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Government Cuts Out Private Sector In Foreclosure Market

MoneyhousecoinsWhat do you call cutting out part of the marketplace to support a special interest. If it was done in the private sector the government would be screaming cats and dogs and investigators will be running rampant.

But when the Federal Government cuts a deal to remove the private sector from the market they call it progress… You have to be kidding me!

The Obama administration said Wednesday local officials could benefit from acquiring these properties and renovating them or using the land for redevelopment projects. Congress has provided $7 billion to buy the homes, but these groups are struggling to spend the federal money because they are often outbid by speculators who are snapping up foreclosures.
“The fear is that they will purchase the property, make very minimal to no improvements on it, and either put it back on the market as a rental unit or let it sit waiting for the market to come back,” said Sarah Greenberg, senior manager for community stabilization at NeighborWorks America, a nonprofit housing group.
The administration says the largest mortgage lenders in the country, including Bank of America Corp. and Wells Fargo & Co. have agreed to let the groups purchase the properties ahead of private speculators. The neighborhood organizations will have up to 48 hours to evaluate them. via MSNBC

Essentially what we are witnessing is the collusion between government and the big banks, again. First the government takes our tax money and gives to to the banks in the form of a bailout. Then, they take more of our money and then allocates it to “special interest groups” to buy the foreclosures.

But the evil private sector is still bidding up the property values so the special interest groups are  unable to buy the properties. Could it possibly be that they have value beyond what those who feel entitled to your money are willing to pay? Instead of partaking in the marketplace we have collusion happening.

So who gets screwed in the deal?

  • Investors – Instead of buying the properties and returning capital to all parties, they are being pushed out of the marketplace.
  • Contractors – They will not have the opportunity to fix up these homes. Remember Cash for  Clunkers? Because of it used car prices are much higher and inventory is down. Everyone loses in both situations.
  • Renters  – Now  inventory is removed from the marketplace and either is destroyed or is under nominal government control.
  • Bank Stockholders – Remember them? They have take a loss on the properties intially through foreclosure and now will be forced by the government to sell the homes at a discount to those favored by the govermnet.

There is a collusion going on between Big Government, Big Labor, and Big Business folks. That is why main street and the small business community is so worried. All regulation and government intervention is aimed at helping this triumpherant at the expense of the entrerpeneur. If you want to learn more about this, read Michael Barone’s article here.  

This is not good for America.


  1. I don't get the purpose of taking federal money to purchase a foreclosed home and then flipping it on the taxpayer's dime. If it makes sense to do that, then a private investor would pay for it. If it doesn't, then it's probably a waste of taxpayer money.

  2. The market will turn in the next few years

  3. I wonder what incentives the banks received to agree to this?

  4. More than ever I feel like the average person just doesn't know what kind of deals are being struck between big government and big business.

  5. What I read on this program is that these properties must be located in specific targeted areas (run down and need of improvement). Trust me Investors hardly ever put their money in low income neighborhoods. So government through non-profit organizations and municipalities will buy fixer uppers, rehab them and sell them to first time buyers. Which statistically speaking show the most pride of ownership…

    It looks good on paper in my opinion…the question really is if those responsible to use those funds will have the knowledge and sense to make the right decisions.

  6. Talk about frustrating and aggravating. I think you are right in classifying this as a "you got to be kidding me" plan.

  7. Great post, I think more than just your list is getting screwed by this one. I couldn’t believe this when I heard it.

  8. What we will need is an RTC type federally backed loan program that was used during the S&L crisis. Investors need the ability to borrow money. A credit worthy investor can soak up 2-50 homes while only one home is absorbed by the owner occupant. This will be when the tide starts to turn as inventory will then be absorbed.

  9. I really hope this nonsense stops pretty soon. We are making it harder and harder to pull out of this rut, the Government needs to be helping the people it is screwing.

  10. I feel Government has always been misutilising thier power and private sectors have always been thier first target. Some action need to be taken fast.

  11. Why is this unusual? Maybe it’s being done the wrong way but I do see some benefit. In France, just as an example, when anyone is selling a building (not a single family home) you take it to the market as you normally would. When you get a viable, acceptable offer, you have to go to the municipality who, by law, has a first right to purchase property. If the municipality elects to match the price, it goes to the city/town. If they are not interested it goes to the buyer who made the offer in the first place.

    I can see in some US cities where this might work in cases where the city needs additional facilities (maybe a park or playground) within certain neighborhoods. In the case of a bank owned property why not have a mechanism in place that allows the government to match fair market offers? Could it help to improve neighborhoods?

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  13. Well, to those who disapprove, what are the better options. Would you prefer to let the properties just sit there and deteriorate until they become drug houses or the homelsss move in and finish trashing them?

    How bout some constructive ideas instead of just constantly complaining about everything Obama and his staff are trying to do to resolve the housing mess we're in. They didn't dig this hole. They are just trying to "stop the digging" and get some progress back toward normalcy going.

  14. The Short keep is the answer. Read Frank Louis comments on housing crisis on renewamerica.com

  15. I can't believe how the government is handling the foreclosure mess. Spending Congress $7 billion to buy the homes? That is uncalled for!

  16. Ain't that the truth. Ever hear the phrase, "I'm from the government and I'm here to help!" Look out when you here that.

  17. Like the ad says. "Keep on spending. Borrow like there's no tomorrow." The government seems to think the answer to everything is to throw money at it. When will they ever learn

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