Rogers on the US economy

I rarely do this on my BLOG, but I found this interview to be VERY interesting.

Few have the courage to really speak their mind and say in clear words what they believe is thew truth on mainstream media.

http://video.cnbc.com/gallery/?video=3000070572#eyJ2aWQiOiIzMDAwMDcwMzY0IiwiZW5jVmlkIjoiVzRIc01ocWdWcmVsMHpiTGxxRmFHdz09IiwidlRhYiI6InRyYW5zY3JpcHQiLCJ2UGFnZSI6IiIsImdOYXYiOlsiwqBMYXRlc3QgVmlkZW8iXSwiZ1NlY3QiOiJBTEwiLCJnUGFnZSI6IjEiLCJzeW0iOiIiLCJzZWFyY2giOiIifQ==

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Foreclosure update for 2012

The number of new foreclosures in 2011 dropped nearly 40 percent, according to year-end numbers just released by Lender Processing Services; there is, however, little cause for celebration. The fall is largely due to moratoria and process reviews stemming from the so-called “robo-signing” foreclosure paperwork scandal. Mortgage delinquency rates were largely unchanged from last year, which means all that distress will be pushed forward to 2012 and beyond.

To give you an idea of just how much the “robo” scandal is toying with the numbers, LPS compared states that require foreclosures to go through the courts versus states that don’t (judicial versus non-judicial) and found the following:

– 50 percent of loans in foreclosure in judicial states have not made a payment in two years, as opposed to 28 percent in non-judicial states.

– Foreclosure sale rates in non-judicial states are about four times those in judicial states. (judicial means they must go thru the court process to foreclose)

“Nationally, foreclosure pipelines remain at historic highs, but they are clearing at very different rates depending upon state procedures,” says Herb Blecher of LPS Applied Analytics. With the nation essentially split between judicial and non-judicial foreclosure states, it’s safe to say the foreclosure crisis will linger longer than anyone expected, especially with negotiations for a settlement between big banks and state attorneys general hitting yet another roadblock.

Additionally: Foreclosure homes sold for 34 percent less than the average price of a non-distressed home during the third quarter of 2011, according to new data released byRealtyTrac Thursday. The average sales price of homes in the process of foreclosure or bank-owned was $165,322 over the July-to-September period last year. RealtyTrac says third parties purchased a total of 221,536 residential properties classified as foreclosures or REO during the third quarter of 2011, representing just 20 percent of all residential sales during that timeframe. The third-quarter share of distressed sales activity is down from 22 percent in the second quarter and down from 30 percent of all sales in the third quarter of 2010. At that time, a year earlier, the discount on a home in foreclosure or REO was averaging 37 percent.

“While foreclosures continue to represent an excellent bargain-buying opportunity for many buyers and investors, foreclosure sales accounted for a smaller share of the total market in the third quarter,” commented Brandon Moore, RealtyTrac’s CEO. Mr. Moore says he’s not too surprised by the numbers, given the ambiguity surrounding foreclosure procedures and how they differ by state.

Good News: There are still bargains out there if you do your homework and have cash to buy quickly.

Bad News: It appears, at least for now that 2012 will unfold in a similar fashion as 2011.

Investor money going under the mattress’

Jeff Cox a senior writer at CNBC’s research center shows that investors have been running from stocks and even bonds as fast as their feet can take them, putting their cash instead in accounts that earn practically nothing but provide shelter from turbulent times. Over the first 11 months of 2011, plain-vanilla savings and checking accounts attracted eight times the money as stock and bond mutual and exchange-traded funds, according to data from market research firm TrimTabs.

The pace accelerated to nearly 13 times from September to November, the most recent month for which data is available. After contending with factors as ominous as the European debt crisis and as frustrating as Washington gridlock, investors have decided that the world looks best from the sidelines, despite historic efforts from the Federal Reserve to tempt more risk taking. “The real money these days is going straight under the mattress,” said TrimTabs CEO Charles Biderman. “The Fed is doing almost everything in its power to entice investors to speculate in overpriced asset markets. Yet investors — particularly on the retail side — are mostly refusing to take the bait.”

From January to November, $889 billion poured into savings and checking, while stock and bond funds drew just $109 billion. More money went into bank accounts even at times when the market rallied.

Most recently, investors took $9.35 billion out of equity funds — including more than $7 billion of U.S.-based funds — for the week ended Jan. 4. Stock-based funds haven’t had a winning month since April of 2011, and cash in money market funds is just over $2.7 trillion, the highest level since June 22, according to the Investment Company Institute, which tracks fund flows for the government.

Biderman attributes the reluctance of retail investors to commit money to three factors: 1) an increase in baby-boomer retirees who are becoming more risk-averse in their later years; 2) an economy getting better but still struggling, and 3) worries that the Fed is running out of ammunition to stimulate the economy. The #1 has been a talking point for me and my clients for years. I’ve been asking the question: “What’s going to happen to the markets when 70 million baby boomers begin to pull their money out of investments?” The reality is not good, but the bigger concern many of you should have is timing. As history has shown us, if you are in the market, and you wait, you can lose a bundle quick. I suspect this is why it’s going under the mattress.

“Investors are very skittish. The last decade has really eroded American optimism,” said David Kelly, chief market strategist at JPMorgan Funds. “The problem is they look at the day-to-day volatility and they just can’t take it.”

Kelly believes that “economic momentum” — in better unemployment numbers, housing improvement and manufacturing gains — ought to be pushing investors away from zero-earning instruments and toward risk. The most recent of the closely watched fund managers surveys from Bank of America Merrill Lynch showed bullish sentiment as well, with cash levels at their lowest point since July. Overweight ratings on U.S. stocks are at a net 28 percent, up from 23 percent in December.

Mary Ann Bartels, technical research analyst at BofAML, had been forecasting the possibility of the Standard & Poor’s 500 testing as low as 935 in the coming weeks. But Bartels said Monday that positive market signs have pushed her to take that possibility off the table, though she still sees problems ahead. After all, the fears that have accompanied the pullback into the safety of checking and savings accounts aren’t going away anytime soon. So without a positive spark, it will take some convincing to get investors to commit their money again.

Case Study 4 – December 2011

Client J had several obligations with Chase. This client was of the mind that everything should be with one bank. “It’s easier to keep track and manage”, he said. For the reasons forthcoming, you will soon see that this is not true. Client J was not the average American due to his large portfolio but you will see that his holdings only increased his risk. It took us 11 months but it was worth saving him $300k.

  1. $994,000 first mortgage – Chase Mortgage ( monthly payment $4400 )
  2. $95,000 second mortgage – Chase Mortgage ( monthly payment $980 )
  3. $279,000 variable mortgage for his rental investment property with Chase Mortgage
  4. *$134,000 land loan on a parcel of land – secured by his (6) Chase savings account
  5. $225,000 liquid in various mutual funds with Chase Brokerage account
  6. $209,000 in savings account with Chase

*notice how Chase had him use money he had in savings to “secure” the land loan. Chase knows that land is the first thing to lose value in tough economic times. How convenient they used his cash to secure the land instead of giving him a land loan. As the land lost value, Chase doesn’t lose anything, they still have it secured by his cash at 100% value. 

Client J loved his home. He paid $1,400,000 for it in 2004 and at that time he was earning $600,000 per year. In 2007 his income dropped to $350,000, and then by 2009 below $200,000. In 2010 he needed to re-negotiate the mortgage on his primary home because the payment was so high he had to draw money from savings each month just to pay is monthly obligations. He called his broker friend for help. Months of calls and requests to modify his loan went without action. No one at Chase would help him. This person had over $400,000 in liquid assets with Chase and they would not help him at all. Client J could not understand why his long time bank, the ones he had trusted with all his finances would not help him. This is a common dilemma. The fact is that when you have money, banks will not help you. Banks are in business for one reason, to use your money and make a profit.

After months of attempts he was referred to 360 Group. We discussed the entire picture in detail as I went over each item on his portfolio. The forensic audit showed all the risk. I explained that he had to move money from Chase in order to get them to act. This was hard for him to realize, but in time he got it. Eventually he took action and did the following.

  1. Sold his land in North Phoenix as the value had gone down to less than what he paid. Chase would not approve a short sale so he had to part with $7,000 cash to close the deal. So now (4) above, the $134k is gone.* had he gotten a loan on the land he would have lose $0.
  2. Refinanced his variable mortgage on the investment property with another lender, so the loan (3) above is now at a better rate, a fixed loan for 30 years PITI equaling less than what he gets in rent so he is positive each month.
  3. Submitted him for a modification on the primary, at this time the value had gone down to $850k on the home. The next 6 months we continued to submit financials to Chase showing that he only earned $60,000 a year, but that he had enough liquid funds to cover the loan if they would modify him. The danger is that when you make too little money the banks don’t want to modify as they see it as a risk that you will default eventually, so they typically decline the mod. I explained this to him up front and he wanted to try anyway. We had a 50/50 shot. After 6 months Chase was about to issue an internal mod as the high loan balance didn’t qualify for any government programs. Chase would not do a principal reduction (they are quite rare) but they would lower the rate to 2% for the first 5 years, then step the rate up 1% each year until 4% would stay for the balance of the loan. Not a bad mod. The value had gone down to $800k and I asked him, with a loan of $994k and $95k ( 1 & 2 above ) do you really want to attempt to pay this loan back? You will be upside down for the next 15 years or more. I explained that cash-flow is the most important thing right now and to preserve what cash he had left rather than throw it at this depreciating asset. I asked him a question. “Is this magnificent 4,000 sq ft home really worth you going broke over? The light finally went on as I stated at the beginning of this case study, and he told me that he really just wanted to get out of debt and re-group.
  4. He liquidated $434,000 ( 5 & 6 above ) from Chase and three months later we short sold his home successfully with no deficiency risk and both loans ( 1 & 2 above ) equaling $1,089,000 are gone from his credit. Due to the large second mortgage, he had to come in with $10,000 cash to close the short sale. But that was a gift not to have any deficiency and to also know the bank agreed in writing that all was forgiven.

Now his income is in-line with his debts. He no longer has to dig into his liquid cash each month to live, reducing stress, and he has never felt lighter and freer. Imagine having to draw $7,000 a month from your savings just to break even each month. Now client J is happy and we’re blessed to have been able to help him.

Fannie & Freddie free from oversight

California Attorney General Kamala Harris is asking the court to force Fannie Mae and Freddie Mac to turn over information about their servicing, foreclosure, property leasing, and mortgage securitization activities in the state. Harris issued subpoenas to each of the GSEs last month, which according to the Los Angeles Times, outlined 51 questions the attorney general wanted answered – just one facet of Harris’ investigation to ascertain the extent to which mortgage lenders and servicers contributed to the state’s foreclosure and housing crisis. According to multiple media reports, Harris’ lawsuits against the two GSEs, filed Tuesday in California Superior Court in San Francisco, claim Fannie and Freddie have refused to comply with the subpoenas.

 

Harris maintains the GSEs are “frustrating the Attorney General’s efforts to investigate and combat crime, blight and other threats to the health and safety of Californians.” Fannie and Freddie’s regulator, the Federal Housing Finance Agency (FHFA), had reportedly instructed the two mortgage financiers not to respond to Harris’ initial subpoenas on the grounds that states do not have the authority to take such action against the federally controlled GSEs.

 

This was the same position the banking commissioners held when Countrywide Mortgage was being investigated by Elliott Spitzer back in 2007 before the mortgage crisis hit. It should be clear to all Americans that these institutions will never be held accountable. It’s big business as usual even after everything that’s happened since 2008.

 

Attorneys for FHFA described Harris’ request for information as “frequently vague and ambiguous” and one that would place a burden “nothing short of staggering” on the GSEs in order to gather the details she’s demanding, according to the Associated Press. Harris wants Fannie and Freddie to identify all the California homes on which they foreclosed, as well as whether or not any were used for drug dealing or prostitution and the impact such activity had on the property’s value.

The attorney general’s office also plans to look into the history of tax payment on the properties, evictions involving military families, and the GSEs’ actions related to the purchasing, packaging, and re-selling of so-called toxic mortgages.

 

While California Attorney General Kamala Harris is asking for a lot and obviously difficult data to gather, it still shows that these organizations operate with no guidelines and all Americans need to be aware of it. There are extremists who are ready to stop paying their mortgage and defend their home by gunpoint until the corporate crime in the country stops…I used to think they were crazy, but now I’m not so sure. Draw your own conclusions people.