.
Sounds like a good idea to me.
I can only imagine what will happen to many og these homes. I can see condos being converted back to rentals.
Section 8 conversions galore. Mcmansions cut in two and turned into duplexes.
The ideas will be endless. Many great deals lie ahead. Thats why patience is critical right now. No knife catching!
Post a Comment