Wednesday, 1.27.2010 “Real Estate for Real People”                           Is the Fed afraid of something?   Why is the Fed maintaining the current zero percent interest rate policy while assuring us that this policy will continue "for an extended period?" Are they afraid something we should be concerned about? The past actions of the Fed has clearly demonstrated that the they didn't have a clear understanding about the consequences of the real estate bubble, which they themselves helped to create. Furthermore, their continued underestimation of the crisis has certainly played a huge role in making it worse.   Additionally, anyone listening to Bernanke and his clan of financial wizards are now in much worse fiscal condition then just a few years ago! Despite the Feds miserable track record they still want us to believe that they are the wizard behind the curtain who will lead us down the yellow brick road. Clearly, they completely lack trust in the free market and feel that they must be the savior for us all by running the printing presses fulltime. So while Central Banks across the globe are seeing fit to tighten the money supply (to hold off inflation) our puppet masters maintain an ultra lax monetary policy while declaring that the economy is starting to recover. So why are they doing this? Because They Know Another Mortgage Mess is right around the corner. The Fed is all too aware of the massive amount of mortgages that are about to reset over the next 3 years. These mortgages are largely made up of Alt-A and Option-ARMs. As we have discussed in past articles, these types of loans will represent a large percentage of the foreclosures in the next wave that is due to start soon. From the second quarter of 2010 until the fourth quarter of 2011, hundreds of billions of dollars in these mortgages will reset to much higher rates! Sadly, many of them will end up becoming delinquent and eventually in foreclosure. Why... Most of these mortgages were taken out when the housing bubble was at its height. So now, the loan-to-value ratios for many homes will be obscenely high. This means a tsunami of write-downs for the banking sector, probably as huge as the subprime write-downs. It also means a huge wave of foreclosures on borrowers who can't afford the new, higher monthly payments. Add to this the ongoing unemployment problem, which show no signs of improving and continues to wreck havoc through out the country. When homeowners lose their job or suffer from substantial reduction in pay they can no longer afford their mortgage. Exasperating the problem is the fact that incredibly few of those that need the help are getting any through the HAMP program. As we have discussed before, the number of homeowners getting anything resembling aid through a loan mod is obnoxiously low. Also, as we pointed out last week, the fastest growing segment of foreclosures will be from those doing a “strategic default”. These are individuals that can make the payment (sometimes just barely), but are deciding to let the home go into foreclosure. The thought process for these homeowners is that it would be insane to continue to service the debt when they are 30-60% upside down in their home. This category is the 600lb gorilla that only now some pundits are talking about. There is no way to calculate how large this number will become, but many believe it will be enormous. A recent report from the Treasury department estimates that 40% of all homes in Phoenix will be foreclosed on by 2012.  When these 3 factors are combined it is easy to see why the Fed might be fearful of what lies ahead. Maybe that is also why, in the cover of darkness on the night before Christmas the Fed gave Fannie and Freddie unlimited access to funds. We will touch on this in a future article, but suffice to say the government and the banks are bracing for a wave of foreclosures that will dwarf the first to rounds. While it is awesome that our economy is seeing some light, it is important to keep in mind that the ability to service a debt does not depend on rising GDP figures. It depends on the homeowner’s current income. That's why high (and rising) unemployment rates are very bad news for the housing market and for the banks. This looming problem goes a long way in possibly explaining the Fed's reluctance to return to a more normal monetary policy. And it's something you should keep in mind. To learn more about short sales visit www.TheHoltGroupAZ.com or call 623-748-9583 for more info or to tell us your thoughts.

Wednesday, 2.10.2010 “Real Estate for Real People”

Why do Short Sales take so long?   Last week we started a series of articles designed to answer some of the questions we hear the most from sellers and buyers. One that tops the list from both sellers and buyers is why do Short Sales take so long? Since it is clear that banks are much better off financially with Short Sales as opposed to foreclosures, why on earth are these greedy banks making them so complicated? To understand the magnitude of the problem, keep in mind that the large banks (Chase, Wells Fargo and the one we warmly refer to as “The Beast” – B of A) receive upwards of 10,000 short sale packages a week. One of the most fundamental reasons Short Sales take so long is incompetency. The banks are so backlogged with requests for loan mods and Short Sales they have not been able to keep up with the demand. As a result, the under paid staffers hired to manage the mountain of Short Sale requests are poorly trained, thoroughly unmotivated and dislike the bank(s) even more than we do. Adding to the problem is that typically, all banks require reams of paperwork from homeowners who wish to do a Short Sale on their property. Included in the package sent to the lender is the tax returns, financial statements, bank statements, pay stubs, W2s, and the hardship letter outlining why the homeowner can no longer make the payments. In addition, the agent will send in upwards of 50 additional pages pertaining to the file. The average file contains over 150 pages, which have to be faxed to the lender. It should be noted that none of the banks ever receive the 150-page fax the first 5 times. We are sure this is by design. Fortunately, some banks have begun to recognize the futility and stupidity of this method and are no longer requiring mountains of paperwork. Supposedly, by May of 2010 the whole process is to be streamlined now that the government is involved. Since streamline and government cannot be used in the same sentence without causing a great deal of laughter, we are not holding our breath, but we are hopeful. A good example of what might be on the horizon comes from the now defunct Wachovia, which is operated by Wells Fargo Bank. This lender’s loss mitigation department no longer requires any paperwork other than the listing agreement & offer. Most amazing of all, Wachovia’s investors actually make a decision and accepts or rejects the offer within 5 business days or tries to. Contrast this with Bank of America’s [aka “The Beast”] 3 to 4 months response time. Of course, there is much more to the story, which we will unearth in the coming weeks, but for this article, it is suffice to say that Wachovia’s way makes sense not only for the homeowner, the buyer, the community, but also the bank. Of course, the only reason any bank does anything is out of their own self-preservation. Officials with Wells Fargo have told us that they have recognized that homeowners who are underwater to the tune of 30-50% are not going to make the payments whether they are able to or not. One head honcho even stated, “Homeowners would have to be lunatics to stay in that sort of loan.” So, why force homeowners who are giving up their home or investment and require all this useless paperwork? Well if you are “The Beast,” since they are clearly insolvent, it allows them to stay out of arms reach of the FDIC. That of course is just my opinion, but I would bet a lot that I am right. With nearly 2 out of 3 homeowners in Phoenix and 24% of all loans nationwide underwater, clogging up the system with all this useless and unnecessary paperwork is doing little to fix the problem. However, now that the government is getting involved all should be good very soon… Maybe we should just let Wachovia lead the way? Robert Holt & Phil Mills of RE/MAX Sonoran Hills. Please visit www.TheHoltGroupAZ.com or call 623-748-9583 & tell us your thoughts.

 

Wednesday, 2.24.2010 “Real Estate for Real People”

If you can buy, now might be the time?   Whether it is a first time buyer, a second home buyer, move up buyer, a family transferring into the area for work, or an investor, the question of “should we buy now?” is often asked. As those of you that frequently read our editorials already know, we do not think we have found the bottom of the market yet. Because of the sheer number of distressed properties, continuing high unemployment, and economic uncertainty, we feel that the phoenix market will probably see at least a moderate drop in prices in the neighborhood of 10% over the next 12-18 months. Of course, some areas might see a little more depreciation while other areas a little less. However, because prices in many areas have fallen so drastically, a monthly mortgage payment is now on par and often less than what rent would cost for the same property. When this situation exists, it might make good sense to jump into the market and buy. If the buyer is living in the home, he/she will now have the tax benefits of being able to write off the interest. For investors, the all-important factor of having positive cash flow enables them to stay with the property even if prices erode unlike in 05, 06, 07 when nearly all investors were cash flow negative. In addition, it is pretty clear that interest rates are headed north, especially if the government stops buying mortgage back securities at the end of March 2010, as they have indicated. Personally, I don’t see how they can since there’s no one else lining up to buy them. Whether they continue to buy them or not, we are certainly headed for higher rates, which becomes a factor for every buyer not paying cash. Even a modest 1% jump in mortgage rates will influence the buying power of most buyers resulting in buying less house. Another factor that could influence the decision to buy now are the tax credits that are available to just about everyone except those that need them the most. While I don’t agree with either of the incentives, there’s no reason for a buyer to turn down the money if they happen to fall in one of the two eligible categories. Announced in November 2009, the new tax credits not only offer first-time buyers incentives to purchase a new home [up to $8,000], but all buyers, even those who already own homes could get some free cash. So Who’s Eligible? If you’ve owned your principal residence for 5 consecutive years of the last 8, you’re in. If you’re planning to live in your new home as your principal residence, you’re in. If you’re single, you can earn up to $125,000 adjusted gross income and still receive the full credit of $6500. For married folks, that’s $225,000 adjusted gross income. Singles earning $125,000 to $145,000 and married couples $225,000 to $245,000 can still get an incremental tax credit. What’s the Deal? The credit is actually 10% of the purchase price up to a limit of $6500. However, your new home cannot cost more than $800,000. Anything over that, I guess the Feds’ feeling is you can handle the costs yourself. Your purchase contract must be dated between November 7, 2009 and April 30, 2010. You must close on your deal no later than June 30th. Notice:  Your new home’s price is not related to your previous home’s value. This tax credit is for move-up buyers, downsizing buyers and relocating buyers. The legislation has no provision regarding the price of the new home. In case you were wondering, you are not required to sell your previous home. However, a detail announced by the IRS, states you are not eligible for the credit if you convert your previous home into a rental. Maybe it is just me, but it seems like our government is encouraging what is referred to as “Buy and Bail” where a homeowner purchases a new residence then either short sales the previous home or simply lets it go back to the bank. What’s the Catch? Well, there’s no catch. The federal government is trying to send some “stimulus” to the average taxpayer and to the suffering housing industry. However, if you want to take advantage of this “free” money, you had better act fast. As we know, the buyers’ tax credit was extended and this one for move-up buyers added back in November of 09, so there’s little likelihood that this will be extended again…but then again our fearless leaders that control the printing press have been known to extend a few programs in the past. And, why not, it is only money. The main catch to this program is the same for any government program. It requires proper paperwork. Especially this time around, after many proven cases of out-and-out fraud in the buyers’ program, the IRS is determined to make sure all claims are valid.  So, here’s what you need: a copy of the HUD 1 settlement sheet from your new property. This gives the sales price and date of closing. You will need some evidence of the 5 consecutive years at the previous property: property tax, homeowners’ insurance or the like. That’s it. You’re in business. Now go get that property. Robert Holt & Phil Mills of the [HOLT] group, RE/MAX Sonoran Hills. For more information, please visit www.TheHoltGroupAZ.com or call 623-748-9583 & tell us your thoughts.

Wednesday, 3.3.2010 “Real Estate for Real People”

Why Do Short Sales Take So Long? Part II   Because this is a question that comes up all the time from buyers, sellers, and even many real estate agents, we thought we would expand on it more, even though we touched on it a month or so ago. Clearly, everyone in the process would like it to move faster as sellers want to sell their home quickly to minimize the damage done to the credit report. Buyers want to know if they can buy the home or if they have to find another one. Realtors representing buyers need to understand where in the process they are so that they can counsel their buyer.   As anyone who has been through the process can attest, there’s no easy answer to the question. Because this is a source of incredible frustration for all parties involved, we want to dig a little deeper into the reasons why it takes so long to get an answer. While there are many layers to the process, the principal reason why the process moves so slowly is that the system is inherently flawed. Loss mitigation departments at every lender are so completely overwhelmed by the massive number of files, they simply cannot keep up. Keep in mind that lenders never saw this epic disaster coming (just ask Countrywide). Lenders are in the business to lend money, but now after being caught totally unprepared for the magnitude of the this problem, they have been forced to create entire departments to handle the onslaught of foreclosures and short sales not to mention loan mods. For example, Wells Fargo only had 4 negotiators in their entire loss mitigation department 18 months ago. By contrast, they now have over 600 and are supposedly hiring 100 more a month for the foreseeable future. At least someone is hiring. If only B of A (aka ‘The Beast’) and Chase (aka ‘The Beast II’) would follow their lead, we would not only speed things along, we would see unemployment drop significantly since these two lenders need a lot of help.   It should not be forgotten that we’re talking about an industry that is known for mountains of red tape and required documentation. Of course, I’m not talking about when they were writing loans to anyone with a pulse. If these same lenders had demanded even a quarter of the documentation that they now demand, there never would have been a bubble. The process is compounded by the fact that the Realtor negotiating the short sale for the homeowner is dealing with a “negotiator” sitting in a cubical in some far away land who is overworked, underpaid, and who has little interest in anything, but getting the file off his/her desk. Most all of these employees could care less about the bank or the homeowner and there is zero motivation for anything resembling expediency. Meanwhile, due to the ongoing crisis, the amount of files sitting on the “negotiators” desk continues to grow at extraordinary rates. Furthermore, lenders will not do anything until a complete short sale package, which must included a purchase contract, all addenda, and mountains of financial data from the homeowner, has been received. Ensuring the file, that is often well over 150 pages, gets to the lender is no easy task. Many times, the initial paperwork that is submitted is lost in a pile or thrown away, never to be uncovered again. Because of this asinine and archaic system, there are sometimes weeks of waiting to ensure that the lender has received the file before the process even begins. Once the lender has the package uploaded into their system, they will begin to perform their due diligence to make sure a short sale is warranted. They comb through the seller’s financials and perform the BPO’s (Broker Price Opinions), which is a cheap/quasi appraisal to determine if the offer price is reflective of similar distressed properties in the area. Unfortunately, for many homeowners the BPO can present a major challenge. Most often the agent performing the BPO for the lender is under the false impression that he/she might get the listing if it becomes an REO/Foreclosure, the opinion of price given to the lender can be much higher than what is justifiable. If this scenario happens, there can be additional weeks added to the process as the agent tries to prove the fallacy of the BPO. If the listing agent fails to convince the lender into accepting a more reasonable price, the deal is done and often the home goes into foreclosure only to later sell for many thousands less. I’m of the opinion that only an appraiser should be utilized so there is an unbiased, trained and objective individual helping set the appropriate price. Another reason the process takes so long is that some/most 'lenders' are simply servicers of loans and thus they have no real authority to accept a short sale amount. In cases like these, it’s the investor holding the ‘paper’ that approves or declines that short sale. This is complicated by the fact that some investor groups had in their original contract that they would not renegotiate the loan(s) under any circumstance. Luckily, many of these groups are now rapidly amending their contacts to allow for approvals of short sales since they’re losing billions of dollars as many homeowners simply let the home go into foreclosure if the short sale is declined.   Even if you get the investor to sign off on the short sale and you think you have won the prize, the deal can fall apart if the loan has PMI (private mortgage insurance) since the insurer can have the last say and deny the short sale. Meanwhile, even though the homeowner is not making his/her payments to the lender, the investor is still required to pay the servicer. This is just another reason why the banks, who are actually just the servicer of the loans, are not in a hurry to rush the process. So, after weeks and usually months of many hours on the phone, a lot of cussing and a little luck, the short sale is approved, but only if the agent handled everything correctly. At this point, the seller and the agent are praying the buyer is still engaged and can actually close on the home. Whether you are selling a home as a short sale, buying one, or representing a client buying a short sale, the key is patience. We have seen short sales completed within a couple weeks, and we have seen them take as long as six months before the lender calls to accept, counter or reject the offer. As stated in a previous article, we’re seeing enormous improvements and even though this process will never be perfect, it’s getting better. However, no matter how much the system improves, it’s imperative that sellers and buyers utilize an agent that thoroughly understands the process, otherwise the chance of a successful close of escrow is slim at best. Robert Holt & Phil Mills with the [HOLT] group, RE/MAX Sonoran Hills. Please visit www.TheHoltGroupAZ.com for more information or call 623-748-9583 & tell us your thoughts.

Wednesday, 3.17.2010 “Real Estate for Real People”

Reducing Principal or Principle? This week in a surprise move, Bank of America [aka The Beast] announced they were moving forward with a plan that would actually cut the principal balance of struggling homeowners. When I saw that scroll across the ticker on CNBC, I thought perhaps that B of A had experienced a come to Jesus moment, saw the light, and started making amends for their sins. The thought occurs that maybe we will start to see an end to this crazy, ongoing, real estate downturn. However, it took a little more than a few clicks on Google to bring me back to reality.  After all, we are talking about ‘The Beast.’ Like a prestigious country club, the program is being introduced by invitation only to a select few. To be invited to join in on these festivities, a homeowner will have to have a certain type of subprime, Pay-Option and prime two-year hybrid mortgage. These negative amortization products were most prevalent in 4 states: Arizona, Nevada, California & Florida, and like the Toyota Prius, they’re having a lot of challenges at the moment. For those that don’t recognize the loan type, they’re the ones that have been the subject of many lawsuits initiated by Attorneys Generals around the country. These loans were also known as “Liar Loans,” of which Bank of America estimates it would potentially help 45,000 struggling homeowners. This may sound like a lot, but in reality, it is a tiny number compared to how many need the help. A quick bit of math shows that out of the 1.2 million homeowners who are currently delinquent with Bank of America, less than 4% of those that need help will get it under this new invite-only plan. For those of you that think that you might be part of the lucky 45,000, don’t get too excited yet as there is a catch, in addition to being invited, you must also qualify – darn it!  Before we throw the baby out with the bath water, let’s see just how much the new, all loving B of A is actually helping. For starters, the program limits the principle reduction to 30% of the current loan balance. That may sound good, but the big problem is that many areas in those four states have seen home prices decline by fifty, sixty & even seventy percent. If a homeowner purchased a home for $400,000, and due to the negative amortization today owes $425,000, a 30% reduction brings you down to $297,500. While that’s a substantial reduction, still it lies the fact that the homes’ current market value could range from $120,000 to $200,000 at best. With the negative amortization, it is actually possible to still be 60% underwater after a 30% price reduction.  Another big problem, as with loan modifications, the homeowner must be able to afford the adjusted amount without exceeding 31% of their gross income. With the economy still turned on its head, more and more people simply cannot afford the house even with a 30% reduction in principal. Principal and interest reductions mean nothing if your income has also been reduced or eliminated. All this comes as the White House and Congress are “urging” lenders to do more to help homeowners. A big headline about the largest bank offering principle reduction was being championed by select members of congress last week. The New York Times reported, “The Obama administration is also studying whether to provide more help to people who owe more on their mortgages than their homes are worth.” I’m afraid Bank of America’s new plan is just more lip service and I’ll be surprised if they actually reduce the principle of 4,500 loans much less 45,000. The most disturbing aspect of this entire new program (besides the invite only part), is that it’s designed to help many of the borrowers that knowingly lied to get the loan. Meanwhile, the homeowner who did it the “right way,” and provided full documentation and actually put some money down, is left out in the cold - again. The disconnect between Washington, Wall Street, and homeowners has never been greater, but hey, they passed health care. It’s enough to make you sick. Nice PR campaign B of A. Robert Holt, CDPE/SFR & Phil Mills of The [HOLT] Group, RE/MAX Sonoran Hills. Please visit www.TheHoltGroupAZ.com or call 623-748-9583 & tell us your thoughts.

Wednesday, 4.7.2010 “Real Estate for Real People”

“Making homes affordable” for who?  On Friday, April 26th,the Obama administration unveiled its new - new plan designed to help struggling homeowners. Reportedly, they are going to throw another $50 billion to the huddled masses in yet another attempt to stop the massive hemorrhaging in the real estate market. At first glance, this sounds like a valiant effort by the administration; another step in the right (no pun intended) to help the down trodden. However, before we get to excited about the new – new plan, let’s flash back to February 17, 2009, where right here in our valley, President Obama stood in Mesa and announced an all-encompassing, “Making Homes Affordable” plan designed to unleash $75 billion towards “helping” homeowners. This plan was touted as the “fix” for the housing crisis and was supposed to help at least “four million families, stay in their homes.” Now, fast forward to today, and let’s look at how many have been helped with the first $75 BILLION. According to published government reports, as of March 2010, the Presidents’ plan has “helped” only 177,000 people out of the millions that have applied for assistance under the Home Affordable Modification Program (HAMP) and other programs related to the Making Home Affordable (MHA) program. Sadly, nearly 75% of those “helped” via a “Loan Mod” have once again defaulted due to the utter ineffectiveness of the modifications. Clearly, I think we can all agree that those numbers stink to high heaven. Of course we’re talking about the government, so who’s counting, but just for fun lets do some quick math. $75,000,000,000.00 divided by 177,000 (# of people “helped”) equates to $423,728.00 spent for each homeowner. If you factor in 75% of those helped have already defaulted, it works out to be $1.7 million per modification that actually kept homeowners in their home (for now). I do not know about you, but this is simply amazing and totally unacceptable, but then again we’re dealing with politicians that can talk up a storm, but obviously cannot add. By the way, this program is now broke and NO ONE is asking, “Where did this money really go?” Like all the other wasted BILLIONS - we will likely never know. Yet, despite the lousy, ridiculous, and pitiful numbers achieved by the first 75 BILLION, we’re now being told another $50,000,000,000.00 (that’s 50 Billion) is to be spent on a new - new plan that will work. Forgive me for my cynicism, but I fear this administration is missing the boat again or to quote the mayor of Las Vegas “This guy is a slow learner.” Like the first plan, the new - new one sounds good on the surface but doesn’t address the problem, which is massive negative equity. This new plan, like the first one, also lacks any teeth. The whole plan is nothing more than a suggestion or a guideline from treasury as opposed to “the law.” While the Banks do not have to be a part of it, they are being paid or essentially bribed to go along with it. The first key provision focuses on the unemployed. The plan asks for banks to reduce the mortgages of unemployed borrowers to at least 31% of the borrower’s unemployment income for 3 – 6 months while they look for work. Even when that borrower finds a job, (probably at a lower rate of pay) how many do you think will want to go back to paying a full payment on a home that is worth 50% of what they purchased it for? The second key provision focuses on getting the banks to reduce principle by providing, “financial incentives to the lender” from the government (eventually paid for by “We the People”). The hope is that the lender agrees to reduce the principle. Then, a new FHA loan program allows the homeowner to refinance the loan at up to 115% of the value. The FHA loan program also pays a bonus to the lender if they modify the loan by more than 10%. The program also doubles the incentive paid to the second lender. The problem is that all lenders know that once they reduce the principal for one homeowner, they’ll have to do it for all – almost guaranteeing their own demise. DO NOT expect to see any reductions in principal! Third, the program ups the incentive paid to homeowners & lenders who perform a short sale. It also asks (key word is asks) lenders to pay $3,000 to homeowners who do a short sale to cover “relocation expenses.” Currently the plan asks lenders to pay $1,500 to homeowners. However, over 95% of lenders DO NOT currently pay the $1,500, so I’m in the dark as to how raising it to $3,000 will make them more willing to follow the administrations’ new - new rules.  If the banks have been unwilling to reduce principle during the last 18 months when home values were higher, why should we expect to see any major change now that the amount of negative equity has nearly doubled for most homeowners? Of course, the banks will likely “play along” with the program so they can receive the government bribes – I mean bonuses, but will it help anyone other than the Big Banks. I say NO! The banks and the government had a chance to fix this issue a year ago when prices were considerably higher than today. If they had taken all underwater homeowners down to 110% of value with corresponding monthly payments while effectively helping those that lost income to short sale their home quickly, we would now be nearing the end of this mess. Because of greed and ignorance, that plan never happened and because it didn’t, this whole town and much of the country will roll back to 1999-2000 prices. In fact, it already has. If the banks continue down the path of only pretending to help homeowners, the homeowners will continue down the path of giving homes back or completing short sales. The reality is that it makes no financial sense to stay in a home that is over 50% upside down. Until the banks and our elected officials meaningfully address the problem of negative equity and unemployment, then nothing will fix this plague, but time. No amount of spending or new programs can change that fact. Fortunately, free markets work! Robert Holt, CDPE/SFR & Phil Mills, CDPE/SFR of The [HOLT] Group, RE/MAX Sonoran Hills. Please visit www.TheHoltGroupAZ.com or call 623-748-9583 & tell us your thoughts.

Wednesday, 4.14.2010 “Real Estate for Real People”

Illusion vs. Reality   A couple of weeks ago, we uncovered the con game Big Bad B of A is trying to pull on the public with their imaginary principal reduction plan. We discussed how “The Beast,” who has received such rotten press in the past couple of years, is now apparently so desperate for some positive commentary in the news media, that they’re claiming to reduce principal for their borrowers. Our article laid out how this whole program is nothing more than a PR move and will do nothing for anyone. Furthermore, we believe (and hope) this manufactured hype will come back to bite “The Beast” in the rear-end as the public sees past the smoke and mirrors. Clearly, this move once again shows B of A and all lenders for what they are – greedy bastards who are only concerned with their own self-preservation.   For those that read this piece on a regular basis, you already know our contempt for B of A, but please do not for a minute think this disgust is aimed only at this one lender. In our humble opinion, they are all pathetic. Chase, who is actually worse than B of A along with lenders like Provident, USAA, US Bank, Citi, Bank United and One West (formally Indy Mac) are just a few who could care less about the lives they are helping to ruin. I state this not because of the astonishing high degree of incompetency that runs rampant throughout all of these banks, but largely due to how they attempt to play the savior, but in nearly all cases, they turn out to be the villain.    We hear on a daily basis how lenders tell people “we are here to help,” but then tell them that they have to miss payments before they can be considered for a loan mod. Then after many missed payments (resulting in serious credit damage), countless hours on the phone and dozens of attempts by the borrower to re-fax the same documents previously sent to the lender many times prior, the lender gives the borrow a loan mod with a payment that is only slightly lower than before. We have even seen where the loan mod payment actually came back more than the original payment! The whole process is a charade perpetrated on the same people who helped bail out these too big to fail giants.   Now, not surprising to many us, the biggest purveyor of fraud is our very own government. The HAFA program we spoke of last week is just more of a glowing piece of evidence to back up this assertion. As discussed last week, we really did not see much good coming from yet another over zealous & under achieving government plan, but we held out hope just in case. However, on April 5, after the much anticipated unveiling of the HAFA plan, all hope came crashing down when our fears were realized. The new program is riddled with so many obstacles for both borrower and lender, there is no chance of it doing anything other than adding more problems and time delays. The program should have been called HAHA, as it is a joke. Beyond the mountains of red tape, this seriously flawed plan does not cover Fannie Mae, Freddie Mac, Ginnie Mae, FHA, VA, and many private lenders that ARE NOT PARTICIPATING in the program. Are you kidding me? For those of you that don't know, this is probably 70%+ of the loans out there right now. For example, we, at The [HOLT] Group, have over 85 listings with all but 2 being short sales and 68 of the 85 are either Freddie or Fannie. The program has little to no value to any consumer. Our government, like the big banks, are playing some sort of shadow game with the public. Once again, our government spends billions on a program to provide relief to the public, but the problem is that hardly anyone will qualify. Do you see a pattern? The government has created countless programs that are supposed to help the public, especially distressed homeowners. Ultimately, all they do is throw more money into the abyss by creating programs that the majority of the population cannot qualify for, but hey, our men and women in DC are trying. It just never ends! So, if you were expecting the Obama administration and the rest of the elected officials to help you out of your property, think again. This program has little to no value to any homeowner trying to avoid foreclosure. Relief – what a joke! The only entities receiving any relief are the big banks that cut sweet heart deals with our government. These banks are making so much money from the unbelievable foreclosure / short sale agreements with the FDIC (our money) that there is no motivation to streamline anything. They are doing just fine holding distressed homeowners hostage that they'll continue to make the public suffer while they stuff their pockets full of tax payer dollars. It is so painfully obvious that our elected officials only create these programs to appease the people and to create the illusion of helping. The problem is that billions are wasted and IT DOES NOT HELP ANYONE. These phantom programs are designed simply to make the banks and the politicians look good. The banks know it. The government knows it, and now the public knows it. The question is – what are we going to do about it? Robert Holt, CDPE/SFR & Phil Mills, CDPE/SFR of The [HOLT] Group, RE/MAX Sonoran Hills. Please visit www.TheHoltGroupAZ.com or call 623.748.9583 & tell us your thoughts.

Wednesday, 4.21.2010 “Real Estate for Real People”

The Meltdown Continues   This week I was really hoping to write something a bit more upbeat since, unfortunately, many of the recent topics have been about the banks and the government, which are equally depressing and frustrating topics. Perhaps had I written and sent my editorial to my patient editor at Foothills Focus when I was suppose to, then it would have been more inspiring. However, before I could produce the optimistic article, RealtyTrac, the online foreclosure marketing firm, released the dismal and alarming foreclosure numbers. Then on Friday, the SEC handed down an indictment to Goldman Sacs accusing the King of Wall Street of defrauding their own investors.   So, barring any major news event in the coming week, I will get the more cheerful article out next week. In the meantime, the before mentioned news stories need to be addressed. On the surface, these two stories may not seem related, but the indictment of Goldman Sachs and the record setting foreclosures are closely intertwined. The SEC asserts that Goldman Sachs, (the company once run by former Treasury Secretary Hank Paulson and the same company that received billions from taxpayers via the “bets” it made through AIG) actually exacerbated the housing downturn. Allegedly, GS created and then bet against a package of low rated bonds made up of adjustable rate mortgages from states like Nevada, California, Florida, and you guessed it – Arizona. In short, it is believed that Goldman Sachs convinced investors to invest billions of dollars into a fund that Goldman so strongly believed was going to fail that they placed “bets” (credit default swaps) against it. In essence, Goldman convinced investors to buy into something that Goldman not only knew was going to fail, but wanted to fail.   Through their actions, Goldman Sachs created a market for subprime loans, which enabled lenders to give out loans to anyone with a pulse. Additionally, they believed that the investment vehicle they were hyping would eventually collapse. Worse yet, this indictment accuses them of setting themselves up to profit (illegally) from the destruction of the housing market, while their own investors paid the price. If these allegations are true, we might we watching the beginning of the end for the “king” of Wall Street. Remember Gordon Gekko?   This sad commentary is just one more example of how the destructive force of greed has torn through millions of lives and according to the latest numbers from RealtyTrac, the meltdown in housing is far from over. As we have touched on in the previous weeks, despite billions of dollars thrown at the housing recovery, foreclosures continue to mount. The number of foreclosures in the first 3 months of 2010 hit all new highs (again) with over 930,000 filings. This is a 16% increase over the sad numbers from the same time last year. In March, 367k foreclosures were reported, which are the highest ever (again).   Nevada continues to lead the nation with 1 in every 33 homes receiving a foreclosure filling in the first quarter of 2010. Meanwhile, our great state of Arizona is second with every 1 and 48 homes receiving a notice of Trustee Sale. Even this debilitating number hides the true magnitude of the problem. As we mentioned last week, the 50,000 homeowners in Phoenix that have a Trustee Sale date is only a small portion of the 10’s and maybe 100’s of thousands that are not making their mortgage payments in the Valley of the Sun.   Additionally, for the first time in American history, homeowners are paying their credit cards and car payments, but are defaulting on their mortgages. Even though the political and media cheerleaders continue to exclaim how we are coming out of the great recession, do not expect these numbers to get better anytime soon. In fact, the number of people 120 days late or more on their mortgage, has more than doubled compared to the same period last year.   As long as the politicians continue to pacify the American public with rhetoric and the banks do nothing more than grant lip service and PR propaganda, the people will continue to suffer. While these numbers continue to paint a bleak outlook, there is hope and in the next article, we will try to unearth it. Robert Holt, CDPE/SFR & Phil Mills, CDPE/SFR of The [HOLT] Group, RE/MAX Sonoran Hills. Please visit www.TheHoltGroupAZ.com or call 623.748.9583 & tell us your thoughts.

 

Wednesday, 4.28.2010 “Real Estate for Real People”

Is there a silver lining in this cloudy economy?   In the article last week, I promised that in this article I would expose the unseen benefit in the current economic environment. For many, the silver lining is not easily found as times are tough! Over the last 18 months, we have witnessed the greatest destruction of wealth the world has ever seen. Companies such as Bear Sterns, Lehman Brothers, & Merrill Lynch, all of which made it through the Great Depression, did not survive this time around. Other once financially successful companies like Countrywide, Washington Mutual, and Wachovia, plus many more, have all seen their demise. Meanwhile, millions of people in this great land have had their 401k cut by half, their property values plummet by as much as 60%, while more and more have ended up with a pink slip from their employer.   By any measure, the destruction of wealth over the last two years has been enormous and far-reaching. It matters not whether the current state of the economy is called a recession or a depression; the result is negatively affecting many millions of Americans. Economists determine the severity of a downturn by analyzing retail sale statistics, home foreclosures rates, and rising unemployment numbers. Those figures, however, cannot calculate the emotional havoc that many individuals and families are enduring. The upheaval caused by financial stress is profound and affecting many throughout our communities.    So in the midst of economic despair, record setting foreclosures, mounting job losses, and many facing economic disasters, what is one to do? The first and most important step is to find and focus on the opportunity that lies at the heart of every negative situation. At first, finding anything positive might be very difficult and for those facing these challenges, it might even be hard to find the motivation to search for the positive. However, it is imperative and highly beneficial to seek it out. Throughout the ages, hope, which is the belief that something good can come from the bad, has been the driving force behind all great achievement and all great achievement has come out of the ashes of defeat.     Throughout the course of our day, we talk with many individuals who are being ravaged by the current state of affairs. Many of these people are so distraught that they simply feel like giving up. A big part of what we try to communicate to those facing these issues is that while no one can change the past, we can influence our future through the decision we make today. The process of understanding we are in control of our actions is a critical step towards finding the motivation to do what one must to get out of this mess. The amazing thing about hope is that as it grows, so do the opportunities.     Another important tenet that is necessary to get one through this crisis is forgiveness. So much of the anguish we see with homeowners who are losing their homes is guilt. Almost all of them feel tremendously guilty for putting themselves and their families in the precarious position. An important ingredient to finding the strength to take action is the homeowner forgiving his/her self and understanding that much larger forces caused this economic nightmare. Of course, there is always room for self-observation and introspection, but to blame oneself for this predicament is futile. As more news comes out about Goldman Sachs and other investment banks it becomes even clearer that the blame rest squarely on the banks, the politicians, and regulators who were asleep at the wheel while the economy was coming unglued. As discussed in the previous articles, we are in the middle of the greatest Ponzi scheme ever perpetrated on the American public. Yes, we can all learn from our own past choices, but the sooner the guilt is laid to rest, the sooner one can get on with the process of rebuilding.    Lastly and most importantly, take action! Regardless of the urge, do not just put your head in the sand and hope this government or anyone else for that matter is going to bail you out. When you find yourself in a hole, stop digging, and find a way to get out of it. Anyone faced with financial distress and the prospect of losing his or her home needs to understand there is help available. 7 out of 10 foreclosures occur without any visible intervention and in nearly all cases, there could had been a much better solution.   While there is no question that financial stress can be debilitating, it can also act as a catalyst for action and positive change. So where is ‘the silver lining’ in this cloudy economy? Well, I firmly believe that the current environment allows each person the opportunity to empower his/her self in a way that will change his/her life forever. There has never been a more opportune time then now to take control of your financial situation and your life. The first step is find the opportunity in midst of the storm. The second is to let go of the guilt. The third is to seek out the truth about the current economic / real estate environment so you can make decisions based on fact, not fiction. Then take the steps necessary to protect yourself and your family.   Yes, times are hard, but with the right perspective and correct guidance, you can take the steps that will lead to a much brighter future. The current landscape affords all of us the opportunity to learn more about ourselves and any time we are learning, we are growing. If nothing else, perhaps more of us will recognize that the material things are nice, but they are not what really matters. Friends and family are what count. Moreover, this time allows each of us the opportunity to help others. In the end, to learn, grow, and help others might just be the reason we are all here. Hopefully more of us will see the opportunity that lies at the heart of this downturn and become better because of it.  Robert Holt, CDPE/SFR & Phil Mills, CDPE/SFR with The [HOLT] Group, RE/MAX Sonoran Hills. Please visit www.TheHoltGroupAZ.com or call 623-748-9583 & tell us your thoughts.

Wednesday, 5.12.2010 “Real Estate for Real People”

What a Week   Wow, what a wild & scary week on Wall Street. It is not everyday that we see a 1000-point drop in the DOW. In fact,the Dow's drop on Thursday 5/6/10, was its largest loss ever during the course of a trading day. After a return to the same sort of volatility we saw in 2008, the U.S. stock market will try to regain its footing, but will it?   As we discussed last week, there are many shoes left to drop in both the national & global financial markets. The problems in Greece will continue to spread & if our government does not get our spending under control, we might see the same sort of financial collapse here. I’m just trying to figure out who’s going to bail the USA out? Because the whole world (except China) is drowning in a serious debt problem, we cannot continue to listen carelessly to those that continue to try to cheerlead us through what others & we believe to be a very precarious time. Last week we touched on why we’re dedicated to telling you the truth as we see it. Bury your head in the sand & you might not be able to pull it out in time to recover. Each of us must seek the truth about where this economy & our current real estate markets are headed. While no one can predict the future with 100% accuracy, there is some serious writing on the wall. Beyond the “Greece fire” &the possible beginning of the end of the recovery on Wall Street & Main Street, you should know that last week another seven banks were shut down by FDIC regulators. This brings the total number of U.S. bank failures this year to 64, which puts us on pace to equal or surpass the 140 that went belly up last year. So much for the financial sector getting better. This just confirms that our financial crisis is still not over. Together with many other threats including a consumer retrenchment, persistently high unemployment, new legislation that hinders our country's ability to grow & the ongoing Greek debt drama that’s quickly spreading across Europe, I expect to see significant pressure on financial markets which will certainly negatively influence our sluggish economic / housing recovery. If that news was not enough to rattle your bones, as predicted here & elsewhere, strategic (non- hardship) short sales are dramatically increasing. Analysts for Morgan Stanley say that nationwide strategic short sales represented about 12% of all defaults in February 2010 as opposed to 4% in 20007. While we don’t have the hard numbers for Phoenix, I would be willing to bet that strategic defaults represent 40-50% of short sales & foreclosures in the area. Across the country, about 15 million homeowners are either behind on their payments or in some stage of foreclosure. Moreover, with 20% of all homes nationwide & 65% here in the valley underwater, we can expect an endless surge of foreclosures for years to come. Obviously, with a tsunami of pre-foreclosures waiting in the wings, home prices will not recover. Analysts are now predicting it will take at least 3 to 5 years for the current distressed home mortgages now in the pipeline to clear. At that rate, even more homes will join in. Additionally, numerous prognosticators are stating that if you live in one of the harder-hit cities like Phoenix, it may take 20 years to rebound. Throughout the history of this country, people have always done anything & everything to keep their home, including taking money from retirement accounts, running up credit card bills & taking second/third jobs before finally realizing they can’t catch up. So why would so many homeowners bailout on their mortgages now? Because even those that can afford the mortgage realize that it might be financial suicide to stay with a home that is 30-60% underwater, especially since it’s apparent that the home will remain that way for many years to come. Of course, most homeowners have asked their mortgage-holders for help. As discussed many times here, banks take many months to make their decisions, often outright refusing to help at all. Offering what these homeowners really need, a principal reduction, almost never happens. Why? Because the lenders / investors know that as soon as they reduce one homeowner’s principal, they’ll be inundated with every borrower in the country demanding a reduction. Lenders also fear that once the Genie is out of the bottle, it will never go back in, resulting in a precedent that would haunt them for many years. However, while the little guy is chastised for attempting a short sale or for walking away from a bad investment, the big financial entities so reluctant to help homeowners and who are themselves the beneficiaries of taxpayer bailouts, clearly, have no problem walking out on their own mortgages. Morgan Stanley recently defaulted on a $2 billion loan & handed over a 17 million square foot office building to lender Barclays Capital. Morgan Stanley also agreed to hand over five San Francisco office buildings to its lender, Blackstone Group, two years after the purchase. The biggest strategic short sale of all, though, occurred this past January when, Tishman Speyer Properties LP & BlackRock Inc. defaulted on a $3 billion mortgage on the largest residential enclave in New York City. Evidently, the big boys are listening to University of Arizona law professor Brent White who says that walking away may make sense financially if you're more than 40% underwater. Perhaps, when the big financial institutions stop talking out of both sides of their mouths, we can start to find solutions to this massive problem. As we have stated previously, if you don't have to move (any time soon) & can afford the payments, it might make sense to fight on & wait for housing prices to recover. However, don’t expect to see prices anywhere near peek levels anytime soon. In addition, with so much uncertainty in the world from Greece to Goldman Sachs from Health Care to Strategic Defaults, the fight may be a very long & hard one. While we encourage each of you to go through the day being mindful of the realities, it is also equally important to remain mindful that we each hold the key to our own future. As writer / author, Orison Swett Marden once said “Most of our obstacles would melt away if, instead of cowering before them, we should make up our minds to walk boldly through them.” The way is through. We would like to thank all of those that have written & called in over this past year &especially after last week’s article with words of encouragement. Please know it means a great deal to us to know that many of you are finding these messages useful. Together, we will make it through this mess. Robert Holt, CDPE/SFR & Phil Mills, CDPE/SFR of The [HOLT] group, RE/MAX Sonoran Hills. Please visit www.TheHoltGroupAZ.com or call 623.748.9583 & tell us your thoughts.

Wednesday, 5.26.2010 “Real Estate for Real People”

HAMP is only hampering the recovery Wow – did you hear the great news? The Fed just told us that they expect the economy to continue to improve. I don’t know about you, but I feel much better & much more confident about the future now that the same clowns that have consistently gotten it wrong now tell us, yet again, that it’s all going to be better. If it weren’t so damn infuriating, it would’ve been comical as I was reading on the CNBC ticker, the next 3 lines were DOW in freefall losing 370 pts, unemployment spikes unexpectedly (especially for those that lost the job), & the largest number ever of prime mortgages in default.  Despite all the volatility in the world economies, despite the overwhelming evidence that everything is not getting back to the good ole days, the one thing we can all count on is the continued delusionary views & predictions coming from our government & the idiotic BILLION dollar programs that hardly help anyone, but burden all of us. During this eventful day last week, the government, the same one I was cussing later in the day due the nightmare called HAFA ~Home Affordable Foreclosure Alternatives(I’ll talk more on that in another article), released the totals for the number of people who have been helped by HAMP ~ Home Affordable Modification Program. Needless to say, the numbers were very unimpressive. In fact, these numbers act as just one more canary in the coal mine, warning those who are willing to listing, of the pending danger ahead in the housing market & economy. HAMP for those that do not know, is part of Obama’s foreclosure rescue plan, which is working about as well as the Katrina rescue did for those in the Big Easy.  So, after nearly a year of this so-called lifeline, what has the American homeowner received? Not much! As we outlined several weeks ago, the $7.5 billion spent so far has helped very few. For those it did help, the cost was estimated at being $1.7 million per saved homeowner. A joke – but no one is laughing. According to figures just released, the number of troubled homeowners being kicked out of mortgage modifications soared with more than 122k mods canceled in April bringing the total number of borrowers kicked out to over 277k. Compare these numbers to the approximate 290k, that have supposedly been helped, & even by government standards, these numbers stink. As usual, the big banks don’t want to play. Always ready for a handout, they pretend to go along, but never deliver. However, you would never now it from all the money they’re spending on advertising. From watching their commercials, you could almost believe that B of A, Citi, & Chase really do care for their clients. At least that’s what they tell us in the billions they spend on marketing. I guess the banks have learned a few things from all the politicians they hang out with at the fundraising events. Say whatever you want loud enough & people will believe it. I can only hope that “we the people” are waking up to the big con. Placed in proper perspective, you’ll clearly see how pathetic these numbers really are. An estimated of more than 7.5 million mortgages are currently over 90 days late with many heading towards foreclosure. Most of these are homeowners trying to work out a loan mod with their lender. So, the 290k that have been helped this past year doesn’t seem like a whole lot. It’s really just a drop in the proverbial bucket. Why are theses results so bad? Well, I’m sure that the banks & government officials would have you believe it’s the fault of the deadbeat homeowner, but that would just be another in the long line of lies spewed from the mouths of banks & elected officials. Considering we, at The [HOLT] Group, handle more short sales than just about anyone else out there, I can categorically tell you it’s not the fault of the homeowner. Nearly all of the hundreds of homeowners we have had the privilege to help over the last few years, had previously attempted a loan mod prior to coming to us to do a short sale. In every case, the homeowner spent months doing everything the jokers at the banks asked of them, but the banks make the tasks so long & drawn out that the whole exercise becomes a lesion in futility. Then after months of faxing, re-faxing, dialing & re-dialing, the homeowner is either denied or the modification that is offered is a joke.   By the way, there’s never a shot of getting a loan mod done if the homeowner is current on their mortgage, as the lender will not even consider it & they’ll tell you as much. We have had numerous clients tell us that the reps at the bank tell them that the loan mod process will be pointless & that they should just short sale their home. There have been several clients tell us that the lender told them point-blank that it had no interest in doing any loan mods, so the borrower should stop making payments & do a short sale. So, he did & we had an offer & an approval within 40 days & the house closed 28 days later with the homeowner only missing 2 payments. By the way, 90 days after the completion of his short sale, his credit was back to 750.   So is a short sale a better option? People – it’s the only solution that works. After another year of falling home prices & government programs that only HAMPer the housing recovery, we can all stop dreaming of a quick return to normal & stop believing in the fantasy that the banks will actually do anything to help their clients. They’ll continue to spin the news & the marketing of pretending to help. Meanwhile, lives of many are systematically being destroyed in the process. Of course, there have been a few that were “helped,” but I think all of their names must have been Goldilocks because somehow that had just the right amount of income, diligence & luck. Missing any of those ingredients, then forget about it.   Bottom line: even though there has been increased homes sales, (capitalism works), the housing market remains under serious pressure from conditions such as high unemployment, trillions of dollars in ARMS & negative am loans resetting, but also from the enemy within, the banks & the government officials that do little more than pacify the problem. Know this, kicking the can down the road with loan mod programs that DO NOT work will just prolong the recovery in housing & in our economy. The only thing that looks certain is that we’re going to see more turbulence in the US & global economies, much of which is being caused by the same elected officials we sent into public service to help solve the problems. Robert Holt, CDPE/SFR & Phil Mills, CDPE/SFR with The [HOLT] Group, RE/MAX Sonoran Hills. Please visit www.TheHoltGroupAZ.com or call 623.748.9583 & tell us your thoughts.

Wednesday, 6.2.2010 “Real Estate for Real People”                   Update: HAFA As you may have heard and as we have written, the Treasury department has a new program to streamline short sales, HAFAI believe this and many other government programs are created with the best intentions, but nearly all of them miss the mark on execution. The HAFA program is just another example of all that is amiss with…Big Government.  - Home Affordable Foreclosure Alternatives. In previous articles, we’ve pointed to the ridiculousness of the program and even suggested it should have been called HAHA since it is clearly a joke. Now that we’ve been working with it for a couple of months, we can report that all of our fears have been confirmed. The program was rolled out in pieces. Ideas were released to the press before they actually had policies. Now that they have written policies, those policies, in fact, contradict the bullet points of the plan for most homeowners. Furthermore, it requires the banks to collect even more paperwork, and the homeowners that participate must complete a small book of redundant information. Seems the common thread of all government programs is they all require mountains of wasteful paperwork. I recently spoke to a client who tried the HAMP loan modification for nearly a year. He completed 5 different financial worksheets, all with the same information, only to be declined. Now that he has seen first hand the futility of the loan mod process, he decided to list his house as a short sale. Unfortunately for all involved, his lender just started participating in HAFA. We have had a purchase contract into the lender for about a month and now we’ve been told everything must be resubmitted on the new HAFA package forms which will result in another 4-6 week delay.  The kicker is our client doesn’t qualify for the HAFA program and even his lender acknowledged he is ineligible, but they told us he must formally apply and be declined before we proceed with a short sale. So, in a couple of months the same lender’s employee who already told us he’s ineligible for HAFA will fax over an official HAFA decline letter. In the process, hundreds of pieces of paper will be pushed back and forth and many weeks of time will be lost. Sadly, this is just one more example of a government program designed to streamline the process that in fact streamlines nothing, but instead causes even greater delays for all. Fortunately, one of the programs’ biggest flaws may turn out to be a huge blessing. Anyone with an FHA, VA, Fannie Mae, or Freddie Mac backed loan is ineligible for HAFA. That is about 70% of all mortgages in the US. There is a strange irony that a giant government program will “help” only those whose loans aren’t backed by the same giant government.  On a more positive note, HAFA aside, short sales are becoming more streamlined with most lenders. A short sale was a free market idea and it’s working. It took awhile to work out the problems, but the banks are finally coming to the realization that people are not going to hold onto a house that’s 50% upside down. A short sale makes the best of a bad situation for all parties. Now if we could just have the government step aside, the free market will continue to fix our housing crises. Robert Holt CDPE/SFR & Phil Mills CDPE/SFR of The [HOLT] group, RE/MAX Sonoran Hills. For more info please visit www.TheHoltGroupAZ.com or call 623.748.9583 & tell us your thoughts.

Wednesday, 6.9.2010 “Real Estate for Real People”

It’s getting ugly out there!   I was recently looking through a Scottsdale based magazine that had all the normal substance for that type of journal. You know, articles about the best vacation spots, the new hip “to be seen at” restaurants, and what celebrities were spotted at the Suns playoff game. While I was flipping through the pages, I noticed some advertisements unlike any I had ever seen before. There was not just one, but three ads for different Scottsdale plastic surgeons advertising “sales” for their services. Some of the ads were “$500 off a face lift if completed by June 30th” or “buy 9 Botox sessions and get the 10th for free.” Seeing these ads I could not help but to speculate that not only have the pool companies, granite installers, and shutter makers been crushed by the housing downturn, but so have the plastic surgeons. Since Botox & tummy tucks have joined kitchen and bathroom upgrades as common symbols of the good life, it’s no wonder that the “body remodel” companies are suffering just like the home remodel businesses.   Apparently homeowners weren’t only taking money out of their homes for a new pool, but also for elective plastic surgery. There is no more telling “sign of the times” than the advertisements of the plastic surgeons. It’s amazing to think that our society reached a point where people were slapping on a virtual ATM machine to the side of their home and raiding the equity. Whether it was a new bathroom, or a new pair for the chest, Americans were using the equity in their homes for everything except a rainy day. Unfortunately, for the granite person as well as the plastic surgeon, the upgrade bonanza has come to a grinding stop. However, on the bright side, I bet girdle producers are doing big business since the number of tummy tucks have gone down. Got to focus on the positive.   Now that we have yet another unfortunate victim (plastic surgeons) of the housing bubble, we can see just how deep the rabbit hole goes. This is yet one more important warning about the unintended consequences of our debt economy.   Since our real estate business does not deal with the ultra rich, I could only guess that they too were feeling the effects of the economic meltdown. However, after seeing the plastic surgeons advertising their installment plans, I wanted to learn more about how the super rich are doing in the current real estate market.   Doing a quick search on the MLS for all of Phoenix, I found 81 active listings at the $3 million to $3.5 million dollar mark. In the last 6 months, there have been 11 homes to sell that were once listed at that price range. Out of the eleven, 8 were distressed sales. Even more telling was the fact that the average reduction in price from listing amount to sold amount was over $1 million dollars.   Taking a look outside of our area to some of the priciest on the West Coast, the picture is no better. Malibu, the exclusive beach town to the rich and famous has only one active “normal listing” with 12 active short sales, 6 pending short sales (no normal sales pending) and 1 short sale closed in the previous 3 months, but no “normal sales” closed. In Beverley Hills, home to movie stars and Jed Clampett, there are 7 active short sales with 10 pending short sales and no standard sales. In the past 3 months, one short sale has closed, but no “normal sales.”   What can be made of this info? Well, it is easy to see that no one (not even the rich) is immune from the pain. Sadly, even those with equity in their home cannot sell unless they bite the bullet and price it competitively with the shorts and foreclosures.   As evident in the numbers, the short sale, strategic or otherwise, has hit the affluent areas just like the rest of the neighborhoods. Obviously, those in the McMansion are no less “debt impaired” than the rest of us. In fact, I think many areas in Scottsdale will suffer even greater declines since so many of the $1.8 million dollar homes, that are now worth $800k, were financed with negative am and/or liar loans that are now coming due. In addition, the statistics show that the higher the borrower’s credit and the larger the loan balance, the more likely they are to stop paying their mortgage. This leads one to surmise that the downward trend at the high-end of the market is just getting warmed up.   Yet fear not. There is a silver lining. Thanks to the banks and our federal government’s mismanaging of the crisis, we should remain in a depressionary economic environment. The good news is that for those that can buy, this will keep prices for both real estate and Botox low for years to come. Robert Holt, CDPE/SFR & Phil Mills, CDPE/SFR of The [HOLT] Group, RE/MAX Sonoran Hills. For more info, please visit www.TheHoltGroupAZ.com or call 623.748.9583 & tell us your thoughts.

Wednesday, 6.16.2010 “Real Estate for Real People”

Short Sale Buyer’s – Beware   In the past I have talked about what buyers need to understand with regard to the current real estate environment and whether now is a good time to but or not. Today, we’ll talk about what buyers need to grasp in order to successfully navigate the ragging waters of our market which is full of distressed properties – most notably, short sales.   Since distressed sales make up the vast majority of the market, and since short sales make up the greatest percentage of this segment, every buyer must be prepared to deal with them. While these transactions are complex and tedious, they do offer a great value for the right buyer. So what are the secrets to successfully buying a short sale and getting an awesome deal? Well, there really aren’t any secrets. Of course, it is good to have some good karma on your side, but getting a short sale approved has very little to do with luck. For the buyer, getting from “I want it” to “Sold” is not String Theory or Brain Surgery – as they say, but there is a process that must be followed.   Buying a home that is a short sale requires having agents who know what they are doing on each side of the transaction, as well as sellers who have been educated properly and as importantly, buyers who have been well informed. Sadly, most buyers have no clue about what they are getting into with a short sale. The reason for this ignorance is largely because the buyers have an agent that is clueless. Far too often buyers end up hiring a friend or cousin who is a part time agent with no knowledge of the process. Of course, ignorance is not exclusive to just the part timers and the newbies. Daily, we see agents that have every designation available out by their name or with “25 years experience” on their business card, but they do not have any true knowledge on how to help the buyer through the short sale process.   So – here is what a buyer needs to know. First, buyers must have the “right” expectation. These expectations are created through understanding the process that can only come from working with an agent that has experience dealing with short sales. I often joke that it takes 9 days to get a real estate license, but 2 years to be a beautician. Regrettably, many agents do not have enough understanding of contracts, negotiation, or business knowledge to effectively help a buyer in a normal market much less through the current environment. The lack of proper understanding is painfully obvious & detrimental for all those that have to deal with an agent that has no clue. Additionally, while there are more classes offering training & designations to agents, they often make the problem worse since the material covered is inadequate and often misleading. Moreover, as anyone in business will tell you, classroom study is great, but it usually has little to do with real world application. In the case of short sales, the only way to understand them is by handling not just one or two, but dozens.  For both the buyer and the seller, the ramification of working with an agent on either side of the transaction that does not know what they are doing can be severe. For buyers, it could mean over paying or simply wasting a lot of time as they miss out on their dream home. For the seller the consequence is much worse as foreclosure is often the result. One of the first things every buyer must understand is that short sale’s take time. How long a typical short sale will take is directly related to how experienced the listing agent is with short sales and who the lender(s) are for the seller. Depending on the lender, it could take 30 days to 6 months to get an approval and if the listing agent does not know what they are doing, it could take even longer. As we have discussed in other articles, the delay is largely for two reasons. One – the lenders are swamped and each file they are dealing with is sitting next to a thousand others just like it. Two – the level of incompetency and uncaring at the bank is unimaginable. However, each buyer should recognize that this wait period is one of the reasons the buyer can end up with a home well below market value. As importantly as having a good agent, the buyer better have a great mortgage lender. I could write a whole article just on this subject. While there has been progress made in cleaning up the mortgage industry, it too has far too many incompetent individuals that continue to wreck havoc on the market place. Combine their incompetence with tougher lending standards (a good thing) and multiple new government regulations (designed to be good – but aren’t – no surprise there), and you have a recipe for disaster. Buyers should be prepared for much longer escrow periods and possible delays at the end that can derail the whole deal. Buyers must also be educated on their obligations per the contract. There is now legal precedent in AZ where buyers, mortgage brokers and buyer’s agents have been successfully sued for not performing as per the contract that later resulted in a foreclosure for the homeowner who later sued. Getting a loan in today’s market is serous business and should be treated as such. The buyer should also realize that the price that short sale is listed for may not be the price it sells for. A major difference between a home listed as a short sale and one that is listed as either a “normal” sale or one that is a foreclosure is that the listing price may not be the amount the seller’s lender is willing to accept. There are many reasons for this, but most often it is because the lender has the wrong idea of what the home is worth. This is caused by an incorrect BPO (Broker Price Opinion) performed by an unknowledgeable agent working for the bank. As we have mentioned in previous articles, the BPO can also be ripe for ethical issues as some agents performing them would like to see the home go into foreclosure because they are under the misguided impression that they will get the property as a foreclosure listing from the bank.   Another reason is that the listing agent might have the price way too low in an attempt to get an offer into the bank quickly because the homeowner is up against a looming trustee sale date. So if the price is too low, keep in mind the old cliché, “if it is too good to be true, it probably is.” The offer that goes into the lender must be in line with other comparable distressed sale properties in the neighborhood. Buyers can get great deals on short sales, but while the banks are idiots, they are not fools.   The bottom line is this, in order for a short sale to be successful, there must be competent agents on BOTH sides of the deal. If you are working with an agent who does not understand the process and how to help you construct an offer that the seller will accept and more importantly that the lender will approve, then you are wasting your time. If the seller has an agent that does not know what he or she is doing, then the game is over before it ever began. Now, more than ever, buyers and sellers must be working with an agent that is both competent and professional. There are good agents out there, so do your homework and find someone that can help you get your dream home. Robert Holt, CDPE/SFR & Phil Mills, CDPE/SFR with The [HOLT] Group, RE/MAX Sonoran Hills. For more info, please visit www.TheHoltGroupAZ.com or call 623.748.9583 & tell us your thoughts.

 

Wednesday, 6.23.2010 “Real Estate for Real People”

What the TARP is going on?   In the recent past, we have talked about how the government program HAMP, which was designed to help the foreclosure crises has only HAMPered the housing recovery. Now let’s look at what, if any, benefit the TARP (Troubled Asset Relief Program) has had on our economy and real estate market.   TARP allows the Treasury to purchase up to $700 BILLION in “troubled assets” or in other words, bad mortgages from the banks. Of course, these bad mortgages are now worth half of what they once were worth, but the government does not mind paying full price for them. After all, it is not their money. In short, our government, with your tax dollars, is buying up all the bad loans the banks wrote prior to March of 2008. This is what allowed companies like B of A, Chase and the other “too big too fail” from failing. Meanwhile, the taxpayers will be on the hook for the bill, which is on its way in the form of higher taxes.   As “we the people” through the TARP program keep B of A and the others afloat and as they continue to deny loan mod after loan mod, the question must be asked, “was it worth it?” Sure, the economy has had the illusion of rebounding and if you listen to the talking heads, we are on the verge of a complete recovery. That is the delusion the economist and the politicians want us to believe, but this perception is not reality. The fact is the economy has only appeared to have “rebounded” because of massive government spending, money printing, and extremely loose money supply.   The truth is there is NO recovery. Once you remove the massive amount of dollars our government injected into the economy, the growth would have been negative, which means a depression. Add to this the fact that real personal incomes for Americans are now a HALF of a TRILLION dollars lower than just 18 months ago and you have a real problem on your hands.   The politicians have done everything in their power (spending money) to prop up the US economy with the hope of getting Americans to spend on consumer goods again, which accounts for a whopping 70% of the GDP. However, if growth was flat (at best) after Trillions of dollars spent by the government to stimulate the economy, what is going to happen now that all the money has been wasted (I mean spent)?   This is far from a recovery. The facts clearly show just how fragile the economy still is. Since all the growth so far has been bought and paid for by American taxpayers, it certainly appears that we stand a strong chance of falling into a double dip recession now that stimulus has been depleted. This will mean more unemployment, even less consumer spending, and eventually a fall in the stock market as earnings drop again. This will create a perpetual snowball effect compounding the problem, as there will be less money to be spent by the American consumer.   Already we see warning signs arising in the so-called recovery. A dismal record was reached in the first 3 months of 2010 with more than 10% of all mortgage borrowers now behind by 90 days or more on their mortgage. This is the most ever! Plus, the more than $1 Trillion in mortgages the Fed bought and was about to try to sell in order to get the tax payers money back – well not going to happen because there are no buyers. Meanwhile, the latest stats on building permits for single-family homes tanked by 11.5% in April. Without question, this leading indicator of construction activity is pointing to a renewed slump. Add to this the fact that jobless claims are starting to inch upward again with almost 4.7 million Americans out of work which is causing a key business indicator (durable goods orders) to fall and consumer spending to drop. All the while purchase mortgage applications just fell to the lowest level in 13 years despite insanely low rates.   Construction activity, manufacturing, retail sales and unemployment are all getting weaker not stronger. So, all the massive borrowing and spending by the Fed, which was supposed to bridge the gap from recession to recovery has not worked.   Of course, the whispers of yet another stimulus package are circulating through Washington. Now the Obama administration is pushing a “baby stimulus” package with $200 billion in new spending. But, if $13 TRILLION in bailouts didn’t work, how could a kiddy band-aid work?    Until our leaders understand this crisis is not a free market failure, but instead a monumental policy failure, we will only dig deeper into the rabbit hole. As long as the unsound monetary policy with unbridled spending and the shameful printing of money continues, all of us had better get ready for the day of reckoning. Because our leaders did not make the tough, but correct choices and cut spending, we will see a continued deepening of our economic problems.   In the meantime, since the government cannot control their spending habits, each one of us should control our own by being as frugal as possible. There is no time like the present to get your financial house in order. If you are struggling now – get some help. If you are doing okay now – do not buy into the current hype of a recovery, but instead save for the rainy day. For as sure as the monsoons are headed towards Phoenix, so is the rain on our “recovery.” Robert Holt, CDPE/SFR & Phil Mills, CDPE/SFR with The [HOLT] Group, RE/MAX Sonoran Hills. For more info, please visit www.TheHoltGroupAZ.com or call 623.748.9583 & tell us your thoughts.

 

Wednesday, 6.30.2010 “Real Estate for Real People”

Surprise, Surprise The housing news was filled with some jaw dropping headlines this week. The Washington Post proclaimed, “New-Home Sales Plunge 33% with Tax Credits Gone.” As you know, we haven’t been championing a bogus housing recovery so this result came as no surprise to us. While the government has spent billions to try to prop up housing, the simple fact we touched on last week remains. You simply cannot spend your way out of trouble. As we’ve explained for over a year, housing has yet to show any true signs of recovery. The government intervention to date has likely helped insure a double dipped housing decline. The TARP money has helped line the pockets of the banks while they provide lip service and bogus loan modifications to the ones paying for it, the taxpayers. This week it was also announced that the state of AZ would be receiving $125 million dollars of stimulus money to help struggling homeowners stay in their homes. Sounds like a good story, but it should read, “AZ receives 125 million stimulus dollars to be paid directly to banks and provide little relief to struggling homeowners.” Think about that, 125 million dollars will be paid directly to banks to “help keep people in their homes.” When the money runs out, who’s going to stay in the house that’s upside down 50%??? In the end, government intervention runs out as it has with the tax credit and the free market is left to deal with the reality. Even the media has to come around eventually as AP writer Alan Zibel recently commented: Sales of new homes collapsed in May, sinking 33 percent to the lowest level on record as potential buyers stopped shopping for homes once they could no longer receive government tax credits. The bleak report from the Commerce Department is the first sign of how the end of federal tax credits could weigh on the nation's housing market. The credits expired April 30. That's when a new-home buyer would have had to sign a contract to qualify. "We fear that the appetite to buy a home has disappeared alongside the tax credit," Paul Dales, U.S. economist with Capital Economics," wrote in a note." After all, unemployment remains high, job security is low, and credit conditions are tight." New-home sales in May fell from April to a seasonally adjusted annual sales pace of 300,000, the government said Wednesday. That was the slowest sales pace on records dating back to 1963. And, it's the largest monthly drop on record. Sales have now sunk 78 percent from their peak in July 2005. Analysts were startled by the depth of the sales drop. "We all knew there would be a housing hangover from the expiration of the tax credit," wrote Mike Larson, real estate and interest rate analyst at Weiss Research. "But this decline takes your breath away." We wonder what planet those startled analysts live on. It is not hard to comprehend that when false demand is taken away, sales drop. Perhaps they should have paid attention to the cash for clunker results, never mind the underlying fundamentals of housing. Besides, how does a tax credit for a buyer stop a homeowner who’s upside down 50% from walking away?? In fact, the tax credit will create more foreclosures as some who utilized it have already let their homes go into foreclosure because they only bought it to get the 8k. As a reminder, after it is all said and done, the 8k credit actually cost the taxpayer 22 thousand dollars. I think that is what they call fuzzy math. Meanwhile, as there are no signs of new job creation (unless you are a census worker), we can expect that the economy will continue to take a turn for the worse. This is largely due to consumer confidence faltering, as many companies are still firing workers bringing the number of unemployed and under-employed to over 17% (reminiscent the Great Depression). Between tough financial times, ARMS resetting, shadow inventory & government “help,” this housing downturn is far from over. It does not matter how cheap prices are or how low mortgage rates become, it you are not working or if you are fearful of losing your job, you are NOT buying a home. The government intervention has and will only drag the recovery out and put our future generations further into debt. The Fed, with its free money, created the biggest bubble to date while the banks, investors, & Goldman Sachs of the world created new financial tools that fueled the housing bubble. Now as the air continues to leak out of bubble, it’s time for these clowns to share in the losses. The sad truth is we all know that will not happen. As the rest of us continue to feel the pain on the front lines, the fat cats in Washington and hogs at the banks continue to live the “good life” flying in private planes and living in their mansions. As for the so-called experts out there, here is a bit of advice, “don’t hold your breath” if you think we are pulling out of this mess any time soon as foreclosures and short sales will continue to rise this year and next. Unfortunately, the US economy/housing market is starting to remind me of the 80’s song “Turning Japanese.” I am fearful that we will mimic the Japanese housing market where after it crashed in the late 80’s, there were 10 straight years for decline followed by 10 years of no growth at all. Man, this is one time I really hope like heck that I am wrong. Robert Holt CDPE/SFR & Phil Mills CDPE/SFR of The [HOLT] Group, RE/MAX Sonoran Hills. For more info, please visit www.TheHoltGroupAZ.com or call 623.748.9583 & tell us your thoughts.

Wednesday, 7.5.2010 “Real Estate for Real People”

Something wicked this way comes…   Reading like one of Shakespeare’s tragedies, this week’s headlines rattled even the most optimistic king (Obama) much less commoners like the rest of us. New home sales fell into a black hole, off 33%, which is the lowest ever recorded and that is saying a lot. Meanwhile, housing construction drops a whopping 10% and durable goods orders fell 1.1% (for those that don’t know – that is a big drop). What about jobs? Well, jobless claims are on the rise again. Even the census workers are getting squeezed as their government jobs come to an end. Talk about a layoff – that’s 10 years before those come back. In fact, the only real job growth, which has been in the government sector, is getting hit hard as that segment lost 208k jobs in June. Remember what we wrote last week ~ No Job = No Home!   Consumer confidence, as predicted, is in a free fall since the media is forced to report the real numbers and not just the happy talk. The average Joe can now see through the smoke and mirrors of the propaganda that has been spewing from our political leaders like oil from the busted pipe in the Gulf. And, like that broken pipe, our leaders seem unable to stop the flow of harmful pollution from their mouths. Flashing red lights are going off everywhere, but all we hear are lies and more lies about how the stimulus is working and how things are not as bad as they seem. President Obama has had to resort to telling us we should feel lucky that unemployment is not at 15% - Someone should tell him that it is at 15% and beyond. Meanwhile, even in the face of biggest drop ever in New Home sales, the other eternal optimist, Lawrence Yun, chief economist (cheerleader) for National Association of Realtors, was quoted this week saying, “It is not as bad as it seems out there. Once the economic recovery comes into full swing, housing will heat up.” I don’t know what “out there” he is referencing, but clearly, it is not in this country or this planet seeing how even China looks to be facing their own housing bubble. Maybe Mr. Yun should go inspire the Chinese homeowners because his rhetoric has no credibility here.    Well, I hate to say we told you so, but we have been telling you for many months that the explosion of government spending was only going to create massive deficits with no real or lasting positive result. In article after article, we have directed your attention to the fact that all the government programs that were designed to help have only made things worse. We have explained how HAFA is only slowing the housing recovery, not increasing the efficiency as promised. We voiced our thoughts about how the tax credit was not only a waste of taxpayer money, but once completed, it would cause buying to fall of the cliff, which indeed it now has. Don’t forget the discussions we’ve had about the Sovereign debt crisis in Europe which is not getting better, but instead is spreading to other countries and will before long, reach our shores. Now, with the stock market getting wacked (just as we predicted many months ago), even Mr. Cramer is having a hard time finding a Bull Market - anywhere.   Heck, by the looks of it, all but those that have their head deep down in the sand (Mr. Yun), now see what we have been warning about month after month. While the mainstream media and talking heads have been doing back flips and waiving their pom-poms about the “so-called” recovery, we have been laying out undeniable facts about the very sobering reality of our economy and real estate market. Now, even the head cheerleader, (Mr. Change we can believe in) can no longer deny the truth. The bought & paid for (with taxpayer money) recovery is done, over, finished. No amount of platitudes, or “what if” scenarios from the Orator in Chief is going to change the fact that Trillions of dollars were wasted on measures that have never worked in the past and did not work now.   I don’t know about you, but watching our government continue to lead us down a path that will only guarantee much more pain is maddening. What makes this so frustrating is that even now, there appears to be very few of our elected officials who get it. Because they either are not smart enough or do not have the (you know what) to do the right thing, we will all continue to suffer. Sadly, the old cliché, “the more things change, the more they stay the same” is entirely too accurate for the current political environment. After listening and speaking to some politicians running for office, I do not hold out too much hope for any real change. Several weeks back I was talking to a local “politician” running for state senate, who despite all the writing on the wall had no understanding of the depth of the problem. Mind you, this particular candidate is running on a “conservative” platform and trying to align with the tea party with a promise of “change.” However, the minute he told me, “we have to take care of this deficit so we protect our children’s future” I knew he had no clue. Like all the rest of our political leaders, this politician does not see that there is clear and present danger NOW. The problem is not 15 years in the future. Sure, my kids will be saddled with this debt for years, but the dam is going to bust long before they are earning money to pay for it.     While you and I hear a few screaming voices on TV, we see no action to deal with the problem from the elected officials. Evidently, there is no one in office who really understands just how much money we have wasted and what that means to the future of this country. As evidenced by the latest economic numbers, the Trillions wasted did nothing to fix the economic troubles. Instead, it has almost certainly assured major problems not just for next generations, but also for you and me, here and now! As of this writing, our deficit was at $13,193,834,629,939.91. However, since this number is increasing by $4.14 BILLION per day, it will be a lot larger by the time you read this article. Our deficit is so large it is unimaginable to most of us average folks. However, we had better start getting our heads around it because it is going to affect our way of living for many years to come.   The facts are unmistakable. As we told you last week and like what we’ve been telling you for many months, “this storm is far from over.” In the face of near zero % interest rates & the largest stimulus package ever, despite TRILLLIONS to bailout banks, car and insurance companies, the economy is faltering again, and again the little guy will be left holding the bag. The only way to make sure that your portion of the bag is a little lighter is to arm yourself with the truth. Then empower yourself by taking responsibility for where you are now and where you will be in the future. While I am very confident that the paradigm has shifted and we are not going back to the good ole days anytime soon, I am equally confident there are ways to turn this nightmare into a positive experience. There is good in everything and opportunity can be found in any situation, but one must be willing to act. By taking proactive measures, protection from the continued economic downturn can be found and if leveraged correctly, this negative event can be turned into a positive one. Robert Holt CDPE/SFR & Phil Mills of The [HOLT] Group, RE/MAX Sonoran Hills. For more info, please visit www.TheHoltGroupAZ.com or call 623.748.9583 & tell us your thoughts.

Wednesday, 7.14.2010 “Real Estate for Real People”

Eye of the storm   After a big week of positive gains on Wall Street, many out there might be thinking all is well and it is time to breathe a collective sigh of relief as perhaps the worse is behind us. I wish I felt the same way. To me, the financial markets are only showing us how confused even the major players are and how bipolar and volatile Wall Street can be. The gains from last week should be considered rented not owned. I am still convinced that the US economy is headed for more turbulence in the coming months. Even the IMF (International Monetary Fund) is confused as they released an announcement stating that the world economy would grow in 2010, but only IF the current conditions DO NOT continue to persist. They went on to say, “Recent turbulence in financial markets reflecting a drop in confidence about fiscal sustainability and future growth has cast a cloud over the outlook.” I think that is a little like saying, “it would be a nice sunny day if we didn’t have this hurricane to deal with.”   To continue with the hurricane analogy, I think, at best, we are in the eye of the storm. For those who have been in a hurricane or have seen the pictures of areas hit by one, especially a powerful one, it is one of nature’s most powerful displays of destruction. Having experienced a number of these events, I can tell you first hand, that it is an awe-inspiring affair. Oddly, as the storm is churning out at sea, it is very often a bright sunny day for those who are in the crosshairs on shore hundreds of miles away. If there were no TV or radio, the soon to be victims would never know what was coming their way until it was too late. However, for those more in touch with nature, they would observe animals preparing for the pending event even though there is no sign of trouble. This intuitive act of survival by animals is very impressive to watch and for those individuals wise enough to take heed, they too could take shelter from the pending destruction. For those not as wise, their survival will depend much more on luck than proactive measures.    Meanwhile on shore, as the storm approaches, the winds begin to pick up, the clouds paint the sky in a dark black and slowly the massive pine and magnolia trees start to bend from this powerful force of nature. As hours pass, the winds continue to increase while the danger and the damage increase with each passing moment. In the most powerful storms, the fury is imposing and downright scary.   Then after hours of being battered by the wind and rain, there is a sudden & complete calmness that appears out of nowhere. If the storm hits during the day, then as the rain stops and the winds die, the sun will appear. For those that do not know better, it would appear that the threat is over and things will start getting better. The unknowing & inexperienced come from their homes to assess the damage and even though they are shaken, they feel better as they think the worse is behind them. However, just as their racing hearts begin to calm, the black clouds once again take control of the sky and block the sun. The calmness and stillness give way to an ever-increasing driving force of wind, except this time it comes from the opposite direction. Those on the ground, who just experienced the eye of the storm must now prepare for another, often times even more furious, beating.     The hurricane you and I are now dealing with is not high winds, tornadoes, tidal waves and rain, but it is just as destructive and if you are not prepared for the onslaught, you might be swept away. The threat we have to deal with is extremely high levels of government debt, persistent high & rising unemployment and the ongoing credit crunch. Add to this the fact that our economy, which has been fueled by the $2 Trillion in government stimulus is running out of gas. The effects of this hurricane have 70% of the economy (consumer spending) shutting down as consumer confidence plummets. Meanwhile, our own state plus most of the other 49 in the union, is broke and cannot even meet their pension obligations.   Unmistakably, all of the before mentioned factors, most particularly the lack of jobs and reduced earning power for those still employed, will continue to drown any hope of a true recovery in housing. This is marked by new home sales recently collapsing by 33% (largest decline on record). In the meantime, all loan types are seeing a significant increase in delinquency year over year. The most concerning set of numbers comes from the fact that there has been such a significant increase in prime fixed-rate delinquencies that it is now the single biggest segment of loans going into default.   The bottom line is that despite a temporary eye in the storm, now is the time to brace for the second half of the hurricane that is hitting our collective shore. For those that use their intuition and see beyond the temporary sunshine, they can take steps to protect themselves from the coming winds. In any hurricane, there will be damage, but as the winds subside, the clouds break away and the sun comes out again, the rebuilding will be much easier for those who take the appropriate steps to protect themselves. Robert Holt, CDPE/SFR & Phil Mills, CDPE/SFR of The [HOLT] Group, RE/MAX Sonoran Hills. Please visit www.TheHoltGroupAZ.com or call 623.748.9583 & tell us your thoughts.

 

Wednesday, 7.21.2010 “Real Estate for Real People”

The Price of Freedom     During the month of July, we Americans get the opportunity to celebrate the birth of what I consider the greatest country in the world. Having been fortunate enough to spend considerable time traveling outside of this country, I, without hesitation, can exclaim that the good ole US of A (even with all of its problems) is by far the best place in the world to call home. There are some great countries to visit, but like Dorothy, I too believe that there is no place like home – the land of the free and the brave!   July also offers me the chance to mark another year in the annals of time as I celebrate my birthday. Because of these two birthdays, I am provided with the opportunity to reflect on two powerful and all-encompassing subjects, Time and Freedom. Both terms are thrown around a lot (especially this time of year) and usually without a whole lot of deeper consideration to their meanings. It goes without saying that volumes could be and have been written about the two subjects. In this article I will only have time to skim the surface of each while trying to weave the subjects together so that it relates to real estate and the current state of affairs in our economy.    Time, as Einstein has taught us, is relative, at least in its bigger sense. Doing something you enjoy creates a mental environment where time seems to “fly” by. Of course, the opposite of this is true as well. While we acknowledge the relativity of time, we also recognize that time is finite. We only have so much of it and with each passing day, we are closer to not having any more of it. We are born, we live, and we die! Even if we are lucky enough to live a long time, our time here is relatively short. As a result, what we do with it is very important.   As for freedom, it is the birthright of all human beings and the reason our founding fathers made sure that it must form the basis of the Constitution of the United States, as reflected in the Bill of Rights. Patrick Henry's immortal utterance during the American Revolution says it all: "Give me liberty, or give me death!"   This type of freedom covers many aspects of life, such as political independence, civil rights, and the exercise of free will. It includes freedom of speech, freedom of the press and freedom of worship. Freedom, as described above, is the foundation of this country and is the cornerstone of what we should celebrate on the fourth of July.   Freedom however, is a broad concept that can be difficult to define. Most people equate freedom with personal choice, which means that one has the ability on some level to shape his/her own future or "destiny.”   The idea of "absolute" freedom is even more difficult, as it suggests that we are in total control of all aspects of our life and environment. For some, freedom is less about the environment in which he/she lives and more about the theoretical concept. As you know, there is more than one kind of freedom. There is the external type that we experience in this country and there is the kind that is internal. Internal freedom revolves around the freeing of one's self from the ego and the nonsense that is created in our minds.   I started dwelling on how internal freedom and time are interrelated after spending many hours talking to hundreds of individuals and families who are in some very challenging circumstances. Through the course of our day, we see the carnage and financial ruin so many in Phoenix are experiencing. We witness first hand the debilitating effects the economic and real estate down turn is having on families throughout the valley. It is heart breaking to watch grown men and women cry tears of sorrow and defeat as they describe to me their story of how they ended up in financial distress. You know these people; they are your neighbor, your brother or maybe it is you. Despite the age of the homeowner, whether in their early 20’s or late 70’s all the stories are eerily similar. All of the people have lost a great deal and most are on the verge of losing their home as well. No matter what the circumstances, the one thing all of these people share in common is that they have also lost time and freedom.   We lose our inner freedom when the things we own actually end up owning us. Unfortunately, that is the case for most homeowners today as many are straddled with a mortgage they cannot afford on a home worth half what they owe. As a result, families are choking on the American dream. The home that was purchased with the hope that it would offer shelter and perhaps prove to be a good investment vehicle has now become a 600lb gorilla on the back of the homeowner.   Even those homeowners that can manage the payment are realizing that it might not be worth it. Many are beginning to understand that continuing to pay on a home that is 50% underwater is futile. After all, the cost of anything is equal to the time it takes us to obtain it. Wisdom tells us that when we allocate a great deal of our energy in the pursuit of obtaining material goods, we lose our most precious commodity, which is of course, time.   However, as the paradigm continues to shift in our society, more people are beginning to recognize the importance of both freedom and time and how we lose both when we are drowning in debt. Perhaps this deeper appreciation will be the good that comes from this economic and real estate downturn. After all, the people that I know (my parents being some of them) that were kids during the Great depression, are some of the most responsible individuals I have ever come across. Sometimes it takes a cataclysmic event to wake us up to deeper truths. This is especially true in a society where we are conditioned from birth to spend, spend, and spend some more on things we usually do not need.   For most of us, this period will be life changing. For those that are wise enough to use it as a tool by which to learn and grow, it might well be one of the best things that could have occurred as it will lead to wisdom. If we can begin to grasp that, the path to freedom is freedom from attachment, then we will see that our bonds are bonds of the mind. As soon as we believe that something or someone outside of ourselves can make us happy, we have enslaved ourselves to that attachment. When we cut those bonds of attachment, we become free.   There is no better time to learn the lessons these events are teaching. I encourage anyone who is facing financial challenges to be proactive and take the steps necessary to put yourself in a better position. Certainly, you can be "rich" even if you don't have much money: Rich in family, friends, generosity, spirit, even love. These are attributes we would all be lucky to experience and are the things that make life worth living. However, if you are buried in debt and spending all of your TIME working to pay for “things,” there is no FREEDOM.   However, be forewarned that any movement toward freedom must also be a movement toward responsibility. True freedom doesn't just mean living in a "free" country. Freedom means taking responsibility for our lives and not playing the victim. This type of freedom means having the courage to disconnect from all thoughts of anyone else being responsible for your current situation. Maybe as we each learn this lesson, we as a country will be better off. Robert Holt, CDPE/SFR & Phil Mills, CDPE/SFR of The [HOLT] Group, RE/MAX Sonoran Hills. For more info, please visit www.TheHoltGroupAZ.com or call 623.748.9583 & tell us your thoughts.

Wednesday, 8.11.2010 “Real Estate for Real People”

The more things change, the more they stay the same   Economic history is being replayed right before our eyes and sadly, most of us do not see it. I am referring to the similarities between now and the Great Depression. There is no escaping the uncanny resemblance between the two era’s. What really frightens me is that very few of the talking heads on TV or our elected officials in charge of policy see this crisis coming. If they do, they are certainly not talking about it nor are they taking the appropriate steps to do anything to avoid it. In fact, all the actions so far are only propelling us closer to the brink of the next Depression. Does anyone remember history? The few politicians that recall that time seem to think that performing the same measures such as the “New Deal” will actually work this time. Keep in mind, F.D.R did NOT get the U.S. out of the Great Depression–World War II did.   Prior to the Great Depression, we had the roaring twenties, a time of wealth and excess just like we had the roaring 2000’s. During this time, consumers were doing more than their fair share of spending. Of course, the government encouraged all of us to – spend, spend, and spend some more. And, don’t just spend your money, use that credit card until it is maxed out and while you are at it, buy a new house or two. Despite caution of the dangers of speculation, many then and now believed that the stock and real estate market could sustain high price levels. The crash of 1929 and the crash we are in now followed a speculative boom that had taken hold of the American public leading hundreds of thousands of Americans to invest heavily in both markets. Then, like now, there were experts declaring that we would continually reach permanent new plateaus.   The party went on and no one thought it would ever end, but like all parties, this one also had to end. In fact, the lid blew off just like it did in 1929 and for many of the same reasons. Then with massive government intervention (very much like now), things started to look like it was all going to be okay. Back in the early part of 1930, people were singing, “Happy Days are here again.” The stock market rallied sharply and politicians, Wall Street pundits and the media rushed to proclaim that "the worst was over." The American people and the world breathed a great collective sigh of relief.   However, as history has shown us - it was not over. In fact, the problems were just getting started. The real crisis that plunged the globe into the Great Depression — had barely begun. Just like now, the politicians thought the way to get out of the nightmare was through government spending (taxpayer money) on programs and bridges.   One only has to spend a small amount of time studying that era to see how, just like now, the politicians of that time were making victory laps, and proclaiming it was their spending measures that ended the crises. It was also then that the talking heads on Wall Street were exclaiming that the water was again safe. They urged investors to buy stocks because there would never be an opportunity like it again. They were right too, but only for a moment. Stocks did rise as the market reclaimed much of what it lost in October of 1929. The market went up for many of the same reasons it has recently. As companies laid off workers and trimmed the fat, their earnings went up causing the stock price to rise as well. However, just when most thought that things were getting better, the bottom fell out and the crash of 1930 took most by surprise.   The uncanny similarities between then and now are very sobering, but when you look even closer, you can see two enormous differences between the US of 1930 and the US of today. These two new conditions make the current crisis unlike any other in the history of this great land. For starters, in the 1930s the United States was one of the world's largest creditor nations. We would loan money to other countries. Today, we are the largest debtor nation on the planet.   Perhaps the single biggest difference is that during the Great Depression, the government did everything in its power to protect the credit and credibility of U.S. Treasury securities. Today, it seems to be doing everything in its power to undermine them as the Fed continues to print more and more money out of thin air.   If that was not enough, our own Fed is now committed to printing more money to bail out Europe. This is on top of the $1.3 Trillion it printed to bail out our own banks, brokers, mortgage companies, and automakers.   If you listen to those that are leading (word used loosely) this country, one would think that all is fine and “happy days” are here again. However, I believe it is incredibly ignorant and arrogant for anyone to assume we as a nation cannot experience something very similar to what we did in the 1930’s or similar to what Japan has experienced over the last 20 years.   What worries me is that the economy is highly reliant on the government stimulus programs and artificially low interest rates. What happens when the money runs out (it is now) and rates rise to normal levels? Plus, the main engine behind our economy for the last 20 years has been consumer spending. Where does our growth come from if the consumer is not consuming? With unemployment rising and the economy stalling, one must ask what is next, especially when the government has no more rabbits to pull out of the hat.   We have not even dealt with the commercial real estate problem as of yet. With nearly 60% of all commercial real estate changing hands at the top of the bubble, you can believe that many banks still hold a lot of bad debt. Like residential RE, commercial values are cut in half leaving a lot of banks with mortgages on their books that are worth half of their value. That's the main reason why the FDIC will see a few hundred more banks go under this year.   Many economists now believe that the Great Depression of the 1930’s was not just a result of the crash of 1929, but was instead caused by the collapse of the banking system during three waves of panics over the 1930-33 period. Well, do not think we are not seeing the same thing now. As pointed out above, what makes this worse this time around is the fact that the biggest bank – the US of A is now broke too. Don’t just listen to the same clowns that never saw the first round of this crisis coming. Whether we experience another depression or not, there is no doubt the paradigm has shifted and things are not going back to the way they were anytime soon. Robert Holt, CDPE/SFR & Phil Mills, CDPE/SFR of The [HOLT] Group, RE/MAX Sonoran Hills. For more info, please visit www.TheHoltGroupAZ.com or call 623.748.9583 & tell us your thoughts.

Wednesday, 8.18.2010 “Real Estate for Real People”

Time to cut the head off The Beast   Unless you have been in a coma over the last couple of years, then you have heard the stories about how poorly banks are fairing when it comes to processing and granting loan modifications and short sales. There have been complaints filed against virtually every lender, but without question, Bank of America leads the pack and by a wide margin. B of A, the same company that has taken hundreds of Billions of dollars in taxpayer bailout money, is undeniably the worst at helping their own customers who need a hand up. Those of you familiar with our articles know that I passionately refer to B of A as “The Beast” and for good reason. Not only is this company a major contributor to the global financial meltdown, they are the most ruthless of all the ruthless banks. Unfortunately, the actions of “The Beast” are not only laying waste to countless financially distressed homeowners, but also to the overall real estate market.   When loan modification programs began rolling out, there were high hopes that modifying loans would stem the rate of foreclosures and would provide much needed relief to those who seriously needed help to stay in their homes. It was hoped that these programs would stop the steep drop in home values across the country. As we all know, this did not happen. What you don’t know is why. By examining the numbers we see that very few banks truly reached out to help homeowners in need, which largely includes people who have experienced a reduction in income (due to job losses or reduction in pay or hours) or have had to deal with ARM (Adjustable Rate Mortgage) rate re-sets which resulted in significantly higher payments. However, no bank is as bad as Bank of America, who has a dismal record of assisting homeowners. Over the last couple of years, they have offered one excuse after another for their failures, but the bottom line is they simply do not care.   Why is B of A so bad? There are several reasons, but no doubt, it starts at the top. Clearly, this is a company with a miserable Corporate Culture. Every single on-line rating agency I can find has B of A customer service ratings at the lowest level available. The complaints come from not only customers, but also countless employees. Whether you are an employee or a customer with B of A, life with them is anything but what we see in the warm & fuzzy ads they run attempting to make the unsuspecting public think the bank is there to help.   The even bigger question is how a bank, propped up by the American taxpayer, can continue to destroy the lives of so many of its customers and consequently, negatively influence all of us (not just those that have a loan with them). Remember that every time B of A denies a deserving short sale or loan mod, the real estate market takes another hit. Since B of A now holds more bad loans than anyone else does, they will continue to help destroy home values for years to come as more foreclosures hit the market.   Sadly, the biggest reason B of A can get away with their despicable actions is, thanks to our government leaders, who have allowed “The Beast” to continue to operate despite (in my opinion) being insolvent. I do not have enough room in this article to point to all the reasons why I believe they are insolvent, but suffice to say there are plenty of reasons to suspect it. However, despite this probability of insolvency, the FDIC is too broke to ever consider taking them over nor would the administration allow it. So, the one thing (fear of becoming insolvent) which keeps banks like B of A honest (used very loosely) is now taken out of the picture. The result of this will mean many more foreclosures, as B of A could care less if they modify a loan or not. In fact, without the worry of being taken over by the FDIC, they would just as soon foreclose since it is a quicker way to get much needed capital. The insane actions we have witnessed from this bank are unbelievable, but because they are too big to fail, the ruthless actions of this lender, which are now almost criminal, will continue to get worse.   From the beginning of this financial crisis, Bank of America has ignored guidelines denying hundreds of thousands of modifications and short sales. Even IF a homeowner is told that they qualify for a modification program or a short sale, the bank continues to harass these same homeowners, often sending out notices of intent to foreclose, in spite of collecting trial modification payments or approving the short sale. Worst of all, there have been many cases of foreclosure auctions taking place on homes when the homeowners were paying trial modification payments or when the short sale had been approved and the home was in escrow.   The issue regarding loan modifications / short sales and the mistreatment of homeowners has gotten so bad that state and federal regulators are finally investigating all complaints to determine how many people have had modifications or short sales denied who were actually eligible. The U.S. Treasury Department has begun auditing B of A and several state attorney generals have taken action against them as well. These are not isolated cases nor is this just a recent trend. For years, Bank of America has had class action lawsuits filed against them for issues dealing with credit card fraud, racial discrimination, and now, failure to deal in good faith with homeowners in need of assistance.    The reason why I make such a point of going after B of A is because they took taxpayer money to sure up their balance sheet to keep form going under, but do nothing to help millions of their own customers. To make matters worse, there are now Fraud charges levied against B of A and former CEO Ken Lewis for apparently using much of the taxpayer bailout money given to them to pay billions in bonuses to the clowns that ran Merrill Lynch into the ground. If the US taxpayer had not bailed these jokers out, then maybe I would leave well enough alone, but…I doubt it.   While B of A is stepping all over the American public, all our government has done is let them continue to get bigger. The “too big to fail” have become even bigger, which is a pathetic example of the tail wagging the dog. Since our government does not have the backbone to break up B of A, the public should. We the people, when we act collectively have the power to bring down these ruthless bunch of thieves, but only if we act. My advice to all of you is to stop doing business with companies like B of A. Take your money out of “the too big to fail” banks and spread it around to those that do not have to be propped up with your tax dollars. Find a good local bank or credit union and put your money with a company that will treat you with respect. If you feel that B of A or any national bank has mistreated you, file a complaint with Dept. of Treasury via OCC at www.helpwithmybank.gov. Only then will we cut the head off the beast. Robert Holt, CDPE/SFR & Christina Holt, GRI/CSSN/SFR of The [HOLT] Group, RE/MAX Sonoran Hills. For more info, please visit www.TheHoltGroupAZ.com or call 623.748.9583 & tell us your thoughts.

 

Wednesday, 9.1.2010 “Real Estate for Real People”

Ominous Numbers and the Great Disconnect   Some of those that read these articles have asked me why I write so much about the economy in an article about real estate. Well, simply put, the two are so closely connected and intertwined that as one goes, so does the other. Because the economy and the real estate market influence each other, we cannot speak of one without speaking of the other. When real estate is going up or down it is because the economy is doing the same.   Last week I pointed to some of the most recent housing numbers and by all accounts, they were dismal at best. This past week we had more of the same, but despite the gloomy numbers, the stock market rose 163 points on Friday. Clearly there is a major disconnect between the real world and how the market responds. The rise in the market also tells me the blind bulls are searching for any bit of good news they can find. This is made obvious when we see investors rejoice and the market go up despite some pretty scary economic numbers. I cannot find the same comfort in these numbers nor do I find reasons to celebrate just because the numbers are not as bad as they could have been.   For example, investors were delighted to hear that there were 473,000 initial jobless claims filed in the week ended Aug. 21, down from 504,000 the previous week. Now don’t get me wrong - I want to see the glass as being half full, but there were still nearly half a million people who lost their job last week. Am I missing something here? I mean that is bad – right?   Wall Street also jumped for joy as the nation's gross domestic product (GDP), was revised sharply lower to an annual growth rate of 1.6% in the three months ending in June. This means the economy is nearly at a standstill despite Billions of dollars in stimulus from the government. However, since the 1.6% was not as low as the 1.4%, some Economists had forecasted the market surged higher. Meanwhile, Mr. & Mrs. US Consumer who account for more than 70% of US GDP are keeping their wallets and purses snapped shut.   Someone should remind the experts that while 1.6% shows the economy has a pulse, it is still in the Intensive Care Unit. Growth this slow is not going to encourage any business to start hiring anytime soon and as long as we have high unemployment, the economy is not going to expand.   Because unemployment remains high (now estimated as high as 20% when factoring in under employment and those who have stopped looking for work), the number of people falling behind on their mortgages is on the rise. The Mortgage Bankers Association’s latest report estimates that nearly 14% of all homeowners with a mortgage are behind on their loan and are in danger of foreclosure.   Even more unsettling is the number of U.S. homes lost to foreclosure surged in July. Lenders repossessed 92,858 properties last month, up 9% from June and an increase of 6% from July 2009.   Meanwhile, the MBA reports demand for mortgages is at a 14-year low despite the historically low rates.   Also this week we saw reports that showed new home sales dropped 12.4% unexpectedly in July to the lowest level on record. The Commerce Department reported Wednesday that sales year-over-year fell 32.4%.   On Tuesday, the breaking news from the National Association of Realtors was that existing home sales were bad…historically bad as sales sank 27.2% in July. This was twice as much as analysts expected and the lowest level since May 1995.   It was also last week when the number of federal banks that had been taken over by the FDIC so far this year reached 118.   In other economic news, the Baltic dry index is falling off the cliff with the biggest drop in history (quarter over quarter). This index is a measure of goods being shipped around the world that now shows no one is buying much of anything, anywhere.   There was another report released by the ECRI (a company that offers cyclical forecasting) and the results were dismal. This index slumped to -10.5%. The main thing to know about this number is that every single time this indicator has slipped into double-digit negative territory, a recession has followed. Every single time.   Another ominous number was reached recently as the US debt rose to over 13 Trillion dollars. For most of us, that number is so darn big that we just can’t get our head around it. Well, consider this when trying to get a grip on the enormity of a Trillion.   If you could count to a trillion at one number per second, it would take you nearly 36,000 years to reach a trillion. Now multiply that by 13.   Ironically, as the national debt clock ticked past the $13 trillion mark, Congress pressed to pass a host of supplemental spending bills.   Didn’t a guy by the name of Einstein once say “the definition of insanity is doing the same thing over and over expecting a different result”? Well, I guess we all can’t be Einstein’s.   I also just found this disturbing data: The US has only $490 Billion in cash compared to over 13 trillion in debt. However, our friends in China have $5 trillion in cash and only $400 billion in debt. China is communist – right?   A note to Obama and all those running this country: The burning of Rome and The French Revolution were both sparked by massive levels of government debt.   So, for those that ask about a rebound in housing, you need only follow the economic numbers. When those turn around and people go back to work, then you will see a turn in housing. Until then, keep in mind that the only thing scarier than the truth is doing nothing about it. Robert Holt, CDPE/SFR & Christina Holt, GRI/ CDPE/SFR of The [HOLT] Group, RE/MAX Sonoran Hills. For more info, please visit www.TheHoltGroupAZ.com or call 623.748.9583 & tell us your thoughts.

Wednesday, 9.8.2010 “Real Estate for Real People”

The Crisis Within   A couple of weeks ago we wrote about the unethical and ruthless behavior demonstrated by B of A towards their customers attempting to do a loan mod or short sale. The response from that article was nothing short of amazing and we would like to thank all of you who shared with us your own nightmare story of dealing with B of A (aka The Beast).   Sadly, while that article focused on B of A, make no mistake about it, there are plenty other banks that are just as bad. Yes, whether big or small, many institutions claim to be there to help their clients, but are in fact stepping all over their customers. Sounds like the banks have learned a few things from the government.   While many of the banks continue to crush the American public, you should know that the real crisis within the financial industry is far from over. Despite new regulations and threats from the country’s head honcho, the problem has only become much worse. Why is that you ask? Well, namely because the same guys that talk tough about fixing the problem are in bed with the banks. Always have been - Always will be, unless the public does something about it. The politicians that talk tough and promise to enact tough new regulations to stop the bankers in their tracks are the same ones that take in millions of dollars in donations from those same bankers. . The information that follows should be an eye opener and a powerful kick to the stomach for most of you. You will not get this info on the nightly news because they do not think you can handle “the truth.”   Recently, the International Monetary Fund (IMF) warned that the U.S. banking system remains dangerously fragile, needing as much as $76 billion in capital. According to the report, because of ongoing home price depreciation, the deleveraging in commercial real estate, overall economic weakness, and because the banks are still engaged in high risk business practices, many US banks have the potential to become insolvent and go under in the months ahead. As of this writing, the FDIC has taken over 118 banks so far this year.   Despite the bailouts, the so-called tighter regulations and the tough rhetoric from the politicians, the banking system is still a mess and guess which banks are some of the most fragile? That’s right – many of the same ‘too big to fail’ banks, that are now even bigger and now closer to failure. You might have even heard of a few of them. B of A, Capitol One, Citibank, HSBC, Key Bank, PNC, RBS, SunTrust, US Bank and Wells Fargo ... just to name the largest. They all get ratings of D+ (very weak) or lower, and that means they all are vulnerable.   I mentioned a few weeks ago, that this problem is made much worse by the fact that the weakest banks now hold the largest share of the industry’s assets — $7 trillion, or 52.9%. In contrast, the strongest institutions hold assets of only 3.7% of the total.   To add insult to injury, not only are the balance sheets of most Wall Street banks pure fiction, they continue to engage in the same high risk business practice that led to the industries’ near collapse in 08’.   Elizabeth Warren, head of the Congressional Oversight Panel created to investigate the U.S. banking bailout, recently stated that, “Our country is now immersed in a ‘doomsday cycle,’ wherein banks use borrowed money to take massive risks in an attempt to pay big dividends to shareholders and big bonuses to management – and when the risks go wrong, the banks receive taxpayer bailouts from the government.” She goes on to say that, “risk taking at the banks will soon be larger than ever.”   This is not encouraging news and proves that despite the tough talk out of DC, our leaders have shown no ability/desire to fix the problem. Without tough measures and reforms against the banks and a change in monetary policy, another financial crisis is just around the corner, but this time it could prove even more disastrous.   What should concern all of us is that the same men (Bernanke and Geithner), who oversaw the bubble inflating policies that helped create the problem, are the same men who are designing our rescue? There is something wrong with that picture.   As I have mentioned before, the path we are on now is eerily similar to the one Japan has been on for the last 20 years. Like Japan, we had a credit-induced stock market and real estate bubble. Like Japan, both bubbles burst around the same time. Like Japan, the government decided to stimulate now and reform later. The Japanese government used massive spending and dramatically cut interest rates to zero much like we are today. Japan has run up the national debt equal to 200% of GDP all in the name of stimulating the economy back to health. Their experiment has failed much like it will do here. The problem in Japan, like here, was not a lack of stimulus, but instead a lack of backbone to fix the problem.   Our economy is suffering from decades of being over leveraged created by easy money. That bad debt needs to be washed out of the system. Prolonged and massive bailouts only allow a bad situation to continue. Throwing money at a problem that is essentially created by easy money is like throwing gas on a fire.   While the recent stock market rally has managed to push bank stocks up, do not think for a minute that the balance sheets are healthy. Their underlying portfolios are still full of toxic assets that have continued to fall in price. Thus, the insolvency of the banks have continued and will continue.   Meanwhile, our government has only increased the “moral hazard,” which makes future crises more likely and the Fed has only delayed the next catastrophe by adopting monetary policies that created the mess to begin with. Why? Two words: crony capitalism. The American people have not seen an honest examination of the crisis because it would embarrass CEO’s and politicians. We have not seen any prosecutions of the CEO’s of the large nonprime lenders because it would expose the epidemic of fraudulent mortgage lending that drove the crisis. There was fraud everywhere in the mortgage industry, fraud in the underwriting, fraud in the ratings agencies, and I am sure all over capital hill, but there has been no accountability.    The next financial crisis will come about for a number of reasons, but make no mistake, the main reason will be a from a lack of trust in the system. Trust must be restored before the system can work properly. The way to achieve trust is through accountability. Unless “we the people” demand that the politician's refocus their loyalty away from their corporate sponsors and place it back on what is best for this country, then we will continue to follow the path of Japan. We will watch as the government continues to run up staggering deficits resulting in an economy that will experience sluggish growth and high unemployment year after year.   The too big to fail must be broken up, Wall Street speculators (not the American taxpayer) must pay for their losses and the criminals must be prosecuted. We must demand this action from elected officials and in the meantime, let your own voice be heard by taking your money out of the two big to fails. Robert Holt, CDPE/SFR & Christina Holt, GRI/CDPE/SFR of The [HOLT] Group, RE/MAX Sonoran Hills. Please visit www.TheHoltGroupAZ.com or call 623.748.9583 & tell us your thoughts.