The Housing Market is a lumbering giant with the capacity to lift 10,000 pounds but unfortunately today the giant is carrying a load of 10,001 pounds.  The Giant has a strong will to survive and even prosper but the weight of the load is just too heavy to bare.  What am I referring to?  Deflation spurred on by very high unemployment and the excessive supply of housing.  Once the Deflationary Dragon gets out of the cage he doesn’t go back in easily. I am not an economist but I do know that deflation has delivered a crushing blow to just about everybody and everything over the past year.  The pain has been historic.  I do believe Ben Bernanke with his expertise of the Great Depression is the best team lead to address the Dragon’s ultimate demise but for now it is going to take a lot of time.

 

Today the markets rallied because the Case-Shiller Housing Index came out and showed two consecutive monthly improvements.  Everybody went wild as though the housing crisis is over.  This scares me but also makes me feel good because my stocks keep going up.  Can somebody come over and look in my viewfinder for a day.  Some days I feel like a life boat captain on the Titanic. 

 

The housing crisis is nowhere near over and deflation is still ravaging the prices.  Robert Shiller even came out and warned everyone that even though his name was on the index that it wouldn’t take much for the housing market to make another break to the downside.  You can find Robert Shiller on CNBC from time to time.  You have to love this guy.  He has the street cred and he tells you the truth whether you want to hear it or not.  The best part is that he will tell you that a 1000 pound bolder is going to drop right on your head without raising his voice or getting overly excited.  Of course nobody listens and then he says play the tapes and don’t say I didn’t tell you so.  We are here again so plan on housing prices continuing to decline.

 

The only way we are going to find our way out of this situation is to be realistic.  To make my point I would like to revisit the housing run up in the late 80’s the sputtered in 1989.  It took 5.5 years for the markets to stop going down and finally flatten out.  It was 94 and a half before it was over.  Now the speculative run this time around was enormous as compared to the run in the late 80’s.  This time it almost completely wiped out our financial system.  How long do you think it is going to take for market stability?  It is going to take time and we are going to need some inflation to counter the deflation in my opinion.  The one gentleman I admire but definitely would not want to be with the task of walking this tight rope is Ben Bernanke.  I hope he fixes it before we all have to learn Chinese.

 

Let’s reflect on a recent Barron’s article from two weeks ago.   A major Walls Street firm having researched the supply and demand trends in all the major market came to the following conclusion.  The approximate 14+ million people that were defined as immediately affected were approximately 24% underwater on their homes.  The research expectation was that the same people in two years would be approximately 48% underwater on their homes.  I don’t know how in-depth their research was but on the surface it really makes sense.  We are talking about approximately one third of the 40 million people that bought in the last stage of the housing run up.  Many of these people are facing default and need to find a solution.  The pressure on the housing prices is nothing more than deflation pressing down on the whole market.  The best means of a solution for the most affected people would be a Real Estate Short Sale.  This is the only way they will be able to get out from under this enormous debt burden without going completely broke.  It’s a personal choice, broke and too lazy to research a short sale, or a winner that got out from under a lot of debt and provided their lender a solution.

 

Another point that I like to make to clients to put the housing market in perspective is to take a stock like General Electric and use it as an example.  We all know that markets trade on emotion.  The stock market is much more liquid than the housing market so emotions can be reflected much more quickly.  In contrast a persons personal pain on a home can be put off and we can experience denial if we so chose for a period of time.  About a year ago General Electric stock was around 32 after coming down from approx. the 42 level.  GE was a triple A rated company and an American financial and industrial conglomerate.  What was not to like about GE?  Everything!  We all expected GE to come down to a level of fair value.  We each had a level in our heads and we thought the mighty GE was safe.  Wrong!  It came all the way down to 6 and we all prayed for mercy.  My point here is the markets go way above fair value on human emotion and fear and they go way below in the same manner when they reverse.  This happened with GE that now resides at around 14.  I am asking you what is going to happen with the housing market.  There are already homes that can be bought at a level perceived to be below the cost of construction.  Where does it go from here? 

 

In the words of the late Sir John Templeton in 2005 as the real estate speculation craze raged on, he said “wait until it drops 90% and then buy buy buy”.  Everybody thought he was a fool.  He was certainly no fool in hindsight.   

 

The Deflationary Dragon is still raking havoc.  If you need a roof over your head I say it’s ok to buy a house you like.  Affordability is very attractive.  However, if you are stuck in a situation with denial to the left and foreclosure to the right I am telling you to carve out a path right up the middle and solve your problem with a Short Sale. 

 

We are still offering anyone in the 50 states access to our Free Trial. Take two hours to investigate the Short Sale at www.thenegotiatedsolution.com as a means of avoiding outright default and Foreclosure. We offer a Full Service that will handle the entire process from selling the property to the closing.   Its not easy but it’s the best free market option you have where you can win. We have many happy clients. 

 

Blogging from the front line of the housing crisis.

 

Ghunter

Since the Spring of 2008 there has been much hype and excessive false hope surrounding all of the government plans for the many distressed homeowners in trouble with a mortgage on a property.  The verdict to date underscores that the programs put forth by the government have had limited success.  This is a kind statement. The jury’s verdict has been quantified by a plethora of evidence that the majority of the government programs simply don’t work for the situations most homeowners face in today’s deflationary environment.  The situation we face as a county once again comes back to the center line.  The free markets must be saved and used as an efficient means of clearing out the problems.  Take this recent article title and link as an example:

Administration Offers a Plan to Spur Short Sales

http://www.financial-planning.com/news/administratoin-offers-plans-spur-short-sales-2661934-1.html

 

The administration has done a good job at addressing the severe problems that were facing the free markets since the day Lehman Brothers was allowed to fail.  Now what you are seeing is that the financial side of our economy is no longer looking over the abyss.  We are in a healing process.  The fear that all companies are going to go out of business and the end of capitalism is abating.  This is a slow and painful process.  We are now at the point where the administration is clearly moving back to the free market center line.  They are no longer concerned about the people that are in trouble with their homes.  They are moving toward a focus of how to get rid of the problem, stabilize real estate, and get the economy back on solid ground.  The free market with Real Estate Short Sales and Deed in Lieu is just another means of avoiding foreclosures.  As the article indicates, why not provide an incentive for lenders to get rid of the problems.  Who cares if we can’t save all the homeowners?  If you read this article and follow the theme of my blog since the fourth quarter of 2008 you will see I told you this would happen.  The government will save the free markets and you will be on your own with your mortgage problem.  This is where we are heading as a country.  As major financial risk dissipates greasing the private sectors palm with compensation is just another opportunity to get past the problem.

 

It’s for the greater good of the people and our economy.  Sympatric cries that were once massaged by the politicians will soon not be tolerated.  The free market machine will crush the losers that got into trouble with real estate and a process of renewal will occur.  If you’re the odd man out it will be no different than being left on the battle field.  After all you signed up for the mortgage and you owe the money.  Once the economy and the housing market yield definitive signs of protracted stabilization you are toast unless you have a credible solution of your own. 

 

Why is it guaranteed that this will happen?  How do I know this is happening right now?  We are in a process of deleveraging.  Everyone has heard the news headlines of the excessive levels of private debt relative to GDP and the savings rate.  Do you think that the consumers are just going to huddle up and save save save to pay the debt down before they start spending lavishly again?  It sounds like the practical and responsible thing to do, but it’s not realistic.

 

What is happening right now is a process of massive evaporation of debt.  Regardless of what you have read or have heard in the news, debt is being extinguished at an alarming rate.  Millions of dollars in debt is being forgiven with Short Sales.  Credit cards, car loans, and all types of unsecured debt are being renegotiated and/or charged off.  The lenders are taking what they can get.  The excesses are being corrected at and alarming rate.  The lenders are literally capitulating to obtain some form of recovery.  How do I know this?  Maybe you think I just read this somewhere and it sounded like a juicy story.  No, we are seeing it everyday with our clients.  Debt is disappearing in one form or another and the lenders are capitulating.  Deflation has caused Goliath to fear David and the fear is real.

 

This is great news for our economy.  The process of renewal is solidly underway.  The message for you is to get on board.  If you sit there with a mortgage problem you can’t handle and do nothing to find your own viable solution you are going to get slaughtered.  Take the Free Trial at www.thenegotiatedsolution.com and investigate the Short Sale Solution.  This is your opportunity.  Take it or face the eventual accountability of the free market for the debt you now owe your lenders.

 

Blogging from the front line of the housing crisis.

 

Since this blog  - another article came out from Washington Post on this same subject.  Good article stating lenders are now getting some incentives for some short sales.  http://www.washingtonpost.com/wp-dyn/content/article/2009/05/22/AR2009052201480.html

 

GHunter

As Nationalization fears fade we can all finally get back to life and rest a little easier.  Nationalization would have been a complete catastrophe for our economy.  I question the competency of leaders such as Senator Dodd of Connecticut as he recklessly made such suggestions.  He is clearly a misguided individual.  Let’s get down to the substances of nationalization.

 

Do our leaders not understand that our economic platform runs on confidence?  Did Dodd not learn from witnessing what happened to our people and our financial system after Lehman was allowed to fail?  Senator Dodd, let me help you see how the world suffered.  When Lehman, as a major broker dealer, was allowed to fail all of the equity and bonds were wiped out.  This caused individuals and institutions worldwide to lose money.  The domino effect was a crushing blow to confidence.  Everyone pulled in their horns in the investing community.  Then we had several large money market funds break the constant value of one dollar.  From there our financial markets literally went to the edge of the “Abyss” and looked over.  Since then our government has been spending billions and propping up our markets with a broad assortment of programs just wishing we could get back to the day before we let Lehman fail.  Senator Dodd, you are an example of complete ignorance and questionable competency.

 

Nationalization would have destroyed our economy by driving away the sources of potential private capital.  Our country has thrived on free markets that are properly regulated to maintain order.  Ruining them with nationalization versus the alternative of fixing them and re-regulating them are two very different things.

 

Ski Daddy Cramer of CNBC posed the perfect question this week on Nationalization.  Isn’t anybody thinking about what would have happened to all the preferred equity and bonds of these financial companies if they were to be nationalized?  Then he went on to say that this is where all of the annuity companies invest your money.  The negative domino effect on our economy and financial system would be completely catastrophic if nationalization were allowed to occur with our major financial institutions.

 

As of yesterday the world is a better place.  The brains of our country have prevailed by looking past tomorrow.  With trillions in personal wealth evisorated in such a short time after Lehman it is time to believe in American once again.  We screwed up big time allowing Lehman to fail and everyone at the Fed and Treasury knows it. Cooler heads are now prevailing and the administration sees the huge franchise value of institutions like BAC and C.  Bernanke commented on the very point of franchise value on Tuesday.  Our country cannot afford to lose this franchise value.  We will need these engines to recover and continue to be the backbone of the world financial system.  Please Senator Dodd, shut the hell up.  Nobody on Main Street, that has seen their retirement and personal wealth crushed, wants to hear you abusing your platform with flagrant comments over nationalization.  I leave the Senator to be judged by his peers.

 

On a positive note, this is a time to try to “Be Good to Your Bad Self”.  We have to pick ourselves up even as many of us are demoralized from the loss of jobs, wealth and many of us facing the loss of our homes.  We have to have faith in our country and our free market system.  Things got out of hand and everybody as far as the eye can see shares the blame.  Obama in his speech made the comment that in order for us to lead in the new century we must invest in education.  If you are willing to quit high school you are now not just quitting on yourself but you are quitting on your country.  I thought this was a profound statement.  Education is the key and we all need to be part of the solution.

 

Now having said that, you know I have to use this last profound statement as a segway to a Real Estate Short Sale.  I won’t bore you so I will just say, if you are in trouble on your home or an investment property please take the time to educate yourself on the potential solutions available to you today.  If you just walk away from the property in this time of crisis you are not only quitting on yourself but in my opinion you are also quitting on your country.  Don’t do it.  Provide your lender a solution and help them while you help yourself.  This is the responsible thing to do.  We will show you how to do it the right way at www.thenegotiatedsolution.com

 

Blogging from the front line of the housing crisis.

 

GHunter

For people that don’t understand the concept of the good bank bad bank I am going to introduce you to my version.  Obviously stabilizing housing and allowing confidence to return to the securities markets is the key to our problem. 

 

The end game is all about basic supply and demand but there are several variables that must be addressed to succeed. From a basic standpoint, demand must be enabled and supply must be stabilized.  Specifically, I am referring to demand as perspective homeowners that would like to own a home but maybe cannot get a loan, even though they are qualified, or maybe they are too scared to buy right now.  Supply is the current inventory of homes available for sale in the overall market.  To borrower a lyric from the song “I Want to Be a Rock Star”…”How Ya Gonna Do It?” This is a good song when you are working out.  Barrack Obama is going to need to be a rock star if he going to lead and fix this crisis.

 

Let’s talk about the bad bank.  I am not referring to Citibank.  You know I love the former CEO Chuck Prince and would be very distraught if a very large bolder fell on his head.  I am referring to the concept of “Bad Bank” as keeper of all the bad assets. 

 

First let’s set some ground rules.  For arguments sake let’s assume the National Bad Bank will hold 2 trillion in bad assets.  Whether the assets are performing or not, they must be related to residential real estate only, and the lender must have made a decision to increase loss reserves against them internally for the assets to be bad bank eligible.  The Bad Bank is the accountant and the assets really remain where they are today but now everyone has transparency.  I mention that the bad bank is for residential real estate only because that is all the government has to address to save the free markets in my opinion.    The housing save will reignite the consumer confidence and get us back on a path to normalcy.  All the other lending categories will not be eligible for the Bad Bank and require the banks to sort out on their own or with other government agencies. 

 

Now, with this plan, there is no need for additional capital injections to the banks.  All the banks will move their qualified bad assets off their books to The National Bad Bank.  The “Big Bad Bank” will have a picture of a Bull Dog atop the Federal Reserve Building as its logo.  Now each bank will be a depositor of these qualified bad assets.  The will be a legislated accounting allowance for a designated period of time.  I would recommend that the bad bank program provide a duration of five years.  Again, the banks will still hold the assets and be required to work them out, but the pressure relief from market to market accounting and capital requirements will now be off them.

 

Each bank will be required to work out the bad assets.  The choices will be as follows:

 

• Loan modification without the forgiveness of principle but with affordable terms for homeowners for a minimum of five years if this option is elected. 
• A Real Estate Short Sale with the forgiveness of the residual mortgage debt.
• Property foreclosures with standard recovery protocol.

 

Any assets deposited in the “Bad Bank” will not require any capital reserves by the counterpart healthy bank.  Each counterpart bank will be focused on prudent lending and cherry picking who they would like to lend to as well as bad asset workouts. 

 

As bad assets are worked out by the servicing agents or the actual bank staff, the Bad Bank will receive proceeds as workouts progress and return the money to the good banks.  Losses will be tallied within the Bad Bank.  At the end of the program all banks will receive a tally.  This will not be a bill they have to pay.  The final bill will be the money they owe to Uncle Sam.  We all know Uncle Sam can make it happen when he gets the whole team working together.  This bill will now be monetized by the government much like the tobacco bonds of the late 1990’s.  The debt will be sold into the private market with attractive coupons.  Our government effectively gets all its money back, as the “Bad Bank” accountant, and the counterparty “Good Bank” that has been healed is responsible for the interest payments on the “Bull Dog Bonds”. 

 

It gets better…’How Ya Gonna Do It?”.  The rates on the bond sold to the market will be assessed just before the securitization point based on individual bank performance. As an example, performance metrics will be established based on the quality and efficiency that the bank used to clean up its bad assets.  Also to avoid punitive terms the metrics must judge the individual banks on how many homeowners were provided 5 year solutions that allowed them to Avoid Foreclosure and kept their homes.  Now I have your attention.

 

If you are a bank and you have 60 months with the government on your side, no mark to market on your “Bad Bank” deposits, and the capital to lend, you are going to focus on the workouts and prudent lending.  If you do a good job you may end up with a 5.5% coupon.  The assets could also be broken into segments and the performance metrics applied to each segment of bad assets.  If you do a bad job that is against the public interest you may end up with a 13.5% rate on your bonds.  Then your shareholders will give you the beat down.  The incentive will be to do a good job and balance solutions.

 

The basic premise behind this model would solve the banking crisis.  It would save our government from pumping billions more into the banks.  Uncle Sam would only be the accountant.  Free market incentives would force the banks to work hard to clean up their bad assets.  They will be pressured from their stock holders to get creative and achieve high marks so the end bond payments are very favorable. 

 

The Bull Dog Bonds would be backed by the full faith of the United States.  Any banks that can not stay in business will have to be absorbed by the FDIC and the government will have to eat the losses.  They do this today anyway so its no big deal.

 

Given that just about all the banks we have and hold dear to our financial system are cratering under the pressure of this crisis, we have to get creative and find a solution.  This will work and we can legislate just about anything as you have seen.

 

Has The Short Sale Negotiator just solved the banking crisis?  Probably not!  However, this model will enable demand for housing by freeing up the banking system capital to lend and the punitive bond rates will incentivize the banks to provide real workouts for the people. Lastly, a five year time frame removes all the panic and the banks, the homeowners, and the government will win.

 

I want to reemphasize that the five year loan modifications the banks will provide will NOT provide for any forgiveness of principle.  If homeowners want forgiveness of principle then they must provide and satisfy their lenders a free market solution in the form of a Real Estate Short Sale.  No homeowners should be given a free ride.  Everybody must share in the work toward a solution. 

 

We are not recreating the wheel here.  A five year program term with mandatory five year affordable solutions based on traditional qualifying metrics of modern day mortgages is not a great leap.  The leadership must create balance. I am hopeful that President Obama will fix this mess.  All he has to do is get a couple entrepreneurial mortgage guys in the room and this show will be on the road.  I am ready for a solution.  My Bank of America stock hit 5 today.  Now that is making me mad.

 

Blogging from the front line of the housing crisis.  Buy your “Bull Dog Bonds” with thenegotiatedsolution.com insignia on them.

 

GHunter

In case you haven’t heard, the big pickle of the bunch, Citigroup, has decided to cooperate with allowing bankruptcy judges to modify the terms of mortgages.  This is a very important issue and certainly a worthwhile subject to debate.  Let’s not forget that Congress is involved once again with Schumer at the plate jockeying for face time.  We don’t want Barney Frankfurter to get all the attention now do we?  Let’s just call it healthy competition.

 

To begin Citigroup is always a good patsy to start some new initiative.  As long as they don’t bring back Chuck Prince, the idiot attorney that ran the company into the ground, I am fine with whatever the government wants to use Citi for.  Citi is the poster child or should we say the first sucker on the block.  Sorry, I am a long time Citi stockholder so I always need to take a crack at it.  It is an “it”, trust me.

 

The point of the pending legislation is to bully the banks and lenders into modifying loans so we can curtail the foreclosure epidemic.  If you have been reading my blog you know that 90% of loan modifications have failed and the re-default rate to consumers is skyrocketing.  The government is phishing literally for a hammer to intimidate the lenders toward a level playing field with the consumers.

 

The question is will it work or will it cause significantly more damage to our free markets.  If you ask the industry players they hate it.  If you ask any scholar they will tell you it is protectionist to a degree and it will scare away capital the may normally invest in the mortgage market.  After all, who is going to lend money knowing that a deadbeat borrower has little recourse/accountability if they choose to go into bankruptcy.  Let’s face it, it is simply unfair and it will inhibit our markets if it is too broad in scope and duration.

 

From the front line of the housing crisis I would like to put a positive spin on this new threat to the lending establishment.  When capitalism goes arye and government needs to step in, and like today, sometimes you need some intimidation.  This is exactly what is going on.  Forget about fair for a moment.  The lenders have billions in capital from the Tarp Program, however, it appears they really don’t want to lend or deal with the housing crisis other than foreclosure.  I think the headline is much more scary than what will happen in actuality.

 

Let’s look at history with governments screwing with the mortgage market.  If you go back a few years you will see that the State of Georgia and Washington D.C. passed very strict laws that affected secondary market mortgage investors.  The secondary market is where the pool of liquidity for new mortgages lies.  The laws that were passed had very strict covenants that allowed the liability for misconduct from originating lenders to pass all the way to the secondary market investors on Wall Street.  Uh O!  Don’t mess with Wall Street. What happened?  Wall Street players and all the big boys in the lending community decided to no longer purchase loans originated in the select areas affected by the new laws.  You know what happened next.  When the mortgage money dried up the idiots that were overzealous in passing the laws had to amend them.  It was a very nice self correcting process.  After a period of time everything found a way to fix itself.

 

This relates to the new legislation because we can not scare the private mortgage money away.  A big headline is just enough to get the lenders thinking about workouts to avoid foreclosure and keep some more people in their homes.  Ideally anything that slows the pace of foreclosures or draws it out for an extended period of time is much better than the current epidemic.  I believe that the lenders will want to work more loans out, not for the fear of bankruptcy, but for what may happen if they don’t given Congress gave them all that Tarp money.

 

Here is where I see the real free market positive.  The bankruptcy laws were changed in 2005.  These changes provide somewhat of a backstop to the current threatening legislation.  People are not going to be able to walk away from their debt as easily as they could have in the past.  In addition, anybody in their right mind should not want to go to bankruptcy unless of course you have your credit card and you get suckered by an attorney.  The personal cost of this action is simply too high given the alternatives.  Many intelligent people will avoid bankruptcy and settle for a little more leniency with a workout from their lender.  This will be good for the people and it will be just enough to push the lenders to do more workouts.

 

Don’t be naive and assume that the lenders are going to begin offering write downs of principle and affordable long term solutions.  This my friend is not going to happen.  Congress wants to push the lenders to cut back on the foreclosures.  The lenders aren’t going to forgive the money you owe them.  A loan modification is based on affordability.  They got you on the hook and they intend to keep you there.  The loan modifications will satisfy many people until they don’t anymore.  What do I mean by this harsh statement?

 

The person living in a $500K house paying the equivalent of a $400K mortgage after a healthy loan modification by their lender will still gaze outside across the street at the same house that is worth $250K.  When you are an American and you have no skin in the game it is hard no to focus on this.  You lender has modified your loan to a reasonable level of affordability but nowhere near where you could be if you parachuted out of your situation.  The heat is off your family because the hour glass is no longer counting down to foreclosure.  You still won’t be happy with the payment and you most certainly won’t like the debt around you neck.  Where am I going with this?

 

Real Estate Short Sales baby….Yeeeehaaaa.  Now we are talking free market solution with bells and whistles.  Forgiven mortgage debt.level playing field…Conan’s Creed…”Crush they enemy, have them driven before you, and hear the lamentations of their loan administrators”.  It’s all good! Beating the system and moving into that house across the street for $250k with no strings attached.  Can it be done?  It’s being done everyday.  Most people are in denial and caught up in a general state of confusion and let’s not forget strong moral character.  As mentioned in an earlier blog, my best clients are the ones that have been intimidated an figuratively beaten by their lenders.  Now they are indifferent and ready to find a real long term solution.

 

Big headlines for Loan modifications with governmental intimidation to keep people in their homes and cut back on foreclosures sounds like a plan to me.  I think I like this new legislation.  It’s a good short term push for the current deadlock between lenders and borrowers.  However, the more people that modify their loan terms with their lenders, where the solution falls short of a long term one, the more you will see people enthusiastically search for a better way.  It’s a painful process.  Call you lender and beg.  When you are tied of begging and concerned for your financial future come visit us at www.thenegotiatedsolution.com and investigate if a Real Estate Short Sale Solution has merit.  Until then, I say we legislate.  Let me know what you think!

 

GHunter

I am wishing everyone a very Happy New Year and a little bit of humor to end the year.  2008 will go down as the worst year financially in our lifetimes.  When we survey the damage to our portfolios and real estate market clearly a “Polished Turd” is the most positive spin we can muster at this juncture.  However, we must look to the future and take heed in the prognostications of the great visionaries that manifest themselves in the communist block.

 

A Russian professor took time out from playing with his Lego set to exclaim that the United States of America will self destruct in the year 2010.  According to this great visionary, the US will be split into six separate states by civil war and the unrest of our financial markets and our overindulgence on debt and a general reckless abandonment for responsibility will doom us.  It is said that the Mexicans, the Canadians, and the Chinese will each rule a portion of the US. 

 

My fellow Americans, I am afraid.  Such a prognostication for a professor that probably helped build the nuclear sub the Kirsh must be taken seriously if the US is to survive another 11 months.  The last time I checked Russia was run by the mob.  Their submarines sink to the bottom of the Arctic and blow up.  Their currency has limited convertibility.  Their oil & gas production, that they rely on as their sole economic resource, is declining due to lack of infrastructure investment.  I think you get the picture.  Is it time for us all to move to Russia? 

 

What a bunch of losers.  I think the Russians are just jealous that our women are hot and we have real freedom.  Are you expecting me to believe that Mexico is going to be in charge of a portion of the new establishment?  I have trouble with the Mexicans that cut my lawn.  Don’t get me wrong I like them very much, however, I have a sprinkler system that comes on automatically and I have asked them over the years to show up around noon so their mowers don’t get stuck in the yard.  It’s become an annual ritchual. I don’t get mad anymore.  Every season I watch six of them argue as they rock a mower back and forth in a desperate attempt to free if from the side yard.  After my wife and I are done laughing the leader just drops by with a 50LB bag of grass seed and smiles.  Thanks fellas, I will take care of it and reseed the yard.  Now you are telling me these guys are going to control one of the six new US territories? 

 

I won’t even get on a rant about the Chinese.  Let’s face it, the world has more dysfunction in it then we can handle.  It’s truly a comedians dream for material. 

 

On a more serious note, the housing/mortgage crisis is a real problem but we will get through it and prevail.  Freedom, Capitalism and the Entrepreneurial spirit of our country is a flame too bright to be extinguished.  Do you remember all the idiots that proclaimed that the world has decoupled from the US and that as the US economy went into the tank the emerging economies would eventually take over?  Well I never believed that for a moment.  Once again, it appears that was just another farce and that the US is the world’s predominant engine of growth and financial clearing house.  Just look at the carnage in China and Russia and other countries around the world.  It is laughable that they are so dependent on our country. 

 

Do yourself a favor. Turn on the Smithsonian or the Military Channel and check out “Carrier Group Enterprise”.   I have a friend named Don that is an F-18 Super Hornet squadron commander on one of our nuclear aircraft carriers.  Let me tell you my friends, if you are worried about the US being divided up by tyrants and left for dead, spend an hour having a couple beers with Don and you will sleep like a baby every night.  The only thing that is going to happen to the United States in 2010 is that we are going to be once again stuck herding sheep as the rest of the world tries to get their act together.

 

I love this country and I love the free comedy all the assholes and morons from China to Russian to Venezuela provide us.  Hey, does anybody want to rent a couple tanks and go run some students over on TV?   Let’s put 2008 “The Year of the Polished Turd” to bed and never look back.  Blogging from the front line of the housing crisis www.thenegotiatedsolution.com .

 

GHunter

Recently I had blogged about a 4.0% solution to help stabilize housing. It appears the powers in our government have made the ultimate determination that, regardless of what new program has been created, that nothing will be fixed until housing has been stabilized. As you are well aware many of the programs created by the Fed and the Treasury have succeeded in unlocking the seizure of the credit markets. This was a critical first series of steps to restore order and some confidence to the financial markets. Now the focus is to address the systemic root of the problem and that is the cause of the housing market imbalances.

The housing market is still in a deflationary spiral down. Demand has been eliminated by the disappearance of credit for many people due to lack of qualification and a major contraction in credit for the rest of the population that can qualify. This, in conjunction with record foreclosures that have to find their way back to market, is causing the supply of housing to grow disproportionately. It is so bad that is it adding to the deflationary push downward in the prices of housing nationwide.

If natural demand can be restored then equilibrium in housing can be forecasted, and the deflationary spiral down in housing prices can be slowed, and the market can return to its proper function. It’s a complex problem when you amass it in with all the other issues we are currently facing. However, if you just focus on housing and the 4.0% solution it becomes much less complicated.

Here is how it will work. Recently the ultra conservative 30 year fixed rate mortgage for a new perspective homeowner was approximately 6.50%. Today with the mention of initiatives subsidizing 30 year mortgages with legislation the yield is now closer to 5.0%. Soon you should expect the implementation of a program that will yield 30 year fixed rate mortgages to the general public in the 4.5% range. You do the math. 6.50% down to 4.5% is just shy of an immediate 31% reduction in available credit for new mortgages. When credit is made available and the cost significantly reduced it has a direct affect on affordability and also injects confidence back into the market. Just like equities, when rates are lower, the value of the earnings stream of a company are higher and reflected in a stocks expanded price to earnings ratio. It’s the same basic relationship with housing. The cheap available credit will create an air cushion under the deflationary forces of housing and slow the decent. Natural demand from those that desire a roof over their head will begin to work on the inventory levels of housing.

I believe the nasty spat of deflation in all asset classes will subside once we finally address the housing supply demand issue. The problem does not have to be solved for our markets to recover. There only needs to be a perception of a pending solution that is in place and the ability to forecast equilibrium and we will see stability. The 4.0% solution is probably the government’s most powerful weapon to directly address this issue at this stage of the crisis.

Having said that, please do not be naive and assume that everyone will be able to get a new 4.5% mortgage. There is no question that any perspective borrowers will have to fully qualify under current credit guidelines for the loan. Specifically, I am talking about full documentation requirements that will require two years of tax returns, W2’s and recent paystubs. There will be no fancy handouts from lending institutions to entice demand so don’t expect them. The program will focus on natural housing demand with well qualified and gainfully employed individuals as the only beneficiaries. I wouldn’t be surprised if this new financing is married with a tax incentive for a period to encourage the purchase of a new home.

All other home owners that are stuck in situations where they don’t qualify or where they are upside down with negative home equity will not benefit. These people will have to find an alternative solution such as a Real Estate Short Sale, Hybrid Refinance, or a Loan Modification. You can now see the moment of truth is arriving for all the homeowners that are currently stuck and hoping the government is going to bail them out. I gave you a guarantee in September on the blog. I told you the government was going to save the free market and capitalism would not die. Please watch and witness the power of capitalism and keep a close eye on the people that are stuck. It happened in the early 90’s during the Savings & Loan crisis. If you are stuck with affordability or any other issue with housing, it’s time to get constructive and get moving on a solution for your problem. Being so direct is not always fun, but if I can get you to focus on a solution vs. doing nothing, I may save you from getting into real financial trouble. The 4.0% solution that the government is going to create out of thin air is going to help many people but not everyone

Some people will call this socialism and criticize the government of meddling in the free markets. Don’t be fooled. Look at history over the past 100 years. This is why we have government and its institutions like the Fed and Treasury. Capitalism is great but it is also very destructive. When the wheel comes off the cart history has shown that the government has to put it back on and straighten things out before its influence can recede and markets can return to normal. Blogging from the front line of the current housing crisis.

GHunter

If the Speaker of the House, Pelosi, would do the same caliber of work as she does being a grandmother of five, and if Congress would take a time out from the partisanship we would have a chance to address the problem.

Do you know what the real problem is after all the hype of the credit market seizures and floundering banks? The real problem at the end of the day is the excessive housing inventory. Yes there may be many other issues in between but this one shows the door to the future and ultimately to a recovery. Harry Homeowner and Friends are the ones that will be buying up the housing inventory one by one over the next several years. If money market accounts are breaking the buck, and the stock market is eviscerating their savings and 401K’s before their eyes, the chances of the inventory level improving at some point is nil.

Yesterday our Full Service at The Negotiated Solution had a contract for a moderately priced condo in excellent conditional fall out. The buyer was due to close in five days but after seeing the S & P 500 drop 8.9% and the Dow plunge 770 points he panicked and called his financial advisor. The advisor said not to buy anything in this market regardless of how much you like the property. Now you see the problem. It’s a confidence issue.

Perception is becoming reality on Main Street even if it is just fear based and not reality. If people don’t feel comfortable that their money is safe in their bank, and they are scared to death of financial loss or job loss, we have a massive problem in housing with no cure.

The government is on the right track but we don’t need perfection at this time. We need anything and everything that will constructively restore order and bring down the credit spreads so banks will lend again.

Please write your Congressman and tell them it time to get on board for the middle class and to stop preaching false hope and partisanship. This is a time for action and nothing else. Properly laying the foundation to address the excessive housing inventory is the end game.

GHunter

The full brunt of the housing crisis and mortgage meltdown are upon us. Many are obsessing over their problems and anxiously waiting to see if Uncle Sam will come to their rescue with a new program that makes all their troubles disappear. Don’t count on it.

If I may, let me put all the partisan politics and tap dancing for photo ops on the part of Congress aside for you and tell you where you stand. The government is going to save the free market without question. However, you as the distress homeowner are on your own.

Let’s telegraph back to the governance issues a few years back involving Fannie Mae and Franklin Raines as the CEO. Didn’t we find out abruptly that 11 billion dollars was missing or was that flat our fraud? Your Congress didn’t really want to investigate the full extent of the problem then because their meddling would have been exposed. In fact, a full investigation at that time would have completely exposed the lack of prudent underwriting guidelines and excessive risk being assumed by the entities. This would have averted a good portion of the major systemic credit issues we now face.

It is much more advantageous for Congress to posture as the appalled after giving the good Treasury Secretary Paulson the “Bazooka” and then watching him expeditiously use it after Morgan Stanley investigated and determined the Fannie Mae capital structure was a house of cards. As a lender delivering loans to Wall Street, it was obvious in the 3rd & 4th quarters of 2005 that we were heading for potential disaster.

Now I ask you to consider who is going to have the individual homeowner’s best interest at the forefront, you or the government? I think the answer is pretty clear as we see great companies get hurt and Congress point fingers and claim to represent us as our gallant saviors. Congress and the specific regulatory leadership should be ashamed and collectively impeached for being out to lunch.

Take care of your family and find your own solution. You don’t need any new legislation or unusual favors to benefit with a Short Sale Solution today.

If you are one of the affected homeowners you can choose to be a Sheep or a Wolf. The two are only separated by knowledge as it pertains to this crisis. Learn the ways of the Wolf and Win!