Sunday, September 21, 2008

The Coming NEW RTC for Real Estate


For those of us not privy to the behind the scenes work at the White House, Treasury Department and the SEC, we can only guess at the possible final view of the Wall Street Mortgage Bailout.

While Washington, DC may call it a "Wall Street Bailout," mainstreet is going to see it as a SubPrime Mortgage Bailout and a Bailout for the Leviathan Banks holding the nonperforming debt.

What is going to come out of this mess for the Real Estate Industry in the USA? My prediction is that it is going to be the 2008 version of the Resolution Trust Corporation. It will be a Resolution Trust Corporation for Mortgage failures on Steroids. For lack of a better word, the NEW RTC.

You would think that as a society we would learn. Look at the simplistic statement of what got us into the last crisis in 1990 was about. "The savings and loan crisis of the 1980s and 1990s (commonly referred to as the S&L crisis) was the failure of 747 savings and loan associations (S&Ls) & & &. The ultimate cost of the crisis is estimated to have totaled around USD$160.1 billion, about $124.6 billion of which was directly paid for by the U.S. government-that is, the U.S. taxpayer, either directly or through charges on their savings and loan accounts[1]-which contributed to the large budget deficits of the early 1990s." Wiki.

The S&L meltdown was a direct result of the deregulation of S&L's and allowing them to proceed into areas other than secured home mortgage. They did proceed, deregulation and brought us 160B of nonperforming assets. Thanks. This time around Banks and Investment banks, deregulated, took us into the world of 700B of non-performing assets. Thanks, again.

If we draw a simply analogy from 1990 to 1992, we are headed for a New RTC Bailout that is 5 times as large as the 1990 to 1992 bailout with a coming economic hangover of a magnitude yet unknown.

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There are presently very few fleshed out statements of what Congress will pass to bailout the failed mortgage banking industry. However, the New York Times ran the following clip about the parameters of the coming NEW RTC:

New York Times
September 21, 2008
The Wall Street Bailout Plan, Explained
WASHINGTON - News reports about the upheaval in the world of finance have been full of esoteric terms like "mortgage-backed securities" and "credit-default swaps," but the crisis has resonated for people who know little about Wall Street and who did not think they would ever have to know. Here are several questions and answers of concern to Main Street Americans:
Q. The bailout program being negotiated by the Bush administration and Congressional leaders calls for the government to spend up to $700 billion to buy distressed mortgages. How did the politicians come up with that number, and could it go higher?
A. The recovery package cannot go higher than $700 billion without additional legislation. As for that figure, it lies between the optimistic estimate of $500 billion and the pessimistic guess of $1 trillion about the cost of fixing the financial mess. & & &
Q. Who, really, is going to come up with the $700 billion?
A. American taxpayers will come up with the money, although if you are bullish on America in the long run, there is reason to hope that the tab will be less than $700 billion. After the Treasury buys up those troubled mortgages, it will try to resell them to investors.

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Note that Stout says: "After the Treasury buys up those troubled mortgages, it will try to resell them to investors."

How can that be except by the machinery we observed in the Old RTC.

The NEW RTC is poised to "launder" and resell between 500B and 700B of real dirt underlying the failed mortgage backed securities.

The 2008 California Budget is 141B. This bailout is somewhere between 4 and 7 times as large as the entire California State Budget and California is the 5th largest economic unit in the world. These dollars are staggering.

The real estate mortgage industry is headed for the largest sea change since WWII. The possibilities for work for lawyers and real estate professions is in the NEW RTC - well - endless.

Hugh Wood, Atlanta, Georgia.

1 comment:

arrielle_p said...

Thank you for sharing this very informative post about NEW RTC for Real Estate. I feel exhausted but I enjoyed reading it because I learned so much from it.

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