Why aren't deep-pocket investors solving the inventory bottleneck?
 One would think that with all the heavily capitalized hedge funds and foreign investors out there, the excess inventory resulting from foreclosures would be quickly gobbled up. So why isn't that happening?
Institutional grade investors like hedge funds are buying mortgage pools at steep discounts (i.e., more than 50%) off the book value. But that doesn't solve the inventory problem because it simply transfers the loan from one balance sheet to another. When that homeowner eventually defaults, there is simply a different entity processing the foreclosure and taking back title at the trustee sale. The reason bulk purchases of mortgage pools are being consummated is because nobody is entirely sure how to value these toxic pools. There are only a few people in the country who can even begin to come close (namely, the quants that created the funky structures in the first place). It is tougher for disgruntled stockholders to sue when nobody is sure if fiduciary responsibilities have been breached because nobody can figure out just how much sludge is in the pool of loans.
With an REO (real estate owned by the bank) on the other hand, the problem is clear. Once a bank takes back a property, the first thing they do is get a broker price opinion (BPO). A BPO is like an appraisal except a little less formal because most often they are completed by real estate agents as opposed to licensed appraisers. As with an appraisal, the BPO uses recent market sales to set the value. Once a BPO is done, there is a paper trail that the stockholders can seize upon if the property is sold significantly below the BPO value.
Deep pockets, coincidently, have big egos and demand discounts commensurate with the size of their egos. So, a typical hedge fund will insist on acquiring the REO's at 55-60% off the BPO value and they will not budge. The convenience of a bulk sale from the bank's perspective, however, is not worth litigation with the stockholders. They would rather sell the properties individually and stay out of trouble. Couple this with the fact that, as I have explained in previous articles, properties discounted by about 15% routinely receive multiple offers, leaving the bank little reason to discount any further.
|
LOL - Laughs OnLine
"Don't worry, this is how they train astronauts."
|
The Name Game
by Dennis Duling
The Social Security Administration recently released its "Top 100 Names List" and I was reminded of something an old boss of mine once told me when I was preparing to become a father for the first time; "Never give your child a name they have to live up to or have to live down." That advice is now over twenty years old and it occurred to me that much has changed in that time. It seems that much of the stigma associated with strange or different names has dissipated - what with celebrities giving their children names like "Rumor" and "Apple". What also seems to have changed noticeably is the strict adherence to ethnic or cultural names. With many blended cultural marriages have come changes in naming. I grew up with a friend who was Latino whose parents were named Carlos and Idalia. My friend and his wife named their son Drake. I was recently in a Starbuck's and the Barista set a something, something latte on the counter and called out "Skip". I was mildly surprised when the African American gentleman next to me went to retrieve the drink. Some might say that this has the effect of watering down our different cultures. I prefer to think that it is one more example that the world is a smaller and hopefully, more accepting place.
|
Share If You Care
Our goal with this newsletter is simple: Cover every important topic that might help homeowners and investors make more informed decisions concerning real estate. You can help in two ways:
1) Send us any articles or information you come across that might be of interest to other readers
2) Forward this newsletter to anyone and everyone you know that owns or plans to own real estate!
Sincerely,
Kwame J. Granderson
Equinaire
|
