“A Model for Recovery”

The following article was written on October 9th, by Dave Liniger, Founder of RE/MAX on his real estate blog.  Enjoy.

A Model for Recovery

Lately, everyone is wondering how the government’s bailout plan is going to work and I’ve received a lot of calls from people wanting to know – “How will this help the housing industry?” It’s difficult to know how this plan is going to work, especially since a new administration and Congress could change whatever it is to something else.

 

LINIGER

No one who knows me thinks that I favor government involvement in the business sector. However, the current economic situation requires some quick, bold action. It’s not normal or preferable, but these are not normal times. I feel that appropriate government action is required to restore confidence. Otherwise, the current situation could drag on for years and cause significant hardships for consumers.

The government seems destined to acquire or guarantee the so-called “toxic” paper, and will facilitate work-outs or modifications for struggling borrowers. At this point, I’m not sure exactly how this will be accomplished, but I can tell you there is one plan out there that I think should be a model for this process.

As a result of several lawsuits against Countrywide, Bank of America inherited the task of settling with attorneys general in 11 states. (Arizona, California, Connecticut, Florida, Illinois, Iowa, Michigan, North Carolina, Ohio, Texas and Washington). The resulting settlement, announced this week, is a realistic strategy that offers a blueprint for other lenders and the government, who have already begun calling BoA to learn the details.

The objective of their plan is to pay the price for keeping American families in their homes and not add to the number of foreclosures in the marketplace. For 11 states, BoA will pay over $8.6 billion to resolve nearly 400,000 mortgages. They will lower interest rates, reduce principal and forgive penalties.

In the long run, the price for modifying these mortgages will avert many potential disasters. We cannot afford to have growing inventories, which only serve to reduce prices and equity. If the government dumps large numbers of REO properties on the market, millions of people would be displaced and entire neighborhoods could suffer a negative impact. My hope is that we can avoid such a disaster.

The economic crisis won’t be resolved until the housing crisis is resolved. And I think the best road back to normal is to immediately reduce inventories. I will do everything I can to promote a reasonable resolution to our problem, and I believe that can be found in policies similar to those proposed by Bank of America.

Thanks,

Dave

“Buy American. I Am.”

The following is an article that was published in the Wall Street Journal on October 16, 2008 and written by Warren E. Buffett.

THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So … I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

 

Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

Mortgage Crisis??? Not really….

Here is an email I received this week from one of my favorite mortgage brokers, Dan Delgado of BancGroup Mortgage

MORTGAGE CRISIS – THE TRUTH

Can anyone get a home mortgage loan anymore? This is a question I’m asked frequently by friends, associates, relatives and many people I meet. It seems there is so much misinformation circulating about the current mortgage crisis that consumers are confused about whether money is available to fund home mortgages in today’s environment.

It is true that it may be more difficult or impossible for some borrowers to get a home loan today; but for many borrowers, it is just as easy to get a home mortgage loan today as in the past. In fact, mortgage rates are low, the process is simple and the market is competitive.

Two types of home mortgage loans that are being written on a regular basis today, FHA and Conventional. Deciding which home loan is right in each case requires consideration of two factors, product guidelines and the true cost of each loan.

There are several factors that should be considered today when shopping for a home loan. First, find an intelligent, knowledgeable loan professional to assist in the loan process. Second, find a mortgage company that offers both conventional and FHA loans. Third, research home values in your area.

 

Today, it is more important than ever to work with an intelligent, knowledgeable mortgage banker with the skills and industry experience to guide you through the process and make it a simple and pleasurable experience with a positive outcome. An experienced loan officer may have the knowledge to get the loan approved and closed quickly, where a less experienced loan officer may struggle to get an approval for the same borrower.

If you would like to contact Dan about home financing, here is his contact information:

Dan Delgado, BancGroup Mortgage

Direct Line 630-364-7501

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