Real Estate News & Commentary by Chris McLaughlin, May 8, 2009
http://www.shortsalesriches.com/welcome.html
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Rise in mortgage rates
Freddie Mac has announced that the mortgage rate (30-year
fixed rate) for the week ending May 7 rose to 4.84%, from
4.78% for the earlier week. Incidentally, 4.78% was an
all-time low. The rise in rate is significant more from a
directional perspective than from the point of view of the
magnitude. Does the rise indicate that the underlying
sentiment has turned bullish? Frank Nothaft, the chief
economist of Freddie Mac said, “Mortgage rates rose slightly
this week amid positive economic news that the economy may
be approaching the bottom of the recession.” The initiative
of Federal Reserve, since November 2008, to prop up the
real estate market by buying $1.25 trillion worth mortgage
backed securities seems to be working. The slump in the
real estate market is closely linked to credit crisis and
economic downturn. Is the underlying strength in the
market for real, and will it lead to economic recovery? We
will know in the months to come.
Nouriel Roubini questions the robustness of stress tests
Nouriel Roubini, who runs RGE monitor, an economic consultancy
has questioned the quality of stress tests conducted to
measure the capital requirement of banks. Roubini, known
for his dire predictions, said, ìif you assume the results
have been leaked are true, you’re going to find out that
a large number of financial institutions have significant
capital needs.” He warned that the stress tests were not
robust enough, and the actual data on the state of the
economy could be worse than what is portrayed by the
worst-case scenario of the stress tests. Roubini also
suggested that it would make sense to convert creditors
into equity holders in banks, for the banks to remain in
private hands. Roubini criticized that the infusion of
funds into banks by the government is leading to ìcreeping
nationalization of the banking sector.
Chairman-Elect of the Mortgage Bankers Association testifies
on frauds relating to foreclosure rescue Robert E. Story,
Chairman-Elect of the Mortgage Bankers Association (MBA),
testified before the House Financial Services Subcommittee
on Housing and Community Opportunity which held a hearing
on Legislative Solutions for Preventing Loan Modification
and Foreclosure Rescue Fraud. Story expressed concern over
homeowners getting scammed by fraudsters who claim to help
borrowers in distress. In addition to creating a fear
psychosis in the minds of distressed borrowers, the scammers
mislead borrowers that they can get out of their distress
situation if they fully cooperate with them. Story said,
Scammers convince homeowners that they can save their homes
from foreclosure through deed transfers and promises to
lease or sell back the property which never happens. In
extreme instances, scammers sell the home or secure a
second loan without the homeowners knowledge, stripping
the propertys equity for personal gain. He said, MBA
is particularly pleased that today, the House is taking
up S. 386, the Fraud Enforcement and Recovery Act. This
bill includes $245 million for law enforcement to crack
down on financial fraud, including foreclosure rescue fraud.
Fannie Mae loses money
Fannie Mae reported a first-quarter loss of $23.2 billion
today, and added that it submitted a request for $19 billion
from the Treasury Department, to cover its net worth deficit
of $18.9 billion. It also said Treasury has doubled its
support level to the company to $200 billion. In its quarterly
release, Fannie Mae said its “entire guaranty book of
business, including loans with lower risk characteristics,”
was experiencing “increases in delinquency and default rates
as a result of the sharp rise in unemployment, the continued
decline in home prices, the prolonged downturn in the economy,
and the resulting increase in mark-to-market loan-to-value
ratios.” Naturally, Fannie Mae said that it fully expects
to ask for more financial support from the federal government.
“Due to current trends in the housing and financial markets,
we expect to have a net worth deficit in future periods, and
therefore will be required to obtain additional funding
from the Treasury.”
Big U.S. banks to repay TARP funds soon
The recently released stress results suggests 9 out of 19
biggest banks have enough capital to withstand economic
shocks. Big banks such as JP Morgan and Goldman Sachs have
announced that they would repay the Troubled Asset Relief
Program (TARP) funds soon. The government injected funds
into banks last year under the TARP program to stave off
liquidity crisis in banking. The TARP funds came with onerous
conditions, and bankers weren’t exactly comfortable with the
strings that came with the money. JP Morgan received $25
billion under the program and Jamie Dimon, its CEO, said
the bank will repay the TARP fund as soon as it can. Other
banks such as Goldman and Morgan Stanley have also expressed
interest in returning TARP funds at the earliest. Government
officials, however, have made it clear that banks should
prove they have sufficient capital and are in a position to
raise equity and debt capital without government guarantees,
before they are allowed to return TARP funds.
Short Sales Stress Test – What is Your Grade?
Big banks balked but the government believes it is critical to
help reassure the masses of fearful investors (although
just in case, they are reluctant to report the results much
less details on what was actually included in the stress
test…so much for unbiased scrutiny). Whatever your view of
the recent stress test, one thing is certain…despite the
reportedly minimalistic expectations…several banks still
failed. Never one to let a good thing go, we decided to
create our own version of the stress test just for short
sale investors. Call it our way of honoring the creativity
and complexity of good old Uncle Sam.
1. Yes or No…if unemployment rises above 10 percent and
home prices fall by another 25 percent would you be able to
survive by raising additional private funds or by accepting
a bigger investment from the U.S. government?
2. Yes or No…do you have any money in the bank
whatsoever? Can you at least pretend you will pay your
creditors a small portion of what is owed at some point
and time into the future?
3. Yes or No…could you possibly survive a 3.3 percent
contraction or decline in the economy assuming a worst
case scenario?
4. Yes or No…would you be able to retain key employees
(including yourself) by paying out a maximum of a 9 percent
bonus or dividend on top of those multi-million dollar
salaries?
5. Yes or No…do you have anything left on the books
that can remotely be considered capital? We’d like to
see six percent of Tier one but if that is hard to come by
then just forget Tier 1 capital like common stock (or
preferred), debt-equity instruments or other…just let us
know if you have anything that can serve as capital?
6. Yes or No…does anyone in the company have any actual
cash on hand? We really just need enough to get some java
at Starbucks but we’ll negotiate a more positive government
interest if we are caffeinated enough to think clearly.
7. Yes or No…do you agree to the mandatory gag order
imposed by the federal government in relation to this
mandatory stress test despite legal orders to disclose
material information when attempting to raise funding or
secure investment dollars?
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See you at the top!
Chris McLaughlin
http://www.shortsalesriches.com/welcome.html
P.S.
Don’t miss our webinar Sunday at 8:00 PM ET, 5:00 PM PST:
https://www2.gotomeeting.com/register/497748842
Copyright Loss Mitigation Institute 2009.
All Rights Reserved.
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About the author:
Chris McLaughlin is widely known as Americaís top
Real Estate Attorney and Investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month
* Long-time authority on real estate investing
and rapid flipping of distressed homes. Owns
portfolio of nearly 100 high-value, high-profit
properties
* Owner and Supervising Broker of one of Florida’s
largest Real Estate firms, running 4 different
offices, supporting nearly 450 agents, uniquely
positioning him to help thousands of investors
make money in the biggest market opportunity ever!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and
Wealth Building
* On twitter: http://twitter.com/mclaughlinchris
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