Bruce Krasting

Fannie Mae Plus Goldman Plus Tax Credits Plus U.S. Treasury Add Up to Big Mess

To have an auction you must have a number of potential bidders. To be a candidate for this deal you must be a financial company with a big balance sheet. You must have current and predictable future earnings.

There is no one that looks like that but GS and Buffett. Sorry, no auction.


On Nov 02 11:56 PM RK wrote:

> I am not familiar with the complexity of the deal. Why can't AIG
> just auction off the tax credit? On the other hand, I am enjoying
> seeing how the government runs GM, Chrysler, AIG, Fannie, Freddie
> and Citi. While I am sure it will not be good for these companies,
> perhaps the rest of the country and the pols will learn a lesson
> and think twice about having the government be a majority shareholder.
>
>
> If I were an employee (especially a valuable employee) at these companies,
> I would bail.

Richmond Fed: GSEs Encourage Mortgage Defaults

We shall see.

FDIC, FHA, Fannie and Freddie Real Estate Exposure Killing Home Values in Georgia

Hampton is about 50+ minutes from Atlanta. It is also a place for summer homes. There is a NASCAR facility nearby. People who wrote me tell me it is a nice place. In the scheme of things it is not that significant. But if the Feds start doing this across the country it will be a big deal.

The average mortgage is 200k. Assume the INCREMENTAL cost of dumping these into the market is $10,000. There is a minimum of 4MM of these. I think it is much bigger. My guess is it is 8mm.

That is $80 billion. We could use that money. It is 10% of the deficit.


On Nov 01 09:56 AM the gerald wrote:

> is it possible that the Hampton GA holding is just too small and
> too far away to muck with?
>
> there is question as to how to go about maximizing these sales of
> small value. time may cost more than sale price lost.
>
> how many bodies for how long can be assigned to enhance the sales
> of the 78 houses by say 10 grand.(780,000)?

FDIC, FHA, Fannie and Freddie Real Estate Exposure Killing Home Values in Georgia

When stocks were at the lows there were sellers. That is how it got there. While some were taking losses and others were leaving ex big profits on the table all of them had real skin in the game. The people who own houses that are 30% underwater have no skin left. It is a completely different issue.

If one does a short sale or a deed in lieu transaction (walks on the property) they will have a six month blemish. They will also (maybe) still have some money in the bank. The ten year horizon you point to is too far. 2-3 years is more likely.

RE will recover some day. I don't see any upside for some years yet. Too much damage has been done. The Feds are 95% of the new mortgage market. That can not last for long. It will destroy us. When they step back there will be a shortage of mortgage credit. It does not add up to a win to me.

You also have the issue of demographics. Lots of boomers downsizing for the next decade or so.

I have a piece coming out tomorrow about the GSEs that touches on this. Thanks for reading.
bk


On Nov 01 01:21 PM jimmy46 wrote:

> We know that the biggest source of default in the current cycle is
> that borrowers are so far underwater they have no economic incentive
> to pay. So they don’t.""""
>
> That's like saying those people who had stock losses last March should
> have sold at the bottom of the market.
> RE will rebound, just like stocks have, and those that hang on will
> be glad they did.
>
> Anyone who defaults now won't be able to buy another house for at
> least 10 years.
> What kind of idiot wants to put himself in that position?

FDIC, FHA, Fannie and Freddie Real Estate Exposure Killing Home Values in Georgia

The idea of pooling the REO and then creating a security is interesting. I think there are problems in this approach. The first is who sets the values on all of this? The GSEs? they think their entire book is money good, So there is a valuation problem.

Most comments on this piece suggest that the FDIC is doing the right thing by moving aggressively. I am not so sure about that.

My suggestion has been a swap of GSE Pref stock for REO. This is a junk for junk swap. But it would resolve the Pref problem and address a significant part of the REO problem.


On Nov 01 07:17 AM BRUCE E. W. wrote:

> While I think it is vital that the open market interests keep a criticizing
> eye on Government in action, it is also important to recognize that
> these current real estate contradictions viewed from these GSEs are
> not "driving" property values down as much as "riding" them down.
> The property auctions should stay basically within traditional procedures
> if only to be certain that they are impartial and not parcel to some
> insider network of exploitation. The FDIC has a tendency to offload
> its liabilities with a least effort attitude which they tend to call
> the lesser of two evils.This is called a false dilemma since it proposes
> two options, both of which are unacceptable. When they are selling
> entire banks to private equity syndicates for pennies on the dollar
> they have a protocol of eating losses as the "least costly" over
> time. This is the same default loaded fallicy revisited with a difference
> only in degree. It seems you have hit on a similar example (which
> we can not afford) in the real estate markets. If I am correct in
> this assessment, than open complaints should be screamed from those
> roof tops being devalued. One would think that there would be plenty
> of damaged interests if this were to be a common practice, but it
> would also be (I believe) a great disservice to the public trust
> (ultimate their values being destroyed by complacency if not outright
> incompetence).
>
> I noted an earlier article you wrote :seekingalpha.com/arti...
> something of a public offering process to flip asset holdings. I
> don't like the idea of the public absorbing the costs while permitting
> a few well placed individuals to come in and clear out potential
> profits, but I think the basic idea of sort of "junk bonding" the
> total assets valued to public shares might be an interesting way
> of resolving the problem. If all properties were pooled as one major
> equity unit or regional portfolio, it could be securitized by a true
> value assessment and perhaps brokered at both ends of real estate
> sales and stock in the venture of displacing the debt jointly with
> maximizing the gains on each property (REOs).
> I would like to know your opinion on if you think this is feasible
> as a potential resolve. It would strengthen the GSEs in the process
> which would only enhance the entire process and generate an up tick
> to property values if it were instituted nationally. It would also
> give the average investor an opportunity to invest in the overall
> recovery process (afterall they have already paid for the failures)
> and perhaps build some equity into their own retirement accounts
> (while helping rebuild the country to boot)! It would also distribute
> the ongoing risk and perhaps see these real estate forclosures entering
> back into communities at fair market values (since there would be
> watchdog interests at stake).

How and When Will the Fed Reverse the Huge Addition to Bank Reserves?

Not at all worried about how they will unwind this? I am.

Market: Spooked Today, But Panic Attack Is Likely Temporary

You checked the market indicators and did not find anything wrong? We just had a 60% move in the S&P. Interest rates are at historical lows because of Fed intervention. Several big banks are basket cases waiting to fall into a hole. We can't sell a house or a car without a subsidy. The dollar is just a few days from a rout. We are looking at ten years of $ trillion dollar deficits. Commodities are rising as a result of a weak dollar.

And you think everything is Ok?

Mortgage Finance: From the GSEs to Wall St. and Back Again

Not sure I agree with you on this. In the middle of the decade the GSE were 50% of the market. That does not make them bit players. Today they are 95%, certainly not bit players.

As to the Alan Greenspan comment, How is systemic risk reduced when all of the securities issued were functionally gteed by the tax payer? All of the risk was retained by the Agencies. That is why we are in the mess we are in. No?

Were Fannie and Freddie the Real Enablers of the Housing Bubble?

I am not sure how you can reach your conclusion looking at this graph. In 08 F/F were 70% of the total market. Today they have slacked off a bit but Ginnie may has grown tremendously.

So far in 2009 the D.C. lenders have 90% of the new mortgage market.

Without F/F the insane things that happened in 2005 - 2008 would never have happened. The D.C. lenders are responsible for the mortgage mess.

Warren Buffett Reminds Us: The U.S. Economic System Still Works And Has A Bright Future

You hanging your hat on Buffet's words? The buy and hold is dead. Wait one year and you will see that that is true. Buffet feels good today because global financial institutions have pumped in so much money even crap stocks can trade with 25 multiples. That is ending, and as it does it will drag us back to where we were a year ago. Buffett is no seer. He is just assuming that what has happened every recession in his life will happen again. This is different. Too much damage has been done this time.

The Dollar as a Reserve Currency

Bob, Thanks for providing the history lesson. What we really need is some forward thinking from you. What is your thinking on POMO? Should we sustain zero interest rates? Is the Fed balance sheet too large? These are the type of things we need your input on.

The gold thing is a canard. At current market it is equal to 1% of the debt. It does not matter.

bk

You Can Spend Your Way Out of a Recession

I am sorry to see this post Mr.Mcteer. I have always thought better of you. The issue is not whether spending combats deflation, of course it does. That has been proving again and again in the post wwii period.

But in 2009 the question is, "Can the government afford to spend its way out of this recession?" How much does it have to spend to offset the existing deflationary forces?

I believe you understand that our country simply can't borrow a $ trillion a year for the next decade so that we can dig ourselves out of this hole. While spending 10 trillion might work it would also destroy whatever future we have left.

You are in a position to influence the outcome of the choices we face. You did us all no favors with this piece. It should have been titled:

"We Can Spend Our Way out of Recession, But the Cost will be too High".

America needs straight talk from people like you. Do us all a favor and tell the truth about our capacity to spend our way out of this one.

New Freddie Mac CFO Receiving Big Paycheck. Why?

After I wrote this additional details on the pay package came out.

Kari got $2mm signing bonus and guarantee of 3.75 million. What government worker earns that?

Social Security: Here's How to Extend the Fund's Life

HowardT:
My means test would be on taxable income. This could be wages, it could be interest income or capital gains. If your taxable income according to schedule A is 100k you get nothing for the next year.

If the following year year you fall below that level you get your scheduled benefits for the nest year. And so on.

What's a Home Really Worth These Days?

Thank you for the comments. From this and other sites a summary of the results:

-The 15X number is in the ball park across the country.

-California reports 25X is their reality. This implies their RE is still over priced.

-Miami and Vegas sound cheap by this analysis.

-DC looks good Metro NY not so good. Possibly the impact of big government?

-Outside of USA RE is much more expensive. 25X to 35X is normal. This means that the USA looks cheap. Does purchasing power parity have anything to do with currency rates? Nah..

Jiang Nan: Thank you for your most interesting comments. I re-posted your thoughts here:

www.zerohedge.com/arti...