The FHA not immune to defaults…FEAR on the rise.

I won’t begin to regurgitate all the details, however suffice it to say that the FHA is seeing more and more defaults on loans insured since 2008!! What? Yes, that’s right since 2008.  Review the entire article here by the way the article is well written by Keith Jurow of the Real Estate Channel.

My point is to make a claim, right now, and right here on our Market Advisors Blog…August 10,2010. “Market Momentum is still knee deep in the FEAR stage which will lead to further market price deterioration across all residential real estate markets in the US.”

Now when I deliver my seminars and workshops during the next year with Entrust and Pensco I can refer back to this published statement and say “Told You So!”

However, do not  get me wrong. I am a buyer at these “fearful” times. I have no problem investing in properties that deliver positive cash flow at over 12% return and a 5 GRM. With these real numbers I will be happy to “Buy/Hold” or “accumulate and wait”. With a less than 1% CD rate…plllleeease and thank you.

Have you checked out Fortune or Money magazine lately?

Take a look at the June 2010 Money Magazine…specifically page 82…”Stock up for more Income”. Or, the June 14 2010 edition of Fortune Magazine, specifically page 82 “Our 2010 Retirement Guide: You Can Still Win”.

Let me summarize…Its all about investing in “Funds” and it is all about being satisfied with marginal investment gains…apparently less than 5% if you are LUCKY!

Fortune magazine even goes so far as to suggest “asset class diversification” …but sadly stops short at anything other than publicly traded Funds. (of course that is where the big $$$ are, especially when  it comes to fueling advertising for these financial rags.)

True diversification should also include “alternative assets” , such as Real Estate, and look toward specialized niche sponsors that can offer greater returns with minimal risk.

Just how can you find out more about how to take advantage of these opportunities? May I suggest you first become knowledgeable of your retirement options. Look to these websites for easy to understand content about self-directed retirement.

Pensco Trust Co.

The Entrust Group

U Direct IRA Services

Lots of good info…and when it comes to a good investment opportunity, specializing in real estate, contact me at

john@mymarketadvisors.com

Foreclosures Good for the Economy?

Strange as it may seem there actually might be a consumer spending benefit to the economy due to increasing defaults on home mortgages.

WHAT ??!!

Yes, the latest rise in consumer spending numbers is juiced by the simple fact that as more and more Americans stop paying on their mortgage…that frees up cash which finds it way into retail coffers.

YOU HAVE GOT TO BE JOKING??!!

No, strange but true. Check out this latest report from CNBC and Realty Trac.

Though someone might seem to think this is good news, think again, Foreclosures, NODs and Short Sales are INCREASING at a record pace which is continuing in the 3rd year since the burst of the bubble. Home values continue to suffer.

Let’s not forget that the single most important asset to the average American family is the “HOME”, which is being wasted. What this country needs is a paradigm shift back to values, and Government needs to do all it can to support “HOME VALUE” by creating JOBS and stimulating (or rewarding) HOME BUYERS.

The Federal Government Now Needs $1.9 T To Pay Its Bill!

If you look back at the focus of my blogs you will see that my agenda has always been to keep up with what is happening in our economy and how it is affecting the foreclosure market.  Let’s face it; the Market Advisors Investment Fund depends on the foreclosure market for its continued success.  In addition, I feel our readers need to know what’s happening in that market for their own real estate investing as well, whether that be through our Fund or strictly on their own.

So, in this blog I am reporting on a January 20th Associated Press article by Andrew Taylor about our record setting deficit!  And this folks is the end result of all the Wall Street bailouts, fiat money, unprecedented government spending and “meddling” that our leaders have been doing to “fix” our economy.  All of this during a recessionary period when tax revenues have been drastically cut.  Interesting philosophy – revenues are down so let’s spend more!  The bottom line is the $1.9 Trillion dollars being asked for right now (bringing the national debt up to $14.3 Trillion!!) won’t even carry us through the year!  Here’s what the White House has to say about this record breaking increase:  the increase “is critically important to make sure that financing of federal government operations can continue without interruption and that the creditworthiness of the United States is not called into question.”

Believe me the credit worthiness of the US is already being called into question.  Some how, some way, we are just going to have to eventually “bit the bullet” and let the market take over.  Stop with the programs!  It will hurt but the only way to get rid of all of this over leveraged debt is to let the market move it through the system.  Yes, a lot of Wall Street “icons” will suffer and many will fold, along with a lot of banks, but it will force the “pig through the python” a lot faster then with all of this government manipulation.

These deficits in spending will not go away and we, the taxpayers, will have to pay for them.  So we need to stop the spiral.  It’s not a party issue – it’s a freedom issue.  How many more years of record deficit spending can we stand?  I say none – what do you think?

Paul Davis, Market Advisors, LLC

The Financial Crisis Inquiry Commission!

Did you know we have launched a commission to study just what it was that brought our financial system to its knees in 2008?  Maybe greed had something to do with it!  Anyway, I found this report in an article published last week in the UK Daily Mail.  This commission is a prototype of the Pecora Commission, the Senate committee that investigated Wall Street abuses in 1933-34.

The commission has pledged that it will make “a full and fair inquiry into what brought our financial system to its knees”.  They further say they will “explain it in a way the American people can understand”.  Now that would be a switch!  The Commission started off by interviewing high profile financial leaders such as: Goldman Sachs’ Lloyd Blankfein, J.P.Morgan Chase’s Jamie Dimon, John Mack of Morgan Stanley and Bank of America’s Brian Moynihan.  As a group these leaders all tended to apologize for their risky behavior and poor decisions during the turmoil of  2008 but to a man they all justified their current compensation decisions.

The general “party line” seems to be, as expressed by Brian Moynihan, that “the vast majority of our employees played no role in the economic crisis’ and therefore do not deserve to be penalized with lower compensation.  Of course we all know that B of A paid their Bailout money back early and most analysts believe they did that so they wouldn’t have to follow the Obama guidelines to lower high bonuses.  I for one sincerely hope this commission will uncover just how these institutions actually were able to generate the fast profits used to make their early Bailout payoffs.  If they do, I think we will all find out that it was a combination of manipulating “free” government money for high profits and implementing changes in accounting and reporting standards – to favor the banks balance sheets of course.

Anyway, you should check out this article for yourself and I will try to find out what the US media has to say about these commission hearings (if anything!) as well.  I’ll report on what I find in a future blog.

Paul Davis, Market Advisors LLC

Still Hunting for the Bottom!

Thanks to good friend and colleague, Larry Tam, I saw an excellent article in Time.com that does a great job of re-enforcing what I have been writing about for the last several months.  The article, by Janet Morrissey, was publish last week (1-7-10) and here is her opening sentence:  “The decimated housing market may get considerably worse before it gets better, according to housing-industry professionals, who expect foreclosures and home-price declines to continue pressuring the sector through at least the first half of 2010.”

The article goes on to talk about the rising foreclosure rate as we move into 2010 which is being driven (in part) by a flood of Option ARM and Alt-A mortgages slated to re-set over the next 12 to 18 months.  That coupled with the utter failure of the Obama loan modification program will continue to put downward pressure on prices for the next 12 + months.  (More great deals for Market Advisors and other REO Investors!)

As for the loan modifications, here’s what Morrissey had to say about that programs success.  From reports out of the offices of the Comptroller of Currency and Thrift Supervision it shows that of the loans modified after the third quarter of 2008, 61% are now in default!  Not a very effective program I’d say.  She also reports that John Burns, a respected real estate consultant, believes that 50% more people will lose their homes in 2010 then did in the record foreclosure year of 2009.  Of course that means more opportunity for Market Advisors but it also means great opportunities for those of you who want to get into investment real estate at or near the bottom of the market.  Don’t wait!!  Especially if you are a cash buyer.

For example, Market Advisors just turned a house around for a total purchase and rehab price 25% below current market and they rented it in less then 30 days (during December!) for absolute top of the market rent!  So, stop procrastinating – just get your team together and get in there now!  Or, enjoy the ride as a passive investor in a Fund like ours.  What ever you do – do something!

Paul Davis, Market Advisors LLC

More Flexible Accounting Rules for Banks!

This is one of those stories that kind of gets “swept under the rug” but I think it is important enough to bring to your attention.  I also know that if you don’t have an accounting background then this might seem a bit esoteric but believe me it is important.   According to Floyd Norris in a December 8th NY Times article, Robert H. Herz, the chairman of the Financial Accounting Standards Board (FASB) is facing political pressure to abandon “fair value” accounting for banks.  This “political pressure” wants Herz to “decouple” bank accounting rules from normal accounting standards.

Here’s how Morris explains it:  His proposal would encourage bank regulators to make adjustments as they determine whether banks have adequate capital while still allowing investors to see the current fair value — often the market value — of bank loans and other assets.

Wow! What a coup for the banking industry.  You see FASB is responsible, in coordination with the SEC, for setting Generally Accepted Accounting Principals (GAAP).  These GAAP guidelines are what all CPA’s must follow in order to audit public company’s books.  It’s these audited financial statements that the SEC requires all public companies to publish in order for the public to see how the company is doing.  This change will allow banks to legally book their asset values at false levels as compared to current market thus making them look like they are doing better (on paper) then they really are – the same practice that would send private accountants to prison!

Herz justifies this proposal by saying: “Handcuffing regulators to GAAP or distorting GAAP to always fit the needs of regulators is inconsistent with the different purposes of financial reporting and prudential regulation.”

This is just another “smoke and mirrors” problem for our economy and for the value of real estate that is being held by Banks.  How this might effect our recovery is only a guess at this point but I don’t think it will be good.

Paul Davis, Market Advisors LLC

OUTLOOK 2010

I wish everyone a very happy and successful New Year. I am excited about the potential for some very juicy acquisition opportunities coming our way in the residential real estate markets.

Here are my top 3 factors contributing to the BUY opportunity in 2010.

1. Short Sales will become even more opportunistic with the prospects of actually closing deals better than ever as Banks choose the path of a kinder, gentler approach with their troubled borrowers.
2. (2) major contributing factors to increased foreclosure activity will be Unemployment and a large volume of  “reset” or “recast” activity on existing ARM and Pay Option mortgages.
3. Feds squeezing banks by upping the ante on capital reserves will push more REO inventory out onto the marketplace.

Our portfolio for Market Advisors Real Estate Fund LP  is anticipating acquisitions with upwards of 18% cash on cash ROI. For January I am releasing only 20 units to Investors at $25,000 each. These won’t last long, reserve yours today. You may contact me by e-mail john@mymarketadvisors.com

TARP Money is Being Paid Back Early!

First it was Bank of America and then both Citi Bank and Well’s jumped onto the band wagon.  Now the latest among the list of TARP repayment companies is GM (yes, that’s Government Motors!).  Does this make any of you wonder what’s really going on here.  From my perspective this story has the smell of fish!  Where will these firms get that much money?  It will not likely come from eager investors.  Is it possible that the Fed is “buying” the new securities with taxpayers’ money?  If so, it is a bookkeeping trick to take the heat off Congress and the banks. You see the legislators want all this money for new spending projects instead of returning it to taxpayers.

This week I came across and excellent article by Kevin Hall in the Miami Herald entitles “GM Joins Rush to Repay Bailout Funds”.  Hall does a nice job of summarizing what all of these repayments mean and believe me it doesn’t mean that banks will now be lending more money.  In fact Hall points out that it probably means they will actually be lending less.  Here is an except from this article – it should give you pause to think:

So if companies are repaying TARP money, does it mean all is well and that lending will resume soon?

“I don’t view the TARP repayment as evidence that banks are healthier and now can do it,” said Vincent Reinhart, a former top economist at the Federal Reserve. “It’s rather that banks have an incentive to do it now because they see the stigma associated as even more significant than they had thought previously.”

Banks are still under severe stress, he said.

And what about those “toxic Assets” that the TARP Funds were supposed to resolve?  Well as Hall explains, they are still on the banks books but because of a relaxation of accounting rules (can we change the accounting rules in our businesses?) banks can now value those assets at their “expected future value” (what ever value they want!!) so they don’t have to book any loss based on current value.  This makes their balance sheets look a lot better and guess what – they are using their balance sheets, in part, to pay off this TARP money.  Are they healthier for it…….it’s not likely.  Stay tuned because we are going to keep following this process to see just how much it ends up helping (or hurting) the average citizen.

Paul Davis, Market Advisors LLC

Short Sales Beginning To Make Sense?

It seems that I am reading that the volume in successful short sale transactions are picking up in volume. I certainly hope that this is the case, as the portfolio manager for Market Advisors Real Estate Fund LP, I am particularly interested in negotiating short sale transactions.

Apparently, Banks are becoming more responsive and have finally “seen the light” that short sales can be a win win for everyone involved. Part of this development is the pressure that the Obama administration is putting on Lenders to workout their defaulted assets , rather than foreclose, therefore short sales are a remedy that satisfies the Feds.

I like short sale deals…what is your opinion?