Diane Gerdes

All of Wall Street should check into “Greed” Rehab and we, as a country, should not take no for an answer. The second portion of the much ballyhooed $700 billion dollar economic bail-out has been put on hold until the suits in Washington can make a decision on future distribution. The first half of our money (folks, we are the ones lending since it is taxpayers money) was recklessly given to federally chartered, traded on the stock market, banks; with an additional 40 billion dollars given to AIG. There were no stipulations, just a few suggestions, on what they should do with the money. You read it right. There was no accountability, no report card, no check list. Or, the new buzz word, transparency. The thought behind this decision was that us, poor, common folk could not possibly understand the great, big goings- on of the really smart people on Wall Street. And since they are so smart, we as taxpayers should trust them to do the right thing. Originally, the intent of the bail out money was to help the banks navigate through the mortgage meltdown and credit crunch to give them liquidity to lend to consumers and to help distressed homeowners. Not anymore. Jamie Dimon, CEO of J.P. Morgan Chase is using their “gift” to buy other banks. “It is a great time to buy”, he says. A.I.G. has continued to use their ongoing infusion for employee perks such as spa days and retreats. Other recipients are paying dividends to stockholders and providing pay raises and bonuses to executives. The suits have no idea what these “really smart” people are doing with our money! With this free cash American Express decided to become a bank so they could get a piece of this unsupervised windfall. The credit card companies are screaming, me, me, me. The car giants are jumping up and down for their fair share. According to Thursday’s Financial Times six out of the eight representatives of the Detroit area voted against the bail-out, but now the big 3 have their hands in the till demanding their share: at a cost of $98,000 per member of the United Auto Workers. The functional “greed” addicts look normal and talk about “saving” the economy, but at the end of the day it is about the money and how they can get more cash. The need for discipline and good sense has been overrun by the addiction to lifestyles and mega money. Would you hand over your check book to your drug addicted nephew and ask him to “pretty please” not to buy drugs? FYI: The subprime borrowers that still have their loans and have been waiting for loan modifications, may be left out in the cold. Since our government is hesitant to give directives, just suggestions, few families in our area have been helped by the 2008 Economic Recovery Act. The government is backing away even further with announcements this past Thursday. If the loan is more that 90 days past due Fannie/Freddie declared they will “help”. (Holy modification! Are they installing a Bat phone for instant communication to halt foreclosures?) Chase will “help” their clients by refinancing to a lower payment but typically that will entail taking a chunk of the principal and putting it aside, only to have it pop up when the homeowner goes to sell or refinance. Gee, is saying “thank you” enough? Some lenders are helping their homeowners, but read the small print on the loan documents: Spend a few bucks and have an attorney go over the documents before signing.

The day after tomorrow, birds will be singing, jobs will be plentiful; we all will have plenty of money....except for those that don't. One of the first duties of President-Elect Obama, will be to anoint a new Secretary of Treasury. In past years, the Secretary of Treasury was a peacock position: walk around, look pretty, and make a little noise. With the imploding of the stock market caused by the credit crunch, the position will take on Super-Hero proportions to get the American Economy back on track. Do we really want to jump back on the greedy, credit default swap, subprime train so the soothsayers at Wall Street can go back to making their millions, putting their kids in chic, ultra exclusive schools and traveling in their own private planes? Will the world population, again, have to pay for another catastrophic train wreck? Hank Paulson, the current Secretary of Treasury, orchestrated the $700 billion bail out that can't get out of the station. Some banks are taking the bail out money and hording it for a rainy day, not lending it, as was the intent. Others, like Fannie Mae are spending the money on their employee's golf games. The "Hope for Homeowners" is stalled in the never, never land of lenders that cannot or will not make a decision. Bank of America (Countrywide) and Chase have agreed to modify homeowners loans, but with " terms". Some homeowners purchased their homes for the wrong reasons: to get on the money train. And since it took the government too long to realize that our economy's wheels had fallen off, they are abandoning the neighborhoods where values have decreased dramatically and could care less about modifying their loans. The forerunners for the new Secretary of Treasury are Lawrence "women aren't as smart" Summers, former Secretary of Treasury for the last year and half of Clinton's administration, as well as former Prez of Harvard University; and Paul Volcker (he is 205 years old, but the former Fed chair did guide the country out of the last deep recession in the 1980's under Presidents Carter and Reagan). It is going to take an iron hand and a lot of steam to guide our economy to a prosperity that will prevent history from repeating itself.

FYI: Kenny Budge, our operations manager for 14 years, passed away last Thursday. He was instrumental in building our company with his knack for forming relationships within our industry from real estate agents, escrow officers, branch managers and appraisers. His reputation for integrity with our banks and underwriters have helped us navigate through these current turbulent times. His memory was legendary, since he remembered everything: he was rarely wrong. He was serious about his career, dedicated and loyal with a wicked sense of humor. He is laughing at us now, saying I told you so.

The 700 billion dollar bail out has the world markets on an unexpected terrifying roller coaster ride. Fear and innuendo are guiding the global stock markets that are in serious need of Prozac. Although each of us would appreciate a few million dollars and promise not to spend it on spa’s and expensive dinners like AIG did with a portion of their save –the- banks- money, our lifestyles will be affected if the banks cannot start to play nice with one another. If you are a small business, say an Arizona gnome maker in Phoenix, and your clients are in Japan, the gnomes are shipped by rail to L. A. and by ocean barge to Japan. Before the journey begins, the Japanese buyer provides a letter of credit to the Arizona gnome maker for money that will be wired to his Phoenix bank upon delivery. The Phoenix business owner takes the letter to his Phoenix bank to get credit to build more Arizona gnomes. The breakdown is between the Phoenix bank not accepting the line of credit to the gnome maker and the Japanese bank not extending the line of credit to the Japanese buyer. Paying with suitcases of cash is not an acceptable form of payment for gnomes unless they are Colombian and the buyer is Tony Soprano. The smart guys that devised the bail out plan left out one provision: mortgage interest rates. The mortgage rates have bounced up dramatically and the Suits are standing around with stunned looks on their faces. Dudes, move it and make some changes. The housing market will not recover if the mortgage rates are high. (Hey, I did not even go to Harvard or work at Goldman Sachs for this solution. And I always accept suitcases of cash. ) FYI: Our front yard gnomes (made in Phoenix, not Columbia) gave our SUV a going away party this week. With gas prices continuing to drop, our giant, gas loving vehicle has retained the parking place of honor in our driveway. The drawback for lower gas prices is that the push for alternative fuel is fading

Lenders were skipping and singing this week with interest rates taking a swing downward with Uncle Sam's dramatic Sunday morning take-over of Fannie Mae and Freddie Mac; orchestrated by Hank Paulson, Secretary of Treasury, and friend of all things Chinese. Mr. Paulson, former CEO of Goldman Sachs, has visited China over 70 times. Fannie was not in immediate distress, with Freddie there was some worry; but the major factor may have been that the Asians are one of our biggest investors, and Uncle's Hank and Sam needed to calm their fears to keep them playing in our markets.

Wouldn't it have been cool if we had been offered "loan protection insurance" for our homes, just in case they were to devalue? If we had taken out insurance and our property values eroded, the insurance company would have taken the hit, not us. Don't call me, because it doesn't exist. However, the soothsayers have access to their own insurance, called credit default swaps. These insurance derivatives allow investors to bet on a company's health and insulate against losses. Isn't that cool? Except the insurance losses may now go into: get this, trillions of dollars on this Wall Street "soothsayer secret". Who is holding the bag, oops, I meant insurance?

FYI: Southwest Airlines stopped accepting cash for their drinks. Credit cards only. Good thing, since I have not had any cash since 2006.

A piece of the American pie is fading fast with one of the last of the zero down programs, eliminated by HR3221, Housing and Economic Recovery Act of 2008 , kicking Down Payment Assistance programs Ameridream and Nehemiah to the curb October 1st. Most banks are requiring close of escrow before the October 1st deadline. Some will go up to two weeks past, but boy, that would be just a little too exciting. Will the DPAs bounce back? Maybe. There are court appeals, new legislation introduced, grass roots movements; but the reality is that a new law would have to be signed off by the House of Representatives, the Senate and the President. It will be months, if indeed any legislation is passed, and it will be highly regulated with many stipulations. The original Down Payment Assistance Programs, Mom and Dad, are still in effect. The Down Payment Assistance Programs are going away, but how about that new tax credit? Pretty dang cool! Buyers who have not owned homes in the past three years are eligible and it applies to homes closed after April 9, 2008 and before July 1, 2009. The tax credit is a straight dollar-for-dollar deduction of your tax bill. So a married couple who would ordinarily pay $8,000 in taxes would pay just $500. But no, your buyer is not going to get a check in the mail from the government for $7500 after closing on their home. They will have to fill out a to-be-determined form with their tax return in January or February, and the tax credit will be calculated from the taxes paid in. As always, with anything regarding the IRS; check with an accounting professional to get exact information. FYI: Boys and Girls, read the contracts that you receive from the banks, asset managers and trustees! Escrow was opened yesterday with a contract from a bank trustee, signed by the borrowers, stating that the trustee had up to 60 days to get bank approval for deed re-conveyance. The borrowers are utilizing Ameridream, so you do the math. On Tuesday, we were waiting to close on another bank owned property, when the bank refused to give back our borrower his earnest money. He had signed a bank addendum that he would not receive funds at closing. The REO interpreted it to include his earnest money. If you think the banks on these REO properties are going to do what is best for your client, think again.