|
September 8, 1989
Last week's quietest week of the year has been replaced by this quieter week. There were no releases of meaningful economic data, and mortgage prices have moved hardly at all for three weeks.
Next Friday morning will bring a flurry of news in several separate inflation and economic activity reports. By then, everybody will be back from vacation, and the data may trigger release of accumulated anxiety about the course of the economy. When a market stays flat for as long as this one has, there can be a sharp snap in either direction. I continue to believe that there is more risk of a modest rate rise than likelihood of a drop.
The S&L maxiseries is entering a new season with the same cast, same roles, but new names. The dastardly Federal Home Loan Bank Board is no more, and can no longer bungle supervisory efforts. The same people are starting over as the Office of Thrift Supervision. The Federal Asset Disposition Association, having failed to figure out how to dispose of reposessed assets, has been folded into Resolution Trust Corporation.
The old bad guys took a lot of heat for selling Night of The Walking Dead S&Ls last year by offering guarantees against future losses and assorted tax breaks. The new guys, OTS and RTC, last week offered their first phantom S&Ls for sale. No guarantees, no tax breaks, no terms, just send us your bids. Bidders will examine these first five thrifts to see what they (their remaining loans and REO) are really worth.
We know now that the old guys in their new Mission Impossible rubber masks have learned how not to be blamed for new giveaways. But the real learning will happen when honest, arms length bids come in for these five wrecks. After all these years, we are finally going to find out how deep the hole is.
Investing in reposessed real estate wreckage is dangerous, and the discount will need to be very deep to justify the bidders' risk. If it weren't dangerous, the FDIC would manage and sell the property itself to get the depositor's money back. If there is no news of RTC liquidations soon, it means that the discounts are too deep for the plan, and so is the water we're in.
|
