A Funny World (25): God gives you a chance to stand up again

Lucrative Grim Repo Man is Product of Economic Recession
By Marissa Blaszko
Staff Writer 

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My dear Marissa:

Listening to what you said: "I don't have any idea how you managed to misinterpret that article so badly, never mind what inspired you to post it online... "

Your words made me so sad and wondering what I did.  Sorry, at the first, I don't have any clue how you managed to misinterpret my article so badly too, never mind what inspired you to reply here 2 days ago.

I don't even know what article you are talking about and I quoted from you, let alone where I misinterpreted!  (now I know you are probably a college student? I was there fully with poetic justice in my mind 35 years ago.)

Yes, I fully understand the rich get richer in our society.  In just 13 years, Warren Buffet's wealth grows from $ 9 billion to $64 billion.  That's 7 times of growth. 

How many of my fellow citizen have a saving or checking balance in their bank account.  Don't tell me that I don't know that.  I have a friend who is a family doctor and was a city Mayor of 100,000+ population.  He has to ask his bankers to "hold" his check for one more day "un-cashed" almost every week.  How much is the payable amount of his check?  You don't want to hear and you don't believe it.  Those top 100 mutual fund managers earned at least $ 1 billion last year.  The earning power of their minute is the full year of an average American citizen, period. 

Last week, I read a report of the 3rd richest woman in the world.  She is spending $2 billion to build a 27 story home with 400,000 sqft in India.  I wish someone being so rich could spend that money to build affordable housing project for the poor in that country with 80% poor population.  But ..... it is just my dream she is not going to buy, even letting me use just one tenth percent of it.   Please refer to my article to see my real hot and "sweet" heart:  A Funny World (17): Your Tent City? Or My Tear City?

How can an average guy increase his net worth 7 times in the same period?  Never mind it is $ 55 billion increase. 

It is surely not going to happen to you, me or an average Joe.  While the main street has been suffered, I saw those big Wall street big cats enjoyed a huge retirement fund, even more annual bonus.  What can you and I do?  Did B. B. turn his back to you and listen to those financial gurus for advice to cure the credit crunch, say, to "inflate" the housing price politically? 

I am just a small potato.  I don't want to be a hero or rebel to complain, reform or challenge while facing the huge vested interest or arrogrant politicians.  Except to cheer my poor folks up enough to cope with the reality as "the fittest survival" as Darwin said, , what you expect me to do?  Are you telling me that you can change the existing systems just by a piece of article of yours as I used to believe as a college boy? 

Comm'on, give me a break.  A dream do come true, but a lot of them disappear "unrealized".

Tell you the truth, I felt that I could do something for my poor folks when I set up "APFE" group at AR.  I wrote so many articles daily in the past.  But lately I have felt "gutless," even don't bother to check the site for a week.  Why? you tell me. 

Everybody has his way of interpretation or vision toward the world, based on his personal frame of reference, when he sees something.  I do have a different perspective from your points, but I have no idea that I would make you felt "so badly"?  My dear Marissa, tell me where I missed it, as opposed to your original article, please! 

* Since you unlink your reply above, I have no way to check what you are talking about.  But please do me a favor.  It is not polite to come here, shout out and just leave.  It is not a good way to communicate ideas.   

** There are always two side stories of a thing.  Please look at the other side of coin to see the whole picture.  Foreclosure is NOT an Evil. Look at its bright side as a market tool for correction, isn't it great?  Sometimes, it is the ONLY resolution to cure a problem property in normal market.  It is just a effect reflection of our deed, not a cause to our pain.  For your reference, I am enclosing here the following report made by Schahrzad Berkland.

Rent-free homeowners keep economy from stumbling

Posted on Sunday, May 4, 2008 at 09:04PM by Schahrzad Berkland | 2 Comments

This year, 93,000 California homeowners received a Notice of Default, meaning they had not paid their mortgage for at least 3 months.  Since last September, 145,000 borrowers have the privilege of living rent-free.

If we assume the average mortgage payment is $1500, and the average borrower lives rent-free for 9 months from stopping a mortgage payment to being booted out of his home after the auction, that is (145K * $ 1500 * 9) = about $ 2 billion.  Californians have an extra $ 2 billion to spend, because they don't have a mortgage payment.  I wonder how bad our budget situation would be, without this boost!  (I didn't even add all those not paying their HOA dues or property taxes, but I've seen $25K and up annual property taxes go unpaid for several years.)

So California alone is adding $ 2 billion in additional spending to the economy, as these "mortgage free" homeowners get to use their mortgage payment on movies, clothes, trips, etc.

No wonder the economy is not turning down as quickly as economists had expected.  Every dollar not paid on the mortgage, is a loss on another bank's balance sheet, but a gain to a retailer somewhere.  The losses are quietly piling up on the banks' books.  Just because there has not been a front-page story about bank losses in a few weeks, does not mean all is well.  We have to remember, that each foreclosure reported in the news, is another loss to a bank's balance sheet.

I also realize that banks are hoarding their bank owned properties.  I counted 6000 REOs on property tax records last week, but only 2200 listed for sale on the MLS:  that leaves about 4000 bank owned homes that are being hidden by the banks.

No wonder our inventory has stood steady below 20,000 homes for a few years now.  Sellers who are upside down live rent-free for 9 months instead of going on the market for sale sellers who have equity choose to "stay put" or rent their homes, and banks are hoarding homes to prevent taking losses.  All this adds to up to a lot of hidden losses, which will come into the pipeline eventually. 

In another trend, we see buyers are rejecting the higher end homes.  To all those realtors who tell me their high-end area is not going to decline:  please wake up.  The losses are in the pipeline.  You just have to ask the right questions, and it is obvious.  Ask:  what is the months supply?  Anything over 4 months supply predicts price declines.  I don't care if you are in Santa Monica.  You are not immune from the laws of affordability, supply and demand, gravity.... Your homes went into the bubble-o-sphere, and bubbles pop.

Please keep coming back for more straight talk on real estate.

Reader Comments (2)

Interesting observation. Some of those "savings" of course reverberate through the economy through bank losses, as you noted. When the banks lose money, it reduces their capital available for lending, which further contributes to the cycle of home price drops. To what extent this offsets the additional money available to delinquent borrowers from not making their mortgage payments would seem quite difficult to ascertain.

Here's an interesting article from American Banker on REOs from the perspective of banks. The article suggests that banks are increasing sales of properties to private equity funds (rather than through the MLS) as well as increasing the number of rental units, both of which would explain at least some of the missing numbers on the MLS.

May 5, 2008 | Andreas

Very interesting....I thought that banks had to move their non performing assets (REOs) off their books. Perhaps they are starting off balance sheet vehicles for this purpose. I believe the private equity sales. I've been told by at least 3 people, that hedge funds are buying up large shares of properties. I imagine they would rent them out. Has anyone seen a large increase in rental property listings on Craigslist?

May 6, 2008 | Schahrzad Berkland