Not Lending…….But We’ll Buy Your Debt

Bank lendingFound this interesting from Gary Vaynerchuk in his blog at the WSJ pointing out that while bank lending has been plummetting, the banks purchase of US debt continues to soar.  This has left many scratching their head but having a 25 year mortgage banking background myself, it’s not that difficult to analyze.   Number one: What’s the incentive to lend when unemployment is 10% and heading higher?  You’re just asking for further defaults.  Number two:  You have billions in Commercial real estate loans coming due soon; loans you need to refinance.  You’ll use those saved up pennies to refi. the CRE because if you don’t, you’re sitting with empty strip malls on your books; almost impossible to dump down the road especially given the huge supply and a loooong economic recovery ahead.  It’s more important to keep those commercial loans afloat and forget the single family homes.  Push ’em to the side.  Your plan would be to make some half-hearted attempts at loan modifications.  You pick through the good ones, selecting the cream of the crop first.  Of the remainder, at least 50% can easily be denied right off the bat by merely pointing a finger at lack of job stability, undocumentable income or excessive debt-to-income ratios.  After all, there’s no incentive to help those homeowners when you’ve got accounting rules on your side and let’s face it – people will always need a place to live [they don’t always need a strip mall].  f.y.i.  That *is* a long chanted catchphrase in the business ‘people will always need a place to live’.   Let them default – time is on your side.  Then in six or 12 months once the foreclosure process is over, you take the home back but wait, yes…….the homes value was increasing throughout the process so you’ll end up writing off less of a loss than you would have.  The gov’t can’t make you lend.  There’s a million excuses to use so that’s a no brainer.  Now buying US debt?  Oh hell yes, that’s something you can really sink your teeth into.  That’s a win/win propsition and why not?  You’ll be guaranteed a long term profit off of the investment, even if it’s small and what better insurance could you ask for?  After all if you own a ton of Uncle Sam’s debt – they can’t let you fail now, can they?  Banks; the original shell game.

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