Treasury’s TARP Pullback

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I find it not surprizing at all that it took the government about six weeks to figure out that these mortgage backed securities, that have created the issues in the housing market, just can’t be purchased in order to save the institutions who hold them.  The sad fact..that most politicians do not really want to discuss, is there are a lot of folks in other wealthy, liquid, countries who hold these securities.  Problem is, like any investor, they want the best return on their investment.  In many cases, foreclosure of the underlying assets may be a better solution for providing the contracted return.  Nobody wants to say that..but there are just huge problems trying to change these investments.

A bit of news from last week echoes these thoughts.

 A recent decision by the U.S. Treasury not to invest in purchasing assets from financial institutions via the $700 billion Troubled Asset Relief Program has jump-started the market for bulk REO sales by banks and other institutional sellers, sources suggested to HousingWire on Wednesday.

Check out my previous post about Bulk Sales before getting all excited that you may have a new investment opportunity.

As I sometimes feel compelled to say..No, I am normally not this grumpy..

Everybody Wants To Be A Bulk REO Buyer!

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Wow!  Every investor interested in REO today hears “bulk” and they are ready to jump in.  There are so many misconceptions about what bulk REO sales are about.  Let me just summarize the intent of this post by stating bulk sales of REO properties are not something for an investor hoping to pick up 10 properties at $50,000 each.  In general, these packages start in the seven figure range.  We actually have been involved in a few of these sales and on our end of this equation (the brokerage) they are few and far between.  Generally, the bank offers these packages direct to significant proven investors.  They offer them as a package and there are pretty severe limits on picking and choosing assets.  These are professional plays and the normal investor we see should stick to negotiating their purchases one by one.

Here is a profile of a known REO bulk purchaser named G8 Capital:

G8 Capital was founded in 2007 by Evan Gentry. Previously he was the CEO of MoneyLine Lending Services. After co-founding MoneyLine in 1996, Mr. Gentry led mortgage origination efforts for several dozen financial institutions for nearly a decade. Mr. Gentry led the growth of MoneyLine’s outsourced services business to include 50 banks nationwide, and received recognition by Inc. Magazine’s “Inc. 500 Fastest Growing Companies.” He sold MoneyLine to Genpact, a spin-off of GE Capital, near the peak of the market in mid-2006.
About G8 Capital
G8 Capital ( www.g8cap.com) buys REO and distressed mortgage loan portfolios, as well as other performing and non-performing loans and real estate. G8 Capital acquires both residential and commercial mortgage portfolios/properties from financial institutions and mortgage companies that are liquidating assets and looking to get fair value. The Company is currently bidding on REO and mortgage portfolios that are worth between $3M and $100M.

 

I have seen banks offer bulk packages in the just over $1,000,000 range but if you think you want to buy bulk and have $500,000 to work with…you really are going to find it hard to get to even review a “tape” or package.  At this level of investment…maybe talk to a buyer of bulk packages and try to parcel out a smaller package for yourself.  Sure..you are not going to see the 40-50 cents on the dollar buy..but that is what the late night infomercial guys do not tell you.   The ability to buy at that big of a discount starts in the seven figure of liquidity range. 

If you qualify..I bet you are not staying up at night watching informercials!

Foreclosure Tsunami in Florida

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For the last thiry days I have spent almost 25 of them in Florida.  Lee County to be specific.  Based on the success of our Tampa office, we were asked to open an office in what is now becoming America’s foreclosure capital.  It is a mistake to say that the foreclosures are in Fort Myers (the largest of the cities in Lee County).  They are not.  Foreclosures are incredible in the cities of Cape Coral and particularly Lehigh Acres.  Cape Coral is to the north of Fort Myers, and Lehigh to the east.

For a detailed map of this area and the foreclosure problem, click here.  This map shows Lee County and foreclosure actions filed for the year ending June 30.  The primary thing to notice is homestead versus non-homestead properties.  In Florida that is the technical tax-related definition for whether a home is owner-occupied (Homestead) versus investor owned.  The blue dots represent the majority of foreclosure actions and they are non-homestead. 

I have read that in Lehigh Acres..70% of foreclosures are non-homestead.  The issues that result from a market totally built from speculation are amazing and I intend to blog about more in the coming days. It is something I can’t imagine ever seeing again in my lifetime.  Cape Coral is a much more developed community and if I was to bet, I believe Cape Coral will recover much faster.  Lehigh Acres is a study all to itself.

I understand there are other areas of the country with foreclosure problems.  Lee County Florida is one of the top markets.  Built on speculation over the last few years, it was bound to crash as more inventory was built than there are people or jobs.  Here are the latest statistics to give you a broad overview:

November 2008

Lis Pendens Filings

1681 Mortgage Related Foreclosure filings

1775 total Lis Pendens Filed

88.4 Per Diem in filings

121 per diem filings for the month prior
Deeds Via Foreclosure
682 Deeds were transferred via foreclosure from the courts.

 

How long will it take to clean up the inventory in Lee County?  Being close to the issue, I think there is another two years of stagnant prices and high volume of vacant homes on the market.  I will continue to blog on my experiences here as it says a lot about what started the recession of 2008.

 

  

Get Excited About IU Basketball!

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For my first post to my new blog I am going to start with a topic near and dear to me.  Yes,
Thumbnail image for iu logo.jpgall my Purdue friends remind me that IU’s basketball team is going to finish last in the Big Ten, and their’s will battle for first (though they have had a little trouble against competitive talent the last 2 nights out!).  I have a new comeback…”I don’t care!”  Sure, winning is fun but let me tell you what is even more exciting.

Sunday night I had the pleasure of watching a bunch of freshman (with a couple of exceptions-we all know the story) hustle, fight, and beat the defending Ivy League champs Cornell.  Yes..I can hear the cynics now..maybe IU should play in the Ivy League this year!  Well, here is why I am excited.  Not even that they won..but the way new coach Tom Crean has them playing.  Defensive fundamentals are seen from each player.  More importantly, something we never saw the last few years, tremendous ball movement and players moving without the ball.  These kids are hustling and they are playing like they do not know how tough it is for freshman to play with upper classmen.

After all this program has been through..you can tell a new day has dawned.  When the night was through..two other significant memories stay with me.  They both involve Crean and I think they say a lot about the way his teams will play.

When Verdell Jones was injured before halftime, Crean was on the floor trying to calm the young man.  He was not in the huddle with the team but seemed very personally concerned for his player.  Second..the man does not stop working during the game.  He never sits down..best I can tell there is not even a seat for him on the bench.  He is constantly coaching the players and when the game was over he made an effort to go to the band, student sections, and the alum sections and wave and say thanks.  His energy is apparent and the way these young men are playing shows it.

I needed to write this today as a trip to Wake Forest awaits tonight and in all likelihood this huge challenge (the first true road game for this bunch-what a nice place to start!) will bring challenges that may seem like we have taken a step back.  But, even if the expected occurs tonight, I am excited about the foundation being built in Bloomington.  If you are an alum, and frustrated with all that has occurred..watch a game.  A new day has dawned and I think it is going to be a very good one!