So I realize while writing the last post I'm no better than the people who play Monday morning quarterback. Where are my solutions? I'm complaining about the world but what would I do.
I'm not Harvard educated economist. In fact my economy teacher in college said I wouldn't amount to anything. Maybe that's where my chip for the people are supposed to know and solve our problems come from. Economics are fluid. No one problem is the same as another. We can learn from the past but there are no exact fixes that apply to every situation. If that where true, we'd just need to start a war because that's truly what got us out of the Great Depression years ago. Wait, we are in a war...what, we're in fact in two wars? Oh, well...um.. maybe War isn't the way out or at least these wars. We're in multiple wars and we (the average person) is asked to sacrifice NOTHING. When we go to bed at night the furthest thing from our thoughts are the young men and women dying for us.
We might be able to solve our debt problems in a matter of months if we where to stop the major campaigns of both Iraq and Afghanistan. I hate to sound to simplistic but I don't see the bang for our buck. Most of the terrorist threats that we've been told that we've captured have been on our soil lately. I haven't heard of any plans that we've disrupted from over seas. Are we really fighting them over there so that we don't have to fight them over here?
Anyway, what would I do. If I had ultimate power, one of the first things that I would try is to put this TARP money in the hands of the borrowers and not the lenders. Recently the lenders where told that they where going to have to start lowering the principal owed on the loans. This is the last thing the lenders want to do. Even though they might be upside down on Loan to Value, they're hoping that one day the values will rise and they'll get their money back. They'd actually rather loose money on interest than they would on principal. Let's be real here. The banks where just as much of a culprit on the inflation of prices as anyone else. They allowed stated, 100% LTV, low FICO loans. The lenders where competing with themselves to produce more and more and make as much money as they could which meant the rise of prices would keep them making money the easiest and fastest. They weren't really lending their own money, they where putting it together and selling these unknown and unproven assets on the stock markets.
So screw the banks. Put this TARP money into the hands of the borrowers. Figure out, in very similar ways that they're doing rate mods, to see what it will take to lower the principal that people owe to get them at the 38 - 42% Debt to Income that the government feels loans should be at. By lowering the principal it will save the borrower on their monthly payment AND then make it much easier for them to sell their homes in the near future. They might even be able to make a small profit. Yes, it could be seen as the government giving away money but it will promote and allow for real estate movement in the private sector, not just foreclosing and shortselling people's homes to which only the lenders get to write off the losses. Write them off they are doing, it's very common for the lenders to now send the borrower's on a shortsale a 1099 for the difference of what they owe and what the lender actually got paid off. So you owe 150,000 on a house and it shortsales for 100,000; the lenders will send you a 1099 for that 50k difference. You're going to end up paying taxes on the 50k loss so that the lender doesn't. I'm sure it's more complicated than that but this is what the normal personal is experiencing.
Banks and investors would tell you that they'd loose lots of money on the principal, but I ask, how much is being lost on the the shortsale or foreclosures? How much money in interest and principal at the end of the day when a house sits on the market for six months?
This would promote sales by individuals and make it easier for them to get rid of houses on their own, really push people in and around the real estate business. They would spend more money and higher new processors and invest in their own businesses instead of not being able to pay for the bills.
Another thing I'd do is let knowledgeable people figure out helpful and sensible loan guidelines. There is a need for stated. there is a need for 95 or 100% financing. But make the more risky loans, not terribly worse in pricing but much more restrictive. There is no reason that that someone who qualifies with a full doc income and assets and huge FICO scores shouldn't be given the option to have a 100% loan. If someone can truly afford it, why not. What's more American than that?!
I think I owe it to not just complain, but to also bring to light the failures and possible successes that I see and think of. I'm getting tired and have a long day of fighting for my loans. I'm going to get a few winks but check back in. Let me know what you think we should do to fix and promote the real estate world.
Thursday, July 15, 2010
Wednesday, July 14, 2010
Fed meeting and changes
The Fed meet. China drops. The news ain't good. Sometimes I feel like we'd have just the same luck, when it comes to listening to the "experts", as we would letting Paul the octopus prognosticate our economy.
At least with Paul, if he's wrong he'll make some damn fine calamari or tako (my mother's favorite sushi)!!!
I really hate to sound like a broken record. It's not like I look forward to coming up with new and exciting ways to tell you that the economy sucks. Most of you don't need me to tell that to you anyway. It's like the idiotic weather announcements on the radio, I know what the weather is I'm driving in my car or can look out the window. The same can be said about the economy, just look at your bank account or ask a friend how they're doing financially.
The news from China isn't all bad. In fact I think you can take it a few ways. The headline on Marketwatch.com was that China isn't going to see double digit growth for a while. But that's just the headline. As I always preach, you've got to read the article. It seems that China itself maybe the biggest contributing factor to its slowdown. It is not news that China has money. I've spoken with people who live there. Over the past few years, China's biggest issue is how to spread the nations wealth without devaluing their own monetary system. If a government is flushed with money, they can't just hand out checks. As we know, that's just for us broken economies to do :). Ok, not so funny, but take a chill pill; I'm not the one who broke our economy.
As I was saying, what does a Communist government do with all this money? They invest in infrastructure. I've learned of programs where the government is actually building and giving their people new homes. I'm not talking about luxury homes but they're better than the man-made huts that many of the rurally people are still living in. This is just a small example of how the government increases the standard of living of their people without devaluing their currency or allowing the poor rise up in class (for good or bad depending on your political views). Their investment in lower and middle classes also allows them to spend money on stuff that is produced by the rich. In my view this is a type of trickle-up flow of money. But who am I, I'm sure there are a lot more complex things happening. The big news is that China is slowing down some of these investments and "rolled back some of its growth-accommodative polices". These actions are to prevent a bubble and then subsequent burst such as we've experienced. Say what you will about the Chinese, at least their government sees the damage that some of these financial bubbles can create; and while a few people make a lot of money, when it comes time for the bubble to bust many people are hurt.
In the long run it seems that China may be doing the best thing for itself. Only time will tell. Who knows how this will affect our relationship. I don't feel it will hurt us, but it will at some point annoy us because they might tell us no to something. Whether it is when we reach our hands out for money or look for foreign investments which we would expect to be doing better but their rules keep them from exploding. There does seem to be a yin / yang that goes on. The bigger the boom, the bigger the bust. So China is still in play but they seem to be purposely gearing back they're expansion so that they don't go with what we are going through.
That leads us to what the Fed came out and predicted. I look back to different Fed leaders claiming that we're not in big trouble and we should be more concerned with inflation and maybe it's time to raise rates, etc. Meanwhile we had just hit the tip of the iceberg and none of them, even the most radical thinkers were thinking that we'd still be in this hole. Many on the board thought that this depression was going to be a V shaped economy where we see a very hard drop but once all is said and done, we'd have a nice bounce back up. How wrong they are / where. More and more is this recovery looking like it's going to be an L shaped recovery.
Speaking with some of my sources in the foreclosure and shortsale departments, we might only be a quarter of the way through with the homes that will either shortsale or get foreclosed on. Frankly, the heads of these companies don't know what to do. There is such a lack of inventory and most of the homes that are out there are just crap. Either they're way over leveraged or have been sitting so long that people have destroyed them or the homes where crap to begin with and people are now not caught up in the whirling dervish of an exploding market and see them for what they are. Besides, you can't just buy a fixer at a "fair" price, fix it up for thousands of dollars and expect to flip it and make a profit. I'm not saying this is impossible but it's just extremely hard to do.
The other fact that I've noticed is that if anything does come onto the market that's half way decent it's being snatched up like crazy. But not only does it need to be in good condition but priced right as well. You can have a gorgeous house but if you're 50k over value, more than likely you're not going to get what you're hoping to get. people are not going to be putting in that extra money. Especially when financing is such where you're already putting down 20%. People don't want to put down 20% and then the 50k that to property is overpriced. This all leads to 1) crap on the market that just sits and gets worse over time or 2) you need to be in the right place at the right time to snag one of the good home which you might be stuck overpaying for if you really want it. These are tough choices.
Real Estate is such a vital part of our economy. It's one of the last things that we "produce" and sell ourselves. With the Real Estate market not looking good, and other factors as well, the Fed has increased it's projections of unemployment to almost 10%. Here in California, and already in many states, this is not something that's new. We need to get jobs and have jobs created. That's why I'm for stimulus that actually helps hit people. We've seen what the stimulus packages have done for the banks. They've balanced their books and they continue to do business as usual but they're not doing what they where supposed to do with that money, which was help lend to the common person and make loans easier to obtain. I'm not saying that they should go back to stated, 100% neg-am loans; but some of these hoops that the lenders are making even the best clients go through is outrageous. All of this is of the fear that the individual lenders having to buyback loans. Well in my opinion the Fed backing up Fannie and Freddie to buy loans should have taken that fear away and made the lenders more apt to actually LENDING. That didn't happen and now the Fed money has come and gone. I hope that there will be an extension of the Fed buying of Mortgage Backed Securities (MBS).
The Fed is now admitting that this economic downturn will last a while. That's the biggest thing that I got out of the meeting notes. I think we're in uncharted territories and that no one really has a way to get out of this. But like any problem, the first step is to admit there is a problem and deal with it head on.
Time will only tell if the steps that China is making are the right ones or maybe too conservative. Opposite of the Fed. Maybe they should be acting more aggressively instead of a wait and see approach for each half assed idea.
At least with Paul, if he's wrong he'll make some damn fine calamari or tako (my mother's favorite sushi)!!!
I really hate to sound like a broken record. It's not like I look forward to coming up with new and exciting ways to tell you that the economy sucks. Most of you don't need me to tell that to you anyway. It's like the idiotic weather announcements on the radio, I know what the weather is I'm driving in my car or can look out the window. The same can be said about the economy, just look at your bank account or ask a friend how they're doing financially.
The news from China isn't all bad. In fact I think you can take it a few ways. The headline on Marketwatch.com was that China isn't going to see double digit growth for a while. But that's just the headline. As I always preach, you've got to read the article. It seems that China itself maybe the biggest contributing factor to its slowdown. It is not news that China has money. I've spoken with people who live there. Over the past few years, China's biggest issue is how to spread the nations wealth without devaluing their own monetary system. If a government is flushed with money, they can't just hand out checks. As we know, that's just for us broken economies to do :). Ok, not so funny, but take a chill pill; I'm not the one who broke our economy.
As I was saying, what does a Communist government do with all this money? They invest in infrastructure. I've learned of programs where the government is actually building and giving their people new homes. I'm not talking about luxury homes but they're better than the man-made huts that many of the rurally people are still living in. This is just a small example of how the government increases the standard of living of their people without devaluing their currency or allowing the poor rise up in class (for good or bad depending on your political views). Their investment in lower and middle classes also allows them to spend money on stuff that is produced by the rich. In my view this is a type of trickle-up flow of money. But who am I, I'm sure there are a lot more complex things happening. The big news is that China is slowing down some of these investments and "rolled back some of its growth-accommodative polices". These actions are to prevent a bubble and then subsequent burst such as we've experienced. Say what you will about the Chinese, at least their government sees the damage that some of these financial bubbles can create; and while a few people make a lot of money, when it comes time for the bubble to bust many people are hurt.
In the long run it seems that China may be doing the best thing for itself. Only time will tell. Who knows how this will affect our relationship. I don't feel it will hurt us, but it will at some point annoy us because they might tell us no to something. Whether it is when we reach our hands out for money or look for foreign investments which we would expect to be doing better but their rules keep them from exploding. There does seem to be a yin / yang that goes on. The bigger the boom, the bigger the bust. So China is still in play but they seem to be purposely gearing back they're expansion so that they don't go with what we are going through.
That leads us to what the Fed came out and predicted. I look back to different Fed leaders claiming that we're not in big trouble and we should be more concerned with inflation and maybe it's time to raise rates, etc. Meanwhile we had just hit the tip of the iceberg and none of them, even the most radical thinkers were thinking that we'd still be in this hole. Many on the board thought that this depression was going to be a V shaped economy where we see a very hard drop but once all is said and done, we'd have a nice bounce back up. How wrong they are / where. More and more is this recovery looking like it's going to be an L shaped recovery.
Speaking with some of my sources in the foreclosure and shortsale departments, we might only be a quarter of the way through with the homes that will either shortsale or get foreclosed on. Frankly, the heads of these companies don't know what to do. There is such a lack of inventory and most of the homes that are out there are just crap. Either they're way over leveraged or have been sitting so long that people have destroyed them or the homes where crap to begin with and people are now not caught up in the whirling dervish of an exploding market and see them for what they are. Besides, you can't just buy a fixer at a "fair" price, fix it up for thousands of dollars and expect to flip it and make a profit. I'm not saying this is impossible but it's just extremely hard to do.
The other fact that I've noticed is that if anything does come onto the market that's half way decent it's being snatched up like crazy. But not only does it need to be in good condition but priced right as well. You can have a gorgeous house but if you're 50k over value, more than likely you're not going to get what you're hoping to get. people are not going to be putting in that extra money. Especially when financing is such where you're already putting down 20%. People don't want to put down 20% and then the 50k that to property is overpriced. This all leads to 1) crap on the market that just sits and gets worse over time or 2) you need to be in the right place at the right time to snag one of the good home which you might be stuck overpaying for if you really want it. These are tough choices.
Real Estate is such a vital part of our economy. It's one of the last things that we "produce" and sell ourselves. With the Real Estate market not looking good, and other factors as well, the Fed has increased it's projections of unemployment to almost 10%. Here in California, and already in many states, this is not something that's new. We need to get jobs and have jobs created. That's why I'm for stimulus that actually helps hit people. We've seen what the stimulus packages have done for the banks. They've balanced their books and they continue to do business as usual but they're not doing what they where supposed to do with that money, which was help lend to the common person and make loans easier to obtain. I'm not saying that they should go back to stated, 100% neg-am loans; but some of these hoops that the lenders are making even the best clients go through is outrageous. All of this is of the fear that the individual lenders having to buyback loans. Well in my opinion the Fed backing up Fannie and Freddie to buy loans should have taken that fear away and made the lenders more apt to actually LENDING. That didn't happen and now the Fed money has come and gone. I hope that there will be an extension of the Fed buying of Mortgage Backed Securities (MBS).
The Fed is now admitting that this economic downturn will last a while. That's the biggest thing that I got out of the meeting notes. I think we're in uncharted territories and that no one really has a way to get out of this. But like any problem, the first step is to admit there is a problem and deal with it head on.
Time will only tell if the steps that China is making are the right ones or maybe too conservative. Opposite of the Fed. Maybe they should be acting more aggressively instead of a wait and see approach for each half assed idea.
Tuesday, July 6, 2010
Low rates and a failing economy
Rates are low. Very low. Most people think this is good. As far as someone refinancing or purchasing a house right now, this is good. You're not going to find better rates.
The rates should stay low. Low confidence in the stock market and a lack of jobs is creating a perfect storm for people to shelter their money in treasuries. This pushes the yield down and should mean low rates for a while. Mainly because I don't see where the public or private sector will be creating any new jobs soon. Don't forget we still have a massive Real Estate problem and tons of inventory that the banks have not unleashed or pushed forward on foreclosing. We're far from the end.
The economy is not there. Anyone who tells you that this economy is turning around doesn't know what they're talking about. We're in for a long year. If we can truly put Fed money into "green" research or the creation of "ideas" that will be the best way for us to get out of this mess. Eventually the RE market will correct itself but we've got a long way and many ups and downs before that happens. It's going to take people putting research into new ideas and hopefully there will be a spark that will set off a product that will need specialized employees that can offer good paying jobs. What that spark will be or in what direction of manufacturing, I don't know. But I'm thinking in the way that the Dot.Com boom was in the 90's. Sure there where failures at the end but look what we where left with. iEverything, internet, the digitalization of information and a slew of other products and money earning opportunities.
Back to low rates, yes we have low rates. Now is the time to check into refinancing or if you've been waiting to purchase, start looking. The problem there is that the banks are so tight with the money and guidelines that it's making it near impossible to qualify. Don't be dismayed if you can't get a loan Today. The tightening of guidelines is reactionary to how loose the guidelines where. Eventually you'll see some changes to the positive. It might not seem like it now. It might seem like you hear no a lot more than you hear yes, but in time things will loosen up. Just like the job market, it just takes a spark. It will take a few risk minded investors to roll out a Stated program that makes sense, and if they're successful others will follow. But it takes time for these people to 1) have the balls to create a good program with guidelines that will allow it to succeed, 2) the program must succeed and turn a profit, and 3) both one and two will take time to develop and show success. Even in a perfect scenario, if all these dominoes fall the way they're supposed to, it could take months if not years. I'd guess, from the roll out of a new product to the sale of the loan to the time they can be analyzed and finally confirmed as a success and for other to start copying them; you're looking at a year?
Meanwhile who knows what will happen between now and then. It's scary but for some reason I think there is a light at the end of this pit we're falling in. It's not going to be a fun fall and I might not be able to see the light, but I feel that we know what direction we're going to need to go into. The problem is not everyone, especially the people who actually make the decisions like lawmakers and their advisers and lobbyists, can agree on the same path to take to get to the light. This is where we might find the most difficulty getting to the end. Without a good plan that everyone can latch onto, it could cause us to be lost longer than we need to be or can afford to be.
The rates should stay low. Low confidence in the stock market and a lack of jobs is creating a perfect storm for people to shelter their money in treasuries. This pushes the yield down and should mean low rates for a while. Mainly because I don't see where the public or private sector will be creating any new jobs soon. Don't forget we still have a massive Real Estate problem and tons of inventory that the banks have not unleashed or pushed forward on foreclosing. We're far from the end.
The economy is not there. Anyone who tells you that this economy is turning around doesn't know what they're talking about. We're in for a long year. If we can truly put Fed money into "green" research or the creation of "ideas" that will be the best way for us to get out of this mess. Eventually the RE market will correct itself but we've got a long way and many ups and downs before that happens. It's going to take people putting research into new ideas and hopefully there will be a spark that will set off a product that will need specialized employees that can offer good paying jobs. What that spark will be or in what direction of manufacturing, I don't know. But I'm thinking in the way that the Dot.Com boom was in the 90's. Sure there where failures at the end but look what we where left with. iEverything, internet, the digitalization of information and a slew of other products and money earning opportunities.
Back to low rates, yes we have low rates. Now is the time to check into refinancing or if you've been waiting to purchase, start looking. The problem there is that the banks are so tight with the money and guidelines that it's making it near impossible to qualify. Don't be dismayed if you can't get a loan Today. The tightening of guidelines is reactionary to how loose the guidelines where. Eventually you'll see some changes to the positive. It might not seem like it now. It might seem like you hear no a lot more than you hear yes, but in time things will loosen up. Just like the job market, it just takes a spark. It will take a few risk minded investors to roll out a Stated program that makes sense, and if they're successful others will follow. But it takes time for these people to 1) have the balls to create a good program with guidelines that will allow it to succeed, 2) the program must succeed and turn a profit, and 3) both one and two will take time to develop and show success. Even in a perfect scenario, if all these dominoes fall the way they're supposed to, it could take months if not years. I'd guess, from the roll out of a new product to the sale of the loan to the time they can be analyzed and finally confirmed as a success and for other to start copying them; you're looking at a year?
Meanwhile who knows what will happen between now and then. It's scary but for some reason I think there is a light at the end of this pit we're falling in. It's not going to be a fun fall and I might not be able to see the light, but I feel that we know what direction we're going to need to go into. The problem is not everyone, especially the people who actually make the decisions like lawmakers and their advisers and lobbyists, can agree on the same path to take to get to the light. This is where we might find the most difficulty getting to the end. Without a good plan that everyone can latch onto, it could cause us to be lost longer than we need to be or can afford to be.
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