Reminiscent of the Savings & Loan crisis of the late 1980s, the U.S. government is considering creating a Resolution Trust Corporation-like entity that could firesale off all of the bad debt accumulated by the nation’s banks, according to CNBC.
As U.S. Treasury searches for answers following one of the most volatile weeks for the stock market in decades, Secretary Henry Paulson has reportedly received President Bush’s clearance to approach Congress about the idea of creating a third-party entity to liquidate the billions of dollars of bad debt on the ledgers of many of the nation's financial institutions.
“Such a move, according to its advocates, would allow banks to shovel bad debt off their balance sheets and allow the firms to go back to business as usual,” according to the news report. “It would also eliminate the need for individual company bailouts. In turn, that could allow the housing market to recover because it would restore banks willingness to lend.”
This is the second time in a month that the RTC concept has come up.
Before the Treasury Department took over mortgage giants Fannie Mae and Freddie Mac earlier this month, Fannie Mae had announced plans to unload thousands of repossessed homes by way of opening offices in South Florida and Southern California to “get the property out the door.”
Fannie Mae opened an office in Fort Lauderdale, Fla., in August, and was scheduled to open a sister office in Irvine, Calif., in September.
The satellite offices are designed to streamline Fannie Mae’s efforts to unload bank-owned properties known as Real Estate Owned (REO), reduce defaults, and better manage repossessed properties until the inventory can eventually be liquidated.
“Real estate is at some level local – it makes sense to be local,” said Daniel H. Mudd, former president and chief executive officer of Fannie Mae at the time during an Aug. 8 conference call with analysts to discuss second quarter results.
“We’re adding hundreds of staff as well as contractors to our loss mitigation team, and we have effectively quintupled the amount of senior management that is — dedicated to this effort.”
Fannie Mae has had to rethink its approach as the number of Real Estate Owned properties repossessed in 2008 reached 54,173 on June 30. By comparison, Fannie Mae repossessed 49,121 bank-owned properties for the entire year of 2007, and 36,580 for all of 2006.
Fannie Mae’s repossessed properties are concentrated primarily in six states, including the two where the satellite offices are opening within the next 45 days.
Florida accounts for 5 percent, or 2,681, of the bank-owned properties controlled by Fannie Mae. California accounts for an additional 9 percent, or 4,814, of the Real Estate Owned on the Fannie Mae books.
It is unclear if Fannie Mae plans to open additional offices in other downward spiraling markets where bank-owned properties are spiking such as Michigan with 10,263 bank-owned properties, Ohio with 3,402, Arizona with 1,978, and Nevada with 1,205.
Fannie Mae’s immediate focus is to unload the growing inventory of properties that have been repossessed by the government sponsored, privately-owned entity that is the largest trader of residential mortgages on the secondary market.
Peter Zalewski is a principal with the consulting company Condo Vultures® LLC and a licensed real estate broker with Condo Vultures® Realty LLC. Peter can be reached at 305-865-5629 or by email at peter@condovultures.com. Be sure to check out Peter’s blog at CondoDump.com. Don’t forget to sign up for our weekly Market Intelligence Report. Looking for a property at a deep discount? You are encouraged to take a peek at the Vultures Database™.
Copyright © 2008, Condo Vultures® LLC
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment