In January of 2008, Bank of America CEO Kenneth Lewis announced that his company had the “rare opportunity” to buy Countrywide Mortgage for the amount of $4 billion.
“Countrywide presents a rare opportunity for Bank of America to add what we believe is the best domestic mortgage platform at an attractive price and to affirm our position as the nation’s premier lender to consumers,” Lewis said.
Now with Lewis long gone, Bank of America (BoA) owns a glut of abandoned houses it can’t sell. So the largest mortgage servicer has decided to bulldoze some of its inventory. And BoA isn’t alone. Wells Fargo, Citicorp, JP Morgan Chase and Fannie Mae have started knocking over a few of their repos already. Lindsey Rupp reports for Bloomberg,
The biggest U.S. mortgage servicer will donate 100 foreclosed houses in the Cleveland area and in some cases contribute to their demolition in partnership with a local agency that manages blighted property. The bank has similar plans in Detroit and Chicago, with more cities to come, and Wells Fargo & Co. (WFC), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM) and Fannie Mae are conducting or considering their own programs.
“There is way too much supply,” said Gus Frangos, president of the Cleveland-based Cuyahoga County Land Reutilization Corp., which works with lenders, government officials and homeowners to salvage vacant homes. “The best thing we can do to stabilize the market is to get the garbage off.”
Last May, I wrote of Detroit mayor Dave Bing’s plan to” right-size” the motor city by razing complete neighborhoods and speculated that the idea might catch on.
With millions of vacant homes and commercial building sitting empty around the country, this is an idea that could catch on. Don’t laugh, after all the government killed cattle and poured milk on the ground in compliance with the Agricultural Act of 1933 to support prices even as people where starving. Most farmers at the time couldn’t afford not to take the government money.
Is it too far-fetched to think that Washington, in yet another way to bail out the banks, would pay financial institutions to knock down repossessed homes and buildings? This would cure the glut, clean up public nuisances and blight (like the Romney place), with the added benefit of helping out homebuilders. Plus, good high-paying jobs knocking down buildings would be created: a right-sizing of employment if you will. This is a win-win-win-and then some policy.
BoA will donate and bulldoze 100 houses in Cleveland, 100 in Detroit, 150 in Chicago and may donate and detonate homes in nine other cities. And if you thought some federal money was lurking somewhere in this story, you’d be right.
The lender will pay as much as $7,500 for demolition or $3,500 in areas eligible to receive funds through the federal Neighborhood Stabilization Program. Uses for the land include development, open space and urban farming, according to the statement.
“No one needs these homes, no one is going to buy them,” said Christopher Thornberg, founding partner at the Los Angeles office of Beacon Economics LLC, a forecasting firm. “Bank of America is not going to be able to cover its losses, so it might as well give them away and get a little write-off and some nice public relations.”
No one needs these homes? Just as FDR’s administration didn’t care about those starving during the depression and destroyed foodstuffs in an attempt to raise farm prices, the current administration doesn’t care about the millions of homeless who could use one of these roofs that are being bulldozed over their heads.
Warren Buffett says “blow up a lot of houses — a tactic similar to the destruction of autos that occurred with the ‘cash-for-clunkers’ program.’” The hope is to raise used home prices as “cash for clunkers” did for the used car market.
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Is this just a retake of “The Broken Window Fallacy” in disguise?
Yup, appalling economic ignorance. People need to read Bastiat.
Yes, for the ones that are still useful.
But for the ones that are already ‘broken’, no.
But I don’t think that they all are interested in making the difference !
Think of all the jobs this will create! Why, TNT manufacturers and bulldozer drivers should rejoice with the rest of us! Society will surely be richer. Well done, kind banking overlords. Well done.
Maybe they could slaughter some pigs and burn some potatoes to drive up the cost.
Why stop there? Why not bomb the entirety of New York City to the ground. Imagine the economic growth! All those bombs and planes needed to blow it up. All the cleanup crew personnel hired. All the construction effort rebuilding everything. It will be a new golden age of American industry.
That depends.
The banksters won’t be be out of town during that time, will they?
“The country’s in the very best of hands.”
Only in DC could “Neighborhood Stabilization Program” mean driving a bulldozer through all the houses. Forget the broken window fallacy- this is “we had to burn the village so we could save it”.
But the math says it helps us. I know it’s tricky, but destroying perfectly good houses is good for us, especially in these tough economic times. Maybe we could start destroying our cars too. Oh wait, we already did that…
Destruction of wealth! What fallacious economic ideas!
“Get a little write-off” ??? This is after the government gave them all that money for the short sales and the deeds-in-lieu? How many catgories can they get a gov subsidy or stimulus funding for the SAME piece of property?
And you know it is because if they don’t bulldoze them, the local building codes and covenants will be shot to hell by the deteriorating buildings that no one does anything about. An apartment building, brick, Chicago, West-side, fireplaces, balconies, eighty some units, hardwood floors, I lived in it many years ago, was sold at some tax sale for a dollar and the guy was given money to fix it up and today it is fully occupied. When he went in to start work he found many apartments had the oak flooring cut out and stolen. He did the work. It is a liveable, beautiful building.
My brother is Big Brother to a young man who lives in a lovely old home on Cleveland’s east side, in an area which could be described as “inner city” or ‘ghetto,” except the latter doesn’t really fit because the neighborhood is virtually deserted. His parents have the only owner-occupied home on their block. My guess is they paid $40,000 or more when they bought it twenty-five or thirty years ago, and it probably appreciated in value for a time during their tenure. Although it is a large, well maintained home, they couldn’t sell it at any price today. Cleveland is a town that has been misruled, looted and destroyed by corrupt politics and politicians for about 100 years, and this is what’s they’ve left of it to its relative-few remaining denizens.
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