On its face this might seem like a good idea but as with most things the devil will be in the details. As a Boomer, a Homeowner, a Father and Grandfather I have serious concerns about the benefits of this program as they relate to me, my children and grandchildren. I see a few winners: Fannie Mae, Freddie Mac, the FHA, FDIC, Ginnie Mae and our dear friends, the Too Big to Fail Banks. However, my friends, I also see many, many losers and as with most of the financial bailouts that have occurred since the collapse of our economy the losers will be the common folks: you and me.What I know is that the only reason Big Time Investors will get involved will be to make a profit. Can't blame them for that; its a fundamental goal of being an investor. However, this profit will be made on the backs of all of us that have attempted to weather this devastating decline in real estate values in the country, effectively transferring more of what is left of our declining wealth, once again, from us to them.
Reading between the lines Fannie Mae, Freddie Mac, the FHA and the Banks have thrown up their hands and admitted they can't slug their way through the foreclosure mess by dealing with the properties one at a time, frankly, because they aren't very good at it. They know that a profit motivated private enterprise will do a much better job. Besides, at least for the banks, they would prefer to move on to more interesting transactions; those by which they could continue to profit by and therefor increase the value of their stock which in turn creates significant rewards for the managers of the institutions. Essentially, they are bored with cleaning up the mess they created and want to do things that are more "fun".
So what's wrong with that? I can already hear you thinking; why wouldn't pushing this problem off the entities that caused it all in the first place be a good thing for all of us homeowners? Where is the downside?
Restating my belief that the only reason Big Time Investors will tie up their capital, invest their personnel and intellectual resources will be with the goal of much greater than average profit margins. In its simplest context, this means they will need to purchase these properties at highly discounted prices compared to the current market to allow for the inefficiencies of these Really Big Companies that will now be in the business of buying individual homes in neighborhoods scattered throughout the country and then spending the time, effort and energy to rehabilitate those homes so that they can be considered liveable and rentable.
Connecting the dots: the predicted result is that these "sales" will initially further erode current property values because the Big Time Investors will have factored in the rehab costs, holding costs, administration, overhead, soft costs and the inevitable "profit margin" needed for the Big Time Investor. This can have no effect in the short term but to further depress property values in neighborhoods where these "sales" take place. The losses incurred by government agencies recognized as a result of the discounted sales will just get added to the Multi-Trillion dollar tab already saddled on the backs of our fellow citizens. Any current homeowner that wants to sell their home during this next period of time will incur even further losses in their equity.
If you want to understand more, take a look at the history of One West Bank and the outrageous profits these "smart" investors have made on the taxpayer's account with their acquisition of IndyMac Bank. My acute sense of smell tells me its the same recipe. Read About One West Bank . The consortium that purchased One West is headed by Steven Mnuchin of Dune Capital Management in New York and includes J. Christopher Flowers, George Soros and John Paulson. Any of those names sound familiar?
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