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…Now the fact that our politicians are willing to let a crisis of this potential magnitude, not even a week old, fade to the background is understandable. These are not courageous men, but merely sheep who will do nothing unless it is politically expedient to do so. They are actually in many cases the worst types of cowards who will put their own political careers and financial gain ahead of national security (see Democrat)…
The Economic Data
Exisitng home sales dropped from the previous reading, although it was in the neighborhood of the forecasts. My question is this, which goes right along with the current freeze that we have in the banks willingness to make new loans.
While we are in an economic slowdown, and as such new home sales would be expected to decline some, how much of the actual decline is due to the slowdown in economic activity, and how much is due to the fact that potential buyers that would be out there grabbing up this inventory can simply not get a loan?
If we can get back to the point of the banks beginning to trust each others credit worthiness, and we get a bailout package that puts liquidity back onto their balance sheets, perhaps this particular piece of economic data can improve before the next reporting period.
I have To Put My Foot Down
I have been catching little pieces of the testimony on TV by Bernanke and Paulson, and I now have to put my foot down and tell these politicians questioning them that the time has come to do the peoples business, my business, and to end the posturing and bickering that is meant to impress their constituents back home in an election year.
The bottom line is that no one is knowledgeable enough to really understand the depth of the crisis or the potential ramifications. Definitely not most of these guys that are questioning Bernanke and Paulson. These two guys are our best shot.
The bottom line is, according to those that know or at least appear to know, this bailout or government intervention or whatever you want to call it is necessary if we are to avoid something that could be much, much worse. Let’s not do what we usually do, which is to wait until we are at the precipice.
It’s Not Just The Bailout Plan Out There!
As if we didn’t have enough to worry about with this bailout plan that is getting knocked around on Capital Hill this week, this headline came across a little while ago:
N.Korea ousts U.N. monitors, to restart atom bomb plant
We can’t forget about them (or Iran).
Also, under the heading of if you want to play you gotta pay, the executives at Fnm, Fre, AIG and Lehman are the subject of a probe by the FBI.
I keep saying that I should stick with ESPN on TV and the comics when I read. Definitely happier stuff.
Some Late Breaking News On Goldman Sachs and Warren Buffett
The “Oracle of Omaha”, Warren Buffett, has agreed to invest at least $5 billion into Goldman Sachs in the form of perpetual preferred stock that is paying 10%. He is also receiving warrants to buy $5 billion in Goldman Common at a strike price of $115. The fact that Buffett, a conservative investor who only invests where he has a high level of comfort, has this type of confidence in Goldman is a great sign for that stock.
The futures are higher on the news although his confidence in Goldman does not necessarily translate into a bailout plan or improvement in the underlying situation at the other problem financials. We’ll be watching for developments on all fronts.
Somebody Knew Something
As a former trader watching the market yesterday afternoon, the news of this deal was more likely than not already in the marketplace before it was announced. Let’s take a look at the way Goldman closed and the volume that it traded between 3:50 and 4:00. This with the market not rallying.
At 3:50 Goldman was at $119, and at 4:00 it closed at $125 after trading as high as $125.95. This with a down market not rallying and with a large volume spike in Goldman. Hmmmmm.
What Good Is A Great Loan If You Can’t Get It Funded?
As we discussed many weeks ago, one of the keys of the commercial mortgage market is knowing the correct lender to bring your loan to. Once upon a time, the decision making process was relatively easy, particularly if you did not have a lot of experience on this side of the market.
There were many conduit lenders out there that would take your loan that fit their parameters, underwrite it, fund it, package it and sell it to Wall Street. Your rate might not have been fantastic compared to your local S&L, but the loan would get done in a relatively easy manner.
We all know that this type of lender does not exist anymore (although some say they do). We have gotten back to, in most cases, where real estate is once again local, as are the lenders that you will bring a loan to. These local lenders are typically portfolio lenders, which means that they are not selling your paper, but are keeping it on their balance sheet.
Because of this fact, their underwriting was always a little more stringent and careful than the conduit lender that was merely packaging and selling.the loan. That hasn’t changed and in this environment has only gotten tougher.
This leads me to a short “know your lender checklist”:
-What property types are they partial to? Multifamily, mixed use, special use, etc.
-What loan amounts will they go up to? Don’t bring a $2 MM loan to a bank that has a maximum of $1 MM.
-Once an appraisal is completed, what is the maximum LTV they will go to off of it, assuming that the DSCR is good?
-What is the minimum credit score that they will look at? Will they come down to 660 or do they require 700+?
-What geographic areas do they like to lend in? For example a certain local New York lender will draw a 50 mile radius out from their headquarters and not go outside of it.
-Do they like properties that are owner occupied or only those that are investor owned?
-Understand that just about every lender will require an appraisal that is done by someone on their approved list.
-Understand that the days of exceptions are pretty much behind us for now. If the minimum DSCR is 1.25X, your DSCR of 1.15X will probably stop the deal in its’ tracks.
-After you do your homework, you will know which lenders require what things on a loan.
As always, you want to impress upon the underwriter that you know what you are doing, and more importantly that you know what they are doing. Whether you are an investor or broker you will hopefully be dealing with this bank many times in the future, and you want them to be happy when you call. They will be happy because they know that you are only going to bring them loans that they can do if all of the due diligence works out.
Things A Lender Might Say
Loans R US
Originally uploaded by GBowen
What’s My Prognosis Doctor?
Oh boy!!! Here we go again. We had a great reversal day in the stock market on Thursday which led into a great day on Friday on news of a mortgage market and financial institution bailout plan. This all combined with a massive short squeeze on the 799 financial stocks that the SEC instituted a short sale ban on.
We then had a Monday where Goldman and Morgan became banks, the dollar and bonds got routed, oil exploded (although the rise may have been technical) and apparently some people may have found ways around the short selling ban. The market gave back everything it had picked up on Friday.
What Does This Mean For Me (and you) and the Mortgage Market
Once the final form of the bailout plan is established ( hopefully sooner than later), what is it going to mean for me and you and the mortgage markets.
Good Question.
As a participant in the commercial mortgage and real estate markets, I want to know if it will mean that financial institutions that remain will once again be willing to lend. Once we know that they are willing to lend, the question will become who they are going to be willing to lend to.
If I have a buyer that wants to buy a mixed-use property that has a DSCR of 1.32, the buyer has a credit score of 660 and has the 6 months reserves that most lenders will require today, will they get a loan? Is the liquidity going to come back for a borrower like this, or will everyone remain in protection mode?
Some of the bridge loan lenders I know want to know if the exit strategies that they counted on a year ago, which then evaporated, will once again be plausible.
They have a borrower who borrowed on his income producing building at 50% LTV because he needed to make improvements but his credit score was less than stellar. The exit strategy was to get the credit score up and refinance into a conventional loan. The credit score is up, but will a lender now lend?
Then we have another borrower who has a construction loan to build a single family home, has a 650 score and an appraisal on the finished home that says she needs a 75% LTV. Can’t find a lender.
This is a segment of the market that not everyone thinks about, but until the banks begin to lend they cannot close out good loans and make new ones. Worse they will have to begin to foreclose on borrowers who never thought that these expensive loans would be outstanding this long.
Enough of the Negativity!!!
A week or so ago I wrote a piece that said to put the doom and gloom behind us and focus on the task at hand which is a plan to drive business. I said that with all sincerity and still mean it today.
The problem is that the government decision making process and the news flow in general sometimes makes it hard to do. I think the thing to do is to stop watching the financial channels like CNBC, and stick with reruns of All In The Family and MASH.
Sports News
You know what I am going to do? Concentrate on my teams, the Mets and the Jets, to bring my head up and get me focused on the eye of the tiger. Went to Shea last night and left early to come home and watch the Jet game. Oh boy!!!
I think I’ll just put CNBC back on.
ATM Cards At Goldman and Free Toasters At Morgan Stanley?
Haven’t seen news flow like this in a long, long time. Just when I thought that things were going to get back to normal, capitalism would be secure, banks would resume lending and I would continue to bank at my local S&L, another bombshell hit me. Goldman Sachs and Morgan Stanley, those two remaining, venerable investment banks, are now going to become commercial banks. Seems that they have to in order to survive.
As if the events of the past few months were not incredible enough, this is the topper. The people that work at these two firms do not want to be bankers. These firms don’t want to be banks. They want to work for, and be, firms that take risks, and with those risks receive the commensurate reward. Looks like that game is over. Absolute survival is more important. Bring on the ATM cards and the toaster giveaways.
This story continues to be a moving target, and the parameters of this deal will more that likely change as we go forward and it becomes more and more politicized.
But How Would This Proposal Affect The Mortgage Markets?
For today, let’s take a look at how all of this might affect the residential mortgage market in terms of new loans and for those that have existing loans.
If all goes according to plan and this proposal reverses the crisis of confidence that exists among the public and between banks, then the liquidity for commercial mortgage lending will hopefully resume as well.
Is this whole plan, should in be approved in some form that resembles the proposal, going to be a panacea for homeowners that are currently buried in their existing loans? Will this be the bailout for individuals that many hoped for and still many others did not want to see happen?
Let’s take a look at an excellent piece that appeared at Bankrate.com, written by Holden Lewis.
What is the Treasury asking for?
The Treasury is asking for $700 billion to buy, own and sell mortgages and mortgage-backed securities. Under the Treasury’s proposal, the Cabinet department would be able to buy these assets, sell them and use that money to buy more. The Treasury would have a two-year window to buy securities, beginning with the enactment of the law that would grant the Treasury these powers.
Will I still be able to get a mortgage?
It depends upon what type of loan you want.
Mortgages can be broken down into 3 types:
•
Conforming mortgages. Home loans for $417,000 or less that meet guidelines devised by Fannie Mae and Freddie Mac, the government-controlled housing finance giants. The guidelines require borrowers to have good or excellent credit histories, and to have some equity in their houses — either by making a down payment (when buying a house) or by having a house that’s worth more than the amount borrowed in a refinance.Mortgages are likely to remain available for qualified borrowers who get conforming loans, as long as they have sufficient equity. To qualify for conforming loans, borrowers might need to have equity of at least 5 percent or sometimes 10 percent or even 20 percent. The amount of necessary equity depends on where the home is, whether it’s a condominium and other factors (such as credit history).People who need to refinance, but owe more than their houses are worth, will not be helped by the powers the Treasury seeks. The Treasury’s proposal isn’t designed to bail out upside-down homeowners.
•
Jumbo mortgages. Home loans of more than the conforming limit. The jumbo limit varies, depending on location. In some places, it’s any mortgage of more than $417,000. In expensive markets such as Los Angeles, it’s a loan of more than $729,750. In some places, the limit is in between.Lenders say jumbo loans, when available, have high rates and fees. This is a result of the credit crunch. If the Treasury’s proposal goes through, jumbo loans might become more available and affordable. There’s no guarantee of that, though.
•
Mortgages insured by the Federal Housing Administration. Loans for people who have so-so credit histories or who have down payments of only 3 percent or so. Those loans remain available for purchasers and for refinancers who can jump through multiple qualifying hoops.
Help! I’ve fallen behind on my mortgage and I can’t get up! Is the Treasury going to help me?
No.
The Treasury plan is a bailout for financial institutions, not for homeowners who are in danger of losing their homes in foreclosure.
However, Treasury Secretary Henry Paulson contends that the plan will help all homeowners in the long run.
“The biggest help we can give to the American people is to stabilize the financial system right now and prevent it from clogging up,” Paulson said Sunday in an interview on ABC’s “This Week With George Stephanopoulos.”
Paulson added: “We’ve been working to help homeowners for a long time. … It sure seems to me that, as we buy these mortgage-backed assets, we’ll have more leverage in working on the kinds of programs we need to work on. The key question is we want to help those homeowners who want to stay in their home and have the financial ability to stay in their home.”
So far, Paulson said, most foreclosures are from people who don’t want to stay in their homes or never could afford their homes “as a result of irresponsible lending practices.”
My house has been falling in value for more than two years. Will this action reverse that decline?
No, and it’s not designed to. In fact, the sooner house prices hit bottom, the quicker the economy will recover from this credit crisis. Some homeowners might not want values to fall more, but lower prices eventually will make houses more affordable for first-time buyers, as well as for some homeowners who want to move up or move down.
What are the limits on the broad power that the Treasury is asking for?
The secretary of the Treasury would be required to submit reports to six congressional committees, twice yearly. The Treasury would have the power to award no-bid contracts without congressional review.
Furthermore, according to the proposal: “Decisions by the Secretary pursuant to the authority of this Act are non- reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”
That means no one could sue the Treasury for causing them economic harm. This ban on lawsuits and administrative actions will affect mortgage investors more directly than it will affect homeowners.
How does the Treasury’s proposal differ from the Resolution Trust Corp., which the government set up to sell real estate after the savings-and-loan crisis of the 1980s?
The Resolution Trust Corp., or RTC:
Sold real estate.
Sold the real estate from failed financial institutions.
The Treasury:
Doesn’t plan to sell real estate.
Its ultimate aim is to prevent financial institutions from failing.
The Treasury’s plan is an entirely different animal from the RTC. People who refer to the Treasury’s proposal as an “RTC-style” bailout are mis-characterizing the plan. You should be skeptical of what they say.
Instead of taking and selling real estate, the Treasury plans to buy and sell mortgage-backed securities and possibly mortgages themselves. The goal is to get bad mortgage-related debt off the books of financial institutions all over the world.
That, in turn, is supposed to increase the confidence that financial institutions have in one another so that they’ll lend money among themselves. The result is supposed to be a stronger global financial system that freely lends to consumers and businesses.
What Is This Government Bailout All About?
I gotta be honest. I watch a ton of business news, read all of the trade publications and am still not 100% clear on the US Government bailout plan, and how it will affect the mortgage markets, housing markets and banks ability to resume lending.
It took MIT quants to put these products together, and maybe it will take another one to really explain to me how this is all going to work. I understand the premise: to take bad product off of the books of the banks that own them which will hopefully re-ignite other banks confidence to do business with them.
It’s Supposed To Be A Good Thing!
Although it is the regulators and the congress that got us into this mess in the first place, I am going to be optimistic in the fact that they now have a handle on how to get us out of it. From reading and listening over the weekend, it is starting to sound as if approval is less of a sure thing than it looked like in the first place. Partisan bickering and the attempt to insert more than was originally proposed. Let’s hope these people in Washington put us first…but it is an election year after all.
In any event, the following is the fact sheet of the Treasury proposal. Please let me know what you think.
Treasury fact sheet on proposed rescue plan
Proposed Treasury authority to purchase troubled assets
The Treasury Department has submitted legislation to the Congress requesting authority to purchase troubled assets from financial institutions in order to promote market stability, and help protect American families and the U.S. economy. This program is intended to fundamentally and comprehensively address the root cause of our financial system’s stresses by removing distressed assets from the financial system. When the financial system works as it should, money and capital flow to and from households and businesses to pay for home loans, school loans and investments that create jobs. As illiquid mortgage assets block the system, the clogging of our financial markets has the potential to significantly damage our financial system and our economy, undermining job creation and income growth. The following description reflects Treasury’s proposal as of Saturday afternoon.
Scale and timing of asset purchases
Treasury will have authority to issue up to $700 billion of Treasury securities to finance the purchase of troubled assets. The purchases are intended to be residential and commercial mortgage-related assets, which may include mortgage-backed securities and whole loans. The Secretary will have the discretion, in consultation with the Chairman of the Federal Reserve, to purchase other assets, as deemed necessary to effectively stabilize financial markets. Removing troubled assets will begin to restore the strength of our financial system so it can again finance economic growth. The timing and scale of any purchases will be at the discretion of Treasury and its agents, subject to this total cap. The price of assets purchases will be established through market mechanisms where possible, such as reverse auctions. The dollar cap will be measured by the purchase price of the assets. The authority to purchase expires two years from date of enactment.
Asset and institutional eligibility for the program
To qualify for the program, assets must have been originated or issued on or before September 17, 2008. Participating financial institutions must have significant operations in the U.S., unless the Secretary makes a determination, in consultation with the Chairman of the Federal Reserve, that broader eligibility is necessary to effectively stabilize financial markets.
Management and disposition of the assets
The assets will be managed by private asset managers at the direction of Treasury to meet program objectives. Treasury will have full discretion over the management of the assets as well as the exercise of any rights received in connection with the purchase of the assets. Treasury may sell the assets at its discretion or may hold assets to maturity. Cash received from liquidating the assets, including any additional returns, will be returned to Treasury’s general fund for the benefit of American taxpayers.
Funding
Funding for the program will be provided directly by Treasury from its general fund. Borrowing in support of this program will be subject to the debt limit, which will be increased by $700 billion accordingly. As with other Treasury borrowing, information on any borrowing related to this program will be publicly reported at the end of the following day in the Daily Treasury Statement.
Reporting
Within three months of the first asset purchases under the program, and semi-annually thereafter, Treasury will provide the appropriate Congressional committees with regular updates on the program.
See Me On EzineArticles.com
If you missed the presentation on the process and tools that you need to analyze a commercial mortgage loan on income producing property, please visit http://ezinearticles.com/?expert=Michael_Haltman , and you will be able to read my 4 part series on how to get it done.
In a day or two, you will also be able to read my article, Underwriting Through The Eyes Of An Underwriter, which will teach you the way that you need to deal with underwriters, once the current mess plays out and banks are once again looking to lend.
Da Comrade
When I woke up last week I was pretty sure that I was operating under a capitalist system which says that those that can survive will, and those that can’t won’t. Darwin’s survival of the fittest I think they call it. Not that this is a good thing for any of the players involved on the non-survival side, but the way that it has always worked for me in my life is that I make decisions, take risks if I determine that they will give me the appropriate reward, and pay the price if I am wrong. My neighbor doesn’t come in and reimburse me.
The Federal Reserve and Treasury have basically decided which firms will continue on and which ones will not. Bear Stearns was deemed to big to fail, Lehman Brothers wasn’t and AIG and Merrill Lynch were. Lehman Brothers most probably could have survived, but was not allowed the time to do so. Merrill may not have but was provided a deal.
At the end of the day it is the employees and common and preferred shareholders that paid the price for the risk and greed of those at the top. Let’s hope that the people who have been at the wheel while we got into this mess, will suddenly have the wisdom to get us out of it.
SEC Short Selling Folly
Back months ago the SEC reinstated the rule on a temporary basis that in order to short a stock you needed to be able to borrow and deliver it in an effort to help stem the fall of the financial stocks. It worked as financial stocks staged a strong rally. In the infinite wisdom of the SEC the rule was allowed to expire and financial stocks went back on their downward spiral.
There are certainly a lot of problems with these financial firms that have caused their stock prices to drop, a situation which these firms are completely responsible for. But the “bear raids” that are perpetrated by hedge funds and other institutional investors that drive the stocks down in part because of the rules of not having to borrow the stock, as well as the absence of an uptick rule could have been stemmed by an SEC chairman that noticed the results achieved the first time.
Oh yeah, the rule of having to borrow stock to be able to short it is going back into effect tomorrow. I think that is too little to late. Kind of like trying to put out a warehouse fire by spitting on it.
AIG, AIG, AIG
The meltdown in the financial markets was averted for now as the Federal Government stepped in with an $85 billion bridge loan to AIG. What this shows us after the bailout of Bear Stearns, the willingness to let Lehman Brothers die and the bailout yesterday is that the government has made it clear that they will get involved if in its’ estimation a failure would cause catastrophic market results.
While people argue back and forth as to the propriety of them doing this, it will hopefully start the process of healing in the credit markets and allow banks to get back into the business of lending.
As a news junkie I have spent a great deal of time watching how all of this has played out, and the general consensus on the deal is that there is no consensus. Some think the deal should not have been done, some that it should have. Some think there are more shoes to drop and some think we are out of the woods. Definitely a horse race.
The bottom line is that there is none, and we all just have to wait and see. What we do know is that the heads of these companies do not know what is going on with their own businesses, they are terrible crisis managers, and that the government is trying to have our backs and will hopefully succeed.
Back To Basics: Marketing (From http://mymortgagecommunity.com)
The Components of a Marketing Plan
Here are the key components of a marketing plan:
Goals – You cannot plan without goals to guide your actions. Success will not come to those who do not define success because there will be no recognition of what success means.
Actions – Each plan should have four to six separate and distinct actions which are designed to provide diversity. Each action should be responsible for at least 10 percent of your total production goal.
Tools – Your actions will always be using a particular tool(s) to reach the target group. Using more than one tool promotes diversification.
Targets – Each action has one or more specific targets. The identification of targets also provides the opportunity to diversify.
An organizational chart of the company and perhaps sub-charts of major divisions.
Frequency – Each action will be performed at regular intervals. This provides the marketing plan with consistency.
Synergism – The actions must be set up to work together in a way which will magnify the effects of your marketing efforts. In a marketing plan, two-plus-two must equal eight.
Evaluation – The existence of goals makes it possible to consistently evaluate your efforts. If your actions are not moving you closer to your objectives, then an adjustment of any one or more plan components will be warranted
