OfflineThere are a few reasons why 2009 will be a better year for you in REI. I am fairly new to the site so let me introduce myself again. My name is David and I am a graduate of the University of Maryland School of business. So currently we are facing economic conditions that we have not seen since the housing bubble of the late 80's. There are many similarites with a few subtle differences. First, this is the first time in history that instiutions were allowed to leverage there money up to 40x1. This coupled with irresponsible subprime lending/borrowing has only made the situation worse. The market created MBS's(mortgage back securities) in which mortgages were being bought and sold and flipped daily on an unregulated market multipled by leveraging there money 40x1...so once the arms spiked and these shotty loans revealed for what they are, you can see how the downward spiral began. (Basically every1 playing with the house's money and finally bust...but how do u payback money you lost that you dont have and then multiply your losses 40)
So that was just a brief intro as to why 2009 is setting up to be an amazing year for REI. So basically America was facing an econmic collapse because there are 100's of billions of dollars if not trillions locked up in these toxic assests as the result of defaulted loans. As a response to this congress and the President came up with a few programs to address this crisis. 1) $700 billion bailout 2) TARP (Troubled Asset Relief Program) 3)Unilateral worldwide easing of interest rates to resume intra bank lending to ease credit crunch.
Part of the TARP allows the banks that took bailout money to writeoff billions of dollars in toxic assets.
What this means is that basically some of these properties have been written off to a value of $0. So what the program tells us it to put in offers for homes for 30,40, or even %50 off FMV. What I'm saying is do not be afraid to aggessively bid on REO's and to even shoot for 60 or even %70 because the banks do not even know the intrinsic value of the properties they own. As a matter of fact there is no way to know what home values are due to the fact we have been running on an over leveraged economy for the past 10 years. In my opinion the only real value of certain homes can only be accertained by looking up what the homes sold for during the years of 1991-1998.
In conclusion try to find the banks that took tarp money a few off the top of my head are Bank of America, Citi, PNC, Suntrust, Capitol one (Chevy chase bank), BB&T...and many many others
website is this http://www.propublica.org/feature/bailout-bucks-to-banks-1028
So if you see these guys dont be afraid to play hardball cuz if you want to know where the bailout money went you can soon say your pockets
I agree on some of your points. However, the last I read TARP had not been used to actually cover any mortgages, and the initial chunk that was available is basically tapped (not sure what happened to the oversight everyone was promised). Instead, the TARP money was used to cover derivatives of the mortgages, which are basically just the OTC legalized gambling betting if the bond/note/loan will default or not. This doesn't actually mean the bank that holds the actual mortgage will be able to write it off.
In fact, the whole story that the mortgages couldn't be valued so they were be marked to market at $0 is what people were fed. In fact, the individual mortgages can be valued, the problem is in the derivatives market which has nothing to do with actual loans or lending, again it is just a gambling parlor for traders/iBanks, no different from futures.
If the TARP money is actually ever used to mop up actual bad mortgages I'll be surprised, this was just a bailout for traders, not mortgages. If it was for mortgages the TARP money could have paid off in full every mortgage that had defaulted and will default in the future as a result of the real estate bubble. The TARP was a amazing scam window dressed as a way to save the banks because they were going to collapse because the losses from foreclosures. In fact, it was the derivative speculation they bailed out. No different than walking into the Bellagio, getting a $1 million marker, blowing it all on craps, and then saying "Yea... about that $1 million, I don't have any money to pay it, can you bail me out?"
Remember, if it had anything to do with just the mortgage, when someone doesn't pay the mortgage, the bank still has the house, and short of the property losing virtually all of the value, banks are still hedged to profit in these scenarios if nothing else from breakage on the loans that do continue to pay.
When I said that companies were able to writeoff billions I didnt mean through TARP as Paulson stated no more allotted funds were going to be used on MBS. Where they can write it off is in the year end Financial Statement when filing taxes