How to Sell Mortgages — The Recessionary Gene

As our national and global economies continue to be battered by nasty headwinds, it is useful to step back and gauge the place in which our economy rests.  Is the economy showing real growth, are we in a full recession, or somewhere in between?  In my mind, we can clearly cross out the first option.  Payroll reports, unemployment, exports, manufacturing, etc. are weak, with very few bright lights to reassure us.  Yes, in real estate, rents, home prices, and home sales are up slightly nationwide but keep in mind that these are from depressed prior numbers.  If you use to make $10,000 per month in salary, then went to $5000 and recently bounced up to $5500, that would be a big 10% increase from the bottom in percentage terms, but probably would not particularly excite you.  The same is true in real estate, and I expect prices to stay mostly flat for at least the next couple of years.

The U.S. does not meet the technical description of being in a recession, which is defined as two consecutive quarters of economic contraction.  However, by other definitions such as that used by the International Monetary Fund, both our country and many others across the globe are definitely in a recession.  Even our politicians, who are not exactly known for their honesty and candor, aren’t claiming that we’re in good times.  Let’s look at a few examples of what is happening.

Last week, we learned that the city of Scranton, Pennsylvania had only $5000 left in the bank and slashed all public worker wages to $7.25 per hour, including that of the mayor.  San Bernardino (population $209,000) just filed to be the third California city in two weeks to file for bankruptcy.  You can bet that many other cities are close behind.  The consistent theme across most problem municipalities is deficit spending, high union wages, and ridiculous pension obligations.  Often, bankruptcy is the only way to reduce costs and have a hope of returning a city to prosperity.

As I have harped on before, the economy needs to find its natural bottom in order to fully recover.  Instead, federal and state governments continue to offer silly programs that have been proven failures in the past.  A favorite quote that I recently saw was “Government – If you think the problems we create are bad, just wait until you see our solutions.”  The governor of California is getting ready to sign a law that will make it harder for lenders to foreclose.  A few parts of this law make sense and I agree with, namely (1) not starting foreclosure in parallel while doing a loan modification, (2) requiring banks to assign one group of employees to handle individual mortgage situations, and (3) banning robo- signed documents.  The rest of the bill is a mess which will only drive up costs for lenders, who will in turn pass those costs along to consumers.

At the federal level, the Federal Housing Administration (FHA) is in trouble.  The FHA insures loans requiring only a 3.5% down payment, and accepts payers with credit scores as low as 580.  The FHA, along with fellow government-associated entities Fannie and Freddie are responsible for 90% of home loans in the U.S.  The number of delinquent loans with FHA soared in the first quarter of this year by 27% from the first quarter of 2011, while foreclosures jumped 17%.  Meanwhile, nearly half of all government-guaranteed mortgages that had been modified defaulted again within 12 months (source: 7/9/12 CNN Money).

The FHA model is clearly broken and the taxpayers will have to ride to the rescue to save it.  You do the math – if only a 3.5% down payment is needed but it later costs 5-6% in realtor commissions and 2% in other closing costs, then the property is upside down even if its value remains stable.

Over on the monetary side, the Federal Reserve keeps interest rates low (punishing savers), constantly throws money into the market, and snuggles up with the big banks.  Nothing that they have done so far has worked, and they are unlikely to succeed in the future.  As Simon Black stated, they have a “ … false premise which guides their decisions in that we can all grow wealthy by borrowing and consuming instead of by producing and saving.”  Our society has pushed this approach in recent decades and it is now time to pay the piper.  The command-control political elites have this “recessionary” gene that causes them to make decisions sounding good to the slow learners but that defy common sense in every way.  Until they get out of the way, we cannot experience a true recovery.

Alan Noblitt is a note buyer who also helps people who want to know how to sell mortgages.  For information on how to sell mortgages, go to the Articles section of the website or click on the red You Tube button found on most of the pages.
The U.S. does not meet the technical description of being in a recession, which is defined as two consecutive quarters of economic contraction.  However, by other definitions such as that used by the International Monetary Fund, both our country and many others across the globe are definitely in a recession.  Even our politicians, who are not exactly known for their honesty and candor, aren’t claiming that we’re in good times.  Let’s look at a few examples of what is happening.

Last week, we learned that the city of Scranton, Pennsylvania had only $5000 left in the bank and slashed all public worker wages to $7.25 per hour, including that of the mayor.  San Bernardino (population $209,000) just filed to be the third California city in two weeks to file for bankruptcy.  You can bet that many other cities are close behind.  The consistent theme across most problem municipalities is deficit spending, high union wages, and ridiculous pension obligations.  Often, bankruptcy is the only way to reduce costs and have a hope of returning a city to prosperity.

As I have harped on before, the economy needs to find its natural bottom in order to fully recover.  Instead, federal and state governments continue to offer silly programs that have been proven failures in the past.  A favorite quote that I recently saw was “Government – If you think the problems we create are bad, just wait until you see our solutions.”  The governor of California is getting ready to sign a law that will make it harder for lenders to foreclose.  A few parts of this law make sense and I agree with, namely (1) not starting foreclosure in parallel while doing a loan modification, (2) requiring banks to assign one group of employees to handle individual mortgage situations, and (3) banning robo- signed documents.  The rest of the bill is a mess which will only drive up costs for lenders, who will in turn pass those costs along to consumers.

At the federal level, the Federal Housing Administration (FHA) is in trouble.  The FHA insures loans requiring only a 3.5% down payment, and accepts payers with credit scores as low as 580.  The FHA, along with fellow government-associated entities Fannie and Freddie are responsible for 90% of home loans in the U.S.  The number of delinquent loans with FHA soared in the first quarter of this year by 27% from the first quarter of 2011, while foreclosures jumped 17%.  Meanwhile, nearly half of all government-guaranteed mortgages that had been modified defaulted again within 12 months (source: 7/9/12 CNN Money).

The FHA model is clearly broken and the taxpayers will have to ride to the rescue to save it.  You do the math – if only a 3.5% down payment is needed but it later costs 5-6% in realtor commissions and 2% in other closing costs, then the property is upside down even if its value remains stable.

Over on the monetary side, the Federal Reserve keeps interest rates low (punishing savers), constantly throws money into the market, and snuggles up with the big banks.  Nothing that they have done so far has worked, and they are unlikely to succeed in the future.  As Simon Black stated, they have a “ … false premise which guides their decisions in that we can all grow wealthy by borrowing and consuming instead of by producing and saving.”  Our society has pushed this approach in recent decades and it is now time to pay the piper.  The command-control political elites have this “recessionary” gene that causes them to make decisions sounding good to the slow learners but that defy common sense in every way.  Until they get out of the way, we cannot experience a true recovery.

Alan Noblitt is a note buyer who also helps people who want to know how to sell mortgages.  For information on how to sell mortgages, go to the Articles section of the website or click on the red You Tube button found on most of the pages.