It is Bad News for the Government as Foreclosure Crisis Refuses to Abate

Posted on May 11, 2009
Filed Under Government Homes | Leave a Comment

It is bad news for the government as the foreclosure crisis refuses to abate. There are predictions that it will worsen before it dies. ARM’s are due to increase its rate of interest and commercial foreclosures are ready to hit the nation in a big way.

A new programme known s the Bad Bank programme has been launched. It will increase the number of HUD houses. The government has been given the signal by the Financial Accounting Standards Board or FASB to alter the mark-to-marketing rule of accounting. This was done to allow banks to clear their toxic balance sheets by introducing better prices than currently being shown. The banks are happy with this but is it also good news for the government and the people?

Changing accounting rules may solve a particular problem but it will lead to many others. If banks are permitted to value their assets at a higher figure they will never be able to sell these.

President Obama initiated the Public-Private-Investment-Programme or PPIP. It would help the banks get buyers to buy the soured assets for pennies on the dollars. But if the banks place their assets at a higher price on their accounting sheets why will they require PPIP?

Some analysts opine that some transactions must be done so as to establish the higher price. Thus these assets have to be bought and sold in the open market. Many private equity firms have been trying to purchase these soured assets from the banks at pennies on the dollars. But if they cannot get the right price they will turn away from buying. Default rates more often than not indicate the value. The banks seem to be more optimistic than the market.

The news to be happy about is that the government and consequently the tax payer will not have to buy the soured assets for more than their real worth. The feds have an over supply of HUD houses. Most of the high risk mortgages have been underwritten and funded via the FHA. The government does not have the need to spike these numbers by purchasing trash from the banks.

All this boiling and churning has pushed down the prices of houses to record low levels. This is the perfect time to shop for the perfect affordable house at prices that will match the money in the purchaser’s pocket.

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