Tag Archives: trust deed buyer

Blame it on Europe — Trust deed buyer

What a week!  Two of the more interesting stories were Jon Corzine accidentally misplacing $1.2 billion and the escalation of the Euro crisis.

First, let’s talk about Corzine.  This guy has been a Wall Street CEO (twice), a U.S. Senator, and a governor – isn’t that the trifecta of EVIL?  He did not accidentally lose any money, but rather made terrible bets on European debt and blew it.  When he first became CEO of MF Global in 2010, he said that the company would take big risks.  Yes, but who could have imagined that his bets would have been so incredibly stupid.  As Leno said, we now know what the “MF” stands for and to whom it refers.  He may end up being part 2 of the Bernie Madoff scandal.

The Europeans have a mess on their hands that, at first glance, makes the U.S. look almost well managed by comparison.  Due to having too many spending programs and too little financial maturity, several of Europe’s major countries and large banks are on the verge of default.  As in the U.S., the central bank believes that the best course for resolving too much debt is to add on more debt.  That papers over the problem in the short-term, but makes it much worse over time (when, presumably, other politicians will be in office and will have to take the heat).  Broke zombie banks and insolvent governments don’t exactly bode well for the long term.  This is why Standard & Poor’s is threatening to downgrade ratings of 15 Euro-zone countries – something that they should have done long ago.

On this side of the Atlantic, the banks and government are shacked up just as tightly.  The U.S. politicians don’t have to react quite as urgently to our own debt problems, as we have the luxury of printing our own money for just one country.  Naturally, this doesn’t stop arrogant U.S. bureaucrats like Treasury Secretary Geithner from making multiple trips to Europe to lecture them, nor prevent the administration and Congress from accusing Europe of inflicting pain on our economy and stock market.

As a trust deed buyer, I can only guess on when this money printing model falls apart, but am sure that we will find out soon enough.  A trust deed buyer is a company or individual that buys mortgage notes and trust deeds, so knowing what will happen to real estate prices and interest rates is of more than a passing interest to us.

Both the U.S. and Europe need to grow their economies and shrink their public debts.  They cannot grow GDP because business still lacks confidence, leading to continued high unemployment and more need for expensive programs to take care of the newly indigent.  Neither region can drastically reduce debts, as that would mean imposing austerity measures on a population accustomed to getting lots of free stuff.  Seem to be quite a pickle that we’ve put ourselves in.

Good Money After Bad — Trust deed buyer

Yeah, we’re saved!  Many economists and more than a few politicians are assuring us that the U.S. is entering a recovery phase (again), with little chance for a double-dip recession.  One reason is that claims for unemployment benefits dropped to their lowest level in seven months to a seasonally adjusted rate of 388,000 people.  Never mind that the true unemployment and underemployment rates remain high, with little chance of them declining in the next several years.  The Occupy Wall Street group isn’t complaining because they have too many job offers to choose from or don’t know where to spend all of their money, are they!?!

Apparently we are also supposed to celebrate that builders broke ground for 628,000 homes last month.  Who cares if that amount is about half of what is considered normal for a healthy housing market.  And really, with the thousands of vacant houses and millions more in various stages of foreclosure, building even more houses should not be a real high priority.

The real estate market is still an absolute mess.  Housing prices are still falling and home sale remain abysmal.  About one in four homeowners with a mortgage owe more than their house is worth.  The U.S. government continually demonstrates it ineptness by wasting money on programs that don’t work.

A trust deed buyer like myself has difficult decisions to make on the type of investments to make.   On the one hand , the trust deed buyer cannot just close up shop and wait until things improve, but also cannot make overly risky investments that could fall apart when the economy crashes.

FHA Woes
Just this last week, the FHA (Federal Housing Administration) was authorized by Congress and the President to raise the conforming limit on mortgages to $729,750 in the most expensive neighborhoods.  Thus, the Feds will insure loans up to that amount, with taxpayers paying for any losses on defaults.  The FHA already offers programs with only a 3.5% down payment requirement, which is ridiculous on its face.  Of the 282,000 mortgages modified by the FHA in 2010, 30% of them defaulted within a year (down from 39% of modifications in 2009).  Just three days before the conforming debt limit was signed into law, a well-known think tank projected that the FHA will need $50-100 billion in bailouts in the very near future.

Congress and the President will keep pouring good money after bad for as long as they can.  Maintaining and even increasing spending protects their favorite interest groups and enhances their chances of getting reelected.  At some point – whether it be in a few months or a few years – this facade will come crashing down and major structural reforms will be forced upon us.  Until that time, I foresee continuing problems in both real estate and the stock market, so am investing conservatively.