So Many Foreclosures, the Banks Can't Handle Them All!

In a normal year, banks take over about 100,000 houses a year. This year, they are on pace to take over 1 MILLION houses - TEN TIMES NORMAL!!!

Banks repossessed a record number of U.S. homes in the second quarter, but slowed new foreclosure notices to manage distressed properties on the market, real estate data company RealtyTrac said on Thursday.

They’ve got so many new REO’s to manage that they’ve had to slow new foreclosure notices! As I’ve been saying HOUSE PRICES WILL BE HEADED LOWER - A LOT LOWER! Throw in a money supply that’s contracting at the same pace as the great depression; depression level unemployment; broke cities all across America; 46 broke states; and a broke federal government - and you can see where this economy is going - DOWN!

Glad I live in texas.

I will be glad when I live there too playa playa.

I’m in CT and during the first part of downturn I saw hardly any changes in pricing. Started seeing inventory build but nothing alarming. Now the inventory is going way up and the prices are really starting to drop off a cliff. CT still isn’t as bad with foreclosures as places like FL and CA are but there’s some around and no one is buying anything right now. There’s towns that have some rather cheap condos and now they are practically giving them away and there are tons per complex vacant.

BUT, BUT Rich, you MUST be mistaken!!! It’s impossible condos are being piratically given away. :biggrin

This isn’t the 90’s where condos were over built and no one would touch one with a 50 ft pole, and because people realized then they had to deal with inefficient condo associations, ridiculous condo fees and crappy neighbors next to them killing values. NO WAY!!
And these are times when young professionals are looking to get their first place and enjoy the “no maintenance” condo life and older people are looking for smaller places with no home owner maintenance!!
With ALL THIS demand, it’s impossible condo prices could ever take a dive in values. Oh, and this is what their realtors told them too, so it must be right!!

This is the nonsense I had to hear from friends and people who were paying 150 to 300 k for these things during the “great times” of 2003-2007. My usual speech would go something like " during the 90’s these things took some major hits and during down turns they were the first places to lose the most amount of value." Their response would be " Oh no, things are different now people have “embraced” the condo life style, so there is no way prices could fall because of the demand". :bs I’d usually advise them to look for a small single family and pay a bit more for that, than these over glorified apartments.

But hey, what do I know? What I do know, is that, I usually don’t even bother with condos and that I would rather be subjected to having to watch Donald Trump trying to get those four strands of hair to cover his bald spot, than own one of these. But after giving it some thought, I’m gonna go start looking at them and if I can steal them for next to nothing, I’ll do an owner financing for the “people that have embraced the condo life style” :bobble

In not so bad areas I can find condos by the dozen for $30k each. You should see how nice some of the 55+ condos are for the same price or less! They sold for $50k+ just a year or two ago. I’m not the sharpest knife in the drawer but that’s a 40% drop in price. Considering CT is one of the more expensive states to live in $30k for a condo is nuts. We didn’t even have a huge boom like CA and FL, there was a boom but not as severe.

This whole lunatic cycle will repeat itself as it always has, I’m quite sure of it.

This whole lunatic cycle will repeat itself as it always has, I'm quite sure of it.

I don’t see this as a typical cycle…at all…

it was a monetary experiment put in place after 9/11 that failed miserably.

that’s what you get when a country exports it’s ability to be productive…

have followed Reggie Middleton’s blog for some time now…

still got a way to go:


I think this is a “typical” cycle, only a lot bigger than usual.

Every real estate down cycle starts with some sort of economic downturn.

Prices will eventually return to what they should be. I doubt that prices will ever return to bubble levels, because those prices were higher than the local economies should have been supporting. But prices will eventually find their proper level.

Unless there is a drastic reduction of population.

The country still has the same amount of people who all still need a place to live. As the economy improves, they are going to try to obtain a place of their own. It’s human nature.

the magnitude of the leveraged credit that was used…puts this one way beyond anything normal…imo…

Fed had to “expand” it’s balance sheet 1.5 trillion dollars…to sop up the mess…and they’re still talking about more…


there’s a nice word for full blown monetization.


The banks loaned money to people who could not afford to make their payments. To people with no jobs. To people with no assets. To people with no money or income.

This created a false demand. The demand was false because the ability to pay did not exist.

The Glass-Steagall Act of 1933 separated commercial banks from investment banks. When that separation was essentially repealed with the Financial Services Modernization Act of 1999, a conflict of interest was created. Suddenly commercial banks could give loans that were securitized by investment banks owned by the same institution. Mortgages could be created, the risk was irrelevant because the debt could be packaged into securities and sold to the public at large.

Some people think that what happened with housing followed the template that Milken had for the issue of junk bonds in the 1980’s. That’s really not true, because if it had followed his ideas, at least high risk borrowers would have to pay higher interest rates to offset said risk.


The banks just gave home buyers the loans, couldn’t care less whether they could pay, and then offered them interest rates that offered no possible chance of ultimately paying the debt.

Every person with a mortgage that is or was underwater should receive restitution, in the amount that they were defrauded from the banks and individuals who profiteered on this banking scam. Under this implementation of justice, the people who have never defaulted on a loan would have the most to gain, since they are the ones who are being victimized the most. It is the duty of the banks to determine whether a loan should be offered. That’s why we have loan officers. They failed to perform the obligation that was their duty. By seizing this money through restitution, we set a precedent that encourages responsible banking practice.

If the paper value could be written up, the paper value could be written down. I think that we are rewarding the perpetrators by allowing for deficiency judgments against strategic defaults.

So the next concern is whether prices will return to bubble levels.

This is an even stronger argument against the way we are handling this now. We are printing up money and bailing out banks and AIG, the company that insured many of these mortgages against default.

Capital reserves, are now being held by banks for two reasons. First, there is fearful sentiment that another credit freeze would cause insolvency, second, they are required by law to keep reserves for each foreclosure that they have on their books.

If the amount of money that is sitting in reserve ever gains velocity, we could see inflation that would easily bring houses back to their bubble values in a matter of a few years. If this happened, I think we would not have pennies in our currency anymore because they would be quite worthless, the price of everything else would go up, minimum wage would rise, and the fed would raise interest rates.

There is a city near where I live that is offering $100K 45 year, zero interest, interest only balloon payment second mortgages for one particular development.

It seems like we are handling our mistakes with more mistakes.

This a classic example of…


Example from my corner of New England.

1985 my father inherits small 2 bedroom cottage in a decent area of the state. It takes him 6 months to get his asking price of $40,000.

1987 that same house is sold, in EXACTLY the SAME CONDITION for $98,000 as we enter the 80’s housing boom…Remember…NOTHING was done to this home…THE MARKET decided that it was worth more thNan TWICE the 1985 price just 2 years later!!!

1989…house sells -AGAIN…this time for $125,000!!!

Move out to 1992…The country in in a deep recession and we learn that S&L’s made BAD LOANS TO IDIOTS that assumed the TRAIN RIDE would never end. That same cottage now goes into FORECLOSURE…

1993…cottage sells for $75k

2001…the same cottage is now worth $80,000 in a NORMAL MARKET

2005…cottage now sells for $225,000 at the height of the MANIA.

2008…cottage is AGAIN foreclosed on, the copper pipe is stolen out of the home, along with the boiler and all the copper wire.

2009…cottage sells to INVESTOR for $50,000

But things are DIFFERENT this time. :banghead :banghead

Here’s my perspective after working with various banks facilitating short sales, nonperforming note sales, and REOs. Banks DO have tons of nonperforming loans on their books. However, they are slow to foreclose since banks are not in the business of property management. Also, most of the banks I have worked with do not have the staff to deal with all these “special assets,” as they refer to them.

In a recent transaction, my client hadn’t made a payment on his commercial property for 8 months before the bank filed the first notices of judicial foreclosure. We negotiated a short sale with the lender and purchased the property at about 70% of the outstanding note balance.

I have also heard from various high-ranking bank officials that government agents have requested that banks do NOT foreclose and trustee/REO sale all of their distressed assets at once in attempt to soften the effect–one can imagine the damage should banks dump all distressed assets at once.

So, in short, yes, banks do have more foreclosures and bad loans on their plates than they can hande; however, because of the two reasons i mentioned above, I believe that these deals will take time to work their way through the sysytem.

Aside from the author’s poor choice for an analogy….I thought this article did a good job of describing the magnitude of the monetization this latest monetary experiment is costing us:

When I visited Albuquerque in 2005 for 3 weeks……I saw with my own eyes the degree of this credit fueled expansion. Tens of thousands of new homes….new development after new development. It was staggering…the amount of development.

Same in Florida……cookie-cutter developments….with no economic backbone to support them.

Like it was pointed out in the above article….the Fed had to literally expand, (as in create out of thin air), another 1.5 trillion on their balance sheet to sop up the mess….which still hasn’t been sufficient.

They did a near fair market swap with banks with newly minted cash. Talk about a sweet deal.

We’re now seeing significant debasement in the US currency….and gold’s appreciation is in direct correlation with that.

If gold appreciated to 2,276% in 1980:

Makes you wonder where it will end up this time around….

Really…I care very little about prognosticating….it’s really just a break from the grind…much more concerned with tracking actual price movements in the here and now….on a boatload of tradeables.

Aside from having to put up with the doom and gloom of Marc Faber….he does offer some good insights….like a) the unintended consequences of monetary policy b) looking beyond investments which are solely US based.

Fwiw…Swiss Franc has had a very nice run lately….


Just saw “WALLSTREET 2”, the movie with Michael Douglas as Gordon Gekko let out of jail. Good stuff.

The movie’s plot wove around the bubble market and the crash. Gekko also expounded on “The biggest bubble ever–the Dutch Tulip Mania”. That might have been the biggest, followed by the Florida land escalation in the 1920’s?

Good movie, you real estate investors will enjoy it. (A SUPERB movie, by the way is “THE TOWN”. About the criminals living in Charlestown, north Boston. A movie done absolutely right, a 10.)



cool…thanks for the movie recommendations…

speaking of movies and bubbles…

see…Netflix…NFLX…(all those unemployed watching their flatscreens for $8.95/month):


I like this company, and the research that they perform is helpful. I particularly found the article on 8/27/10 to be interesting with regard to single family home sales activity. Note the chart. Total sales of single family homes have dropped below pre stimulus numbers, and continue to fall.