patrick.net

The banks could hold on to foreclosures, but for how long? The next foreclosure wave has barely begun, and this strategy of holding houses in foreclosure limbo will be put to the test in the coming months as foreclosures really pick up. How long before the banks are forced to pay property taxes and/or insurance?

Even if the banks can hold a house in limbo findefinitely, these properties will still negatively effect the prices of the neighborhood. A house with a brown lawn, green pool, and boarded windows is a black hole for property values. Let's say the banks maintain the houses so that they are not a 'blight.' How long do they pay to maintain these empty houses?

This is like a dam that is springing leaks. Patch one leak and another appears. Until the dam bursts. The banks are just delaying the inevitable.

@SoCal, they let the people sit in those houses. They create squatters. The house isn't abandoned, just the person "squatting" in it doesn't pay for it anymore. The lawns and the windows and everything will still be fine. Some people have brought up loss of cash flow for banks. That's more than compensated for by setting a 0% rate for them to borrow at from the Fed and 5% rate they can lend to the treasury at, all for doing nothing more than signing some papers. No more work needed. Cash flow continues unabated, just from a different source. The absence of property taxes will just make the state bailouts bigger. And we can keep printing while people are willing to buy our debt. I thought that was about to break a month or so ago, but it looks like the worse things get, the more the confidence in (or last resort attitude towards) US debt grows. All good arguments people, but I'm still looking for that one invariant, that they can't fool.

"Can we have a permanent state of people living in their houses for free while the bank receives no income and nobody pays the property tax? No, impossible. I agree that it’s just kicking the can down the road."

This is exactly what I'm trying to figure out. What is the invariant this will disturb that they won't be able to manipulate? I also have a feeling in my gut that this can't continue for ever either. But what is it that will finally break?

The way I see it, they just have to do this until they start the next mania. Gas credits, health credits, some market they can create, like tulips or pat-the-virtual-monkey.com that they can con people into throwing all their money into. After that home prices will fall...but by that time, homes will not be our definition of "wealth".

While someone is willing to lend, we can borrow. The one thing that can break this is inability for anything other than the printing press to lend. However, for some reason people/countries seem stuck. The only way this can end is if someone in some random country discovers cold fusion, or a clean burning cheap green fuel, or a cure for cancer, and everyone dumps all their money no his ass and he decides NOT to buy US debt with it. Short of that, this game continues.

I thought at least here we'd have people with more than blind faith and gut feelings. That's what the people who ran up the bubble were living on. Faith and fresh air.

"This is not sustainable", "this can't go on forever", "this will eventually fail". These are pretty useless statements in a forum where people are trying to "make sense" of what is happening, and trying to plot a course from here.

Why is it not sustainable? Why can't this go on forever? What will it eventually fail? If you're thinking right now, "Dude, you must be kidding, it's obvious this will fail!", just remember when people were asking the dogmatic in 2007 "Why will home prices always rise? Why won't they fall?" they'd look at you with the "Are you kidding me? There's no other possibility! House prices HAVE to rise".

Stagnation is death & disease.

Deliberately inducing such stagnation is good only for the elites. If you are a foreclosed FB who gets a "free house" well yes but you are also trapped there. You can live rent free sure but you can't take a job in another city unless you abandon your house. In which case it becomes a blighted abandoned house which is another drag on "growth" as nobody wants to buy houses in neighborhoods with that stuff going on.

Yes we get your point. They are fighting like hell to stop the slide in it's tracks. However ultimately people do die and need to move, and trapping underwater sellers in their home is not doing them a favor. Ultimately I view this as like a force diagram. You are Wiley Coyote falling with an anvil in your hands. OK your parachute opens but it's not big enough you are still going to hit the ground fast enough for death or injury unless you let go of that anvil.

Thinking you can "fix" a bubble so there's no actual downside, is the height of hubris. All they can do is stretch it out so it takes a decade or more instead of the few years it should.

Agreed. This ends badly. And it takes forever to work itself out. That's what we thought after every bad fall. Sure this fall is worse than ever, but so are people's attitudes. They're coming off a dope-ride like never before. The attitude of wanting to double your net worth every 2 years, and considering debt to be the way of life and looking for the next way of getting big rewards for no work. That doesn't change. All this continues till we forget, and create another bubble, and find ourselves back on another forum, only this time people are talking about the coming collapse of prices of blue t shirts, or purple cars, or whatever the next bubble is.

I don't know the information, but perhaps you do - can county or state seize properties for non payment of taxes at some point? If the bank is not paying the back taxes then surely the state can seize the properties and sell them off? That would put a stop to banks holding onto foreclosures and make them pony up back taxes before they loose the properties. What do other people (who know more about this) think?

The blow off event that solves this thing is the baby boomer generation stepping back from the reigns. There were just too many smart kids in the room, because there were simply too many kids in the room in general. Thats how this bizzare framework of real estate "wealth" got created.

You will see lots of properties hit the market, by people who are moving into retirement communities, nursing homes and the great gig in the sky. You will also start to see mass retirements and coordinated bankrupcies now that we are going to have national healthcare.

what happens next for america is similar to post war europe, and it is not really such a bad thing.

Talk about depressing! I have long suspected the market was being manipulated. I have long suspected that the banks had some scheme to keep from losing so much money on foreclosures. I assumed they were dropping them on the market slowly to keep demand high or were waiting for the market to go back up. It never occured to me that banks would just not foreclose. Is this even legally possible? It's as good a theory as any other out there and better than most.

So then what happens? They set a precident? They can no longer foreclose on any property unless they foreclose on all property? They wait till the market comes back then take the home? I think a home owner would have legal grounds to fight the foreclosure process if the bank foreclosed on him but spared the guy in the next state, for whatever reason.

Claire ... you hit it on the head. Cash-strapped municipalities and counties are going to place tax liens on properties after a year or so and begin the process of liquidation. Banks can delay the process by all the above discussed means but bankrupt city governments are going to lock their Code Enforcement Officers in rubber rooms until they come up with a way to take over said properties. Great discussion Angrish !

I think I'm probably not gonna say this again. But I agree. This can't continue. What I'm looking for is that simple causal process that will break something. Logic you say? Well set axioms, set rules, and show me a logical progression that leads from here to a contradiction of those axioms, thereby implying that this "can not" go on forever.

I went short on the home builders in 2006, and banks n 2007. We all saw the exuberance. But now we don't see as much because it's happening behind closed doors. The game is being fixed. This is why we're discussing things here. Pre-2008 was easy, the rules weren't changing. Now they are, and in the face of this fact, we're trying to see (1) What has changed and (2) How will that eventually fail.

I guess that's about as clearly as I can put it. I'm not saying this will go on forever, but I'm unable to find a convincing logical progression that'll show me how it'll end.

It seems that many people here are upset that things aren't working out as they had planned. Essentially for everything to come crashing down to a level they were looking for.

No one is going to simply walk away from their jobs and say "Oh it can't be done, sorry we're got 12 months before bankruptcy and there isn't a thing we can do. Time to go sit back and let it happen."

They will be told to go back into their offices and not come out until they've got some viable solutions. Anything that might save the company, slow down the losses. We are starting to see some of those ideas put into play now.

Not putting every foreclosed house on the market isn't a bad idea to keep things moving along. Anything that slows things down and gives people time to think and act more rationally will help everyone in the end. It just won't give great bargains to bargain hunters who think they deserve them because they saw this coming.

In a healthy housing market, there should be no bargains. There also shouldn't be insane overbids, either.
A healthy housing market is one in which the person who buys it intends to live in it for the long term.
A house is really no different than a car. You buy the house for a specific reason, and that is to live in it. You buy a car to drive it. Left alone, they will decay and require maintenance. While you can easily build more cars than homes, in the end, neither one is inherently an investment.
The only reason a house value should go up is because of inflation or because the land becomes more desirable for some reason(s). But buying in the hopes that the land becomes more valuable is speculation. Homes should not be purchased on speculation any more than cars should.

pkennedy says

It seems that many people here are upset that things aren’t working out as they had planned. Essentially for everything to come crashing down to a level they were looking for.
No one is going to simply walk away from their jobs and say “Oh it can’t be done, sorry we’re got 12 months before bankruptcy and there isn’t a thing we can do. Time to go sit back and let it happen.”
They will be told to go back into their offices and not come out until they’ve got some viable solutions. Anything that might save the company, slow down the losses. We are starting to see some of those ideas put into play now.
Not putting every foreclosed house on the market isn’t a bad idea to keep things moving along. Anything that slows things down and gives people time to think and act more rationally will help everyone in the end. It just won’t give great bargains to bargain hunters who think they deserve them because they saw this coming.

Why is it anyone's job to keep people in their homes other than the "homeowner"?

And why is it unreasonable to think that prices would come down to their normal levels as opposed to being artificially inflated by government intervention? I'm not asking for a house in Los Altos Hills to be $100k, but I also don't think a 1000 sq ft 2bd/2ba place in LAH should be $2M either.

"It just won’t give great bargains to bargain hunters who think they deserve them because they saw this coming."

We're not looking for "bargains." We're looking for what we feel prices *should* be.

There are many people who are involved in homeowner ship and loans. Banks are interested in keeping their investments, cutting their loses on some houses by not foreclosing could prevent other assets from dropping in value, which is good for them too. The government wants to keep values from tumbling faster than necessary. Avoiding panics is something most agencies aim for. Cities don't want empty houses, or lots. There are far more people than just the homeowner who want to keep home owners in those homes.

A free fall in prices would also force many homes to dip well below a reasonable rate, and create a whole new panic from home owners. The rush to sell would create even more sellers, further creating a depressed market. Ugh.

pkennedy says

There are many people who are involved in homeowner ship and loans. Banks are interested in keeping their investments, cutting their loses on some houses by not foreclosing could prevent other assets from dropping in value, which is good for them too. The government wants to keep values from tumbling faster than necessary. Avoiding panics is something most agencies aim for. Cities don’t want empty houses, or lots. There are far more people than just the homeowner who want to keep home owners in those homes.
A free fall in prices would also force many homes to dip well below a reasonable rate, and create a whole new panic from home owners. The rush to sell would create even more sellers, further creating a depressed market. Ugh.

I'm not sure about this logic. It's what "they" say, but I don't buy it. If houses were let to fall to their actual value, people would buy. There is evidence of this in areas where prices have dropped 50%. The number of sales is increasing dramatically in those areas. You wouldn't have empty houses. What is happening now is causing there to be empty houses because banks aren't selling them. They are letting the houses sit in limbo.
As far as governments go, if these "homeowners" aren't paying their mortgage, are they paying their property taxes? I would think the city would rather someone who can afford the place buy it and actually pay property taxes. Plus, if you have people who are house poor, that means they aren't spending their money on other items. If our economy is based on spending, how is having all of your money tied up in one asset helpful to our economy?
As for avoiding the freefall...I'm not sure the slow, painful death is better.

This board is so fucking useless at this point. I've listened for the past 2 1/2 years as people keep moving the line of what's acceptable, and what their entitled to, and why its just not fair because this is this and what is what. 20% in a dump and 40% for a hole and suddenly 75% off peak for something that may or may have not ever happened is the new norm and the uberment is fucking me over. You people need to get off your ass and go to the fucking registry of deeds and find out what the fuck is really going on.

A giant super global anti-me scheme is the reason I can't get what I want.

knewbetter says

This board is so fucking useless at this point. I’ve listened for the past 2 1/2 years as people keep moving the line of what’s acceptable, and what their entitled to, and why its just not fair because this is this and what is what. 20% in a dump and 40% for a hole and suddenly 75% off peak for something that may or may have not ever happened is the new norm and the uberment is fucking me over. You people need to get off your ass and go to the fucking registry of deeds and find out what the fuck is really going on.
A giant super global anti-me scheme is the reason I can’t get what I want.

If you are going to criticize people, it may help to do it in a coherent manner so they know what you are talking about.

knewbetter says

This board is so fucking useless at this point. I’ve listened for the past 2 1/2 years as people keep moving the line of what’s acceptable, and what their entitled to, and why its just not fair because this is this and what is what. 20% in a dump and 40% for a hole and suddenly 75% off peak for something that may or may have not ever happened is the new norm and the uberment is fucking me over. You people need to get off your ass and go to the fucking registry of deeds and find out what the fuck is really going on.

A giant super global anti-me scheme is the reason I can’t get what I want.

Did you even understand the content of this thread?

Lectrician says

Claire … you hit it on the head. Cash-strapped municipalities and counties are going to place tax liens on properties after a year or so and begin the process of liquidation. Banks can delay the process by all the above discussed means but bankrupt city governments are going to lock their Code Enforcement Officers in rubber rooms until they come up with a way to take over said properties. Great discussion Angrish !

Cities will only do this if they can collect some additional fee/fine revenue. Cities CANNOT liquidate property without bringing eminent domain action and I don't think there's any political appetite for mass taking of private property via eminent domain (plus, irrespective of how desperately you want to buy a mansion for $5K, this is not a good precedent to set). Also, its not like the government can liquidate a property the day after you place a tax lien on it. In California, the govt. has to wait 5 years before they can put the property up for a tax sale (so don't count on govt action bringing the prices down any time soon).
Finally, why would the city want to lower the price on any property if they can help it? It is in their interest to prop the prices as much as they can so they can continue to try to collect high property taxes...

Fireballsocal says

Talk about depressing! I have long suspected the market was being manipulated. I have long suspected that the banks had some scheme to keep from losing so much money on foreclosures. I assumed they were dropping them on the market slowly to keep demand high or were waiting for the market to go back up. It never occured to me that banks would just not foreclose. Is this even legally possible? It’s as good a theory as any other out there and better than most.

Think about it, if a bank has a (sour) loan of $500K, they still have a $500K asset. (so they can borrow money against that asset).
Now, if they were to foreclose on that loan (and get some shiny 2 year old keys in return for that 500K), that loan would become a $500K liability. This means that not only can they not borrow against that (fake) 500K, they now have to block off some of their other assets to offset this liability. So the net hit to the bank's books is more than double the amount of the loan. So its not in the interest of the bank to foreclose on a property unless they think they can dispose of it pretty quickly.

On the other hand, if the property was acquired from another bank, then it most probably was insured - in that case, the bank will foreclose on it ASAP and claim their full loss from the Insurance company and that's where AIG enters the picture. AIG 'HAD' to be saved because at that time, this was the only way they could get money to the banks without actually giving it to them openly. (They gave up on trying to hide that fact after it became clear that they couldn't funnel the entire 700Billion through AIG alone - somebody would find out and say something...

One of the things I still haven't been able to work out the effect of is this. Wealth, as well as bank earnings, were a function of the derivative of asset values, not their absolute values. To make this point clear in case someone didn't follow, if home prices stay the same, people feel no richer, and hence don't spend like they own an ATM machine, and banks have nothing to "book" as mark to market profits.

The prices need to increase at a steady rate for (a) consumers to maintain their level of spending, and (b) bank earnings to increase at a certain rate. Since stock prices are often a function of growth, a steady growth would maintain a stock price at a certain level. With a positive second derivative however, they have a party like never before. Consumers keep increasing their level of spending and bank earnings, and hence stock prices, keep rising.

Clearly what "they" want is for Goldman Sachs and JP Morgan share holders to not get short changed. The bond holders, I think it's safe to assume, will be paid for by me, and you, and you too. But this is where this stops making sense. By holding prices stagnant, and hence taking the first derivative to zero, consumers have no increasing home equity, and so dont increase their spending, and banks have nothing to show as "growth", and their stock price should inch closer to zero as well. I would think they'd much rather have a big fall now, (their stock prices weren't very far from zero as it is) and then have a possible spike back up, where the healthy players can make bank (pun intended) with the high first and second derivatives of the home values. Why hold them stagnant?

That's true. However, there were grades of banks. Stupid banks, Smart banks and Game-fixers. The stupid ones we hear about every Friday. The game-fixers we know about from so called "conspiracy theories". However, it's the smart ones I'm looking out for. There must have been some small players somewhere in the banking business who knew this was stupid, and were waiting for prices to fall to snap up a lion's share of the market.

These guys should be out there crying bloody murder. They're the ones who should've been the next un-tainted Goldman Sachs, but by not letting prices drop, they're the ones that are being prevented from entering this market. This is the time fortunes are made by people with a little bit of liquidity, and lots of balls and brains. Where are they? Was it "all" just suckers on one side and Goldman Sachs on the the other? If not, where's the 3rd kind? And if so, then I think we're in for a long long night. Slogans will be changed to In GS we trust, Blankfeins face will be on the new 100 dollar bill and our pay checks won't be directed deposited into bank accounts at Goldman Sachs, they'll be deposited into Goldman Sachs' bank account. Every day I wake up, I look to see if there's a small deal, maybe a 100 million, made by unheard of, 25 year olds with nothing but balls and a plan to make it big. That will be the first sign of healing. But I can't see it, and it's depressing.

I must say it is just as interesting to read posts after the crash in prices as it was when everyone was recognizing that prices were too high.

I still think an economic recovery is tied directly to putting small businesses which are mainly housing construction related (drywallers, electricians, plumbers, surveyors, engineers, developers, painters, etc.) back to work.

This could be done by creating a "vertical" infrastructure which would be as hollow right now as an empty tract of land on the outskirts of any American city or town. But slapping up unfinished buildings could create a path for small businesses to prosper in the near future. Sort of like you would be rural in your building that you custom to your desires, but you live in downtown LA. And there's nobody around right now, just like people in the outskirts felt in the 80's, but wait and watch. You could buy 10,000 square feet same as one bought 10 acres several years ago.

Just a thought!

I gotta have a park on the 10th story, though. Just like I need more cowbell. I want to go up to the 20th story, cross the "street" and get some groceries, too. Then go back down to the 5th story, hop the maglev, and go see a concert in the red light district, smoke some weed, go back home to my place on the 8th story, and get up for work the next day (which is located on the 25th story of the building 2 blocks down)... All without ever having to cross the street and play dodgecar with the 20th century automobiles.

And think of all of the jobs out there sorting out loans, and restructuring the CDO's, etc, back into viable paperwork. There could be a massive need for paper pushing created by this mess... just read this post!

I believe, what the banks are doing with the government's assistance is called an unwinding.

And they're doing it slowly with periodic "good news / green shoots" articles so they can fool people into buying their worthless housing stock, paying fees and commissions and investing whatever capital they have through little baby steps. This allows the bank to foreclose on a house and buy the note. Then sell the house to some sap for 90% taking a 10% loss, but gaining 10% or more of capital infusion from the sale. Let the house and sap rot for a few years while the market continues to settle, then rinse/repeat. It's really quite brilliant, ethics aside, capital from taxpayers plus capital from home buyers and the bank plays middleman short-changing both sides and taking some off the top over multiple transactions all the way down.

As long as people keep buying in, and the decline in prices isn't too steep, the bank can ride the curve down and even make money doing it. Or at least control the hemorrhaging long enough to stay alive (with periodic cash infusions from tax payers). If they can stall long enough, the hope is that the bottom will rise up to support home values again.

But the entire process is dependent on people believing the bottom is in or nearly in and going out to buy a house.

C'mon everyone, go buy a house in San Francisco RIGHT NOW. According to these geniuses (or is it Genii?) property in San Francisco is 25% undervalued.

its a good time to buy, if you plan to live in the house. its not a good time to buy if you are an investor or flipper.

Maybe in 18 to 24 months....unless money is truly no object