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Very interesting rumours about the state owned banks holding on to tens, possibly hundreds of thousands of repossessed houses.

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>In recent weeks I've been hearing rumours that our state-owned mortgage lenders are holding tens or even hundreds of thousands of repossessed houses on their books.

That would explain the lack of supply. With an extra 1m unemployed, where are the repos?

>The government cannot face the humiliation of dumping them on the market but at some point this inventory will need to be disposed of.

I'm not sure is does. With govt support, there doesn't seem to be a limit to the mark-to-myth rules. As long as the accountancy industry is complicit, those houses won't see price discovery.

>Just what price this will occur at, nobody can say for sure

I'm sure we can have a try here at HPC.

VMR.

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http://business.timesonline.co.uk/tol/busi...icle6807490.ece

"Britain’s taxpayer-owned banks are selling repossessed property assets to their own subsidiaries to avoid billions of pounds of losses that would be incurred by selling them in the open market."

So they are selling them to subsidiaries at knock down prices?

Even this doesnt make sense:

- If an asset transfer was made at a low price to the subsidiary, why isnt this market value used on the bank books?

VMR.

Edited by VeryMeanReversion

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http://business.timesonline.co.uk/tol/busi...icle6807490.ece

"Britain�€™s taxpayer-owned banks are selling repossessed property assets to their own subsidiaries to avoid billions of pounds of losses that would be incurred by selling them in the open market."

So they are selling them to subsidiaries at knock down prices?

Even this doesnt make sense:

- If an asset transfer was made at a low price to the subsidiary, why isnt this market value used on the bank books?

VMR.

The article has to be wrong or the banks are lying. THe only way to not crystallise a loss is to sell each house for more than the outstanding mortgage. The subsidiary can then take the loss when price discovery is forced.

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The article has to be wrong or the banks are lying. THe only way to not crystallise a loss is to sell each house for more than the outstanding mortgage. The subsidiary can then take the loss when price discovery is forced.

So I wonder if they are they only repossessing houses with some equity?

If there is no equity, leave the "tenants" in place and avoid price discovery.

I understand this sort of practice was used in the 30's in the USA. Banks would only repossess when bookable losses were relatively small. Leave everything else for "later".

VMR.

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So I wonder if they are they only repossessing houses with some equity?

If there is no equity, leave the "tenants" in place and avoid price discovery.

I understand this sort of practice was used in the 30's in the USA. Banks would only repossess when bookable losses were relatively small. Leave everything else for "later".

VMR.

Maybe. But they still have to increase capital held against NPA by around 3x that of PA. If they carry on like that, net lending should go through the floor as more and more capital becomes tied up with NPA.

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The article has to be wrong or the banks are lying. THe only way to not crystallise a loss is to sell each house for more than the outstanding mortgage. The subsidiary can then take the loss when price discovery is forced.

How long to price discovery? How far down the road can they kick this can?

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http://business.timesonline.co.uk/tol/busi...icle6807490.ece

"Britain�€™s taxpayer-owned banks are selling repossessed property assets to their own subsidiaries to avoid billions of pounds of losses that would be incurred by selling them in the open market."

So they are selling them to subsidiaries at knock down prices?

Even this doesnt make sense:

- If an asset transfer was made at a low price to the subsidiary, why isnt this market value used on the bank books?

VMR.

Presumably the bank doesn't believe that current valuations by surveyors would hold up if they actually tried to sell all the repossessed property on the open market. This way, they get to hold the line at 20% off or so that the current low transaction rate is supporting.

Whether this makes any sense depends on what happens going forwards.

Edited by pharm

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How long to price discovery? How far down the road can they kick this can?

Not sure how long but the market will out. It always does.

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I'm assuming that the article has the wrong end of the stick & the bank is buying the property at something close to the price it originally valued it at, so that there's no loss on the mortgage to go on its books. It can hold the property in the subsidiary, recording it at this price, hoping that by selling it later on it will be able to realise a smaller loss (or even a profit) than if it sells now at the true 'market price'.

In other words, it's a shell game to prevent the mortgage holder having to mark down it's entire mortgage book at the LTV implied by true current market prices. If they did that, they'd be insolvent on the spot (despite government bailouts).

But in that case, how can the lender pursue the repossessed for the shortfall when the house has effectively been sold at full value to a willing buyer (itself).

Maybe the banks wont chase for the loss since it is probably a waste of time anyway. Its best for the banks to just pretend it didn't happen so they don't self-destruct in a puff of balance-sheet logic. As long as price discovery is avoided, the banks survive.

I imagine the Japanese tried much the same thing & it didn't do them much good in the longer term either. At some point everything gets marked to market.

But that takes decades!

Ever feel that the game is rigged and wont be corrected in your lifetime?

VMR.

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Not sure how long but the market will out. It always does.

There are enormous political benefits to doing this via a state-run bank. It keeps house prices high as well as transaction volumes. Green shoots are made of this. When's the election?

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I think they are relying on the recovery being here.

If it is they can offload these repossessed properties and not lose too much money.

If we have a double dip W shape recession which I think we will, they are in deep trouble as they stand to lose a great deal.

But it doesnt matter because the taxpayer will bail them out.

Heads they win, tails you lose.

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How long to price discovery? How far down the road can they kick this can?

Well, the government could get them to unload en masse starting about a month before the election.

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How long to price discovery? How far down the road can they kick this can?

This is largely what the bailout money would be for. There is no real limit as the government can keep creating money and giving to bankers until house prices finally rise (god knows what price everthing else will be)

In the end, the government can do anything it likes because, while money has value, it has unrestricted means.

I think waiting for the house price crash is a losing bet, but I would not put precious money into it now. Instead, take your money and buy something else other than a home and buy the home later when, inflation adjusted, the prices reflect some kind of value for money.

Right now, houses do not represent anything like value for money. The governt cannot change the ultimate outcome for homes, but their actions will change the value of money. And they will, believe you me!

Edited by Where is my pen?

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http://business.timesonline.co.uk/tol/busi...icle6807490.ece

"Britain�€™s taxpayer-owned banks are selling repossessed property assets to their own subsidiaries to avoid billions of pounds of losses that would be incurred by selling them in the open market."

So they are selling them to subsidiaries at knock down prices?

Even this doesnt make sense:

- If an asset transfer was made at a low price to the subsidiary, why isnt this market value used on the bank books?

VMR.

The fact that banks have to resort to "financial engineering" to deal with their growing inventory of houses rather than selling them into the open market tells me that prices are still too high relative to what the market can afford.

Despite the small bounce from the recent lows in house prices, the evidence still points to lower prices in the future despite the manipulation by banks in withholding supply from the market.

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