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OpEdNews Op Eds    H3'ed 6/29/08

If a Bank can't pay the Mortgage on its own Property - Can it Foreclose on Itself?

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We will soon see. Banks are running out of cash, because the consumers and businesses are defaulting on loans of all types.

Mortgages are the most visible. The US is besieged with foreclosures on a daily basis. Some estimates are as high as 7,000 foreclosures A DAY. The Pew Institute is estimated that on an average, 1 in 33 houses will be foreclosed on within the next two years. That number was not a typo, and it is really worse in some States like Nevada which has an estimate of 1 in 11. Foreclosures are usually considered a bargain to "flippers"-; however, there is no one to "flip"- to. The banks are now left with an ever growing inventory of vacant homes. Estimates of vacant homes are in the Millions, depending on which report you read, anywhere between one million to three million. The National Association of Realtors estimates that there are approximately 4.5 Million homes for sale. This number is growing every day, which translates to almost a 12 months supply of houses for sale.

Auto repossessions are next in line. You must have noticed there are fewer vehicles on the road as compared to last month. The drop in vehicle use is for two reasons. The first is obvious, the price of gas. The second is that if you look carefully, you might have noticed that your neighbors' car has disappeared from the driveway. Vehicle repossessions are at record highs. The storage lots are overflowing with vehicles that have been turned in or repossessed. Used car lots are full and new car dealers are trying anything and everything to get rid of inventory. Motor homes are being sold at cost and gas guzzlers are of course getting rusty.

Boats are being repossessed at record rates. If you live near a waterfront community, you also might notice that the boat lots are filled with boats for sale. If they are not gone by July 4th, chances are they will be there until next year. If you are "lucky"- enough to own a boat and can pay $ 6 a gallon for fuel, there are plenty of boat slips available. Last year, there was a waiting list for boat slips.

Home equity lines are being frozen or cut back and everyday bills are not being paid. Home equity lines were being used to pay daily bills. That source is now being cut.

The discount retailers showed an increase in sales during May. Wal-Mart's sales went up almost 4% and Costco went up 9%. Some other high end retailers lost sales during the same period. Kohl's sales went down over 7% and Dillard's sales went down 9%. By the way, McDonald's sales were also up worldwide. Consumers are almost even giving up the $4.00 latte. What's next?

Credit Cards will be the next major problem. All the cards are showing an increase in defaults. What is really scary is that American Express is even in the game, they said "the credit card lender said business conditions have deteriorated beyond its expectations"-. Keeping in mind that AMEX leans towards the high end consumer, is the "problem"- now rippling UP into the upper income brackets. This could be, as evidenced by the "celebrity foreclosure"- activity we all have seen mentioned in the news. Bank loans of all types are not being paid back, pure and simple. Citibank just borrowed 5 Billion from a Kuwait Wealth Group. It is estimated that they will writing off an additional $8 Billion. Washington Mutual recently received $7 Billion dollars from a private group, and of course, Bears Sterns was bailed out by the Fed., to the tune of $30 Billion.

The Banks are running out of cash. The alarm bells are ringing loud and clear.

The disturbing part to this dilemma, is that the bells are ringing Globally. Banks around the World are taking losses because of bad investment policy. Terms like "bank failures"-, "financial tsunami"-, "and catastrophic cash shortages"-, "global crash alert"-, and my personal favorite "perfect financial storm"-, are being sprinkled about. The U.S. FDIC has purportedly called 25 agents out of retirement for advanced training to examine bank books.

Financial analysts say that in the U.S. alone more than $850 billion in unpaid credit card balances alone, is at stake and fast approaching $1 trillion. Add this amount to foreclosures and you should be very concerned.

The problem is that if the larger banks are having trouble, who bails out whom?

So the big rhetorical question is: If a bank runs out of cash and can't pay the mortgage on its own property "" Can it foreclose on itself? If they did, what do they do with a building that nobody can afford to buy? Joe Russo is a freelance journalist specializing in real estate, mortgages and consumer credit issues. He is has recently published a book titled, "Selling Your House/Condo in this Housing Emergency of 2008" . Joe's comments and expert opinions have been noted in articles appearing throughout the U.S., in English and Spanish
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Joseph Russo is an Author, Real Estate and Credit Expert, an Author/Journalist - Television & Radio Show Commentator and Professional Speaker as well as a Radio Show host and host of a NC cable TV show series, "Financial Self Defense" Joseph (more...)
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