If they make it a condition of sale that the investors have to rent the REOs they purchase, and can’t sell them, then this idea won’t have much impact on the resale market. Selling bank-owned properties out of the shadow inventory and then designating them for rental properties means the shortage of well-priced inventory for the end buyers will continue. From HW:
While the Obama administration may be pondering the idea of helping underwater homeowners through principal write-downs, Federal Housing Finance Agency Director Edward DeMarco said there is no current consideration for principal write-downs on underwater home loans.
DeMarco told C-SPAN in an interview that the FHFA has already assisted borrowers through principal forbearance programs and loan modification tools that have helped borrowers reduce their monthly payments. He said the other balance the FHFA has to strike is making sure home aid efforts do not afflict taxpayers with additional losses since public funds hold up the quasi-federal housing agencies. He placed write-downs on principal in this camp and suggested the FHFA is not going in that direction.
“Principal forgiveness does not accomplish our conservator mandate,” DeMarco said on CSPAN while speaking to reporters from Reuters and the Wall Street Journal. He added,”the borrower still has a responsibility and an obligation for the repayment of the loan.”
DeMarco said the FHFA sees the next housing initiative being one that focuses on offloading GSE properties to investors who can buy the REO properties in bulk and turn them into rental properties.
To date, the FHFA has received 4,000 comments from interested parties who submitted feedback on the proposed REO bulk sales program.
“Now that we have the HARP announcement out, we are turning to this as the next priority,” he said.
The FHFA said earlier this month that it would lower barriers to refinancing, allowing more underwater borrowers to qualify for the government’s HARP refinancing program.
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Rick Sharga and Carrington are already jockeying for position, trying to run off competitors here. Who ends up getting what, and for how much, should be quite a spectacle, unless it’s all done in secret, behind the usual closed doors.
Ok, I get it-NO writedowns for the lowly homeowner(even with a lender future equity participation feature) but lets dump properties to a limited “bidder pool” of bulk investors…to “conserve assets”.That is supposed to make things better? More “crony capitalism”.
Liquidation of these assets is the only solution that works in the long run. Not crazy about a program of limiting to bulk investors but it’s not surprising and it is efficient. It would take a toll on Realtors though. A lot less commission to earn if the banks bulk sale all the quality properties which are what the investors want.
Principal writedowns are a common occurence in the commercial world. Commercial lenders do principal writedowns and other modifications every time there is a recession. They are called loan workouts. Heck, holders of Greek bonds just agreed to 50 percent writedowns.
Writedowns are a risk you take if you are in the business of lending money. Writedowns are done because they are CHEAPER in some way than the alternative of taking back the property.
Yet somehow there is a “moral hazard” if we write down principal for individual homeowners. Somehow it’s better to take the property away from the borrowere through a complicated and expensive foreclosure process and then sell it at a highly discounted bulk sale price to our corporate friends and supporters.
If you do foreclose, your obligation should be to realize the highest value for the lender on whose behalf you are acting. For the GSE’s that would be the taxpayers. Unless you can demonstrate it is significantly more expensive to run an asset management and disposition operation and sell at retail than it is to bulk sale in a non-competitive bid process to your chosen buyer-landlords, then you should sell at retail.
Forget about investors. How about focusing on normal buyers that want a house simply to live in, like me. Offer me a decent price and we’ll have a deal!
“If you do foreclose, your obligation should be to realize the highest value for the lender on whose behalf you are acting. For the GSE’s that would be the taxpayers. Unless you can demonstrate it is significantly more expensive to run an asset management and disposition operation and sell at retail than it is to bulk sale in a non-competitive bid process to your chosen buyer-landlords, then you should sell at retail.”
Only thing I can think of it capital ratios. Investors don’t necessarily need a funding source while your average home buyer would. I haven’t thought the balance sheet issue all the way through but seems like there is a bit of an advantage to liquidate to cash buyers rather then buyers that require bank financing. Otherwise it is just crony capitalism, might as well do principal write downs because it has the same effect.
But won’t this contribute to the triple dip that is about to happen according to this CNN article: Home Prices heading for triple-dip – Oct. 31, 2011