Maybe they're like the ones here, which are broken down more often than they work correctly.

hxxp://news.yahoo.com/s/ap/20090322/ap_on_go_pr_wh/bank_rescue


Um...
Isn't this what they were supposed to do with the first bail out?

Or what we keep doing with AIG...

Now, if they buy up a bunch of this crap and suddenly are basically the mortgage holders of a bunch of homes worth a trillion or more, great! Then you go and sell these whole mortgages (not pieces) back to actual banks and we, the taxpayer, come out even or ahead. I'm good with this. But if we're buying up crap worth 20c for $1 and the banks make out on this like bandits, I'm going to be pissed.

This is wealth redistribution, but not the kind I care about. I don't think we need any help at the moment, moving money towards the rich. They can do that while screwing us just fine on our own.

SI

Just wait five years from now when they cry about money going towards something actually useful, yet alone to help people out.

What, spend a few billion on subsidized health insurance for children?! Do you think we are made of money?!?!?! Go back to China or Canada you commie!

And so on.

As far as I know we haven't bought a single mortgage yet, we've bought paper with random values based on imaginary sub-divisions of a mortgage that the finance industry complains is too complex to determine the true value of (hint, it rhymes with hero!).

We're already doing that... (oh, wait, you were being sarcastic ;) )

SI

re:
Oh goodie, more loans to be defaulted on, that'll fix everything I'm sure.

friend of mine who manages a restaurant went to work tonight and they told them that it's closed now....thats it, done. Out of business and they gave him no forewarning. Sucks.

I can't see why the banks haven't setup rental divisions with the foreclosed properties rather than leaving them vacant / flooding the market with them? - it would have protected the properties (one of the houses next to me has been empty/foreclosed on for over a year now and its starting to look really grim) and also given the banks extra revenue while also strengthening the housing market by avoiding flooding it with inventory

+1 plus it wouldve created jobs.

To be honest the way I'd have approached it as a bank would have been to make it a responsibility of the foreclosure department to contact the owners defaulting and see if they wanted to stay in their house as a rental.

I'd bet if the terms were right (ie. around what their 'lower' monthly payments were before they shot up) then the vast majority would want to just for ease of life.

This means it changes from being a 'disaster' to being a continual revenue stream (without end) because the new 'tenant' is simply paying out without actually ever purchasing the property now.

There would be in most cases minimal hassle for the bank (ie. no evictions, advertising, repairs on property before it could be let etc.) because the same person living in it now would stay put.

The Geitner bank program unveiled today is awesome and somewhat reverses the Paulson fumble. It will help clear some of the mud out there. Im looking for more details on it.

I think being a landlord on the scale you're talking about would be far less cost effective. First, you're talking mostly single family homes and not apartments/condos. The amount of work required to maintain the home and lot is pretty high. At a minimum all of the maintainence is going to need to be monitored.

Second, scale will work against the banks in many areas. It's one thing to have a lot of homes in Vegas that will be foreclosed by a single bank, but what about the five homes in Dayton or the one in Elkhart? In many communities the staff the bank would need to monitor/repair/collect would make it very hard to make back their money.

Third, insurance. How would insurance on the properties work if the owner suddenly became the renter?

I don't think single-family home renting has ever been done on a large scale because it's full of pitfalls.

You covered my thoughts on this pretty well, although I'll add in the potential decrease in value brought on by damage done by renters as yet another reason this doesn't happen on a large scale.

I also thought about potential problems with zoning issues and neighborhood association rules.

The toxic asset plan is a giant wealth transfer to the banks that will be easily gamed. But it sure gots the markets all agoin.

IMO it was what TARP was supposed to be before Paulson torpedoed it. that being said, some banks are going to get rich and hopefully some people will in owning their stock. Next retracement back down I will likely be buying into some of the stronger banks (GS). Supposedly there will be some mutual funds set up for the retail investor to be able to take advantage of as well.

I would be selling some strength by the end of the week if I wasn't looking to try to average in at some point against my earlier holdings that are much much higher.

SDS and SKF will be getting attractive by the end of the week/next week for a short term play, IMO.

It depends how its undertaken - why couldn't the agreement be written in such a manner that its the tenants responsibility to handle the upkeep to their present standard?; then its simply down to the owner to do inspections semi-regularly if they believe the valuation of the house warrants it.

Bear in mind these houses have largely already been lived in by the tenants - if they're wrecked already then its 'no change' from the current situation, if they're well looked after then its likely that status-quo would also continue presuming the owner was the new tenant.

I have no idea to be honest, in England at least contents insurance has no bearing on ownership, with regards to buildings insurance - well the banks are already in a 'bind' in this regard surely as unless the banks have taken out insurance on their foreclosed properties they're not effectively insured anyway.

(I'm presuming that its cheaper to insure a tenanted (and thus monitored) building than it is a vacant one - that to me makes sense, no chance of squatters, less chance of vandals etc.)

Its been done in England via. the Council House scheme very successfully, if undertaken America could then follow the 'ownership' route that the English goverment took with council houses by eventually allowing the renters to purchase the houses ....

(and yes I know a lot of Americans might hate the idea of such a scheme because the 'council house' setup in England was very socialist in its roots - but imho it'd be better than the mess thats happening here presently)

I've had some 'interesting' coversations with my neighborhood association about the 'screening' on our pool equipment here (where apparently the plants in question aren't large enough for their liking) ....

Initially their stance was that its 'ok' for the house next door to have had no watering for its lawn (its dead), its pool to be full of interesting algae (its circulation has been turned off for over a year), its pain to be visibly cracked and flaking off etc. - but any house lived in to have a minor violation is a finable offense.

In their defense they have ok'd our plant screen since - I think the time for housing associations to be 'anal' about things is long since past, if there is a problem with reposessions in a neighborhood then you've bigger problems than whether you'll have 'rentals' in the area ...

No idea what 'zoning' issues might lay ahead - I'm still adapting from the 'English' approach of you buy a house its yours do what you want with it pretty much so long as you don't change its shape* - to the American buy a house, yeah its yours but by the way it can only be colours x,y,z and you need 23 plants of type x around it ... remind me why America is the land of the free again? ;)
*Even then a lot of English people don't like being forced to follow such rules - my favourite attempt to avoid it in recent years was the bloke who built a castle by hiding it behind a wall of straw:
www.thisislondon.co.uk/news/article-23434067-details/Hay+presto!+Farmer+unveils+the+'illegal'+mock-Tudor+castle+he+tried+to+hide+behind+40ft+hay+bales/article.do

Yeah, I guess that's the dumb question? Does this make those basically penny stock banks (BAC, Citi) worth getting in on?

EDIT: I might as well make some cash to pay for the taxes that are paying for this damn plan.

SI

The problem with a short term SKF play Flasch is if the government is truly determined to erase bank's mistakes, and the public seems to be gangbusters on the companies (as makes sense if you assume the worst parts of the balance sheet are going to be erased, while you know the banks are going to hang onto the choice parts of the portfolio for themself)...

Ya there is always profit-taking and what not, but these stocks are trading way below where they were... very dangerous potential of a one way climb.

EDIT: In other words, I'm way too much of a paranoid pansy to play that game. Besides, I already just barely escaped out of my last SKF play with a gain when I thought it couldn't possible jump more than 5-7 points down on open. Information and market mood often trumps short term momentum plays.

depends if you consider those strong banks that wont go away.

BAC is hard to imagine going away.

Now bear in mind I think the market retraces to lows within the next 2 months so I wouldnt get in here, as a matter of fact Im thinking of going short within the next 2 weeks via SDS BUT Ive been wrong before with my money although I seem to be getting more and more right with my words...just not my $ :) :banghead:

Big leap there IMO. The residents had an ownership stake before they defaulted, no such would exist if they were merely tenants on a rental basis.



Insurance on a rental property can be a different policy than an ownership property, depends on the parties involved really. But there's definitely issues there to be addressed.

Yeah to some extent I agree with you - but personally I think people live to a certain lifestyle whether tenants or not generally (i've yet to have a friend who was messy as a tenant become a neat freak as an owner or vice versa).

I know you're just having fun with the irony at play...but the answer is primarily because of where you are...Florida.

A good portion of Florida (and mainly newer construction) is developed into "communities", which have HOA's. There are still plenty of non-community (or HOA) homes, as well as new builder construction, but they have become less-frequent since the community-style was more low-lying fruit (and more cost-effective in general). But I've owned a non-community home close to where you are, and I can tell you that beyond something you need a building permit for...or something that violates a general law/ordinance...you pretty much have free reign of your home/property.

So, I spent most of my lunch reading more about MBSs and CDOs. Could someone explain who in their right mind would want to buy something and why such a thing was allowed to exist in such high quantities in the first place. It would be like parlay bets being the most popular thing in Vegas- it doesn't make sense.

Frankly, after all of this, I just want these stupid instruments to all go away but I'm sure it will just go the opposite direction.

SI

Difference being that, in theory, it was their problem as an owner (never mind the mortgage), now it's your problem as the landlord. Particularly when it comes to repairs & maintenance, which shift in responsibility with the primary ownership. Not to mention changing the legal status of the owner with regard to that repair & maintenance on a state by state basis depending upon landlord laws.

Although it's probably symptomatic of the current mess and very shortsighted, banks never really seem to anticipate getting stuck with getting the property back. But once they have it then the level of issue that the condition of the property is in becomes much more of a concern.

For me the biggest difference would be in yard work. I'll do a lot of work on my own yard and spend some money upgrading the flower beds, shrubs, etc., but if I were a renter I'd mow and maybe trim with no chance of me doing anything extra without a financial incentive.

SI, those instruments are ways that they are trying to 'bet on a sure thing', it really comes down to gambling in most cases. I would liken it to having a super heavy favorite, say the Steelers versus a state champion high school squad. You bet 100 bucks on a straight up win, you would be lucky if you get anyone to match 10 for your 100. Still, if you can make that bet a thousand times over, especially with leverage, you can make some good change off it, and really, who expects a high school squad to beat the Steelers?

To complete the analogy, it turns out the 'Steelers' are the Randomtown High School Steelers, and the entire team has been suspended for steroid violations right before the game. Your thousand bets at reverse 10:1 odds become effectively worthless, especially since you did not hedge the other side with bets on the state champion high school squad because you figured they did not have a chance in hell (even though that was the whole advertised point of these instruments being allowed, in practice people skipped over betting on the loser option because it cuts into those shiny profit ratios).

Cue market collapse. Even if it was the Pittsburgh Steelers, there is a chance for catastrophic losses, even if its less than 1% chance that the Steelers come out like total crap and the high school champion squad pulls out the perfect game. There is no such thing as a sure money financial portfolio, you can hedge so you have a really screwy probability profile... but there is always the case where chance lands right within the margin you spent on hedge protection.

If somehow you can get a positive hedge, it means that someone, somewhere, mispriced their option contracts so grossly that they gave you a license to print money (or you are ignoring default risk entirely, which may be the case in some of these big bank credit default swap scenarios).

Even without the bozos going nuts and abusing these odd financial instruments and the loopholes in how they operate, if you have supposedly smart players who set up good hedged positions, there is ALWAYS a probability of failure based on where the prices land (or if you want to get real technical and add time as a variable, there is the potential for any hedge + timing scenario to be blown apart with a sequence of prices).

A couple of other things come to mind:

A house with a tenant can be much more difficult to sell particularly if that tenant is not paying a worthwhile rental and the purchase ceases to appeal to an investor who is buying with the intention of renting it out. I don't know about the USA but it can be difficult to get a tenant out once he's in here.

I'm not sure how much a bank loses when it sells a repossessed house at a knockdown price. The bank is insured against losses - isn't that one reason why AIG is in such a mess ? - and may not lose much at all in the sale. In which case - just get rid!

Incidentally, I saw on CNN yesterday that the average house price in Detroit is $18,000. Surely not?

That's honestly probably very optimistic. Note that number does not include any subarbs. That is strictly the core city. I saw that 5 houses last month in Detroit sold for $1. They interviewed one of the people who got a house for $1. She was a single mom with two kids, so she was obviously thrilled that he had a home of her own with no debt. Five years before that, the house sold for $50,000.

Wow! Who would be the owner of a house that was sold for a dollar? The bank? Why would anyone sell for that? What's the economics operating there?

The problem is not whether it's kept tidy, Marc, but what happens when a repair is necessary. It's often expensive and the tenant no longer benefits from making the repair. It's not a question as to whether he feels the repair should be done but that he's not going to fund it.

Off the top of my head, I'd guess the motivation for a $1 sale is to avoid the property tax burden associated with the house.

Sometimes better to get $1 and remove the tax liability than to end up paying thousands in taxes on a property you don't believe you'll ever capitalize.

The ease or difficulty can vary quite a bit from state to state, in some cases it's a major hassle not to mention nigh on impossible. In some areas around metro Atlanta for example, the sheriff's department that has to serve the legal documents for eviction (such as for non-payment of rent) have a six month backlog and they're pretty open about how it's a very low priority for them.

"Thousands in taxes". Is that what it costs you?

Depends on where you live. Some states and cities rely more on sales or income taxes. Others use property tax as their main income while charging little or no income tax.

Off the top of my head I'd say this probably applies more to corporate sellers than individual sellers. The idea being that a corporation will look at a stack of these properties as basically nothing but liabilities on the balance sheet and at this point would view a sale even at $1 as basically a net win for them.

The property in question will still be valued (by the city/county/whatever) at a higher rate, so the owner will still be paying "thousands in taxes" unless they can get it re-appraised by that body for a much lower value (and lower taxes). Without a sale at that value, however, this can be difficult (though neighboring sales at that value will help) and will take time, anyway.

Also, if the property falls into disrepair the owner can be eligible for fines and, in the worst case, can be sued if it becomes a public hazard (i.e. kids break in and fall through a hole in the floor).

So there are plenty of reasons why selling at $1 can be a good idea, especially in a place like Detroit where (no offense Detroiters) property values are very unlikely to rebound in the near or even medium-term.

I find this amazing. We have a house price collapse over here but it still costs around $250,000 for the average house.

Detroit is the exception to the rule. The city has been teetering on a mess for some time now even without any recession issues. No other U.S. city has this kind of an extreme scenario.

Quite often I've seen homes advertised for ludicrous prices - but if you look into them they have leans against them from companies and other problems which you'd have to spend serious time and money sorting out.

(often this may be 'property tax' related in America - if someone hasn't paid for 10 years then it mounts up)

PS - As you'd probably guessed those homes aren't often in 'desirable' neighbourhoods ..

I'd argue that the economics of upkeep and rental revenue vs the present poor selling price would make holding onto them until the prices rebound at least a bit the best viable option.

Or to look at it a different way - there are a whole bunch of foreclosed houses in my neighbourhood which have been empty for a year plus - gaining no revenue for the bank and getting in worse and worse repair on a daily basis ... having people renting them would at least have kept them habitable (as presently none have electricity enabled which in Florida means instance mold and problems after a short while); add on top of that the fact that none of these houses will have hurricane shutters put up because they're empty and as the bank you're asking for your property investment to decrease in value hugely.

(no I don't see renting as the 'holy grail' for banks - but its a better situation than their current approach which appears to be ignoring all the properties and hoping they go away ... abeit it does look like the goverment may make that happen in time, so what do I know ;) )

My property tax bill (granted on a house worth more than the $50k price I think this dollar sale was for) will be in excess of $6,000 this year. I think the lowest I've ever paid regardless of location or home was around $4,000.

Bloody hell! (sorry for the English colloquialism)

Not sure, Marc, if you got my pm reply - the forum went sick on me when I clicked send and you either got it three times or more or not at all. But my reply was not too different from the above :)

We 're looking at homes in the Newburgh, NY area and it's common to see 7000-9000 dollar tax bills on 200000 dollar homes.

But a rebound wouldn't benefit the now tenant so there's no way he would want to fund any major repairs.

If the rental was only a temporary arrangement that could easily revert to ownership then that might make a difference but in that case I'm not sure it wouldn't be better for the bank to change the loan to a low rate, interest only mortgage. That way too they would receive some income and you would still have an owner's interest in maintaining the property.

The bank could retain the right to sell the property if there were a buyer and they wouldn't have to set up a real estate department to handle the properties.

But I do get your point about the house rotting away, losing value and, of course, a homeless pre-owner. I'm probably not appreciative of the level of difficulty currently experienced in selling a house over there.

But I strongly suspect the banks don't lose too much on these unsold/low sold repossessions because of insurance.

Michelle Bachman (Min) is an idiot, that is all.


Im watching her on the hill grilling the Fed chairman and Geithner and I just cant take her seriously when she is so obviously a moron.

And what would you pay to rent such a house?

Hard to say as not many are for rent, but we could probably get 1800 sq/ft for less than 2000 a month. If we decide to stay in Newburgh buying could be a good investment, but another 600-800 a month just for property taxes is too much IMO.

Beautiful area though. Gorgeous. My cousin was at West Point so I know the area a bit.