from one end of the spectrum… to the other.
Here’s the deal. If you take a peek at Fannie’s and Freddie’s books, you will see they own some 250,000 mortgages that are in foreclosure. But it’s a fraction of the slug of bad news headed their way.
Thanks to Washington’s foreclosure “slowdown” in 2010, delinquent borrowers have been stacking up like logs behind a dam. And now that the government can no longer fight the pressure, millions of fresh foreclosures are about to be unleashed on the two quasi-corporations American taxpayers are forced to bankroll.
Unchecked, the ensuing flood would destroy Fannie and Freddie. That’s what the free markets do… they destroy the weak.
And that’s why Washington is turning to its friends on Wall Street.
Instead of processing through the foreclosures one by one (as they were designed), Washington wants to bundle them together — in lots of 50, 100 or even 500 homes — and sell the package to the top bidder as rental units.
In other words, that ghost town of a neighborhood down the road — The Pines at Golden Vistas — may get a new owner. And what’s more jolting, many wannabe homeowners may write out their next rent check to Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS) or, dare we say it, George Soros.
The situation would be laughable… if it weren’t so dangerous.
To see what I mean, let’s look at how we got here.
After the tech bubble burst, investors were scared of the equities market. So instead of sending their money to Wall Street, they put it in Main Street. Right around 2003, the American real estate market started to take off.
As it grew, lenders got greedier and investors let their guard down. Before we knew it, folks who earned $30k a year cutting hair were driving home to $300,000 homes.
We all knew it would fall apart. But the banks didn’t care; they sold their loans to Freddie and Fannie. Never mind that when the bubble burst, some $7 trillion in paper wealth was destroyed.
As the cleanup grew messy, you and I — the taxpayer — were forced to foot the bill. The bill from Fannie and Freddie is somewhere in the neighborhood of $400 billion… so far.
But now, things are about to really heat up. The politicians can’t delay the inevitable any more. Father Economy is only so patient.
So their solution is to take possession of millions of American homes… and sell them to the highest bidder. That’s where the big problems arise.
The big boys of Wall Street don’t want anything to do with these homes unless they can make a buck or two off them. That’s why they are using their leverage to squeeze everything they can out of Washington.
Most of the banks and hedge funds that are in line to get in on the deal want to supersize the auctions. Forget buying 20 or 40 houses. They want to write billion-dollar checks and get the deed to hundreds of homes.
That way they get a bulk discount and can beat the competition by renting the houses below current market prices.
In other words, Wall Street and Washington have virtually cleaned their hands of the mess they created… and dumped it onto the American middle class.
After all, we are the ones who own rental properties that will plunge in value as a glut of low-rent homes hits the market. And we’re the ones forced to watch our equity dwindle as Washington and Wall Street scratch each other’s back.
To prove how deep this problem goes and how ingrained we’ve let our government become in our economy, here’s a list of all the agencies involved in the White House’s proposal:
- Treasury Department
- Federal Reserve
- Fannie Mae
- Freddie Mac
- Federal Housing Finance Agency
- Federal Housing Administration
For the average retail investor — the guy who worked hard his whole life to put together a real estate portfolio worth $200k or $500k — the news is far from good. You’re now competing toe-to-toe with the behemoths.
The solution I will give to Unconventional Wealth subscribers next week is not entirely simple, but it is effective: Use your IRA to invest in foreign real estate. It sounds complicated, but with the eight-step plan I outline, it’s not.
In fact, tomorrow afternoon we’ll send you a really neat video that will dig deeper into the idea.
Better yet, late next month, I am headed to Argentina to check out the opportunities within the up-and-comer’s borders. I will share the whys and hows of the trip tomorrow.
Related: iShares Dow Jones US Real Estate ETF (NYSEARCA:IYR), ProShares UltraShort Real Estate ETF (NYSEARCA:SRS), ProShares Ultra Real Estate ETF (NYSEARCA:URE), Direxion Daily Real Estate Bear 3X Shrs ETF (NYSEARCA:DRV), Direxion Daily Real Estate Bull 3X Shrs ETF (NYSEARCA:DRN), SPDR S&P Homebuilders ETF (NYSEARCA:XHB).
Andrew Snyder is the Editorial Director of Taipan Publishing Group and the Managing Editor of Taipan Insider. Andy’s first year in the world of finance and investing involved learning the intricate details of the financial industry, as an advisor. He specialized in handling the vast portfolios of very wealthy clients, where he excelled at making them even wealthier. Since then Andy has received his MBA, published an award-winning book and been published in numerous publications. He has also appeared on Fox News and other media outlets.
With his background in research combined with his hedge fund-style education and knowledge of the market, Andy is acclaimed for his no-nonsense style of writing and his sharp, deep-thinking analysis. His goal is to use his knack for Wall Street research and analysis to lead his readers to little-known profit opportunities. Andy’s readers have described him as unshakeable, suspiciously knowledgeable and just a bit nutty; these qualities have led him to uncover market-moving events and turn them into reliable, double- and triple-digit gains.