Mortgage loan rates continue to hit record lows not seen for nearly 60 years, but tight credit has made obtaining a home loan more difficult than ever. Meanwhile, gas prices now average nearly $4.00 per gallon, and industry experts predict $5.00 per gallon gas by Memorial Day. All this against a backdrop of the Dow Industrial Average, which is flirting with the 'magic' 13,000 number.
Some reports indicate that home sales numbers have seen a slight uptick in recent weeks; however, home prices continue to fall and foreclosures continue to multiply like lab rats. The Daily Reckoning reports that as of last September there were about 800,000 REOs in the U.S. Nearly one-third of those, some 250,000, are owned by Fannie Mae, Freddie Mac and the FHA. But that number is nothing compared to what may be coming. Ken Harney of the real estate industry publication, Inman News says: “The three agencies face a tsunami-sized shadow inventory that is now heading their way - a combined 1.4 million delinquent loans on their books, at least half of which, they estimate, will end up in foreclosure.” Lender Processing Services reports that late-stage delinquencies in January are approaching TWO MILLION!
Hence the stated reason for the planned 'bulk sales' of huge numbers of these REO properties. But don't expect to get in on these sales yourself. The planned sales will be aimed at investment funds that have a BILLION dollars or more to spend on a single transaction. Roger Arnold of Pasadena, California-based, ALM Advisors called the plan “the largest transfer of wealth from the public to the private sector.” According to Arnold, “The U.S. taxpayer will get pennies on the dollar for these homes, and then be allowed to rent them back at market rates.”
So as I wrote in a previous article, “Banks make home loans, people buy homes, housing market collapses, people lose homes, banks take back homes, government bails out banks, government and banks take homes back, government sells homes back to investors, investors rent homes out, previously owned by people who have lost them, back to their former owners and alas... property owners become tenants ... just as they were before they purchased their homes in the first place.” Unfair? Perhaps. Illogical? Maybe. Outrageous? Most definitely.
The combined losses in equity to American homeowners and former homeowners amounts to TRILLIONS of dollars. The savings of a generation wiped out in less than four years. Millions of Americans seem destined to become modern-day sharecroppers, allowed to 'rent' but unable to 'buy,' despite the lowest home loan rates in decades. Extremely tight credit policies, a 'knee jerk' reaction to easy money credit standards prior to 2008, have effectively squeezed out all but those with pristine credit histories.
In a country where 40% of the population can't even qualify for a car loan, the prospect of obtaining a home loan is daunting to say the least.
The price of gas is headed to five dollars, probably before May. All the while the business news channels parade 'expert' after 'expert' before their cameras who tell us the economy is improving. Really? For whom? The consumer price index conveniently omits the cost of fuel and food from its numbers. I guess if you don't have to eat or drive things are okay. But Americans DO eat and drive. Reports of low inflation are distorted at best. Most of us buy gas or groceries almost every day, so the impact of skyrocketing prices for same is magnified far out of proportion to the seemingly minuscule reported rate of inflation. The total impact of five-dollar-a-gallon gas is much more far reaching than the 'pain at the pump.' Dollars spent on expensive gas aren't spent elsewhere. Consumers are forced to cut back on other purchases, and these cutbacks affect business both large and small. How can an economy crippled with high unemployment, record foreclosure rates and now, record gas prices possibly recover? According to the Bureau of Labor Statistics, the price of gas when President Obama entered White House was $1.79 per gallon, and the price of a pound of ground beef was $2.36. The good news? Hamburger Helper is now available in 35 different varieties.
(This is the eleventh in a series of articles on the REO industry written by Philip Wegener)