The bubble we are in right now or the deflation of the bubble that we are in is really almost a function of how America was actually created from its inception. The whole notion of America was highly speculative, both politically, socially, economically, going back well over 250 years. And you have people living like George Washington, who was in fact a land speculator himself. Alexandria, Virginia was a function of just pure land speculation. George Washington himself was a surveyor. Therefore, it is almost part of the ethos of this country to own land and have home ownership. And what happens is sometimes public policy gets ahead of good economic sense, and to a large extent that's what we have going on right now. In Florida, particularly, we have had tremendous growth because of increased population, increased immigration that came from South America as well as Europe and Canada, and migration from the Midwest and from the Northeast. Transportation and even the invention of central air conditioning helped contribute to increased population in Florida as well... And with all that, we were able to turn the Everglades into well-developed property. However, things do not always stay the way they seem.
We have had a massive bubble, a bubble that we talked about that was coming along back in 2005, and popped literally in sometime in 2007. I want to talk a little bit, about what similarities we are seeing today and dissimilarities we are seeing today compared to a period of time that people are starting to talk about more and more and that is the period of the Great Depression. Today if you looked at the Wall Street Journal, the Federal Reserve is now stating unequivocally that we are in the worst economic times since the Depression. While I am not an economist, there are some economists saying that this could be worse than the actual Depression itself. We need to see what the Obama administration actually does to make sure that this is only a bad situation since the Depression. Nevertheless, we need to take some playbooks and some lessons out from the Depression, because there are some similarities that are occurring that we must note. Housing prices during the Depression fell 30 percent. Unemployment was at 25 percent. Today we are seeing unemployment in some states at now are at 10, 12 percent in the Detroit area, Rhode Island, and other pockets of the United States.
Here, in Florida, unemployment is starting to increase dramatically not necessarily because of massive downsizings from large corporations. Rather, we are only wedded to an industry that already has been eviscerated; namely, the real estate industrial complex. Who is in that complex? Real estate lawyers, banking and accountants, title companies, contractors and subcontractors, and literally everyone that is in the service business that serves the real estate industry. We've all been literally suffering for several years; in fact, our suffering going forward may be worse than the rest of the country because the rest of the country now is hearing the alarms that we all have felt ringing here for several months, if not several years already.
During the Depression, the government created a whole bunch of regulatory agencies, which are now going to be very important. It created the SEC, which went unregulated as evidenced by the Bernie Madoff scandal. The FDIC, some argue, should be expanded. We have HUD promoting home ownership, and, in fact, pushed home ownership over 70 percent while, at the same time, the Federal Reserve and all the other regulatory agencies were completely lax as it relates to making sure that only people who could pay their mortgages would in fact receive loans. The lack of regulation in obtaining mortgages became practically irrelevant to a large extent because the idea of purely home ownership as a public policy was very important. This public policy was embraced by both political parties, and that is why home ownership soared to over 70 percent, which, in fact, was the highest that it's ever been in the United States, and probably will be the highest it will ever be for the next hundred years. Fannie Mae was created. We all know the problems with Fannie Mae, and that Fannie Mae is in the position of basically socializing their losses and the profits end up going to the shareholders. Ironically, Fannie Mae takes even the best day of communism and socialism and makes it its worst day. Why? On the one hand, if you are going to socialize losses you might as well socialize the benefits, right? But what happened with Fannie Mae is that they socialized the losses. So we all assume the losses, yet the shareholders of Fannie Mae and the executives, who received outlandish bonuses and extreme salaries, actually were able to benefit while we continued to subsidize their losses. Thus, if you take any type of economic theory, whether you are talking about pure capitalism or pure socialism and pure communism, and consider the very worst of both, that's Fannie Mae, and that goes for Freddie Mac, too. The FHA, again, was pushing policy to try and push home ownership up which created a lot of issues. HOLC, the Home Owners Loan Corporation—we haven't heard about HOLC probably at least in my lifetime. They may still exist. It may be in some vestige. But we are going to talk about the importance of what that entity did during the Depression. Because my sense is, we will see some sort of reincarnation or recreation of the Home Owners Loan Corp, maybe by the same name, maybe by a different name, sometime down the road based on what I anticipate from the Obama administration.
Hurricane Katrina. So what does Hurricane Katrina have to do with real estate? I mean, that was October 2005, and it's interesting because most of the real estate markets peaked right around that time. When I spoke in 2005, and I think it was during the summer of 2005, we talked about the likelihood that there would be some sort of extrinsic event, some sort of external event that would snap the real estate bubble. We didn't know what it would be. At that point, I thought maybe it could be an unfortunate terrorist attack or a real gas spike that could occur. A lot of people believe that the images that occurred during Katrina and the loss of confidence, as a nation that we suffered actually is what poked the hole in the bubble. Now, if it had not been Katrina it would have been something else. But after Katrina, I know from my practice and from a lot of other people's practices, things were never the same. I am not talking about Katrina hitting here. I am talking about when Katrina hit in New Orleans, and the images that were seared in people's minds. When you viewed these images, you would not think this was the United States. You would think, however, how could this happen in the United States? Therefore, I think we all lost a lot of confidence in ourselves and in our government. And I think that is what ended up poking the hole in a bubble that was already going to pop.
This was the image we used I think in 2007 when we talked about the bubble and why it was going to pop and how it was popping. And I still like Mr. Bubble. I guess I like him because I used Mr. Bubbles as a kid. What was the cause of it all? I think we should go back a little bit and see what happened. The "dotcom" bursts in 1999-2000. The Federal Reserve opens the spigot. They lower interest rates. They want to keep the economy going, and all of a sudden you have 1 percent interest rates between 2003 and 2004, and a lot of people start borrowing a lot of money, start flipping homes, start buying contracts on unbuilt condos, and speculation became rampant. Alan Greenspan, in charge of the Federal Reserve at the time, thought that was the right policy. Recently, in front of Congress, he said that maybe he overreacted. It is what it is. Lax regulation. I mean, there was virtually no federal oversight. There's no federal oversight for making sure that mortgage brokers aren't criminals. Making sure that they haven't committed fraud. Making sure that they haven't been in jail. Making sure that they've paid their child support. Making sure that they haven't gone bankrupt. I mean, this is a state-by-state process, and most of the states are under funded, don't have the method or methodology for really vetting these mortgage brokers. Many were not properly educated. The reality is that we just took the worst of, I think, two public policies. The Republicans got government off the backs of the people and regulation completely disappeared while the Democrats pushed home ownership because, with home ownership, the thought was that you get more social responsibility, neighborhoods remain stable, families stay intact. These are social theories that are associated with home ownership which are now proving to be completely fallacious.
The theory was that we end up with less urban blight when people own homes as opposed to renting in tenements in the inner city. This theory has now turned itself upside down and inside out. The policy of pushing homeownership, the psychology of flipping properties, all again at 1 percent, went out of control. When you went to a cocktail party a few years ago everyone was talking about the condo they just put a $100,000.00 down on and that they were going to sell it for $1.4 million when in fact they paid $1.3 million, and made $100,000.00 plus getting back their deposit. It became a game of sport because people made huge amounts of money. In fact, the IRS took the position that if you held the property for a year that could have been characterized as a capital gain. You never even owned it, but owning the contract for a year was a capital gain.
Let's talk about capital gains. I think one of the biggest uncharacterized causes of the bubble has been the differential in capital gains from ordinary income. It is odd that my income is taxed at a lower rate and therefore I can keep more of it when I'm not producing a service and when I'm making money as an investor. The government is saying, in essence, that my services are less than my value when in fact I make money investing. I found that the differential in taxes was rewarding investment rather than rewarding labor and treating income as income. I don't understand why we need to characterize one differently than the other. I think if we brought the capital gains tax up and we brought the regular income tax down, I think we'd actually create more value and allow people to have more money and therefore they can spend more money and we could dig ourselves out of this in part by allowing people to shop which is what George Bush said after 9/11.
In 2006, Freddie Mac had a motto that they would remain solvent provided real estate prices did not drop below 13.6 percent. Yet, all of the economists never took into account the Black Swan Event. Okay, what is a Black Swan Event? A Black Swan Event is when you don't anticipate something that may in fact happen. So Freddie Mac chose not to model themselves over what would happen if real estate prices drop 15 percent or 20 percent or 25 percent or even 30 percent. We already talked about the fact that during the Depression real estate prices dropped 30 percent. So why weren't they modeling at 30 percent? The reason they weren't modeling at 30 percent is because the executives would not have been able to be paid exorbitant salaries and bonuses that they were paid; instead, that money would have had to be kept in reserve. The same goes for every major investment bank that was involved in the sub-prime mortgage business. What happened is that all the modeling that was done on Wall Street did not take into account the possibility that the large chunk of these mortgages would fail. And so what you would have is effectively a banana. You have this banana and this banana would be valued. It would be valued that it would look pretty and it was either green or a little yellow, but they didn't value the banana knowing that the next day or the next week or the next month that banana would start to wilt, it would rot and it end up being a piece of garbage. And so what these guys did, what these, these economists did when they valued all these portfolios is they only went back 2 years instead of going back 10 years or 20 or even 30 years. They didn't consider the Depression and say what would happen if these mortgages dropped in value? Now why did they not do that?
The soothsayers did not look back 20 or 30 years because their bonuses are based on an annual assessment. So if the assessment is only based on the two prior years, obviously that banana looks ripe and beautiful. But when you're not factoring in the fact that this banana is going to rot, and we know it's going to rot or we should've known or could've known that it's going to rot, none of that money was put in escrow for let's say three to five years and then those bonuses would have been eligible. In fact, regarding Merrill Lynch, if all the bonuses that had been paid in the last 15 years were put back on the table, Merrill may have remained a solvent entity. The quantitative models only went back two years when they were valuing the mortgage portfolios. When they were sold, no one took into account that that banana was going to rot.
Let's talk about the history of home values. From 1890 through 2000 we see this huge hockey puck. Now we see what happens after 2000. Ten City Composite Index we see basically the flipside of the same hockey puck just inside out or upside down and it's just a reflection of itself going down. This just wasn't factored into these quantitative models; it wasn't factored in Fannie Mae or Freddie Mac or what the Federal Reserve was thinking. Although we should not Monday night quarterback, the bottom line is that the incentive structure that we have on Wall Street and some of the public policies that we have, as well as the oversight is broken, is broken. Even President Elect Obama just said that our economy is very sick. We have systemic issues that need to be addressed before our economy gets better.
These are housing indexes by city. It's kind of interesting because certain cities have had more of a problem than others. Miami, Las Vegas, and Los Angeles have substantial problems. Yet, some other places the problem hasn't raised as greatly but all cities have been affected. Charlotte, North Carolina has had problems due to the banking industry.
I like this cartoon, the credit crunch. We see Mr. and Mrs. Smith are really holding up the entire economy. They got their house, then they got their jiffy mortgage, those mortgages are supported by the banks and then you got Wall Street that just pounced on everyone and, and its, collapsing the whole thing. Where did the incentives go wrong? Wall Street guys are getting paid all this money to package these mortgages from the banks, they're selling them to, to cities and countries all over the world, not really disclosing to them what the real risks were, and, you had mortgage brokers primarily from Countrywide who were more concerned about their commissions because they get paid weekly or, or every few days. Only one payment had to be made, you know that, right? You made one - you had to make sure that, that when you sold the mortgage, when you initiated a mortgage that the person made one payment. If they made their one payment, you got your commission. And so I'm just curious what kind of deals were done on the side to make sure that person made that first payment. These were no doc loans, you didn't have to show income, you didn't even need income! There were people who were borrowing money who actually had died. Homeowners wanted homes, and it was the government's policy of pushing people to want a home. Now we're going to talk about the bailout.
The word "bailout" doesn't exist in the Oxford English Dictionary. I mean everyone is talking about it, but it does not exist. I like this cartoon characterization: A bailout is when the captain who is controlling your ship decides he is going to bailout and does, leaving you going down with the ship. There is someone literally bailing out of his plane; that is a real picture of a bail-out. The financial gurus like Bernanke are trying to bail out the U.S. economy. What's interesting about this picture? We can keep bailing that water, but this ship may be going down like the Titanic. Until we change some systemic issues, I'm not sure how much of that water we can all bail out.
The most interesting issue about bailouts is what we have to characterize as moral hazards. Do we bail out the people who are responsible for this mess in the first place or do we try and reward and create incentives for people who pay their mortgage every month, who have maintained good credit and somehow encourage them to help fix the problem? Up until now, arguably, we have basically only bailed those folks out who have been part of the problem. If you look at the bailout of AIG, and the bailout of some of the major banks that helped package these loans and misstated the risks to the cities in Scandinavia and in Australia and elsewhere, we are bailing out those banks out. A rough analogy is that you have a family dinner and you call your two sons to eat: one comes to the table and the other does not. The son who does not respond later eats his full dinner. What are you telling the other kid who came to dinner when he was called- who showed up and played by the rules? I would venture to say that we are right now as a society rewarding more the folks that have been a part of this problem as opposed to the folks that are really trying to do the right thing. We are rewarding the rule breakers I guess, and that's the unintended consequence. Here is a different example. Joe is a licensed, insured finished carpenter, has five children, and does not want a bailout. Perhaps the Obama administration by creating real jobs now is going to start focusing on that, and that's very positive, but I thought that was interesting because he reflected the ethos that he just wants to make an honest day's wage.
The economic crisis and the foreclosure problem (I have to link them together) are not only a national and international problem, but also a local problem. While the real problem has occurred where most mortgages have been made which is in Florida, California, Nevada and some places in Arizona (the "hot" areas on the map), these mortgages were packaged both nationally and internationally. Therefore, while the highest level of defaults are in those areas, that is because most of the mortgages were made in those areas because of substantial investment from speculators and for folks migrating to those areas. What about the rest of the country? How about Nebraska, for instance? Nebraska really doesn't appear to have a foreclosure crisis or an economic crisis of the kind we're talking about. Nebraska may have much job creation or development in the first place; so I thought this map was very telling.
Florida, Arizona, Ohio and Michigan, and California account for the bulk of third quarter foreclosures. It is interesting that even though the foreclosure crisis is here in Florida and in a few other states, again it is a national and international crisis because these mortgages were bundled up and sold to investors, banks, and financial institutions all over the place. As we saw, by the way, 1 in 10 homes in the United States is either in foreclosure right now or about to be or is just severely late in payments. Florida's foreclosure filings in the month of November were close to 6,000 filings; Palm Beach 2,100; Miami close to 6,000 in Broward County. This is an average in Florida of 1 in every 173 homes in foreclosure. In November 2008, there were approximately 49,190 foreclosure filings in Florida.
Home prices continue to fall here, the median home price was $345,000.00 and now it is $259,000.00. Of course, some new home product that has come on the market is just less expensive to begin with, but there is no question that there has been massive price erosion which is down probably 25 percent overall throughout the county.
Here are some future predictions: 8.5 to 10 million mortgages will be in default between 2008 and 2010; 5.2 million people will lose their homes according to Moody's. Mark Zandi, chief economist for Moody's, thinks that most of the proposals that the Bush administration has presented to date are insufficient, that the problem is way too large and that we need a large comprehensive plan. President Obama, during his campaign, talked about, first and foremost, giving bankruptcy judges the right, like they do in commercial mortgages, to basically renegotiate and change the terms of a mortgage. What does this mean? Changing the terms of a mortgage includes not just changing the interest rate, not just changing the term, but also changing the principal amount. Why is stemming the foreclosure crisis so important? It's important because we're going to continue to have price erosion and we're going to continue to have massive suburban blight of homes that end up being vacant, vandalized, or occupied by migrants or gangs. This is happening now throughout the United States which can actually erode the entire social fabric of this country. Riots may even occur. Thus, we must, first and foremost, figure out a way to stem the foreclosures. The banks don't want to accept their responsibility of owning these homes because they have to pay the pool man, the electric bill, the real estate taxes, the homeowner association assessments, etc. Homeowner associations are suing banks for not foreclosing fast enough. We've got homeowner associations that are going bankrupt because the banks aren't paying! I mean this is a domino effect that is of unbelievable social proportion; so we need to get the foreclosure problem under control, and the first step would be to give bankruptcy judges some prerogative. If the bankruptcy judges are given such leeway, then there will be re-pricing of mortgage securities and a re-pricing of mortgages because they have to now internalize the risk that some of their principal could in fact be eroded in a bankruptcy.
Since none of that exists right now, none of that has happened. The Homeowner's Loan Corporation (HOLC) could in fact become a very important instrument in this process because in fact what they did during the depression is that they gave contingent second mortgages to homeowners when in fact banks wrote off principal. Suppose, for example, you had a home that was worth $100,000.00 with a bank loan of $80,000.00 and now the property is worth $50,000.00. Suppose further that the bank decided that they would refinance with you instead of foreclosing. You would stay in the home at $50,000.00 and the bank now effectively has $30,000.00 of contingent principal that it in fact had lost. The HOLC would then come in and actually guarantee that $30,000.00 and when the homeowner sold the home a few years from now that $30,000.00 would either be paid back to the bank if in fact the price had not increased or if the price had in fact readjusted itself to $80,000.00 the United States government through HOLC would receive a contingent second mortgage of that $30,000.00. During the Roosevelt administration while this was a huge program, the government only lost 15 percent of all the money that it laid out. Now of course the government didn't receive any income for it, but it received back 85 percent of that money. Having HOLC and allowing bankruptcy judges to reset principal would foster more government participation in that whole concept. The other thing that President Elect Obama discussed was a 90-day moratorium on foreclosures once elected. Now it's interesting because his new proposal right now doesn't talk about any of this. Instead what he's trying to talk about is making sure that people are employed and that they have healthcare and that in fact their most essential needs are met and that may work short term, but long term we need to address these systemic issues.
The Professor Robert Schiller has been talking about this for years now and finally everyone's listening to him. He's been out there basically talking about these problems. A lot of the issues I'm talking about today are from his book. Most of my thoughts are not original. You can go read Schuler's book if you want. These are my favorite pictures. You got here a guy involved with a bailout, but what is he bailing out? He is bailing out a swimming pool. He's bailing out a swimming pool in Southern California that he's going to convert to a skateboard park. He is converting an abandoned house that's been foreclosed and now owned by a bank, a bank that's not fulfilling its social responsibilities to maintain the property and look what these guys did, they cleaned the pool out, they made the place look beautiful and they invited their friends from Germany to come over to one of the great skate parks in the United States next to someone's home. Here you now have neighbors who sleep right at the skate park and then when they need to borrow some sugar they'll certainly come over and knock on your door and ask for a cup of sugar and of course you're going to give it to them. This is the potential for real social crisis as described in the Atlantic Magazine over a year ago which referred to this social issue as suburban blight. There are homes even in Weston that have been completely abandoned and destroyed. You may not ready about it in the papers because people just do not want to discuss the problems that can and do occur when the banks do not maintain the properties that they foreclose upon.
Let's talk about loan modifications. One of the topics that the banks are talking about is loan modifications. We're seeing some loan modifications, but it's like the three bears: you can't be too big and you can't be too fat and you can't be too little and too small, you have to be just right. Now what do I mean too big? If you're paying your mortgage every single month and you're keeping your credit good and you go knocking on the bank's door asking for a modification, you're too big and you're too fat. If you're the little bear over here you just lost your job, you have no income and you ask for a modification. The banks going to say, "Well, how are you going to pay the new mortgage payment? We'll reduce your interest rate. We may even take some principal because the bank is not going to write off any principal. Everything I've talked about in terms of loan modifications right now is changing the term and changing the interest rate and once in a while maybe taking some principal, taking some back interest payments and re-characterizing it as principal. However, if you don't have the income and can't show enough money coming in each month to even pay that mortgage payment you're not going to get the modification. An interesting statistic and most people don't know this is that fifty percent of all modifications that have occurred in the past year and a half are now in default. The new term "re-default" will be used frequently this year to describe this statistic. So if you're the little bear over here forget it. The middle bear has income, maybe you were laid off for a few months, you've missed a few payments, but you're doing okay, you're credit is impaired, but you still have a job. You will receive a modification and your modification will probably be a reduction in interest rate, maybe some payments you missed will be tacked on at the backend. You will get it. Unfortunately, until the new Obama Administration's plan kicks in where we can get people actually working again, there won't be a lot of modifications. There just won't be people maybe sitting in this room who are too big, fat bears and they're just going to be stuck.
Shay's Rebellion, very interesting, anyone remember Shay's Rebellion from your history book? Shay's Rebellion occurred during the Articles of Confederation before the United States Constitution. Why was there a rebellion? Because the farmers in Western Massachusetts didn't like the idea that they should go to jail when they didn't pay their mortgage. These farmers became upset with judges not effectuating due process in terms of their foreclosures and they actually attacked the courthouse. There was a rebellion led by Shays and the government was not prepared to respond so a crisis occurred which basically caused the dissolution of the United States under the Articles of Confederation. We then referred to the Constitution where the government had its own military and could have probably responded to Shay's Rebellion. In fact, the judges all ran home, they locked their doors and the folks were not foreclosed for a period of time. My concerns is that if we don't deal with the foreclosure crisis in some sort of collective intelligent way, that you could have some sort of social crisis.
The Obama plan talked about the moratorium for 90 days and about giving more authority to the bankruptcy judges. We talked about that. Cram downs are allowed in the commercial context. We do not allow it right now in the residential context. It is important, not just for the individual homeowner, but it is important in order of re-pricing the securities that are out there and allowing banks to anticipate that risk in making new loans. Even with HOLC most folks do not believe that whatever the government has proposed as of right now, including what Congress is looking at, is going to be sufficient. I think it's probably a great first step. I think probably coming out of the box with something too aggressive would probably have been a mistake for the President. But, by basically recreating some sort of government agency like the HOLC that will allow for principal write off of existing loans, is necessary. I mean, if you leave here with anything today, does it not make more sense for someone who lives in a home, doesn't want to give up the home, who pays the maintenance, who actually in fact fulfills the obligation of homeownership in a socially responsible way work with an agency that HOLC? Isn't it better for them to own the home as opposed to a bank that is not in that business, is not capable of doing that and therefore is going to allow skateboarders from Germany ( as we discussed earlier) to take over a neighborhood?
I think that the government is going to have to step in and help banks who are banks to writing off principal and not getting something back for it. It is not fair to their shareholders. We need to make sure our banks remain solid. I mean when a bank, you know, pays ridiculous bonuses to their executives for not doing a good job that's a different story, but in terms of making sure that our economic system remains solvent, that is something that we all need to share in that collective responsibility. This particular program would cost another 300 billion dollars and that's in excess of the 700 billion dollars that they're talking about right now, so most people are saying that we're in a 1 to 3 trillion dollar mess.
Judge Cristol, a chief judge of the Southern District, recently just did an editorial piece on the importance of allowing for cram downs on foreclosures in residential homes. He doesn't talk about the secondary pricing issues from an economic point of view, but he talks about the importance of it from a social dynamic point of view. Banks are starting to get the message. Sometimes at the foreclosure sale, the bank really doesn't want the property. Let's go back to my example, you have a $100,000.00 home. The person had an $80,000.00 mortgage. The house is now only worth $50,000.00. The person stopped paying the mortgage. You have $50,000.00 value that's left. The bank will not actually put in their $80,000.00 mortgage. Some will only put in a $50,000.00 bid, hoping that someone will buy it between $50,000.00 and $80,000.00. Then, they take their loss of $30,000.00 and someone will now move into the home and they, the bank, do not have to pay the taxes, the homeowners association assessments, the bug man, the pool man, or the lawn service. Yet, if you had an HOLC in place, the bank would somehow be able to get some insurance for that $30,000.00.
Qualifications for Fannie and Freddie. These are for modifications that they are doing. First of all you can't be in bankruptcy. You have to show hardship. You have to have an outstanding loan value that must exceed 9 percent of the home value. Basically, you can't have any equity in your home. You have to be in default. What a great thing!! So, if you want to be considered for a modification by Fannie and Freddie, you can't be a big bear. You can't be a little bear. You have to be that middle bear. Single family homeowner occupied, mortgage payment cannot exceed 30 percent of total income and then they get $800.00 per file from the government. It hasn't been terribly popular. Modification terms, right now, extend to 40 years. They give you a fixed rate. They defer principal payments to the end. No reduction in principal even if the property is under water. Again, this is just a band-aid. Sheila Baer from the FDIC is rather interesting as she's been pushing a lot of these issues. I suspect that she'll have some role in the Obama administration.
Next, let us talk about what the courts are doing about the banks. Courts on their own have been doing things to try and slow the foreclosure process. We saw in Palm Beach that they created rules that you have to be able to go to mediation. You need to meet face to face with a person from the bank. The borrower has to have a right to talk to that person, to work things out because one of the hardest things, as most of you know, is getting a live person on the phone from the bank, who has any authority. We are trying to get Broward to do follow Palm Beach's lead. In Dade County, after the bank sells the property to you and then you try and sell it and there are any code violations on the property then, guess what, you can't buy it. Now, the word will get out real quickly to the banks that they're not going to be able to sell their home because the new buyer will not be able to sell it. This means that the bank is going to have to fix up the home, make sure it is clean, and make sure it's habitable or better yet, work with the existing homeowner to do something so they can stay in the home or do a short foreclosure sale.
I will now take questions from the audience.
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