Stop HUD From Eliminating Seller Financing!

Every once in a great while, the government steps in to fix a problem, and actually gets the job done. With the proposed changes in HUD's interpretation of the SAFE Mortgage Act, the government again shows that it just does not understand how to fix the problem that the Fed created. HUD proposes to severely limit or eliminate seller financing by placing the following limitations:

1. Limit to five the number of seller-financed loans that one can give, unless one attains a lending license (Attention investors, this means you!)
2. Disallow entirely any partial seller financing for FHA loans (no more 5% seller carry-backs to handle closing costs and/or down payment requirements)
3. Eliminate all seller financing for non-owner-occupied homes.

I have posted my personal opposition to these proposed rules, and my comments to HUD are as follow:

I'm sure that like all Americans, I just love when the government steps in to fix the problems of commerce. Well, not all the time. In the instant case, the proposed regulation goes too far to fix a problem that doesn't really exist, and it does so at the expense of exacerbating the problem it is attempting to fix.

Please, allow me to explain. While everyone understands that something went horribly wrong in the mortgage industry, which led to the financial meltdown of our nation, no one seems to have the spine to direct the problem where it truly lies: At the feet of the Federal Reserve. The Federal Reserve Board is charged with monitoring the lending practices of its member banks, and it also sets primary interest rates, upon which all other lending rates are eventually based. If one wants to get to the heart of the problem, correct the Fed's lack of oversight and the loose banking practices that it promoted that led up to the present crisis. Predicting the outcome from keeping rates at an artificially low level, and lending money, as if it was free, to people that could never qualify for loans under traditional underwriting (i.e. 100% LTV, No Income/No Assets, Neg-Am and Variable Mortgages, etc.) was a recipe for disaster. When the Fed raised rates in order to stave-off the inevitable inflation that arises from a loose monetary policy, the resulting drop in home values and increase in mortgage payments was a given. If I could see that, why did these so-called "experts" not see this coming? As for the proposal at hand, eliminating seller financing will take away from the market one of the strongest forces that is allowing properties to sell. Many people still cannot qualify for loans, and the knee-jerk increases in underwriting standards have made it near impossible. Seller financing is involved in many transactions, and helps with hard-to-finance properties such as vacant land, mobile homes, distressed properties, and more. Please keep it in place!

Now, you can also comment, but the deadline is Tuesday, February 16, 2010, which means you must take action immediately, if you want your voice to be heard. In order to comment on this proposed regulation, please follow the instructions below:

1. Click on the Title of this blog to get to the regulations.gov website.
2. Review the document by clicking the link or just click on "submit comment."
3. Complete the form providing required information and your comments and then submit

I hope that you will take this opportunity to comment on these proposed rules. The quicker the housing market can recover, the sooner that the rest of the economy may follow.

I have serious doubts about the integrity of the U.S. Dollar, and I am recommending investments in hard assets (i.e. Real estate, gold, silver, and other precious metals) as well as investments in foreign currencies and foreign stocks.

If the return on your current savings is not up-to-par, I have a limited-time opportunity in which you can earn a fixed 4% monthly (48% APR) return on a six-month investment of $1,000 to $10,000. This is a securities-backed investment and is highly secure. You must act quickly, because when the capital requirement is filled, this opportunity will be gone.

If you need more information on how to attain maximum results on your investments, in spite of the current economic situation, please comment to this post. All comments are moderated, so your personal information will not be displayed publicly.

Blog to you soon!

Special Edition: Philippine Peso vs. Dollar Valuation

I posted this information in response to a question posted in Yahoo!Groups, "LivingInThePhilippines3." I thought that it would be appropriate to share here. Enjoy!

The peso and dollar should fluctuate within a narrow range for the rest of this year, at least through the time of the American election. The worst of the sub-prime mess is over now, but corrections continue in the real estate sector. Housing prices bottomed-out in many traditional markets in November, but other areas are still seeing fallout. The main reasons that real estate is still falling in certain areas, and will have a long climb back in others, is due to the high vacancy rates of homes (bank owned), tightly enforced requirements on borrowing (which are starting to ease), and a general credit crunch that is now shifting towards consumer borrowing. Average credit scores of Americans are dropping due to foreclosures, short sales, and Deeds in Lieu thereof, as well as people renegotiating their upside-down mortgages.

Higher interest rates, higher fuel prices, and an increase in unemployment are causing more credit card defaults as well, while banks are trying to raise interest rates into the stratosphere on credit cards (up to 30% or more)! Bankruptcies are also on the rise, and this trend will continue into the foreseeable future. Some banks will still incur multi-million or multi-billion dollar write downs (B of A/Countrywide $2B for renegotiations), and a couple of major bank mergers are on the horizon yet. All of this will eventually settle down, and we will have an American real estate economy again. This total recovery will take at least two years to get back to the price levels of 2006, but five to seven years to get back on track to long-term average year-on-year returns. Real estate is still a great investment if you are a buy-and-hold investor with enough liquidity and good enough credit to qualify for a mortgage.

The rental market prices are increasing, due to high numbers of recently-displaced families, so CAP rates in the multi-family housing sector remain low (gradual increases in CAP rate, but good increases in cash flow), in spite of the recent fall-out in values. Commercial credit is still surprisingly easy to attain for real estate or unsecured obligations.

In addition to the sub-prime mess, the peso has enjoyed certain benefits over the past couple of years. First, the economy has improved, so rather than the cheese heads in government taking all the money for themselves, they have chosen to try to balance the budget. This still doesn't help that poor family of 16 on the corner who can't afford rice, but the country looks better (on paper) to the rest of the world.

The improved credit rates achieved by the Philippine government have allowed fewer pesos to go farther with regard to reducing debt. The BSP's (Bankgo Sentral Philippines - Central Bank of the Philippines) policy of hoarding dollars has created an effective, although limited, hedge against fluctuations, but has put the country in the position of having to reverse itself in order to reduce inflation. In other words, they over-bought dollars, and inflation is already starting to affect the average Filipino. Over the past two years, only we (who get paid in dollars) have noticed the double-digit inflation rate, as peso-denominated prices didn't change, but our purchasing power dropped like a rock!

The Federal Reserve Boards' actions in keeping interest rates low (2.00% as of today - Don't expect it to fall any farther), as a hedge against both inflation and a total meltdown in financial markets, has fueled an exodus from investments in the dollar, as higher interest rates are to be found elsewhere. Just look in the newspaper at the difference in interest rates offered by banks for the dollar vs. the peso. European banks give higher rates for Euros as well. If the demand for dollars was higher (usually meaning a lower trade deficit and/or more foreign investment streaming into the country), interest rates would have to rise, and the currency would do the same. (Side Note: Local banks have now adjusted CD rates on peso and dollar accounts to about the same rate, whereas the peso paid much more for the past few years This is an indication that the dollar and peso are expected to hold steady for the next year.)

If not for the sub-prime mess, we probably would have seen the dollar recover to at least 45:1 by now, with a target of 50:1 possible within the next 12-18 months. As it stands, 42:1 or 43:1 is the best it is likely to get by the year-end, unless some major breakthrough happens in the world. Unfortunately, big news is usually negative, so don't hold your breath for this one. The good news is that the dollar is unlikely to fall any lower against the peso, as Malacanang is not going to be able to balance the budget this year. Rising gas prices, a worldwide food shortage, and tightening of financial markets have served to rein in the currency exchange markets, and reduce volatility. In English, this means the exchange markets should be pretty stable the rest of the year, and trade in a narrow range.

Barring any terrorist attacks on US soil, the nuking of any rogue state, global warming putting us under water, or the Lord returning to take over, the exchange rate should be within 41:1 to 43:1 the rest of the year. In sum, a peso:dollar rate of worse than 40:1 is highly unlikely, as is 45:1, in the next six months. We could get to 45:1 by this time next year, if the world economy improves and fuel prices drop (they actually should), but don't expect to see a ratio of 50:1 or better anytime soon (perhaps never).

If you are looking for ways to increase the total return to your portfolio without taking on aggressive risk, please contact me regarding solid investment opportunities in the Philippines.

Received this the other day from a client. (Thank you, Samantha!) I think you might enjoy it:

I had a bunch of Canadian dollars I needed to exchange, so I went to the currency exchange window at the local bank. Just one lady in front of me, an Asian lady who was trying to exchange yen for dollars and she was a little irritated.

She asked the teller, "Why it change? Yesterday, I get two hunat dolla fo yen. Today I get hunat eighty? Why it change?"

The teller shrugged his shoulders and said, "Fluctuations". The Asian lady said, "Fluc you white people, too"