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View Full Version : Economics A Huge Housing Bargain -- but Not for You


Stewie
08-27-2011, 01:44 PM
NEW YORK (RealMoney (http://www.thestreet.com/story/11224917/1/_http://www.realmoney.com)) -- The largest transfer of wealth from the public to private sector is about to begin. The federal government will be bulk-selling the massive portfolio of foreclosed homes now owned by HUD, Fannie Mae and Freddie Mac to private investors -- vulture funds


These homes, which are now the property of the U.S. government, the U.S. taxpayer, U.S. citizens collectively, are going to be sold to private investor conglomerates at extraordinarily large discounts to real value.
You and I will not be allowed to participate. These investors will come from the private-equity and hedge-fund community, Goldman Sachs(GS (http://www.thestreet.com/quote/GS.html)_ (http://www.thestreet.com/quote/GS.html)) and its derivatives, as well as foreign sovereign wealth funds that can bring a billion dollars or more to each transaction


In the process, these investors will instantaneously become the largest improved real estate owners and landlords in the world. The U.S. taxpayer will get pennies on the dollar for these homes and then be allowed to rent them back at market rates


On Wednesday, the Federal Housing Finance Agency (FHFA), the Department of Housing and Urban Development (HUD) and the U.S. Treasury Department issued a Request for Information (http://www.fhfa.gov/webfiles/22366/RFIFinal081011.pdf) (RFI) concerning the disposition of the inventory of foreclosed homes owned by the federal government


An RFI is ostensibly a way for the federal government to get input from the private sector on how to accomplish the goals laid out in the request. But that's really just a facade, as the RFI was structured by the investors to begin with


In reality, the RFI is a way for the members of Congress to find out if they can get away with bulk-selling these homes to private companies without incurring the wrath of their constituents, taxpayers and former owners of the properties


Assuming taxpayers don't push back, the next step will be to issue a Request for Proposals (RFP). The RFP will be the bid and plan for these homes by investors


The way to keep taxpayers from pushing back is to structure the RFI so that the real intention, the bulk sales, is masked by feel-good goals, such as stabilizing neighborhoods and increasing the supply of rental properties


As intended, the mass media are playing their part in classic style. Every major newspaper in the U.S. has run articles discussing the plan as a rental conversion, allowing readers to assume that Fannie, Freddie and HUD will be renting the properties directly to families who need housing. And although there is an allowance for these kinds of rentals, it is a minor political facade to the obvious true goal of bulk-sale privatization of these homes


The investors in this program have been waiting for this opportunity since the portfolio of homes owned by HUD began to spike in 2007, when foreclosures surged first in the "Rust Belt," principally Ohio and Michigan.
Since then, of course, the systemic collapse of housing has engulfed all of the major urban coastal regions of the U.S., as well as Phoenix and Las Vegas, and caused the homes owned by Fannie Mae and Freddie Mac, which are now under the direct control of the U.S. Treasury Department, to spike as well


Even before this crisis occurred, HUD, i.e. the U.S. government, was the largest improved real estate owner in the world, because of its portfolio of foreclosed homes (http://portal.hud.gov/hudportal/documents/huddoc?id=DOC_13066.pdf), which is classified as "real estate owned" (REO). The entire massive HUD REO Portfolio is quietly managed by a handful of private firms already, a group listed as Management and Marketing Contractors (http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/reo/mm/mminfo)



These M&M companies are principally owned by and employ former high-ranking government officials from the various germane agencies -- the Treasury, HUD, FHA and others. And they will provide the necessary access to the current government employees who are tasked with bringing this program to fruition. Once the privatization is complete, those government employees will move from their positions, and many will take up new employment at one of the M&Ms or the new vulture funds


I am not currently aware of any way for retail investors to participate in this process


It is probable, however, that once the privatization has occurred and the properties are generating rental income for the investors, the initial investors will cash out by forming real estate investment trusts (REITs), real estate operating companies (REOCs) or limited partnerships (LPs) that will be made available to retail investors.

BucEyedPea
08-27-2011, 05:50 PM
Is there a link to the whole article?

2bikemike
08-27-2011, 10:26 PM
While I am not aware of this program there are tons of forclosed homes on the market at good value. If someone had the capital and the desire to jump into the fray.

Stewie
08-28-2011, 01:58 PM
Is there a link to the whole article?

That is the whole article, but here you go:

http://www.thestreet.com/story/11224917/1/a-huge-housing-bargain--but-not-for-you.html

KC native
08-28-2011, 03:37 PM
While I am not aware of this program there are tons of forclosed homes on the market at good value. If someone had the capital and the desire to jump into the fray.

It's not a program yet. The author is kind of jumping to conclusions (he's probably right though) but all this is at this point is a RFI.

BucEyedPea
08-28-2011, 03:58 PM
That is the whole article, but here you go:

http://www.thestreet.com/story/11224917/1/a-huge-housing-bargain--but-not-for-you.html

Yeah, I know it was the whole article I meant the original and the source. Thank you. I like The Street so far too.

Stewie
08-28-2011, 05:04 PM
While I am not aware of this program there are tons of forclosed homes on the market at good value. If someone had the capital and the desire to jump into the fray.

I think the point is that if you're on the "inside" you get a HUGE discount by buying in bulk. Individuals that think the market is at a bottom and take a chance on buying a foreclosure are going to get burned.

What's really disturbing is the same people that caused this mess sold their crap to taxpayers. Now they're back buying the same properties they sold for pennies on the dollar. What a scam!

Mr. Flopnuts
08-28-2011, 05:31 PM
I think the point is that if you're on the "inside" you get a HUGE discount by buying in bulk. Individuals that think the market is at a bottom and take a chance on buying a foreclosure are going to get burned.

What's really disturbing is the same people that caused this mess sold their crap to taxpayers. Now they're back buying the same properties they sold for pennies on the dollar. What a scam!

This is the biggest crock of shit I've EVER seen in my life. The very people who caused this whole catastrophe, and have profited from it every step of the way, now gets their windfall. Wow. How long after we recover sometime in the 2050's before they pull it again? After all, there are apparently no repercussions.

KC native
08-28-2011, 05:57 PM
This is the biggest crock of shit I've EVER seen in my life. The very people who caused this whole catastrophe, and have profited from it every step of the way, now gets their windfall. Wow. How long after we recover sometime in the 2050's before they pull it again? After all, there are apparently no repercussions.

We're actually about to have something very similar. I don't think it will be as bad but we've done nothing to really fix what caused the last crisis. The troubles are building. Hopefully we'll fix the issue properly this time.

alnorth
08-28-2011, 05:58 PM
Isn't this what we basically did during the S&L crisis? Some people who bought cheap property from the government made out like bandits.

I'm fine with that. The federal government should not be in the business of owning and managing properties long-term. Obviously they may get a property now and then (or lots of properties now) and if they want to hold off a few months to maximize the sale price, fine. If we're in a massive housing depression, then the feds should just dump it. Let someone else have it and either use it or make money.

KC native
08-28-2011, 05:59 PM
That being said, the reason the government is doing this is because the government doesn't want to be a property manager. They're looking to offload inventory. That's why they are asking for the RFI's. The devil is going to be in the details of these deals.

KC native
08-28-2011, 06:00 PM
Isn't this what we basically did during the S&L crisis? Some people who bought cheap property from the government made out like bandits.

I'm fine with that. The federal government should not be in the business of owning and managing properties long-term. Obviously they may get a property now and then (or lots of properties now) and if they want to hold off a few months to maximize the sale price, fine. If we're in a massive housing depression, then the feds should just dump it. Let someone else have it and either use it or make money.

Yes, the government doesn't want to hold these properties. They don't want the upkeep costs and how long they might have to hold them to eventually get something out of them.

alnorth
08-28-2011, 06:01 PM
What's really disturbing is the same people that caused this mess sold their crap to taxpayers. Now they're back buying the same properties they sold for pennies on the dollar. What a scam!

Uhhh.... no. These are properties the government has, not properties that the banks or whoever sold for pennies on the dollar. Use common sense for just a second, if you buy back a property that you sold for "pennies on the dollar", then aren't you a moron? You certainly aren't taking advantage of anything if you are buying back something you had.

Generally, the people who caused this mess are not going to be participating in this sale. The banks have plenty of homes, they aren't going to buy more.

2bikemike
08-28-2011, 06:34 PM
I think the point is that if you're on the "inside" you get a HUGE discount by buying in bulk. Individuals that think the market is at a bottom and take a chance on buying a foreclosure are going to get burned.

What's really disturbing is the same people that caused this mess sold their crap to taxpayers. Now they're back buying the same properties they sold for pennies on the dollar. What a scam!

While I am far from an economist or financial expert. My initial thought about this is so what. The housing mess will never correct itself until the houses owned by banks and Mortgage institutions like Fannie are sold on the market.

There is no way they can sell these houses individually. It will take selling them off in blocks to clean up the mess. I would think that there will be a place similar to REITS or something the average investor can invest in to get in on the action.

Again it really comes down to those with money get to take advantage of opportunity. Its the world we live in.

LiveSteam
08-28-2011, 07:01 PM
I say burn these houses down.

eazyb81
08-28-2011, 07:05 PM
I am shocked and outraged that companies are getting a discount on a product versus an individual retail investor by buying in bulk. Shocked I tell you! This never happens.

evenfall
08-28-2011, 07:29 PM
the same people that caused this mess sold their crap to taxpayers. Now they're back buying the same properties they sold for pennies on the dollar. What a scam!

Hah - don't worry, Goldman Sachs. Bammy, Barney, and Benny are gonna make sure you don't lose a penny.... The only people getting it up the tube will be homeowners.

Amnorix
08-29-2011, 06:53 AM
Isn't this what we basically did during the S&L crisis? Some people who bought cheap property from the government made out like bandits.

I'm fine with that. The federal government should not be in the business of owning and managing properties long-term. Obviously they may get a property now and then (or lots of properties now) and if they want to hold off a few months to maximize the sale price, fine. If we're in a massive housing depression, then the feds should just dump it. Let someone else have it and either use it or make money.


Right. The government rather brilliantly bundled good properties with complete crap in lots and said "bid for this" or whatever, and so they managed to offload alot of crap that become someone else's problem. The buyers were happy because they got good properties at discount, but they did assume responsibility for the bad properties as well.

Amnorix
08-29-2011, 06:54 AM
While I am far from an economist or financial expert. My initial thought about this is so what. The housing mess will never correct itself until the houses owned by banks and Mortgage institutions like Fannie are sold on the market.

There is no way they can sell these houses individually. It will take selling them off in blocks to clean up the mess. I would think that there will be a place similar to REITS or something the average investor can invest in to get in on the action.

Again it really comes down to those with money get to take advantage of opportunity. Its the world we live in.


This is largely correct. The overhang of inventory is a continuing drag on the entire economy.