If you ask this question to Congress or the current administration the answer will be up for the real estate market. Everything is going to be fine…just keep paying your mortgage. Call your local realtor and “buy buy buy” a house is the mantra. In their mind there is no better time than the present. Let’s get serious and be real. The current state of housing needs a historical comparison for you to really understand how to proceed. I am going to provide this to you. If you call a local realtor they are not necessarily going to be in a position to communicate this to you. Many of them need to sell you a house regardless of the market conditions and many of them were probably home watching Big Bird and the Sesame Street Gang in the early 1990’s.

Where are we in this crisis? Let’s travel back to 1990-94 to the Savings & Loan Crisis and draw a parallel as it pertains to markets. In the early 90’s we had a massive crisis with the banks. Banks were taken over left and right and the loans and properties all ended up in a big bin called the RTC or Resolution Trust Corp. The government cut construction lines to builders in spite of their contractual obligations. If Uncle Sam took your bank over your contacts were null and void and your loan was now due in full. It was a real “like it or lump it” event with the government. I witnessed this with my own eyes and had real clients that lost millions. If asked to reflect back on individual government acts that I witnessed I would have to say that I saw communism at work in America. To draw a parallel to today’s crisis what did I really witness?

It’s simple. Today the crisis in real estate and mortgages is being managed by the government. The process is being drawn out over time. Back in the early 90’s the government took a different approach. They saw the risk to the economy and they took aggressive action to address the problem. They were determined to force the market to clear and deal with the problem banks and properties quickly. Chicken Little did come in the early 90’s and I saw properties, both commercial and residential along with unfinished communities and land, going for fire sale prices of ten –fifteen cents on the dollar. The government was in charge and on a mission. The market was being forced to clear by the government. The weak banks were being dissolved by the RTC and the properties were being forced into stronger hands. It was extreme but a very healthy process. This is much different that we have today.

What do we have today? We have a managed crisis. We are four years into the crisis with no end in site. Supply and demand is way out of whack. There are millions of homeowners underwater and thousands of homes in REO vaults within the banks and GSE’s. Makes you want to run out and buy a house doesn’t it. On top of that demand is being hurt by tight lending parameters. The banks are scared to lend. Can you blame them? The market is stagnating and prices are slowly sagging. This is what happens when the market does not clear. Why would a lender want to lend on a property that may end up underwater or as a foreclosure or short sale 18 months out? On this note, I just spoke with a 2010 client this morning that mentioned that the people that bought his house are now seeking a short sale. The risk is high and it is unwise to trust an artificially government supported market. The government wants the banks to lend but if they do not allow the market to clear and become healthy they are creating a derivative level of risk in my opinion. Its not self serving and I don’t understand why or who benefits.

Let me give you another example of the government’s wishes so you don’t think I am making a political argument to serve my self interest.

Let’s look at the new HARP refinance program. This is an add on to the old one in the past two years that is now going to encourage people to refinance regardless of the loan to value. If you owe 300% more on your property then current value, but it meets the general criteria and you have a job, then you can lower the cost of your debt burden. Sounds great doesn’t it? What about all the mortgage debt that the homeowner has well above current market value? How long it is going to take for someone to see that they will never get out of this debt burden? The debt has to be dealt with or the market will not be healthy. The government wants to keep people in the clutches of moral character and keep them in the homes paying regardless of the debt. This is the exact opposite of the S & L Crisis of the 1990’s. We have had many recent inquiries from potential new clients for short sale’s that have gone through the previous HARP program only to say “how the hell am I ever going to get out of this”

The effect on real estate values will be a draw out gradual sagging of values. People in denial will be able to stay in denial. The neighbor renting across the street paying $1500 in rent will face off against the homeowner with the same house paying twice as much with several hundred in personally debt liability over their heads. The cycle will continue until the debt is dealt with.

I believe the government belief is that once the economy gains better traction that the housing market will get pulled up in a vacuum. This is flawed and I do not believe this can happened due to the extreme levels of debt. Although it is equally flawed to forgive trillions of debt for homeowners across the board because this would wipe out your secondary mortgage market investor base, the current do nothing manage the crisis is also unhealthy. The only answer is to reflect back on history and force the market to clear. Drive the delinquent properties to workout with short sales or foreclosures and put them in stronger hands. The S & L Crisis took four years but the pain wasn’t that bad. The longer we wait for the ultimate clearing of the debt the harder and more painful it is going to be.

Having said all of this, I think you would be foolish to go out and buy a property today. Watch the headlines for unemployment and assess the mortgage lending climate. These will be early clues for a potential turn to the positive. Let the watershed moment occur when the market is forced to clear by virtue of the thousands of underwater owners capitulating their over price debt burden properties. This will overwhelm the government’s management strategy and move us closer to a healthy real estate market down the road.

There are recent voices saying that there is a 50% chance that FHA will need a bailout. This is an example of the derivative level of risk that is being piled on that I am talking about. It’s going to get a lot worse if the crisis continues to be managed. Let it happen and then go shopping for a property you want to own. The people that followed this plan in the S & L Crisis made out so be patient. Properties are still overpriced and if you’re smart you won’t get taken by the siren songs of the realtors and the government. It’s not ok. Housing has structural problems that are not being fixed with Obama’s band-aid. That’s the problem and my solution is let the market clear.

Yes, I am advocating kicking the people out of their homes and foreclosure or workout of the debt through short sale. It’s inevitable. True capitalism has winners and losers. That is what makes our country so great. A loser today can learn from their mistakes and be ambitious so they can be a winner tomorrow. A managed crisis will not provide this opportunity in my opinion and this process is important for the financial health and prosperity for every one of us.

As a parting thought, if you’re stuck underwater in a property get educated or contact my team for a short sale at www.thengotiatedsolution.com . Avoid foreclosure and mitigate the debt with a short sale. Drop kick the bad situation and start over without the unnecessary step of going broke in the process. Good Luck.

Blogging from the front line of the housing crisis.

GHunter

The gross assumption by the lenders is that they did everything right and “You better do the right thing or else” says the lender.  How dare you strategically default on your loan obligation. It doesn’t matter that I mistreated you with your bogus loan modification. All you idiots should know that this was just a ploy for us to shake you down for money. Now pay regardless you pigmy or I will huff and puff and… and what?  And what is the question.  There appears to be a major new development in addition to the alleged unlawful foreclosure mess. It appears the lenders may have gone to great lengths for extreme profitability to create the mortgage crisis that has hurt so many of us. The difference now is that the fine details that are being uncovered are going to provide solid evidence and Fraud is in the equation.  Boy I am concerned that this will distract the lenders from intimidating and shaking down the homeowners. 

 

Well today is a great day for the beginning of the revelation of the truth.  We are beginning to move beyond allegations and soon will see just how involved the big lenders were in creating a massive speculative bubble in housing on the basis of Fraud. Yes, I said fraud.  This is not new.  Everybody in the industry knew it. It’s the burden of proof and the full scale onslaught by the attorneys that will be our reconciliation. Here comes the proof that will allow the sword to be drawn and the lenders to appropriately be slaughtered as retribution for every America that has suffered from their unadulterated greed and lack of civil responsibility.

 

At 12:00 noon today on CNBC’s Strategy Session I just happened to catch an interview from a prominent lead attorney that has had the opportunity to audit a sampling of 750,000 individual mortgage loans over the past two years for integrity.  The findings showed that 50% of the loans were fraudulently represented in mortgage securitization pools.  Wow!  How are the big lenders going to lie and cheat their way out of this whopper?  The pools were stuffed with loads of investor loans that were represented as much safer owner occupied loans. Who knew!  The pools were also supposed to have in many cases 90% vanilla high credit quality loans but ended up stuffed with junk and more junk.  Oh, the buyers of the securitizations must not have cared that No Doc loans were not the same quality as full verified income and asset loans.  Again, who knew?  The lender knew!  They knew everything every step of the way. 

 

Right now the litigation is only held back on principle by the courts due to a requirement that the attorneys must have 25% of each of the investors from each securitization pool sponsor the legal action.  The problem, according to the lead attorney, is that the securitizations were held by investors all around the world and it is really difficult to assemble 25% membership of each securitization pool.  The other element in favor of the banks is that the statue of limitations runs six years from the date the securitization was closed. That means that the 2005 securitization liability for the big lenders will run out next year.  Don’t fret people.  That fact that a high powered law firm has audited a three quarter of a million loans and found a 50% fraudulent outcome tells me there is going to be a pig roast. I love a well deserved piggy roast. That leads me to my favorite little piggy that begs for it.

 

Bank of America you poor little greedy piglet named “the primary culprit” today on the news.  Your buy of Countrywide with ex CEO “Tan Man” Mozilo who ironically just cut a deal with the SEC charges today doesn’t look so good now. Banky Pooh America you screw so many people with foreclosures and the short sale process. You allow incompetence to hide behind your Mickey Mouse Equator System for short sales.  You systematically torment the borrowers and even screw the realtors by unlawfully reducing their commissions contrary to investor requirements with what lenders call “overage”.  I caught you red handed on this recently and a mid level manager laughed and asked me to be quite.  Well its High Noon and time for you to taste a little fair accountability.  Now that the allegations of Securities Fraud have finally arisen I guess concerns of reputational risk from stealing a buyer and screwing one of our clients with foreclosure in February of this year is no longer a big issue.  Personally Bank of America is one company that I would love to see as the poster boy for a good ole fashion accountability ass kicking by all the attorneys.  Call up the tobacco attorneys.  Remember 1998? 

 

Now JPMorgan is a good company and unfortunately is being pulled into this due to their coming to the rescue for the cesspool named EMC Bear Stearns during the crisis.  Do they have liability?  Absolutely!  I like Jamie Dimon of Chase very much but EMC was a pig and the stuff they were buying was fraudulent from day one.  Read my blog from last year on EMC and the high loan-to-value investor loans that they proliferated to straw buyers that were members of investor groups sharing down payment and reserve funds.  EMC was the candy man and they knowingly supported and perpetuated outright fraud and manipulation of the basic integrity affecting the foundation of underwriting principles that the integrity of mortgages rested upon.  I saw it first hand and I have a whole slew of witnesses that were equally astonished.  We shook are heads and could not believe what was going on.  Apparently Jamie D knows it too because he just added another cool 1.7 billion to the litigation reserve for JPM. 

 

Maybe the 24.2% (CNBC statistic August 2010) of the millions of Americans with mortgages that are underwater on their homes all looked in the mirror and determined that they were just plain stupid.  They said I screwed up and I need to bleed every ounce of energy to make the lenders whole.  Morally maybe some simply could not stand the thought of doing anything but paying their lenders even if they had to consider not sending a child to college.

 

Stop!  I have been preaching for two years straight on the root of this issue.  You now are beginning to see the light of who was responsible for the huge speculative run up in housing. The cozy banks pumped it so I am calling on all fellow Americans with a beef to stock up on Marsh Mellows. 

 

In the meantime, if you are over exposed in real estate that is underwater or simply need help, come see me to investigate a Real Estate Short Sale at www.thenegotiatedsolution.com .  My team will help you with a very constructive solution so you can enjoy the pig roast comfortably from the sidelines. Oink!

 

Stay tuned! Apparently the liability facing the lenders relates to buying back the fraudulent loans from the securitization investors at “par” 100…face value. Oouch!

 

Blogging from the front line of the housing crisis.

 

GHunter

It appears everybody has a story to tell over the past couple years given there have been millions of foreclosures and approximately 25% of the people with mortgages currently are underwater on their homes.  The stories range from the simple loss of job to the builder or the lender set me up with a loan that wasn’t right for me.  The stories are never ending.  I don’t believe the majority of them but many may very well be true.  From my vantage point people simply own homes that they can’t sell due to the debt burden and many are tormented by aggressive loan programs or failed loan modifications with ridicules terms. The people want out or some kind of a solution but they don’t know where to turn.

 

In a ten percent unemployment scenario with so many people caught up in the crisis you have to understand that anger and paranoia lead to the natural tendency to point the finger at someone you can blame.  I pretty much tell our clients just about everyone is affected by the common derivative.  The housing market caught a whiff of deflation due to extreme circumstances and everyone got caught.  Do you think we would have all this blame game if the prices never went own?  Of course not.  People got greedy and the lenders got greedy while the regulators were not paying attention.  Where are we now? How about a question that nobody wants to answer?

 

The ultimate question to solve this massive mortgage/housing crisis is this.  Should we monetize the debt or stand firm by our free market principles and allow the mighty forces of capitalism to clear the market.  I am not sure which answer is correct given both will causes significant pain and sacrifice.  Let’s look at each side in an attempt to find a solution. 

 

Monetization of the Debt:

 

This is what has been occurring for the most part in my view since the crisis really gained traction in housing.  The Federal Reserve has the ability to go into the market place and deploy billions of dollars to buy up liquid assets.  The prime example was through March of 2010 the Fed owned a full 25% of the mortgage backed securities market (MBS).  That was 1.25 trillion dollars worth of MBS pools.  What effect did this have?  By removing these securities from the market the spreads that affect mortgage rates compressed thereby providing the residential mortgage market with artificially low mortgage rates.  Think of it just like a government subsidy.  This of course was orchestrated in conjunction with more honey in the form of governmental tax credits for the purchase of homes.  All of this activity simply makes for an artificial market.  The real question is does this solve any problems or simply make matters worse and delay the inevitable?  The answer lies in how you feel about being several hundred thousand dollars underwater on your mortgage and paying only 1-3% when you may actually really own 6.0%.  To keep things in the real world context of all the phony loan modifications you have to really do some selling to convince me that you fee better paying less with a balance on your loan that far exceeds the value.  In other words, lowering the cost of the debt doesn’t solve the indebtedness problem.  You’re still a renter with full ownership responsibilities and you don’t have a way out because there is too much debt. How long before you give up and dump your problem on the system?

 

Now apply this to the entire country.  Let me suggest that no one do anything to take any responsibility for their housing/mortgage problem.  We will all just sit on our hands and blame others while relying on the government to carry us along until it goes broke.  This is what is happening now and it is truly scary if it continues indefinitely.  Remember the Fed is about to embark on QE2 to plow more easy money through the system.  We are talking another trillion with a T. Can they do it…absolutely?  Will it fix the problem?  No!

 

Free Market Principles:

 

The mighty free market is ruled by capitalism and some of the most vicious creative destruction known to man. When a market clears it takes and asset from a weak holder and puts it in the hands of a strong one.  It often is a vicious cleansing process.  This would mean that the Fed and the Obama Administration and the Treasury would have to send the signal that it is time for the lenders to slay the people that are not paying their debts for any reason by the virtue of the law as vested in them by their rights under the terms of the mortgage instruments.  A blood bath of epic proportions.  You may think I am dramatizing this but you haven’t read your mortgage note or the law.  The lenders without the fear of the government backlash would love to clear the market.  They would sick their recovery teams on the people and conduct the slaughter by market while managing their REO inventory and exposure as they executed the plan.  Stop!  We can’t do this.  The market can not bare it according to whom?  This is how markets always work or at least how I was taught they should work.  I would love it because I have cash ready to buy a beach house for the family but instead I have to wait another couple years while the over levered owners do nothing under a veil of governmental protection and artificially induced markets. It’s not a fair situation.  The real crux of the free market solution takes the form of an earthquake.  We know the free markets are potentially very destructive. What if we all stood by our principles and the free marketed was allowed to clear and the following quarter we determined that real estate was pretty much worthless and all or our banks and financial system was once again insolvent?  The quake would potentially destroy everything.  Now you see why when the guy or gal says hey I pay my mortgage why should I have to carry those that don’t.  We are all connected and we are soft and fat from the good times.   We have to carry them until the country is in a safe place before we drop them into the boiling kettle. Allowing the free market to clear at this point may do more damage than good. The free market principle is text book but I am not sure it’s the answer either.

 

To summarize, this question makes me glad I went to Old Dominion University and not Harvard.  I don’t have to worry about the President calling me up.  My solution is related but not popular with the pro life crowd.  I fight for the people.  I want presidential pardons so we can kill all the accountants that stood for “mark to market” with illiquid securities during the financial crisis.  I am convinced these idiots are solely responsible by genetic order for every bad decision know to man since the beginning of time. Please humor me.  2008 was the toughest time in my life that I have ever witnessed both personally and professionally and the memory is still fresh as I am sure it is for you.  I don’t want to go back.  Let’s go forward and focus on the positive.

 

How can I help you today?  I can’t help the country solve this macro problem or even provide a suitable definitive answer for the tough question I pose, but I can reach out and touch you as an individual.  When I said the boiling Kettle I meant it whole heartedly. If you have a property that is underwater and you don’t plan or you cannot afford to pay for it and keep it for a very long time you need a solution for yourself and your family. The only solution that is real and fair is a real estate short sale.  If you buy off on the lies and promises of a loan modification please read the fine print around the new balance of what you owe. Don’t let your lender own you.  A short sale done properly with a full team of qualified advisers that cover the real estate sale, pricing, legal, liability, credit, and tax is what you need.  You can solve your own problem.  It is not easy and it takes time but you can avoid the boiling kettle.  The people that do nothing are going to be cast out on their own once the economy really begins to gain traction in a sustained recovery.  It will happen and when it does it will happen quickly.  Do not forget the cash on corporate balance sheets and your history.  American companies are cash rich on the whole and lean and mean after weathering the financial crisis.  When they plow the money into the market employment will improve in a vacuum.  When the country no longer needs to worry about the people underwater on their mortgages because the free market is deemed healthy enough to deal with the problem there will be no more worry!  This is why we have homeless people in this great country.  Think about it.  Come visit me at www.thenegotiatedsolution.com and investigate the short sale solution for absolutely nothing but your time. Don’t do nothing and be glad you also don’t have to answer the question of monetization or free market.

 

Blogging from the front line of the housing crisis.

 

GHunter

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