Bank of America Offering Cities First Crack at Foreclosures
I am not comfortable with the new Bank of America policy of offering foreclosures to cities and municipalities to buy instead of offering it to the general public. The goal is to allow the cities to buy the properties, rehab them, and then sell them to families. All well and good.
But isn’t that the goal of real estate investors?
The investor is also working from the profit motive. Sure they will try to charge more, but the price will be determined by the market. Instead, the government officials that will be in the market do not have a profit motive. The want to maximize power and influence.
So they will sell below market and to those that can benefit themselves the most, with the added concern that the buyers will work hard to provide incentives to the government official making the decision.
That is just logical.
So instead of a marketplace that has profit as it’s driving motivation, it will be replaced with influence. And home prices do not do well in these cases. Which hurts everyone.
What investor is going to put their hard earned money up to rehabilitate a home in a neighborhood where they will not make a profit? When competing against the government, not one I know. So the opportunity for investment disappears and cronyism is the rule of the day.
And that is just plain scary.
If it all works according to plan, the result may be that cities have an easier time buying foreclosures, redeveloping them and then reselling them to homeowners in neighborhoods hardest hit by the housing crisis.
It also gives communities an upper hand in buying a foreclosed home cheap, before it’s snapped up by the investors that already are starting to surface in some neighborhoods. Under one important facet of the program, Mercy Portfolio Services, which is coordinating the NSP program for Chicago, will receive notice of a Bank of America-owned property that’s available for sale before it’s listed on the multiple listing service of Midwest Real Estate Data LLC. That’s considered key. Cities also will be able to get “real time” access to the bank’s real estate owned (REO) property lists through a dedicated Web site.
In many respects, it is an extension of the “first look” and “bulk purchase” programs that the National Community Stabilization Trust has already established with large lenders. via the chicagotribune.com.
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Comment by Tony Arko on 26 June 2009:
If this deal scares you, you must be terrified of the deal that Goldman Sachs has with the US Government. They provide government officials to run things like Treasury departments, fed banks and many other agencies that control the $13Trillion in bailouts already doled out or earmarked. And in return, they funnel the money back to Goldman and Goldman sets new earnings records in the middle of the biggest depression since 1930. Now that is scary.
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Comment by Portland Real Estate on 26 June 2009:
I am going to have to disagree with this respectfully. Although a free market is the wisest and most effective method in almost every case, sometimes a regulated paradigm shift has to happen. For example, the last housing boom. The free market allowed millions of inefficient shoddy homes to be built (McMansions) in a short period of time. This was all for profit and personal gain with zero thought into the future economic and environmental impacts. Sometimes the government needs to carefully craft a new direction, because the free market is too self serving to get the job done in this particular case.
Comment by Tom Royce on 26 June 2009:
Disagee with me all you want, that is how we learn and grow. If I was always right things would be a mess, that is for sure.
One of my rules of life is whenever the government gets involved it opens up the laws of unintended consequences. Rarely does the initial intent, or broadcasted intent, of the action occur, but rather some expense and corrupt situation.
I do not trust government, never have and probably never will. I respect it, but in the terms of a viper. That is why our system has worked so well, power has devolved from the people, not the government. The past few years have seen that shift, and it causes me to make posts like the one above.
Comment by Real Estate Internet Marketing on 27 June 2009:
Real estate is one of the most profitable business and it has been a good source of income for others, But as we all know we are experiencing a global recession, and this industry has been pulled down.
Comment by Esko Kiuru on 28 June 2009:
If we look for an efficient way to get this housing chaos resolved promptly the government should play a minor role in it. It should provide direction but stay out of the operations because it just isn’t cut out for it. Simplified, its mission is largely generating laws and enforcing them.
Comment by junior on 1 July 2009:
The real estate business is very lucrative if you are in the correction position. While it is down now but it certainly will turn around. The smart people will be ready.