Solving the Problems in Real Estate with Actions, Not Hype!

When are we as a nation, our political leaders, from the President, Congressmen and Senators, as well as the Federal Reserve, going to stop with the blame game and take bold action to solve the problems that we are facing as a nation in this global world.

Why does it take a rocket scientist to figure why we shouldn't be doing something? The newsmedia, bounces off any angle it can, to grab headlines long enough to capture readership in the quest to sell their advertisers advertising. (Which by the way, is part of the problem, that is Negative Headlines that perpetuate notarity, spurs long term negativness, which is counter productive.

Let's look at the problem that perpetuated the so called credit crunch mess that is not only affecting the real estate market, but many other areas.

To first solve a problem, we first need to Understand the Problem, What caused it, and What other symtoms that are taking place because of it, and What's being done to correct the problem? But most importantly, How do we fix it!

The problem as I see it, Loans that were made with easy money created by Wall Street. 100% financing, and stated income programs. Both these type programs were great programs that helped give many first time buyers more opportunities to own part of the American Dream, yes, some of those loans were abused by Loan Originators, Wall Street.

We need to understand not every purchase or refinance was made with 100% financing.

70% of the homeowners that purchased or refinanced their home, were move up or down sizing buyers, with equity of their own, which did not require 100% financing.

Another factor in the equation is, approx. 15% of the buyers were investors or speculators, that used cash, equity, 1031 exchange or a combination, their of, to invest in property.

What all this means is approx. 15% of those buyers who purchased a home, may have used many of the programs that were offered, such as; Down Payment Assistance Programs, Bond Programs (Community Block Grants) offered by Cities and Municipalities, FHA, VA, as well as, other types of financing available, including seller financing, and yes, 100% financing. Approx. 10% to 12% may have used 100% financing, not eveyone of those loans are in trouble.

So who is in trouble? Approx. 5 to 7% of those buyers who used a combination 100% financing and stated income programs.

Now, for the rest of the story;

What other factors that added fuel to the fire, of this mess. Because the Federal Reserve took the initive in 2004, to start increasing short term interest rates (Fed Funds Rate) due to inflation scares, caused by the rate of appreciation due to supply and demand, the Federal Reserves controls two Key Interest Rates that control the money supply. The Discount Rate, and the Fed Funds Rate.

To slow down the fast moving rate of appreciation that could be volitile to inflation, the Federal Reserve felt it necessary raise short term interest rates 17 consecutive months by a .25%. This was enough to slow down the economy, kill the real estate market, and curtail consumer confidence to a crawl.

Like a famous boxer once said, "I shook up the World" (Mohammad Ali), that is indeed what caused this part of the mess were in. A combination of Wall Street Greed, Over Zellous Loan Originators, un educated borroers and The Federal Reserve in wait and see what attitude (The causious approach) happens. Well, we see what happened. Many sub Prime Lenders who provided funds for 100% financing, got caught with their shorts down.

There is another part of the equasion, that many people are aware of, and that is;

There are several High Cost States, such as California, for example that have many of these 100% financing problematic loans, that are currently or will be within the next 18 months start to recast their deferred interest. These loans will have a problem, unless our Congressional leaders, including the Senate and the President of the UNited States takes deciisive action to increase the Conforming Loan Limits as well as the FHA Loan Limits.

Currently, the Conforming Loan Limits for FannieMae, and FreddieMac is set at $417,000, many of the loans that were made, are in high costs states, where the median price home far exceeds conforming loan limits. You may ask if you live in low cost areas, why should I worry about if California fails? SImple, California has i/5th of the United States Economy, that's why!

Other factors in the equasion are, Crude Oil Prices, U.S. Dollar falling against other currencies and instability of other world economies, and the cost of war.

So, How do we fix it?

The Feds are need to take an agressive move to keep the U.S. Economy in the growth mode, they need to build consumer confidence. The only way they can do that, and they actually started, the decreasing the Federal Funds rate .75% in September 18th and October 31st., but has to be more agressive, and soon. Contact your Congressional representatives and the Senate and voice this message.

The dollar is sliding, because of our so called credit crunch, and the real estate market. The Value of the United States is in our homes. It affects every aspect in. The dollar will move upward, we are currently dropping, a health housing market, many foriegn investors will see a window of opportunity to use Euro Dollars to buy in the United States as they will get more for their dollar versus ours. As interest rates move downward, treasury bills will be a safe resting place for nerve riddle investors with the stock market gitters cause by the volatility with crude oil. The Saudi's have too much to lose if our dollar is not protected, and the best way to proctect is to booster the economy.

Here is the immediate fix;

1. Decrease the Fed Funds rate by an additional .50% basis point before the December 11th meeting of FOMC meeting.

2. Increase the Conforming Loan Limits, as well as the FHA Loan Limits for High Cost Areas.

3. Contact your legislators today. Contact the WHite House. Call, Write E Mails and Send Telegraphs stressing the importance.

4. Put pressure on the Newsmedia, by withdrawing any advertising media, that blatently distorts the news in the Headlines, as scare tactics to hold readership.

5. Educate the borrowers, who are taking on non conforming type Loans made by lenders that offer sub prime type loans.

Really know the your real estate market. Separate Hype from actual Facts.

In a normal market most lenders have a traditionally 3% to 5% delinquency rate. In a Hot market, you have less. When trying to compare Foreclosure Statistics, or I should say the delinquency rates from a hot market to a more challenging, correcting market, the statistics can be misleading and is often distorted by the news.

As an example; if you had 10 defaults in a hot market, and in a correcting market you had 20 defaults, you now have a 100% increase in the amount of defaults. The newsmedia, will have you and the public, think 6that the sky is falling. By examining your local market, you can determine the actual amounts of foreclosures.

In my market, which includes 21 Cities, from January 1st to October 1st, 2007, I had 16,200 homes in default and only 2,957 hom owners actually lost their home to the bank as an REO. Just know the Facts.

Carlos R. Arvizu Sr. Pronounced R. V. Zoo

562-755-3856