Investor Funding Alternatives

Paul Volker Says It’s Time To Replace FNMA and Freddie Mac.

TedAkers — Sun, 01 Aug 2010 17:52:58 +0000

Replacing or revamping these two GSE’s has been under consideration for over a year now, and something clearly needs to be done. In the attached link to a Wall Street Journal article Paul Volker does not like them serving two masters, which is hard to argue with. Their first master is shareholders of the entity, yet the second master is expected to guaranty losses. That second master is Uncle Sam – which means you and I as taxpayers. Estimates of taxpayer funded losses are all over the board, but many experts anticipate ultimate taxpayer funding for FNMA and Freddie losses as high as $1 TRILLION. Yes Trillion with a “T”. Without govenrment bailouts (the entities are essentially in recievership with the govennment) the mortgage market would likely melt down. However, government support and even outright guaranty for losses, is a mismatch when private shareholders actually own the companies. It is time for a solution to the problem which is bleeding taxpayers, while insulating at least to some extent shareholders of these companies. Any solution will be complicated, challenging to impose, and will likely disrupt markets for awhile. However, can we really continue riding this horse (or horses)?

http://blogs.wsj.com/developments/2010/07/30/volcker-fannie-and-freddie-need-to-go/

One Foreclosure Every 90 Seconds

TedAkers — Tue, 22 Jun 2010 17:58:03 +0000

For the first three months of 2010 FNMA and Freddie Mac took over a home every 90 seconds and held 163,828 homes in inventory needing to be sold. Taxpayer costs for both are now at $146 Billion and the Congressional Budget Office estimates the total could reach $389 Billion. Here is a link for the full article: http://www.nytimes.com/2010/06/20/business/20foreclose.html

With this type of inventory and foreclosures continuing to increase it is difficult to understand the reluctance of both FNMA and Freddie Mac to sell to investors or to be more reasonable with short sale offers.

Housing Recovery? Dean Baker Says No.

TedAkers — Thu, 13 May 2010 18:02:54 +0000

Are we in the early phase of a housing recovery, as the administration and press are saying? Dean Baker called the housing bubble when he published published “The Run-up in Home Prices: Is It Real or Is It Another Bubble?” in 2002. In the attached article and video he predicts that the end of government support programs will reduce the number of buyers for the balance of 2010. This is an interesting and telling interview with CNN News. You can view the video at this link: http://tinyurl.com/23k9bdm

Mr Baker argues that government programs that have come to an end have propped up the market and are unlikely be extended, resulting in fewer buyers. The First Time Buyers Tax Credit ended in November and was extended to the end of April. The Treasury Department purchased $1.25 Trillion of mortgage backed securities keeping mortgage rates artificially low. Mr. Baker predicts niether program will be continued and that mortgage rates will rise to 5.50 – 6.00% by the end of this year. Additionally, FHA to some extent has replaced the subprime mortgage market; but is being forced to curtail some of its lending due to falling below its minimum capital requirements. He ultimately argues that the government propping up housing prices does not make sense.

While this may not bode well for current homeowners, and somewhat not for buy and hold landlords, it reinforces my previous predictions of a continued supply of Short Sales and REO’s as fewer buyers keep housing values down. It also reinforces the requirement to “buy it right” in order to attract from a somewhat smaller pool of buyers.

Ted Akers is the Managing Member of Investor Funding Alternatives which funds investor purchases for back-to-back transactions at www.InvestorFundingSite.com

11.3 Million (25%) of Mortgages Underwater

TedAkers — Wed, 24 Feb 2010 19:04:13 +0000

Cnn.Money.com and several others are reporting that according to FirstAmerican CoreLogic more than 11.3 million homeowners, almost 25% of all U.S. mortgages, owe more on their mortgage than their home is now worth as of the end of 2009. That is up from 23% and 10.7 million borrowers from three months earlier. An equally critical number is that over 10% of all mortgagees owe 25% more than their home is worth. “The rise in negative equity is closely tied to increases in pre-foreclosure activity,” CoreLogic said. Once a homeowner owes 25% more than the house is worth, foreclosure rates rise sharply.

The number of underwater mortgages increased by about 620,000 from the third quarter, the firm said. Another 2.3 million mortgages had less than 5% equity in their home, which could be wiped out if home prices fall further. “Negative equity is a significant drag on both the housing market and on economic growth,” said Mark Fleming, chief economist with First American CoreLogic. “It is driving foreclosures and decreasing mobility for millions of homeowners.”

Underwater mortgages are concentrated in few states. In Nevada, 70% of mortgages were underwater followed by Arizona (51%), Florida (48%), Michigan (39%) and California (35%).

These numbers, along with close to 10% delinquency rates for payments over 60 days late for both FHA and Jumbo loans, point to a slow recovery. It does however highlight likely upcoming opportunities for Short Sale and REO investors.