Getting Foreclosed On... By the Fed?
Pic credit: Banksy
First of all, I am issuing a public notice of necessary correction to Serena Ng and Carrick Mollenkamp at the Wall Street Journal... the U.S. government doesn't own any of this, the Fed does. I know it can be really hard to understand the difference but, uh, we're talking two separate entities and for Christ's sake, you guys write for the Journal. Maiden Lane I sits on the Fed's balance sheet. In the event of a coup whereupon we get smart and kill the central bank, I'm fairly sure we would still owe them that money (you didn't think JP Morgan was going to come back from the dead and pay it himself did you?). If the Fed were interchangeable with the government, why would we pay interest on our own currency just to have them issue it? Sounds like someone needs to do their research.
Oh well. Anyway, the Fed's awesome adventure with crap assets continues.
James Currell is struggling to prevent his Minnesota home from being foreclosed. But his lender isn't a bank. It is the U.S. government.
The Federal Reserve Bank of New York is facing the prospect of foreclosing on a number of properties in the coming months, from homes to commercial buildings, a result of a souring mortgage portfolio it took over when it helped bail out Bear Stearns in 2008.
As it deals with delinquent borrowers, a team of New York Fed officials and outside advisers are trying to avoid having the U.S. government, along with local sheriff's departments, seize commercial properties and homes as it copes with falling real-estate values. In the process, the New York Fed is getting a hard lesson in the challenges of mortgage lending.
It is an unprecedented test for the most powerful of 12 regional branches of the Federal Reserve System. In its 96-year history, the Fed hasn't made or controlled loans to U.S. citizens and businesses outside of banking since the 1930s, when it was done on a much smaller scale. Now, under the watchful eye of Congress, the New York Fed must recoup a $29 billion loan secured by the Bear assets.
"For the Fed to come in and foreclose on properties puts it at some reputational and political risk," said Vincent Reinhart, a former senior Fed staffer who is now an economist at the American Enterprise Institute. "If the Fed can't figure out how to recast the terms of these mortgages and work with borrowers—it's emblematic of the problems the government has had with other programs over the last year and a half," he added.
Can you imagine Sheriff Bernanke showing up at your door telling you you better get the hell out?
Perhaps the Fed and FDIC can form a joint task force to enforce foreclosures on the massive jackpot of shitty "assets" both agencies have ended up holding of late as a direct result of the financial crisis. There's Fitzgerald's Casino in Reno that Corus Bank left behind when it failed and Crossroads Mall (yes, just like the Crossroads Mall in Dawn of the Dead) and all other manner of interesting and still-useful properties mixed in. Here's an idea: why not cut their losses and short sell everything? Woo hoo! What a fucking recovery that was! Or instead of trying to modify through HAMP and keep people in their homes, why don't we just give them all these homes for free and call it even? Now we're talking.
This is what really makes the Maiden Lane paper profit nonsense so hilarious, check out this genius reasoning by our friends at the New York Fed:
More foreclosures could stick the New York Fed with properties it can't sell. Consider the 2009 foreclosure of the Crossroads Mall in Oklahoma City, a move that put the New York Fed in control of the 36-year-old shopping venue. The mall since 2007 has lost big tenants such as department store Dillard's.
Maiden Lane last year took over the mall at a sheriff's auction, to protect the value of the note it held on the property. But in a sign the regulator is struggling to unload properties, an Oklahoma broker has been unable to find a buyer for the mall, which was put up for sale in September for $24 million. "No one is happy about owning a mall, but we have to manage this responsibly and see what we get back," Ms. Mucciolo said.
So wait... in order to make sure its securitized note didn't lose value by ending up as someone else's write off the NY Fed went in and BOUGHT A MALL?
You tell me how that makes sense. Please.