Tag Archives: deed of trust note buyer

Hitting Bottom in Housing- Deed of Trust note buyer

The housing market should “run its course and hit the bottom.”  So said presidential candidate Mitt Romney last October.  I don’t find much inspiration or brilliance from any of the presidential contenders, but Romney was exactly right in his statement, as we need to let the housing market find its natural bottom, and stop propping it up with expensive and ineffective government programs.  While those programs may have had a small impact on slowing down the housing decline, they also delayed the chance for us to begin a real recovery and rid ourselves of the after-effects from the bubble.

Since the crisis began in 2007, government programs to save the housing market and economy in general have done little more than run up the balance on the nation’s credit card, while letting the market run its course would have caused a more severe downturn in the short run, but allowed us to bounce back much sooner.  Government played a major role in creating the crisis, so it escapes me how we can expect the same players who caused the problem to now solve it.

Joel Bowman of the Daily Reckoning expressed well the difference between the free market and the state/government: “The two entities are day and night…white and black…truth and government statistic. To the extent that the former exists, the latter does not. One produces; the other consumes. One adds value and meaning to peoples’ lives; the other subtracts value and feeds on the self-worth of those it engulfs. One is dynamic, responsive, nimble and creative; the other is brittle, deaf, lethargic and breathtakingly inelegant in all its forms. One serves customers, the other serves sentences.  It might well be said that, while the free market bends over backwards to serve the needs and desires of individuals, the state merely bends individuals over backwards.”

If, tomorrow, we could yank all of the government housing programs from the past five years, stop allowing the FHA (Federal Housing Administration) to allow down payments of as little as 3.5%, and begin reducing the size and scope of Fannie and Freddie, housing prices would admittedly drop quickly and the economy would take a hit.  However, we are going to hit that end point anyway.  Shouldn’t we just yank off this Bank-Aid quickly rather than drag it out over a number of years?  The end result will be worse if we let this sore fester.  Rather, let’s allow housing prices to decrease to a level more in line with current incomes.

Housing prices dropped (again) almost 4% nationally last year.  Home ownership rates have fallen for seven years in a row, and more than one in eight (13.9%) housing units were vacant last quarter.

Meanwhile, between 2007 and 2010, median income in the U.S. fell 3.5% to just over $51,000.  According to the Huffington Post, 15% of Americans currently live below the poverty line, but an additional 43% would be under that line within three months if they lost their job.  Will any of those families be buying real estate anytime soon?

In the past three years, 389 banks and thrifts have failed.  Invictus Consulting Group states that 758 more are at risk of failing.  Does this give you a warm feeling that Congress and the Fed know what they are doing and that the trillions of dollars spent to save the financial system has been money well spent?  The FDIC insures the deposits of those banks, which means that Mr. and Mrs. Taxpayer are on the hook for that money.

Lower home prices would be difficult for all of who are homeowners, as it means that we lose yet more equity in our houses.  If we’re going to lose it anyway, it would be better to get it over with now.  Unemployment is going to stay high and average wages low for years to come, so housing values must line up with the new reality.  Even when housing prices hit bottom, I wouldn’t expect an immediate increase in prices.  Property values would graphically look more like a long “U” than a “V”.  I’ll take that over an ever-lengthening right side of an “A” anytime.

Alan Noblitt is a deed of trust note buyer in California.  A deed of trust note buyer is one who buys trust deeds and mortgages resulting from owner financed transactions.

Looking for Direction — Deed of trust note buyer

Did you know that regional presidents of the Federal Reserve sometimes say intelligent things with which a common-sense person can agree?  It’s true, and more Fed presidents are finally speaking out against at least some of the Fed’s policies.  Earlier this week, two Fed governors criticized the Fed announcement that they would keep rock-bottom interest rates for the next two years.  They recognized that this two-year announcement effectively limits the use of one of the Fed’s main tools for fighting inflation, plus the rest of us know that it also hurts those who want to save money.

The Dallas Fed President, Richard Fisher, went further by noting how current government policies and programs, as well as the economic unknowns, are freezing business activity.  He stated that “those with the capacity to hire American workers – small businesses as well as large, publicly traded or private – are immobilized.”  He went on that “they simply cannot budget or manage for uncertainty of fiscal and regulatory reform” (for the full speech, visit http://www.dallasfed.org/news/speeches/fisher/2011/fs110817.cfm).

He correctly stated that the debt ceiling discussions only exasperated the issue.  Everyone watching TV or reading about those discussions could see that neither Democrats nor Republicans had any idea what to do about the current crisis.  Most of the politicians were more interested in pleasing their base constituents than in actually helping the country.

Anyone running a business, regardless of size or industry, has to be nervous about the current fiscal environment.  Most of us recognize that government spending will have to decline and taxes increase, but we don’t know when or how those will happen.

Being a deed of trust note buyer, I’m in the same boat.  Like most note buyers, I use very conservative assumptions when evaluating whether or not to buy a mortgage note.  The real estate market has been hit hard and continues to fall, unemployment is still a major issue, and the government is intent on regulating everything that they can.  This combination makes it difficult to plan for the future and makes me nervous about what to do.

Recent economic news has been nearly all bad.  Even the stock market has been extra volatile and trending down.  Nothing suggests that the fiscal crisis and economy will get better in the next year, or even after the 2012 election.  The politicians don’t seem to have the backbone to make changes that will anger much of the population.

For now, I hope every month that each deed of trust note that I own continues to pay, and that being a deed of trust note buyer stays viable.  As always, I recommend to you to stay conservative with your investments, especially as they relate to real estate.  Somehow we will get through this mess, but it’s going to be a very bumpy ride.

Alan Noblitt, president of Seascape Capital, is a deed of trust note buyer in California.