Monday, March 31, 2008

Real Estate Charade

"Federal officials say a wave of opportunistic scams are targeting homeowners trying to avoid foreclosure in the current housing downturn. Monday, prosecutors in California unsealed twin cases against 19 people who according to agents from the [FBI] and [IRS], skimmed nearly $13 million in equity from 115 homeowners coast to coast under the guise of a mortgage rescue. ... The indictments come as officials debate how to soften the blow of the housing and credit-markets turmoil on the U.S. economy. ... The Mortgage Bankers Association said a record 2% of the nation's 46 million mortgage loans were in the foreclosure process at the end of the fourth quarter. The number of defaults on first mortgages is forecast to rise to 1.9 million this year from 1.4 million in 2007, according to a report by using FDIC and other data. ... When the homeowners sought help, sales agents would steer them into a plan that called for owners to put an 'investor' on the home's title. In exchange, the homeowner would pay rent to the investor, typically a sum smaller than the original mortgage payment", WSJ, 25 March 2008.

"Foreclosures are occurring at the highest rate in decades--and as a result, lenders are acquiring homes faster than they can sell them off. Last year, sales of foreclosed homes rose just 4.4%, while the supply more than doubles, according to First American CoreLogic", WSJ, 25 March 2008.

This looks like a real scam and in total exceeds my Blankfein test. However, it appears the Feds are trying to make the banks into innocent victims of scams instead of beneficiaries of them. The Fed's recent bailout of Wall Street, not Bear Stearns, required it put out $29 billion to protect JPMorgan. The taxpayers losses on this transaction alone should greatly excced all the banks may have lost due to fraud.

Until the banks reduce their selling prices for foreclosed homes, they will have to hold them.

No comments: