Rick Fitzgerald -The MultiFamily Expert

Here’s the low down on the current financial crisis.

Effectively, the entire consumer and business lending market is now in the hands of the banking industry. No more investment banks or investor funds looking for higher yields (thanks to the Lehman Brothers failure).

Our latest survey of lenders and banks indicated that all are as busy as they want to be. The majority are cutting back personnel at the very moment that our economy needs them most.

Treasury Secretary Paulson called the 9 largest banks to the table because they hold 50% of the nations bank deposits. He needed them to show the Feds are serious about providing capital to any bank that simply asks for the money. It’s the capital to lend to their communities. Banks have been reluctant to ask Big Daddy for money. Cash is not the problem for banks. It is FEAR.

Currently:

Not everybody who wants to borrow will be approved. In fact, many will not qualify in this new age. But money is the grease that makes our world go round. Unless you win the Lottery, households do not create enough spending power with the stagnant payrolls we have seen in the past decade. So we borrow because our homes and 401K's HAD more value than our debt.

Investors and business owners should expect low leverage financing for the next couple of years. Typically 65% LTV for most small business owners should be expected. They will need a lot of tax breaks to get by.

I think we will see some form of direct government loan programs in the near future as home lending will lack much leverage to provide much stimulus. Home buyers and home owners with good credit will need a government held second mortgage in some form to help purchase and refinance loans.

SBA will need to be reformed and it should be done sooner rather than later.

The Multifamily Investment market has easily outperformed most all other real estate sectors. We expect that many of our financing programs will be back. It's still the highest leverage at 80% LTV.

The Great Depression didn’t happen because of the stock market failure or lack of a government response. It happened because banks were failing and that fear caused the banks to stop lending. Businesses then failed and the rest was history.

This isn't about the subprime borrower any more. It's about you and me.

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When Banks hoard cash: Part 1

http://activerain.com/blogsview/716392/When-Banks-hoard-cash

The historic meeting of the 9 banking CEO’s came with a surprise for most of them. Taking a page from the Godfather, each of them was offered a deal they couldn’t refuse.

They were handed a one page document requesting their signature and agreement to sell bank shares to the government. It only took 3 ½ hours to convince all to sign.

Several CEO’s were not receptive to it but most were ready to sell for the capital injection (TAXPAYER MONEY) of $250 Billion. I’d like to have been a fly on that wall but I’d bet there was a lot of discussion. Then again, maybe I can't handle the truth.

LIBOR is the benchmark equivalent for banks as the Consumer Confidence Index is to Main Street. It is our gauge on how confident the banks are in us and each other. And LIBOR hasn’t been going too well with no bank willing to part cash to another bank unless they are buying it.

Banks have been hoarding cash during these difficult times although the Feds have done now just about everything they can. The capital injection and other moves made now puts the banking industry in a tough position. Lend or else.

Lend or else what? Well lend (the TAXPAYER’S MONEY) or don’t make any money because there are no substantial alternatives any more. Lend or suffer like the rest of us. Every financial sector is down (except for my multifamily investment market) with no place to go for profits except to Main Street.

The way the banks now see it is this. The old adage when you didn’t need the money, the banker was always around. When you did, he was nowhere to be found. This is a true adage. The people who need or want money in this financial environment are the ones banks feel are at most risk to default.

The average consumer who has decent credit simply doesn't want to or can't invest in a market like this although there seems to be great opportunities in many markets. Those with substantial assets aren't willing to take a chance as well and that includes your banks.

Get to know your local community banker well. Large banks will be much less willing to take a chance until this has faded off the headlines.

I think we will need a capital infusion as well. I don’t care if it comes from the Government (which I think it will) or the banks.

Someone fork over OUR cash.

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The Feds made yet another historic move in gathering the largest bank CEO’s to a meeting in Washington. The meeting was to go over details of the latest government move.

The Feds will purchase preferred stock in the nine largest banks and expand from there. Several of the banks were Citigroup, Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America as well as Morgan Stanley.

Not included in the statement was Goldman Sachs but I’d bet $1 that they will receive some of the initial money as well. Due to Treasury Secretary Paulson’s history with them and working on the rescue plan, it is probably a sensitive subject for the Feds. I think you will see the money quietly infused and announced after the fact. All of the named banks can use the capital but the next wave of banks who receive the help will be the ones really needing the assistance.

Some more details of the rescue plan were disclosed including FDIC insuring all non interest bearing deposits. Large companies have been severely challenged in moving funds around trying to figure which bank is most healthy. Smaller regional banks welcome this move.

Additionally, the Feds will now insure all bank to bank loans for 3 years hoping to help the credit gridlock. The Feds will be charging an insurance premium to the banks.

This current credit environment will go down hopefully as the most financially historic challenges ever to hit our capitalist economy even beyond the Great Depression. We are fortunate that we have some who did learn from history.

Politically speaking, I think all of congress should be booted out and lobbyist outlawed to ensure they get our message. Members of Congress now attract tremendous special interest money and power the longer in office. Limiting terms and banning lobbyists may get the majority of them acting in our best interests instead. Make them come out in the real world to live for awhile.

Americans biggest challenge now is fear. Fear of too many things. One of our biggest virtues is our mental toughness. We do what needs to be done and I am proud to be an American.

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I watch a variety of shows including MSNBC, FOX and CNN. On each network, some of the talent I like, some I don’t.

In the fall last year, I was surprised to see Wall Street virtually ignoring the financial meltdown that had reared its ugly head. Gas was going up and the financial sector going down generally doesn’t bode well for business or consumers.

But the talking heads on most shows were peddling stocks and the stock market providing forecasts that to me were crazy. Home sales were going down and lenders were closing their doors. How could that not impact stock values.

Jim Cramer was one peddler in particular caught my attention because he was always screaming. So much so, I always muted the TV. I was surprised to see him take such a full speed ahead approach to investing. What I know is that this talking heads have an inherent interest in recommending you buy.

At the very least, I thought he should have turned a bit conservative. I thought he was dead wrong but what do I know?

Fox Business News has taken him on personally trying to discredit his advice. The video link below is almost shocking:

http://gawker.com/5059535/jim-cramer-begs-america-to-abandon-hope

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The 2009 Multifamily Investment Crunch Guide

Link is now available. It has been edited from our normal underwriting guidelines to provide a better understanding how the current financing crunch is impacting multifamily transactions. It’s designed for investors who need some current information. It should also give agents some idea of structuring a sale or financing for most multifamily investments.

A large number of banks have simply stopped lending. The remaining banks are cherry pickin deals because they can.

The current credit crunch does need some “esplaining”. I’d use the word “explaining” but in this case the credit crisis doesn’t make much sense. Literally, our economic power generator that normally runs on… say GAS … has sputtered to a halt. Almost anything that isn’t government backed is having a tough time finding buyers.

The Feds really did not think the Lehman Brothers failure through very well thereby throwing a huge number of investors around the world into a frenzy. Investors are all looking for a safe place for their money especially those short term bond holders. I think the Feds would like a tap back on that decision.

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