“Treasury officials … will conduct the first auction to buy assets within four weeks.”
and
“Treasury can also buy up construction loans, home equity loans, or even credit-card debt or car loans if it decides that is necessary”
We’ve all heard people spew the typical complaints like no motivated sellers in my area and I don’t have the money to invest. Well, how about trying to bid on properties against someone that can print any quantity of money they need to outbid you!!! Will lenders even foreclose on properties now knowing that if they wait long enough the government will just buy it from them at whatever price they want? Will lenders even accept short-sales when they know the government will probably just pay full price anyways? Will homeowners even deal with you when they know that if they wait long enough, their lender will just sell it to the government, and the government will be so behind schedule trying to deal with everything they bought, that the homeowner can just stay in the home even longer than a typical foreclosure?
If only the government would print me $700 billion, I’ll take on the “burden” of buying distressed properties. If only the government were on my speed dial as a motivated buyer, I’d be moving another property every single day!
Anyways, so what’s the strategy for the next decade or so on outbidding the government when meeting with motivated sellers?
First, Treasury is going to have to do a volume business here, not a bunch of onesies-twosies.
Second, they are most likely going to be buying the CDOs or mortgage-backed securities, not the mortgages themselves. I just can’t see putting $700 billion to work one loan at a time.
Third:
“So the first order of business will be ensuring that the initial auctions it holds to buy up assets are a big success – indeed, some say Treasury wants to see that they are oversubscribed. Those will be “reverse” auctions, in which sellers compete by submitting prices they would be willing to accept, generally allowing the buyer to select the lowest. So rather than Treasury bidding a certain amount to buy up a bundle of mortgage-backed securities, for example, the agency would tell financial institutions that it wanted to buy up a particular type of mortgage-related debt. Then it would buy those securities from whichever seller offered them for the lowest price.”
Where does it say the Treasury will be buying properties? From what I read, all they will be buying is worthless to semi-worthless paper. The banks will still hold the homes and will have even less interest in owning them.
On the other hand, if I am wrong, and the Treasury does in fact purchase hard assets, this could be even better. As inefficient as the nameless, faceless asset managers are at the banks, the government will be worse. With confusion and inefficiency come greater profits. Hold onto your hats.