lenders = deadbeats
Posted by admin on March 12th, 2010
Excerpted from Sovereign Society’s newsletter:
. . . Banks are deadbeats on assets they acquire through foreclosure. And that’s not even counting the properties banks should be foreclosing on for non-payments, but aren’t.
It’s an ugly picture for real estate, with or without federal stimulus.
Banks are in the business of lending, and only want to seize these properties when the borrower defaults. They’re not in the business of owning, managing, or maintaining real estate. But some banks have been pretty aggressive about foreclosing . . .
But what you might not realize is that once banks do foreclose, they often don’t do anything with the property. This is a huge problem for condominiums or other communities that are dependent on an HOA (Home Owners Association) for common area maintenance, utilities, and the like.
Nevertheless, some banks have been so derelict in paying HOA fees on properties they’ve foreclosed on, that the HOA themselves have then had to foreclose on the property for failure to pay their HOA fees (so if you’re thinking of skipping on your mortgage but still want to live in your house, be sure to pay the HOA).
And it’s not just homeowners facing problems.
Consider the city of Atlanta, who had problems with illegal tire dumping on a property.
After looking at the books, they determined that J.P. Morgan Chase owned the property through one of their subsidiaries, and tried to take them to court for failure to pay fines. The bank never showed up. So here’s where it gets crazy…
The city issued an arrest warrant for CEO Jamie Dimon for illegal dumping. Of course, running the bank through New York means Dimon was nowhere near Atlanta . . . but that got the bank’s attention, and a judge cancelled the arrest warrant.
Nevertheless, as banks foreclose on properties, they’ll have to learn to take responsibility for them, lest the properties further decline in value due to the bank’s negligence.
Markets, however, are rewarding banks for refusing to lend, as well as refusing to maintain foreclosed properties. That will change . . . but until it does, expect the bank stocks to continue rallying (which will make put options cheaper).
So, is there anything banks can do competently?
After all, they’re not doing much in the way of lending . . . yield spreads make it a better option for banks to borrow nearly for free from the Fed, then buy riskless assets like Treasuries. They know how to drag defaulting borrowers to court, but then prove worthless at managing properties themselves.
Banks are looking overvalued to me based on their inability to act like a bank . . . and markets will reach that conclusion eventually too.
October 6th, 2010 at 5:45 pm
Good job. You will be the lead in the world!!