About an hour or so ago, I heard on CNBC that a big hedge fund (Carrington) is going to put up half-a-billion bucks to buy foreclosures from an un-named bank.
Bank of America BAC comes to mind because of their enormous exposure to residential mortgages via Countrywide as well as their own lending.
Here is the link to the CNBC report: Bulk Foreclosure Sales Could Cause Bigger Bank Write Downs
My main purpose for writing this article is to acknowledge that finally there are firms willing to put up the money to take these bad assets off of the banks hands. Many will fault these firms for taking advantage of the situation to make money.
How the heck else will the housing market stabilize? The banks do not want the properties, they don't want to refinance, and they do not want to be in the real estate business!
Large hedge funds with oodles of cash CAN and WILL take this opportunity to actually step up to the plate and buy these distressed assets. They will also make a ton of money.
In my opinion, so will the banks who get these assets off the books! Yes they will take a hard hit very quickly, but over the course of a few quarters, they will have a cleaner balance sheet and a better outlook for future growth. Who knows, they might begin to lend again!
That being said, all of the home builders stand to gain as well! Inventory of foreclosures could be cleaned up quickly and builders will build again.
Consumers will stand to gain as well! Folks who have missed the boat on buying foreclosed properties or cannot afford any, will have more options to rent or buy new, less expensive homes, at low mortgage rates.
Home owners will gain as well. This is the big piece of the puzzle in my opinion. As the inventories of foreclosed homes is sold, prices will be able to move up once again. Homeowners who have needed to sell, might be able to. Homeowners who needed to refinance might be able to get a better assessment for the banks to actually lend to them.
All in all, I believe that this news is a very important step for our nation and our economy. If this works, and it has all the ingredients of being a major success, our nation and our middle class will have turned a very important corner.
I can see more upside in Bank of America (BAC) if they are the recipients of this action!
Here is the link to the CNBC video.
Disclosure: I am long BAC.
