By Joel Persinger
Sept 15, 2008
If you’ve been follow the business news, you must be amazed at the number of historic events that have occurred in 2008. Bear Stearns collapsed only to be rescued by the U.S. Government, Countrywide Home Loans was saved by Bank of America, Fannie and Freddie were bailed out by Uncle Sam last week and this past weekend, Lehman Brothers filed for bankruptcy and Merrill Lynch decided to sell out to Bank of America. Wow, what a year!
With what the presidential candidates have both dubbed a “financial crisis” upon us, the news is full of talking heads on every side of the issue. Some say the Government should come to the rescue of Lehman Brothers just as it has for other companies. Others say, “Let the free market system heal itself.” Meanwhile, the stock market is going nuts and the news media is circling the story in a feeding frenzy like so many ravenous sharks smelling blood.
To figure out what should be done to fix this mess, we need only think about what kind of financial system we have in this country. It’s called capitalism. In a free market, capitalistic system companies rise and fall depending upon their financial success or failure. The strong survive and the weak do not. When failing companies collapse, they are absorbed by stronger companies, which often provide the same services in a more effective and successful way then did the failing companies they purchased.
Take Bank of America for example. Obviously, Bank of America is in a better financial position than both Countrywide and Merrill Lynch. Otherwise, how could Bank of America buy the two failed firms? Somehow I suspect that if Bank of America actually ends up with both of these companies, home loans and investment products will still be offered to its customers. Even if nobody rescues Lehman Brothers and it goes down the tubes after 158 years, investors will still be able to invest and homebuyers will still be able to secure a loan. So, what exactly have we lost with the collapse of theses poorly run, failed companies? That’s right… we’ve lost a few poorly run, failed companies. Maybe I’m crazy, but that’s a good thing, isn’t it?
My Grandfather always said, “Joel, if you want to be successful, find out what everyone else is doing and do the opposite.” Grandpa was right. If you want to see the opportunities in today’s marketplace, you must turn away from the idiot box and look at what is positive in the financial world. Remember, the news media does not exist to inform you. It exists to make money, period. It sells more advertising and makes more money by pushing sensational stories. Where do you think the old saying, “If it bleeds, it leads”, came from? I spent 18 years in the broadcasting business. Believe me, I know.
There is a lot of great economic news that you should know about. Here are some examples from today’s news: the price of oil is down under $100 per barrel, investors are putting their money into bonds, mortgage rates are down because investors are buying bonds, home prices are very low, home buyers are buying all over town, the home loan business is picking up and real estate sales are improving.
The economy is not collapsing, the sky is not falling and if Lehman Brothers goes out of business it’s because it should! As tax payers, we should not; we must not continue to bail out poorly run, failing companies. Let the market do what it is meant to do. The strong will survive and the weak will be absorbed by the strong. That is called a free market. That is called capitalism, and it works.
Monday, September 29, 2008
U.S. Government Takeover of Fannie & Freddie
By Joel Persinger
Sept 8, 2008
As a card carrying tax payer who dreads the ever increasing involvement of government in our day to day lives, I must admit to having a feeling of foreboding as a result of Sunday’s government takeover of Fannie Mae and Freddie Mac. Uncle Sam raced in with a pot full of money (yours and mine) to prop up the ailing companies which have experience record losses. I should also mention that the CEOs of both companies are being bounced out the door.
The U.S. Government (that means you and I) will purchase some $1 billion of preferred shares in each company in an effort to make this deal work. You and I have apparently also pledged to provide as much as an additional $200 billion to help Fannie and Freddie deal with the heavy losses they’ve already suffered as a result of defaulting mortgages. When asked how much you and I, as tax payers, will eventually have to pay for this deal everyone says, “I don’t know.”
The “plan” places both companies into a conservatorship. What does that mean? Well, it means that the management of the companies will be controlled by the Federal Housing Finance Agency, also known as the FHFA. It also means that the U.S. Congress will now have its fingers in the Fannie and Freddie cookie jar to a much greater degree than ever before. This is the same Congress that can’t agree on where to have lunch on any given day let alone how to effectively manage the tax payer’s money.
While my knee jerk reaction is to slam the whole thing as just another unwanted intrusion by the government into affairs that it neither understands nor has the capability of addressing, it appears that the financial markets are rather keen on the idea, at least for the moment. Financial markets around the world surged this morning as a result of the news and just about every talking head on the planet is predicting lower interest rates for home buyers and greater stability in the lending market. Even the loan officers and loan manager in my office seem to be feeling rather positive about it.
Who knows, it may provide some needed breathing room for the financial markets in the short term. Just the same, I will reserve judgment for a while. In my experience, markets which are allowed to heal themselves come back stronger and healthier as a result. However, when the government inserts itself and takes on the mantle of, “Lord of the Marketplace” rather than allowing a holistic healing to take place, a new and greater set of problems are not far behind.
Sept 8, 2008
As a card carrying tax payer who dreads the ever increasing involvement of government in our day to day lives, I must admit to having a feeling of foreboding as a result of Sunday’s government takeover of Fannie Mae and Freddie Mac. Uncle Sam raced in with a pot full of money (yours and mine) to prop up the ailing companies which have experience record losses. I should also mention that the CEOs of both companies are being bounced out the door.
The U.S. Government (that means you and I) will purchase some $1 billion of preferred shares in each company in an effort to make this deal work. You and I have apparently also pledged to provide as much as an additional $200 billion to help Fannie and Freddie deal with the heavy losses they’ve already suffered as a result of defaulting mortgages. When asked how much you and I, as tax payers, will eventually have to pay for this deal everyone says, “I don’t know.”
The “plan” places both companies into a conservatorship. What does that mean? Well, it means that the management of the companies will be controlled by the Federal Housing Finance Agency, also known as the FHFA. It also means that the U.S. Congress will now have its fingers in the Fannie and Freddie cookie jar to a much greater degree than ever before. This is the same Congress that can’t agree on where to have lunch on any given day let alone how to effectively manage the tax payer’s money.
While my knee jerk reaction is to slam the whole thing as just another unwanted intrusion by the government into affairs that it neither understands nor has the capability of addressing, it appears that the financial markets are rather keen on the idea, at least for the moment. Financial markets around the world surged this morning as a result of the news and just about every talking head on the planet is predicting lower interest rates for home buyers and greater stability in the lending market. Even the loan officers and loan manager in my office seem to be feeling rather positive about it.
Who knows, it may provide some needed breathing room for the financial markets in the short term. Just the same, I will reserve judgment for a while. In my experience, markets which are allowed to heal themselves come back stronger and healthier as a result. However, when the government inserts itself and takes on the mantle of, “Lord of the Marketplace” rather than allowing a holistic healing to take place, a new and greater set of problems are not far behind.
Tuesday, August 26, 2008
A Matter of Perspective
By Joel Persinger
My wife can testify to the fact that she is not a Monday Night Football widow and she generally does not have to fight me for the remote in order to watch something other than sports. I must admit to being a basketball fan. But that is mostly due to the fact that our son plays basketball and we enjoy watching his team play. Still, once every four years, I turn into a sports nut. I find myself glued to the Olympic Games just as if I were a die-hard sports fan all year long.
Over the last two weeks I have enjoyed watching many Americans stand on the podiums and receive their medals. I could not resist standing every time our national anthem was played and I was so proud of each and every athlete. But, in spite of the grandness of the Olympics, the one event which touched me most did not happen in China. It was not the result of a hard won race or the spectacular flips and spins of gymnastics. It didn’t involve a swimming pool, a diving board or a track meet. In fact, it was a simple passing of the keys rather than the spectacular awarding of the medals. It was the quiet reading of the Scriptures rather than the triumphant playing of the anthem. There was no fan-fair and there were no fireworks. No records were broken and no international stars were born. And I suppose it should be noted that it happened in Mexico, not in China. No, this was a simple event that involved three families and three small houses.
It seems that there are poor people just to the south of us who do not watch the Olympics. A stalwart group of folks from our church discovered this some years back and decided to make a trip to Mexico each year to build houses. They built three while the Olympics were taking place. Frankly, the houses they built would be little more than tool sheds to you and me. But, to the families who had no home before those little houses were built those homes might as well have been mansions.
When the builders returned they brought video with them. They told the stories of the people and we watched as they cleared the land, laid the foundations and built the three little one room houses. When the houses were finished and painted so beautifully, one red and two yellow, the leaders of each home building team held a little ceremony. They prayed over the new houses, gave the heads of the families each a Bible and handed them the keys to their new homes. To see the looks on the faces of those families, you might have thought they had just been given gold medals. Somehow, I just could not resist standing.
Sometimes I look around and I feel like I’m missing out on things. The fellow down the street has a nicer car and one of the folks in my office has a bigger house. Why did that guy win a gold medal when I had hopes of doing so when I was young? But, then I have the chance to hear the stories of people who are so grateful for so little and I find myself realizing just how selfish I can be. Sure, the real estate market is down and people are having a tough go of it. But, I live in one of the richest cities in the richest state in the richest country in the world. Perhaps it’s time for me to take stock of just how blessed I really am. How about you?
My wife can testify to the fact that she is not a Monday Night Football widow and she generally does not have to fight me for the remote in order to watch something other than sports. I must admit to being a basketball fan. But that is mostly due to the fact that our son plays basketball and we enjoy watching his team play. Still, once every four years, I turn into a sports nut. I find myself glued to the Olympic Games just as if I were a die-hard sports fan all year long.
Over the last two weeks I have enjoyed watching many Americans stand on the podiums and receive their medals. I could not resist standing every time our national anthem was played and I was so proud of each and every athlete. But, in spite of the grandness of the Olympics, the one event which touched me most did not happen in China. It was not the result of a hard won race or the spectacular flips and spins of gymnastics. It didn’t involve a swimming pool, a diving board or a track meet. In fact, it was a simple passing of the keys rather than the spectacular awarding of the medals. It was the quiet reading of the Scriptures rather than the triumphant playing of the anthem. There was no fan-fair and there were no fireworks. No records were broken and no international stars were born. And I suppose it should be noted that it happened in Mexico, not in China. No, this was a simple event that involved three families and three small houses.
It seems that there are poor people just to the south of us who do not watch the Olympics. A stalwart group of folks from our church discovered this some years back and decided to make a trip to Mexico each year to build houses. They built three while the Olympics were taking place. Frankly, the houses they built would be little more than tool sheds to you and me. But, to the families who had no home before those little houses were built those homes might as well have been mansions.
When the builders returned they brought video with them. They told the stories of the people and we watched as they cleared the land, laid the foundations and built the three little one room houses. When the houses were finished and painted so beautifully, one red and two yellow, the leaders of each home building team held a little ceremony. They prayed over the new houses, gave the heads of the families each a Bible and handed them the keys to their new homes. To see the looks on the faces of those families, you might have thought they had just been given gold medals. Somehow, I just could not resist standing.
Sometimes I look around and I feel like I’m missing out on things. The fellow down the street has a nicer car and one of the folks in my office has a bigger house. Why did that guy win a gold medal when I had hopes of doing so when I was young? But, then I have the chance to hear the stories of people who are so grateful for so little and I find myself realizing just how selfish I can be. Sure, the real estate market is down and people are having a tough go of it. But, I live in one of the richest cities in the richest state in the richest country in the world. Perhaps it’s time for me to take stock of just how blessed I really am. How about you?
Tuesday, August 12, 2008
More on the Foreclosure Rescue Bill
By Joel Persinger
While the world is focused on the Olympic Games and parents are focused on getting their kid back into school, many families are focusing on the Housing and Economic Recovery Act of 2008 and whether it might help them keep their homes. Real estate and lending professional are also scrambling to figure the thing out and are only getting it piece by piece.
That said, here are some new pieces to the already complicated puzzle. According to a number of reports, homeowners must meet the following criteria in order to have a chance of being helped by the new law: the loan must be on their primary residence, the loan must have been originated between January 2005 and June of 2007 and the payment must add up to 31% or more of the homeowners gross monthly income.
There are additional FHA requirements as well. For example: the borrower must pay an annual fee to FHA in the amount of 1.5% of the loan amount as an insurance premium. If the homeowner sells the property within on year of making the deal, FHA keeps 100% of the profits realized from the sale. If they sell after one year FHA gets 90%. The percentage keeps dropping in increments of 10% until it reaches a 50% split after five years. The bottom line is, the government may help you to keep your house, but it won’t be for free. You’re going to have to pay up sooner or later.
Just like the problems it’s trying to solve, this law is complicated. Real estate and lending professionals are learning more about it every day and so far, it looks like it may be helpful for some folks. But, it won’t help everyone. Many of the people who are currently in trouble with their mortgage or whose mortgage interest rate is soon going to adjust, will not be helped by this legislation. This is particularly true when the property in question is a rental or a second home. Another sticking point is that all of the fixes require the lenders to agree to take hefty losses. As a result, it’s not surprising that many prognosticators are predicting that short sales and foreclosures are going to continue for some time to come.
While it’s not a perfect fix, it is a fix and it will help many people. In fact, for the right people in the right situation this new “bail out” plan could be a dream come true. So, if you think it might help you or someone you know, the best place to start is with your lender or your Realtor. Just don’t forget that there are other available options in case this one doesn’t work for you.
While the world is focused on the Olympic Games and parents are focused on getting their kid back into school, many families are focusing on the Housing and Economic Recovery Act of 2008 and whether it might help them keep their homes. Real estate and lending professional are also scrambling to figure the thing out and are only getting it piece by piece.
That said, here are some new pieces to the already complicated puzzle. According to a number of reports, homeowners must meet the following criteria in order to have a chance of being helped by the new law: the loan must be on their primary residence, the loan must have been originated between January 2005 and June of 2007 and the payment must add up to 31% or more of the homeowners gross monthly income.
There are additional FHA requirements as well. For example: the borrower must pay an annual fee to FHA in the amount of 1.5% of the loan amount as an insurance premium. If the homeowner sells the property within on year of making the deal, FHA keeps 100% of the profits realized from the sale. If they sell after one year FHA gets 90%. The percentage keeps dropping in increments of 10% until it reaches a 50% split after five years. The bottom line is, the government may help you to keep your house, but it won’t be for free. You’re going to have to pay up sooner or later.
Just like the problems it’s trying to solve, this law is complicated. Real estate and lending professionals are learning more about it every day and so far, it looks like it may be helpful for some folks. But, it won’t help everyone. Many of the people who are currently in trouble with their mortgage or whose mortgage interest rate is soon going to adjust, will not be helped by this legislation. This is particularly true when the property in question is a rental or a second home. Another sticking point is that all of the fixes require the lenders to agree to take hefty losses. As a result, it’s not surprising that many prognosticators are predicting that short sales and foreclosures are going to continue for some time to come.
While it’s not a perfect fix, it is a fix and it will help many people. In fact, for the right people in the right situation this new “bail out” plan could be a dream come true. So, if you think it might help you or someone you know, the best place to start is with your lender or your Realtor. Just don’t forget that there are other available options in case this one doesn’t work for you.
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