PERSON OF THE WEEK: Fabian Calvo is founder of The Note House, a company focused on buying and selling distressed residential and commercial non-performing loans and REOs in the U.S.
Calvo recently produced a micro-documentary film, ‘House Of Cards, Real Estate's Big Secret,’ exposing the risks and opportunities hidden within the current housing market. In the film, he asserts that the Federal Reserve, large financial institutions, government agencies and the media have conspired to steadily drive home prices back up, creating a scenario that is similar to stock pump-and-dump schemes of the past.
MortgageOrb interviewed Calvo to learn more about the film and his views on the future of the U.S. housing market.
Q: What was the inspiration behind your micro-documentary film, ‘House Of Cards, Real Estate's Big Secret?’
Calvo: I am the owner and operator of The Note House and creator of The Resourceful Real Estate Academy, a program that teaches novice investors how to tap into the current market opportunities. In my opinion, the current stock market and commodity markets, like the housing market, are being manipulated by several factors.
It is my opinion that most investors, especially novice investors, should understand the driving factors of the real estate market. So, my inspiration was really to educate others of the current market manipulation and the opportunity behind it. I believe the positions I take in the film are well researched. However, they are not being shared via the current market commentary.
Q: In the film, you state, ‘The Federal Reserve, large financial institutions, government agencies and the media have conspired to steadily drive home prices back up similar to what you see in stock pump-and-dump schemes.’ Why would the Fed, the large banks, the government and the media want to engineer this type of situation if it could only lead to economic chaos?
Calvo: All these institutions have motivations for wanting asset prices in real estate to rise. The Federal Reserve is clearly pulling out all the stops to prop up the housing market via continued historic low-rate policies and its purchase of $45 billion in MBS a month (that is at least what we are told; the Federal Reserve has a pretty good track record of not fully disclosing its stimulus and monetary policies). I think that Bernanke realizes that there can be no economic recovery without a housing recovery.
In addition, the Federal Reserve realizes that banks still contain massive amounts of toxic debt and properties, as do government agencies, so the Fed must create an environment that is as accommodating as possible to keep these zombie banks alive.
How could banks that still contain trillions in underwater loans, toxic debt and record amounts of shadow inventory put foreclosures on hold or suppress inventory without the Fed's easing policies? They cannot. Big banks, because of the government and Fed policies, are able to hold toxic inventory, while the Fed tries to jack up prices so they can sell these assets into a rising market. Government agencies like Fannie Mae are involved by creating REO-to-rent programs that suppress their inventory from hitting the market.
I think that the majority of the people at these institutions believe they are doing the right thing to help the economy recover. However, I believe that in the end, it will lead to another bubble. The reason you see billionaire investors and private equity firms buying up rental properties is because they believe that the housing market will continue to see the effects of Bernanke's QE policies. In addition, they know that, sooner or later, government policies will return to easy credit for potential home buyers.
It is my opinion that the federal government will likely step up zero down loans after the mid-term elections (a third of FHA loans in the last year were 3% down payment loans) in an attempt to pump up the overall economy.
Q: What do you see as the near-term future of both the housing market and the wider U.S. economy?
Calvo: Unless we face some kind of black swan event, which is very possible, I believe we will see homes prices continue to rise over the next 24 to 48 months. An estimated $8 billion to $10 billion will be spent on buying distressed real estate over the next 3 to 4 years, most of this coming from private equity firms. In three to four years, we could see pre-bubble prices return, which will set us up for another big letdown. I mean big. The next housing collapse will be much bigger for the following reasons:
- The big money investors buying up the market now will dump everything at the top;
- The toxic debt is not being dealt with at a pace to clean up bank balance sheets; and
- We have a bubble forming in U.S. Treasuries, and when it pops, as I suspect in the next 36 to 48 months, it will lead to interest rates spiking fast, crushing values.
Short term, I think it is a great opportunity for investors to make money. Long term, it could be an even greater opportunity for educated investors to make money.