I am sure you remember when the housing bubble burst, and a lot of
the mortgage papers that banks sold to investors turned out to not be worth the paper they were printed on, and the subsequent recession?
There were all kinds of reports about how Flippers would form little clubs and buy properties, which they got loans on, then they sold the property to other club members, who also got loans on them. At the time when they started this it was no problem. Credit was cheap and, since houses were selling like hotcakes, the banks were more interested in pulling in money than trying to decide if either the property was worth the loan or the people could pay it back…
Normally you might have thought it was no big deal.. Club Member A get inflated value placed on a property. Goes to Big Bank(BB) for a load that reflects the new appraisal. BB give him the money(mortgage) and sells the paper to an investment fund.. Where the money might come from funds that hold people’s pensions… Other people buy that paper and soon it is scattered among many investors. Member A gets and inflated value and sells to Member B, who does the same thing Member A did… The property changes hands and double, or triples, in price, NOT VALUE.
When the bubble burst on the housing market there a whole bunch of bans that discovered that because they had not bothered to do any research on the property, or buyer, they had paid out more than they could ever hope to get back… They lost money on worthless paper.. The problem was that, while the banks were able to get Uncle Sam to give them your tax money, in order to keep them from going under and putting their employees out of work, the various pension funds that put money into these papers were NOT able to get anything and so more companies crashed, more people lost jobs, and some people watched their life saving out out the window but, the banks made out, with bail outs, like the bandits they were…
So, you might ask “Joe Guy, where are you going with this?” In a very simple direction… Depending on which results you read the housing market is getting better, or not, the supply of money is rising, or not, and then the Flippers seem to be starting up again.
I recently got an invitation to a seminars about how to make thousands of Dollars in the housing market by learning to Flip using other people’s money.. That seem to be the way they do it so they don’t lose anything.
Don’t get me wrong.. There are Flippers and there are Flippers. Some Flipper buy a house, fix it up, to increase its actual value, and then sell the house.. One guy I listened to, some years ago, told about how he had a drawer full of credit cars.. When he wanted to buy a house he got a $1,000 advance on each card, he said he had about 200 of them, and used that money to buy the house.. He then worked out some deal with the seller so that he paid less for the house, with the cash, than the mortgage that he took out, pocketed the extra money, and the sold the house to pay off the mortgage..
The thing is.. The Flippers are starting again and I wonder if the Big Bank has learned it lesson or, are they thinking we will bail them out again?
If not then maybe we should just let them fail this time..
Thanks,
That Joe Guy.
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