Boomer’s Blog

In the Chinese Zodiac, 2008 is regarded as the “Year of the Rat.” Those who bet on Wall Street are likely to agree. Some pundits however, and a great many more investors are recounting the most stellar mistakes of the year with a rueful cringe. Perhaps we’ll all fare better in 2009. This Chinese “Year of the Ox” is aptly named for the heavy load we’ll likely be carrying in our nation’s journey toward economic recovery.

Here are some of the more memorable blunders of the year, many of which are reported in Fortune’s “21 Dumbest Moments in Business 2008.”

1. Apple’s “Think and Grow Poor” App for Entrepreneurs: The geniuses at Apple have made a silk purse out of a dismal economy with the iPhone and its affordable interactive applications and games. Most are around $5 and are about as useful to enterprise as pet rocks. Somehow, a stealth developer penetrated Apple’s channels with an application called “I am Rich” that sold at Apple’s store for $999.99. Eight users apparently bought the app, which produced nothing more than a glowing ruby-red image on their screens before Apple caught on to the hoax pulled the plug on their dreams.
2. Hopeless for Homeowners: In July, Congress passed a $300 billion “housing rescue plan” aimed at preventing an estimated 300,000 foreclosures when the plan took effect in October. Fortune reports that a mere 321 applications to the “Hope for Homeowners” program have been completed. And the Department of Housing and Urban Development says that the costly program has so far produced zero loan workouts.
3. Don’t Point that Bazooka at Me: When Mortgage servicing giants Fannie Mae and Freddie Mac hit the pavement in July, Treasury Secretary Henry Paulson convinced Congress that a federal funding boost would fix the problem. “If you’ve got a squirt gun in your pocket, you may have to take it out,” Paulson told them. “If you’ve got a bazooka and people know you’ve got it, you may not have to take it out.” Although lawmakers bought into the metaphor, in September, massive declines led the Treasury Department. Now the gun is pointed at American taxpayers.
4. The Man Who Would Be King: Treasury Secretary Henry Paulson’s three-page, $700 billion economic bail-out plan for Wall Street that included less transparency than former mafia kingpin John Gotti’s tax returns.
5. The Primetime Bailout Bonanza: Congressional debate and subsequent beleaguered approval of Paulson’s plan was a circus sideshow of its own. The 450-page final bill they approved contained more sugar and lard than a Paula Deen fruitcake. While the plan did a miraculous job of preserving Paulson’s ambiguity about how the money would be spent, provisions extending tax breaks for toy arrows and wool products are among the few aspects of the Bail-out that were comprehensible to the peanut gallery.
6. Real Estate Entrepreneurs Succumb to Fear: Amid the softening economy, and crises on Wall Street, many real estate investors lost their shirts in 2008 for one simple reason: They failed to execute strategies that are calibrated to meet the changing demands of today’s markets. Too often, when the entrepreneurial belt gets tightened, real estate marketing is the first budgetary item for cutbacks when it should be the last. Without consistent and effective real estate marketing, the “Big Picture” fades and even potentially profitable businesses wither up and die.

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Monday’s financial market free-fall may have marked the worst point drop ever for the Dow Jones Industrial Average (DJIA)  but in terms of percentages, it pales in comparison to 1987’s Black Monday, says MarketWatch.  A little analysis will go a long way toward building a perspective that’s not forged in fear.

While we all wait on the edge of all reason for lawmakers to reach a consensus on a bailout plan, now being marketed as “rescue” in hopes of garnering support from the masses, I’m thankful for the opportunity to put this situation in perspective.

Bad, but Not as Bad as it May Seem
DJIA fell 7 percent on Monday. Bad as it was, this loss represents just one-third of the 22.6 percent drop many of us saw in the 1987 crash.

Since DJIA was established in 1896, there have been 16 other occasions  when its  percentage drop was greater than it was yesterday. That averages out to one crash for every seven years.

In fact, It  has been seven years  since the last time the Dow tanked to a greater extent than it did yesterday. That date is Sept. 17, 2001.
From at least one statistical perspective, this all adds up to Monday’s drop being overdue, MarketWatch says, explaining that there is some solid research behind the notion that sharp market declines are a natural part of the Wall Street investing experience.

University Researchers Identify Market Patterns
Years ago, researchers at New York University and Boston University built a complex formula for calculating how often drops of a particular magnitude will occur over long periods of time (measured in centuries). Their work is documented in “A Theory of Large Fluctuations in Stock Market Activity.”

According to this formula, 7 percent declines are likely to take place every 4.3 years. As MarketWatch explains  it, going into Monday’s session, the market had exceeded the formula’s time frame by  2.7 when Monday’s drop was recorded.

The S&P 500 index dropped 8.8 percent — significantly  more than DJIA did on Monday. According to the formula, drops of that magnitude should occur about every decade.

But the last time the S&P 500 dropped by more than it did Monday was more than 20 years ago, in 1987’s  crash. According to the formula, Monday’s dive was 11 years behind “schedule.”

Real Estate Markets Are Reliably Cyclical
Clearly no formulaic equation can be used to reliably call the markets or to minimize Monday’s misery, but they can remind us that all investment markets, including real estate, run in cycles. When we submit to fear and uncertainty, we’re blinded to the golden opportunities that major players seize.

Entrepreneurs Poised to Turn Wall Street’s Trash to Treasure
Today’s Dallas Morning News has an article we all should read: “Investors ready to snap up distressed assets, hoping to cash in later.”

Opportunity Funds are already springing up to snatch up bargains on distressed properties and paper. Why? Because a lot of real estate investing veterans who earned their stripes during the Savings and Loan crisis 20 years ago are seeing golden opportunities where others see destruction and turmoil. The ability to uncover profit in times of crisis is what makes mere investors into wealth-building entrepreneurs.

Cycling Toward Recovery
We know for sure that  there’s not enough tea in China for the Fed to buy up all the distressed property debt out there, even if it is for pennies on the dollar. So, regardless of what Congress decides to do this week, it remains clear that their actions will work to restore investor confidence. With an action plan in sight, investor fears will subside and the markets will engage in their predictable cycles of recovery.

Working in that sort of climate, real estate entrepreneurs with staying power and those who rely on proven formulas for  success in this business will see remarkable profits. There’s no doubt of that. It’s just a matter of timing and using the best strategy and tools for the job.

The Big Picture
Market instability and dwindling home prices fuel foreclosures, which are still on the rise. That will continue to inhibit the value of the mortgage-backed securities that are now choking banks and and creating a log jam in the financial system.

Lawmakers and regulators are under fire to act swiftly– and effectively –  to get the economy up and running again. When their actions take effect, real estate entrepreneurs must be ready to move quickly on the deals that will build a strong future in this business.

To be prepared, we real estate entrepreneurs should now be looking at solid, proven strategies and tools, such as SalesTeamLive’s Done-for-You marketing, to build a solid foundation upon which we can spring to grasp the most amazing potential for awesome returns on investment (ROI) we’re likely to see in our lifetimes.

Using the right tools and developing a clear and realistic perspective positions us to take full-force advantage of the opportunities that will push our profits off the charts in the inevitable moment when the housing market begins its cyclical journey upward.

In the meantime, we must not succumb to fear or distractions as we set upon this path. Remember that in business, one sector’s losses always is another sector’s gains.

So, it looks like those of us who are following the train wreck on Wall Street are in for another long weekend of ruminations on how our leaders are going to approach fixing this mess. The Fed’s silver bullet du jour likely will be fired from the same gun that built the Resolution Trust Corp. to clean up after the Savings and Loan crisis in the 1980s.

So Far So Good
Since the Wall Street Journal essentially broke the “New RTC on the Horizon” story this morning, stocks soared. The Dow Jones Industrial (DJIA) closed up an optimistic 370 points, and floundering banks and financial institutions displayed signs of life for the first time this week. Deal negotiations among the major players slowed and Wall Street dried its tears and seemed to take its first collective big breath this week. But what impact will all this activity have on battered housing markets?

While the Fed’s efforts to salvage behemoth government sponsored entities (GSEs) Fannie Mae and Freddie Mac and stop Wall Street’s bleeding have gone off with some hitches, is looks likely that these moves eventually will serve to slow the foreclosure epidemic, stall depreciation and help stabilize prices. Still, there is no unified, clear message from the Fed regarding a timeline for the housing market’s recovery, despite its nearly $1 trillion pledge to save the economy from further disaster.

Treasury Says Housing Recovery will Take Years ….
Treasury Secretary Henry Paulson said at a press conference this week: “I believe there is a reasonable chance that the biggest part of that housing crisis can be behind us in a number of months. I’m not saying two or three months, but in months as opposed to years. I think we will have housing issues and mortgage issues for years.”

HUD Predicts Housing Recovery Will Take Months ….
U.S. Housing and Urban Development (HUD) Secretary Steven Preston had a totally different take on the housing markets’ recovery this week at a Christian Science Monitor breakfast where he predicted meaningful improvement would occur in “the middle of next year or well into next year.”
Preston also told attendees that, “The crisis will begin abating in a number of regions of the country. That is what I am hopeful of. But I think it will be more intractable in other regions.” He added that recovery would come much slower to the markets hit hardest by the mortgage crisis, including: California, Florida, Arizona, and Nevada.

According to the “State of the Nation’s Housing,” a report from Harvard University’s Joint Center for Housing Studies released earlier this year, other states hard-pressed for recovery are likely to include states in the “rust belt” and much of New England’s industrial areas, where massive job losses had fueled housing market decline. (To access video of Preston’s speech, follow this link.)

Lehman Brothers’ and the BK Whopper
There was a great deal of discussion this week about the Fed’s decision to let Lehman, a 158 year-old brokerage, collapse into bankruptcy Monday. Over the weekend, Wall Street and the Fed worked, yet failed to devise a plan for an 11th-hour intervention to salvage Lehman, but in the end, it looks like it was cheaper to let Lehman die without benefit of a government bailout.

Analysts attribute this apparent display of “tough love” by the Fed to the massive amounts of bad sub-prime mortgage debt exposure Lehman took on through its involvement with Aurora Loan Services and BNC Mortgage. Many say that Lehman just couldn’t be saved.

Tuesday, despite objections (Bloomberg does a great job covering the controversy in this article. ) from some of Lehmans’ creditors, bondholders and others who thought there had not been adequate time for competitors to submit bids, British bank Barclays gobbled up Lehman’s investment banking and capital markets businesses for $250 million in cash. It also paid $1.5 billion for Lehman’s New York headquarters and two New Jersey data facilities.

This handy timeline of Lehman’s decline does more to put this deal in perspective than most anything else in the news this week.

AIG’s Divine Intervention: Maybe not so Divine for Shareholders
Also suffering from post-traumatic subprime mortgage exposure, mega-insurer AIG got a pardon from the governor this week in the form of an $85 billion bridge loan from the Fed.

Analysts are saying that this “divine intervention” was for the “greater good” because of AIG’s role in the DJIA and ties to multiple mutual funds. Still, the announcement came down Thursday that AIG would be nixed from the DJIA and replaced by Kraft Foods. Hey, everybody’s gotta eat, right?

The quote of the week foes to former AIG CEO Hank Greenberg, who, prior to his “retirement” a few years ago, built this giant and achieved greatness well before the sub-prime mortgage virus infected Wall Street’s soft tissues.

Greenberg, who lost billions this week after several unrequited attempts to save AIG from an uncertain fate, pointed out on Fox news that,  “No one seemed to be minding the store from a risk management point of view.”

Amid the fallout from AIG’s failures, Greenberg, the insurer’s majority stockholder, is admittedly frustrated, angry and bitter this week. If you just read one article about AIG, make it this story about Greenberg’s attempts to intervene in AIG’s destiny before a federal takeover was in the picture.

Bank of America’s Costly Courtship of Merrill Lynch
In on the weekend’s Lehman negotiations, Merrill Lynch was poised to save itself when Lehman took its final gasp. Come Monday, it seems that Merrill Lynch scrambled to make a whopping $29 per share deal with Bank of America (BofA) to save itself from extinction.

Had BofA waited just one day, it probably could have those tainted shares as low as $10 per. At this point, I think it’s safe to say that we al can expect some flack from BofA shareholders for what seems like a total fumble at this point in the game.

Since acquiring the skeletons in Countrywide’s subprime debt closet earlier this year, no one can say that cash-rich BofA didn’t know what it was getting into. Rumor has it that BofA also is among those currently courting Wachovia, who, despite its problems, still has less extreme sub-prime mortgage exposure than Merrill or Countrywide.

Will WaMu Get a Date to the Prom?
WaMu hired Goldman Sachs this week to find it a suitor – fast. That was before the Fed announced that a plan to save the economy vis-à-vis a new RTC is on the horizon.

Though Goldman is negotiating WaMu’s sale, no single buyer has emerged on the top of the heap this week, but there is widespread speculation that Citigroup may have found enough cash in the corporate sofa to buy the ailing Seattle thrift whose rating was downgraded this week to “junk” status by the major rating agencies.

Other interested parties include Banco Santander SA, of Spain, and Wells Fargo.  According to the Portland Business Journal, HSBC and even J.P. Morgan Chase, who made a play for WaMu earlier this year and lost, also are considering bids. If none of these work out, maybe they should try Ebay.

Wachovia and Morgan Struggle to Define Roles and Relationships
It seems more likely than ever that Wachovia could acquire Morgan Stanley. Morgan has had a rough go of it lately. Even after releasing relatively healthy financials, shares plummeted 32 percent this week. Morgan blamed the naked short sellers for the decline.

Wachovia values dropped about 20 percent this week before ralso egaining some footing upon the Fed’s announcement that an RTC-inspired solution to Wall Street’s woes is in the works.

Are the Bailouts Constitutional?
I’ve heard some powerful arguments that the arbitrary nature of some of these bailouts, or takeovers of once-solid Wall Street institutions raises some grave Constitutional issues that are likely to be challenged at some point down the line.

Citing the U.S. Constitution, some observers of the Fed’s bold moves say that by favoring one debtor over another, for example, by allowing Lehman to fail, and then coughing up an $85 billion bridge loan for AIG, the Federal government is exceeding it’s powers.

Critics say that public money is supposed to be used to protect us, to build public-access roads, libraries, etc.  By exposing taxpayers to Wall Street’s idiotic bad-risk debt portfolios, the Fed is, in effect, favoring outfits such as AIG over the majority of U.S. citizens and failing to provide for the “general welfare” of the people.

Will the Fed’s RTC-Inspired Plan Save Wall Street or Spread False Confidence?
Clearly the markets picked up today on the Fed’s announcement that an RTC-style fix is in the works. Is this strategy going to be much more than a drawn-out, massive controlled  bailout? Is providing these players with a taxpayer-funded repository for its bad paper the real best answer to this widespread problem?

For many onlookers, including, ironically enough, former Fed chief Alan Greenspan, the bailouts present a “moral hazard” by promoting the notion that as long as you’re “too big to fail” or can meet the Fed’s seemingly arbitrary standards for being worthy of saving, you can make whatever foolhardy decisions you want in running your business and still be compensated generously for your efforts.  I don’t know about you, but if I run my business that way, I’m sunk.

Eventually, we can anticipate that the recipients of the bailout loans to have default problems of their own. Of course, taxpayers can look forward to covering the litigation costs. We also can expect lawsuits from shareholders who’ve been shafted in these deals.

Who Stole the “Free” from “Free Market Economy”?
We’re looking well over a million more foreclosures this year than last. I think many of us are wondering just where, and by whom, the line will be drawn as to which Wall Street entities are “Too Big to Fail,” what that says about the government’s role in business and how much the taxpayers can be expected to pay.

Heavy implications for Taxpayers and the Nation
I’ve seen rough estimates that the bailouts, takeovers and creation of an RTC-like entity to dispose of Wall Street’s bad paper waste could cost individual taxpayers more than $7,500. As a business owner and taxpayermyself, I find this outrageous. I am appalled by the recent institutional failures and the apparently broken system that let them happen. Even if they’re “necessary,”  we all should be concerned about the high costs, legality and morality of  the Fed’s efforts to save Wall Street from the wounds it afflicted upon itself.

And though it may be some time before the architects of this economic catastrophe are truly identified and brought to justice, I am comfortable with calling them “terrorists” because their all-consuming greed, dishonesty and sheer stupidity strikes at the core of the U.S. and global economies with intense and brutal force.

It has taken some time for me to digest all of the financial news I’ve been gobbling up over the past couple of weeks.  And frankly, I could use an Alka-Seltzer. But I can’t kelp but think about how the $900 billion in Wall Street bailouts so far issued by the Fed still buys a lot of “plop, plop, fizz, fizz” in our nation’s new market economy. Buy will it buy relief? Only time will tell for certain. But there are some signs that Wall Street’s struggles will improve conditions for many of us who are dedicated to making real money in real estate.

Sure the news on Wall Street is bad. But it seems the worse the news on Wall Street gets, the higher the ratings are likely to go for the news channels that profit more from banking on fear these days than anyone can with the U.S. Dollar. The impact of toxic news reporting should not be overlooked by those of us who are following these events.

There’s fair and accurate reporting and there’s also panic mongering in the feeds. I’ve read, watched and listened to a seemingly endless torrent of news about Wall Street’s dramatic takeovers, bailouts, buyouts, merger plans and restructuring efforts from AIG to Wachovia … and what a horrific rollercoaster it’s been. For none has it been worse than for the thousands of employees who have lost and will loose their jobs as a result of this unnatural disaster.

Focus on the Single and Multi Family
Today however, I’m writing as a real estate entrepreneur who sees more great opportunities than ever before to invest in real estate.  And right now, the natural question is “What does all this bloodletting on Wall Street this mean to real estate investors?”

Over the long term, that’s a tough one to call.  And if I’m lucky, I’ll have that dream again tonight where I know all the magic answers to our economic woes. Of course, during waking hours, the person who had those answers likely would make Warren Buffett’s portfolio look like a “nice try.” (Check out this article on why Buffett didn’t save Lehman.)

Real Estate Gets a Grip
To real estate entrepreneurs trying to gain perspective on how recent developments will likely affect us in the short term, there’s some encouraging news. All of these “adjustments” on Wall Street are likely to result in lower interest rates, even as investors take whatever is left of their money and run away from the giant equity brokerages and into the most attractive alternatives they can find. Today, gold futures rose nearly 10 percent to $870.90 per ounce.

Private Money: “Gimme Shelter!”
But precious metals aren’t for everyone, especially now that prices are reaching for the heavens.  And that may help send a lot of private money-lenders into real estate markets soon.
Compared to what many of these investors have been through on Wall Street, many are likely to be attracted to the greater control and relative long-term stability that investing in real estate provides. They’ll also gravitate to real estate because if they still have their money, they likely know a real bargain investment when they see it.

Buyers Want to Believe
It may sound outlandish to say, but there are a lot of qualified and motivated buyers out there who knew better than to get involved in purchasing a high-priced property at a high interest rate. Many of those who are carefully looking at all the numbers also have been sitting on the fence waiting for plummeting property values to stabilize before committing to a purchase.

Due to the housing bubble’s impact on many of the largest metro markets, it makes more economic sense at the moment for many folks to rent rather than buy. So finds an intriguing report that examines 100 of the most densely populated metro markets for equity-earning potential.

The same report also examines ownership vs. rental costs for homes priced below medial levels. (Check out the  “Ownership, Rental Costs and the Prospects of Building Home Equity” study from the National Low Income Housing Coalition and the Center for Economic Policy and research for details. It’s a refreshing, eye-opening read.)

Proof Now Required in Mortgage Application Pudding
According to the Mortgage Bankers Association’s seasonally-adjusted index, mortgage applications to purchase or refinance loan jumped 33.4 percent, the most activity since May. This is an encouraging sign that the action is picking up in many markets.  Couple this with the solid potential for even greater reductions in interest rates and it seems like there is light at the end of the tunnel in terms of market recovery, inventory reduction and overall price stabilization.

Reality Bites for New Mortgage Terms
Still, it’s worth noting that mortgage qualification has reverted to real-world requirements that usually include a minimum of 5 percent down have, demonstrable income and assets that are consistent with the loan amount and credit scores above 700. While these requirements are necessary, they may present some challenges as jobless rates continue to rise and the overall economy appears to have all but stalled.

Always a Catch-22
Despite lower interest rates and spikes in loan applications, there is no guarantee of a speedy recovery for battered housing markets. Keep in mind that with all the lay-offs and power shifts in the industry, we can expect bureaucratic delays in everything from loan applications to foreclosure processing and short sale negotiations. These delays are likely to last until well after the after dust settles on Wall Street.

Lenders Need to Really Tackle Loss Mitigation
All eyes are on lenders and they must know they’re looking pretty bad to most folks these days.
Eventually, lenders will have to find a way to respond more quickly and efficiently to pre-foreclosure and short sale deals. After what they’ve been through in recent weeks, their enthusiasm for the bundles of cash they save by avoiding foreclosure is likely to pique.

New Doors Open Wider for Educated Investors
Another upside to all this mess is that smart real estate investors will have awesome opportunities to capitalize from developing relationships with embattled mortgage brokers and real estate agents who are facing new challenges in this Brave New World of Real Estate. Developing these relationships will open new doors leading to fantastic deals for those of us who are persistent and consistent in our follow through.

There, things aren’t really looking so bad for us, are they? Though Wall Street is a totally different story. Still, we must maintain a clear vision of our businesses, avoid toxic speculation and feed our senses of humor through these confusing and harsh times. Some of us also may pray that Alan Greenspan is correct in his assertion that weeks like these occur only once per generation.

What Do You Think?
Please drop me a line and let me know how you’re reacting to all these developments and tell me what impact you foresee it having on your real estate business.

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Today the Fed seized control of the two government charted mortgage finance giants who together own or guarantee about half of all outstanding U.S. mortgages. Though in light of heightened regulatory scrutiny, dismal reports and weeks sweating on the rumor mill, I’m stunned not so much by the eleventh-hour intervention with Fannie Mae and Freddie Mac, as I am by its apparently massive scale.

As part its takeover plan, the U.S. Treasury Department is assuming an equity stake in Fannie and Freddie and has pledged to buy their mortgage-backed securities and to provide whatever liquidity is needed to keep them alive. So far, the Fed has pledged $100 billion for each.

Asian Markets Rally: Sweet Relief
Forbes reports that Asian stocks rose 4 percent on the news when they opened this morning. Reports are trickling in that Fed’s overt attempts to salvage the U.S. housing market are encouraging investors and fund managers to finally take some liquid from their cash portfolios and buy something with it other than Scotch.

Real Estate Is a Lifeboat on the Economy’s Troubled Waters
Not only is this the largest bailout in U.S. economic history. For entrepreneurs, it is a beacon. If any of you have been looking for a green light to signal that these troubled economic times represent a great opportunity to invest in real estate, this one should be flashing on your radar like a major astronomical event!

Sure there are some uncertainties when you’re investing in real estate. Markets can be fickle, buyers and sellers can be flaky, plumbing leaks, foundations sag, electrical systems are rarely what they seem. But at least with real estate, YOU are in control of your deals and your destiny.

How many people out there in the stock market or with retirement accounts had no idea that their hard earned dollars were being sold and resold into the worst investment of our time: Bad Mortgage Debt. It’s like acne on a teenager: it’s everywhere and it affects everything.

Greenspan Finally Makes Sense
On the heels of the Bear Stearns bailout, former Fed Chief Alan Greenspan said that financial officials need broad authority to quickly evaluate and act when a failing company imperils the U.S. economy, even if that would mean removing that company from life support.

“We need laws that specify and limit the conditions for bailouts — laws that authorize the Treasury to use taxpayer money to counter systemic financial breakdowns transparently and directly rather than circuitously through the central bank as was done during the blowup of Bear Stearns,” Greenspan wrote in the paperback edition of his memoir, scheduled for release today: “The Age of Turbulence: Adventures in a New World.”

Resolution Trust Revisited
The prophetic, hardcover version of the book was released last year. In it, Greenspan envisions the formation of a group akin to the Resolution Trust Corp. (RTC) to step in, take a troubled company into conservatorship, wipe out the equity, and trim its debts before guaranteeing them and selling its assets. (See Amazon.com’s details about Greenspan’s book by following this link.)

For those of you who are too young to remember, he RTC was created in 1989 amid the smoldering ashes of the Savings and Loan Crisis. Acting as a temporary entity, RTC disposed of failed savings and loans’ assets, and then vanished. I remember reading at the time that the S&L bailout would cost every American man, woman and child $1,000. And that was a lot of money to me at the time. That disaster looks like a day on Pebble Beach compared to what we’re currently facing.

Back to the Future
The Los Angeles Times has a great play-by play on the Fed’s new conservatorship of Fannie and Freddie that digests the complex jargon into key elements if you want to understand in greater detail why this news is making you cringe in anticipation of the next Great American Bank Failure.

Critics of the Fannie and Freddie takeover in Congress, in finance and in Ivory Towers are reeling from the Fed’s boundless efforts to slow the bleeding. From fueling JP Morgan’s bargain buyout of Bear Stearns to its other acrobatics geared to make drowning financial institutions float. Even many supporters of these efforts are secretly wondering if it’ll all work, or if they’re just delaying the inevitable.

Skeptics assail the Fed’s actions for unfairly passing the clean-up costs on to taxpayers, who are having a hard enough time as it is.  And they make an excellent point even if they can’t offer alternative solutions: This situation was created by the finance industry’s elite. I can’t stop wondering, if they’re really the “best and the brightest” how could they invest heavily in subprime — and especially — negative amortization loans, and NOT see this one coming? I know I didn’t go to Harvard … but a lot of them did!

Moral Hazards and the Big Tab
Putting taxpayers on the hook for billions of dollars of potential losses isn’t the only problem here. Even Greenspan says that these dramatic interventions by the Fed fuel the notion that the institutions being bailed out are simply “too big to fail.”

This sort of thinking promotes what Greenspan calls a “moral hazard,” that exacerbates the problem by encouraging financial companies to gamble even more recklessly with other people’s money.

Banking on the Edge
Today, CNN Money reports that even before the Fed’s takeover of Fannie and Freddie, the FDIC’s watch list of problem banks and thrifts grew 30 percent between the end of March to the end of June, and now includes 117 at-risk institutions. There were  61  institutions on its dreaded “watch list” only one year ago. Friday, the 11th bank of the year failed.

MarketWatch reports that State and federal regulators shut down Nevada’s Silver State Bank late Friday. That bank, which was hyper-exposed to risky real-estate loans, had almost $2 billion in assets and 17 branches in Nevada and Arizona.

Until late July, the Wall Street Journal reports that Andrew McCain, the son of Republican presidential nominee Sen. John McCain of Arizona, was a member of Silver State’s board and its three-member audit committee. It should be noted however, that McCain only spent five months on the board and there is no evidence of any wrongdoing on his part.

It is too soon to say how many financial institutions are likely to be effected by the recent developments among Fannie,  Freddie and the Fed. But right now may well be the calm before the real storm.

More Failures on the Horizon
While searching for useful info about Fannie and Freddie, I learned that Kerry Killinger, who charted Washington Mutual’s course to the top, as the nation’s largest thrift, then down to billions in losses, has walked the plank as the bank’s as chief executive.

The Wall Street Journal reports that even after Citigroup, Merrill Lynch and Wachovia ousted their chiefs over mortgage-related write-downs, and Killinger disclosed nearly $20 billion in losses at WaMu … and shares have dropped 85 percent in the past year, amazingly, support for Killinger’s leadership was slow to wane.

It also should be noted that more than $50 billion of WaMu’s holdings are option adjustable-rate mortgages. It shouldn’t take a genius to see that people buying residences who can’t even cover the interest on their loans, likely will be forced to fold when their loan balances rise each month they struggle to make a payment.

What’s Next and Will it Work?
Clearly, WaMu is not alone. And I sincerely hope it’s not the next financial institution to hit the pavement. But Zillow.com currently estimates that about 30 percent of the homeowners who bought in the past five years are now under water in their homes.

Last week, the Mortgage Bankers Assoc. announced that Q2 homes entering foreclosure surged to the highest point in the three decades it has conducted its survey — to 1.19 percent! That’s up 7 basis points from last quarter and up 49 basis points from one year ago on a non-seasonally adjusted basis.

Greenspan has said that he’s skeptical of any plan by the U.S.  Treasury Office, (currently under the leadership of Secretary Henry Paulson), that would charge the Fed with policing financial market stability:  “Much as we might wish otherwise, policymakers cannot reliably anticipate financial or economic shocks or the consequences of economic imbalances.”

While these may well be words of wisdom, they might smart a little less had Greenspan not been the Fed’s ringmaster while the “bubble”  inflated to the point that the inevitable “burst” would have such far-reaching implications.

Since I called this mess last year, instead of fearing the reaper, I’ve been pouring a greater allocation of my liquid into buying and holding real estate. No, I didn’t go to Harvard, but I know a sound strategy for making money  when I see it. What are you doing to grow your real estate business durring these challenging economic times? Let’s talk about it in this forum.

In this year’s state legislative sessions, lawmakers targeted “foreclosure rescue scams” and “equity stripping schemes” for scrutiny, attempting to protect unwitting distressed homeowners from signing away what little they may have left.

In the past two years, lawmakers in about half of the United States have mandated consumer protections and fines for investors who violate the law. In many instances, these ongoing attempts to restrict real estate investors’ business practices are redefining the distressed property arena.

With a growing number of real estate entrepreneurs using the Internet and other electronic resources to invest in markets outside of their home states, those who are using short sale, pre-foreclosure, and similar types of transaction strategies to invest in distressed properties should be vigilant in monitoring these and other changes in state laws.

Foreclosure Rescues May Be Subject to Fines and Stiff Penalties
Last year, the National Conference of State Legislatures (NCSL) reported that more a dozen states had taken steps to actively regulate foreclosure transactions. These states include California, Colorado, Georgia, Illinois, Indiana, Maryland, Minnesota, Missouri, Nevada, New Hampshire, New York and Rhode Island.

Arizona also weighed in on the issue early on in 2007, and the governor signed SB 1616, better known as the “Mortgage Rescue Fraud Protection Act.”

More Regulation Around the Bend
Because many states have assembled governmental task forces to scrutinize business practices surrounding foreclosure and predatory lending, a Washington D.C.-based lobbying group, the National Association of Responsible Home Rebuilders and Investors (NARHRI), predicts that ongoing legislative efforts will continue to mount as the foreclosure epidemic continues to take its toll on homeowners, markets and tax bases throughout the nation.

According to NARHRI, by increasing restrictions on foreclosure consultants and their multifaceted business practices – especially with regards to equity-based and lease-back to owner transactions –lawmakers are grasping for a hold on situations that in many communities, seem to have spun out of control.

State Legislatures Tackle Foreclosure Rescues, Equity Stripping
This year, more states have passed similar laws geared to protect the interests of distressed homeowners and fine real estate investors who fail to comply with the law. These new laws sometimes impose greater regulation on investors than some of the earlier legislation enacted in other states.

Summaries and Links to new State Laws
This year, nearly a dozen more states entered the fray with foreclosure rescue consumer protection legislation. (This number includes the District of Columbia’s Act A17-0205, which prohibits equity striping and appears to be awaiting congressional approval.)

As I reported on this Blog in May: “Lawmakers Target Real Estate Investors for Regulation,” lawmakers and governors in Oregon and Washington moved quickly to regulate lending practices, restrict property transactions and scrutinize contracts between investors and sellers. These and eight other new laws are summarized and linked below:

• Florida:
  HB 643, now Chapter 79 in Florida law, requires foreclosure counselors to provide a cancellation provision in written agreement and mandates that a title transfer must be included in a separate contract. This legislation takes effect Oct. 1.
• Hawaii:
  HB 2326, now Act 137, ralso known as the “Mortgage Rescue Fraud Prevention Act,” requires mortgage foreclosure counselors to provide specific information and disclosures to distressed property owners. It also regulates “foreclosure rescue” business practices.
• Idaho:
  SB 1431, now Chapter 192 in Idaho law, requires that all contracts be in writing when they residential houses in the foreclosure process. It provides consumers with a five-day right of rescission. It also requires that a warning regarding foreclosure rescue scams is included in foreclosure notification papers and in all written contracts.
• Iowa:
  HF 2653, now law, regulates mortgage foreclosure consultant contracts and mortgage foreclosure reconveyance transactions. This law forbids foreclosure rescue companies from charging up-front fees.
• Maine:
  LD 2189, now Chapter 596 in Maine law, has several key-provisions to regulate business practices and transactions aiming to protect homeowners from equity stripping.
• Maryland:
  HB 361 (Chapter 6) and SB 218 (Chapter 5), Provides for the contents of a foreclosure consulting contract; prohibits foreclosure counselors from arranging or participating in a “foreclosure rescue” transaction and specifies acceptable conditions for commissions. It also specifies that foreclosure counselors must be licensed real estate brokers who are directed to provide homeowners with research on the value of their homes.
• Nebraska:
  Among other things, LB 123, also known as the “Nebraska Foreclosure Protection Act,” regulates foreclosure consulting contracts, generally requiring enhanced disclosure for homeowners and other consumer protections. The law also establishes prohibited actions for foreclosure consultants, contracts and transactions. Meanwhile, LB 851 provides for foreclosure deeds of trust.
• Oregon:
  Here, the legislature convened a special session to consider HB 3630, before it was promptly signed by the governor and became Chapter 19 of Oregon state law. This legislation defines duties and restrictions on foreclosure consultants. It establishes requirements regarding foreclosure counseling transactions, contracts and imposes stiff fines and penalties – including jail time, for violators.
• Virginia:
  HB 408, now Chapter 485 in Virginia law, provides that entities who participate in or who service foreclosure rescues for profit with the intent to defraud consumers, are in violation of the Virginia Consumer Protection Act and subject to its prescribed penalties.
• Washington:
  HB 2791, now Chapter 279 in Washington law, requires foreclosure rescue companies to provide a written contract that gives the original homeowner five days to get out of the deal. The legislation also provides that if the entity that takes possession of the house sells it, 82 percent of the equity must be returned to the original owner.

What’s New in your Real Estate Business?

Is any legislation affecting the way you do business in your state? If so, please drop me a line and tell me about it so that we’re all better informed.

If you would like to see more original REI news stories like this one, sign up my “What’s Working & What’s New” monthly and special reports and you’ll be among the first to learn about timely special reports like these, cutting-edge Webinars and other developments in the world of Real Estate Investing.

Joining the community at GaryBoomershine.com is easy: just use the yellow fields at the right side of my GaryBoomershine.com home page or on the right side of the Boomer’s Blog main page.

California just hit its 30th day of the fiscal year without any consensus on spending. And as Gov. Arnold Schwarzenegger celebrates his 61st birthday in a maelstrom of controversy surrounding his efforts to drop all state worker wages to the federal minimum until the legislature hammers out an acceptable budget, it may seem as though there is little cause for celebration around the Golden State’s fair dome. And that much is true, unless you happen to be a pet abandoned through foreclosure or a lease agreement gone bad.

Bill Proposed to help Foreclosure-Abandoned Pets

AB 2949, a nifty piece of legislation, which currently awaits Schwarzenegger’s approval, comes from Assembly member Mark DeSaulnier through a highly unconventional process. Last year, the lawmaker held a contest titled “There Ought to Be a Law” in which citizens were encourages to submit their suggestions.

Contest winner Sheri Kuticka’s entry addressed the plight of per haps the most helpless victims of the foreclosure epidemic’s victims: abandoned pets. Kuticka suggested that something should be done to allow REI professionals and others on the scene of a distressed property, to take action to rescue the unfortunate animals who often are abandoned in foreclosed homes.

Many financial institutions, home inspectors, and property owners are reluctant to help or remove animals from a distressed property with ownership in transition because of possible legal liability. Currently in many states, attempting to rescue the pet may be perceived as attempted theft.

California Bill Wins Lawmaker Approval

With help from animal shelters and pet advocates, DeSaulnier drafted AB 2949 to provide that in the event of an involuntary animal abandonment, anyone on the scene should immediately notify animal control officials. The goal here, is to get the pet to safety without violating any property laws. Unlike the state’s budget, this bill sailed through the legislative process virtually unopposed.

Efforts to Help Abandoned Pets Span the U.S.

I posted a Blog on this issue in May, when I first became aware of the DeSaulnier’s proposed bill and a fantastic Florida-based non-profit organization called No Paws Left Behind, founded by Integrated Mortgage Solutions President Cheryl Lang. A woman of action, Lang was so troubled by the effects of pet neglect and abandonment she’s seen working in Florida’s beleaguered mortgage industry, that she’s launched this Internet forum she hopes will affect change in how the system handles abandoned pets.

Keep an Eye Out for Pets

Lang advises real estate professionals to be vigilant for signs of abandoned pets when dealing with distressed properties that have been vacated. Listen for animal sounds coming from the house. Even though you may not be permitted to enter, you can contact the appropriate authorities, including the Humane Society, Animal Control or the police.

Traditionally, unless the animal shows immediate signs of distress, local authorities will post notes on the door to notify the pet owner that he or she is legally bound to care for the pet. Eventually, local authorities will move the pet to a new home or shelter, but sometimes action comes too late to save the life of an abandoned pet. Because this “system” too often doesn’t work, Lang’s No Paws Left Behind Web site contains a petition geared to change the legal process from the Federal level to protect the pets.

We Can Make a Difference

Although these efforts to help save pets abandoned in foreclosure are at opposite ends of the United States, they address an issue that likely tugs at the hearts of many professionals in the real estate business.

Although real estate investors are generally not required by law to take any action to help abandoned pets, many of us want to help when we can because we believe it is the right thing to do.

Keep in mind that more distressed homeowners and occupants in transition likely would surrender their pets to animal welfare agencies that rescue pets, if they only knew where to turn. By identifying potential problems before pets are abandoned on your properties, you’re not only protecting your assets, in many instances, you may be saving a life.

In the spirit of “paying it forward” to all the great critters who’ve made a difference in my life, and in service to my fellow REI professionals, I’m reposting some resources below that I hope will come in handy should anyone in the Gary.Boomershine.com community stumble across an abandoned pet. Here are some steps you can take as a REI professional that may help you to avoid the problems and heartache you’re likely to encounter if you discover abandoned pets on one of your properties:

Seven Ways REI Professionals Can Help Save Pet from Abandonment

1. If you you’re working with distressed homeowners or dealing moving tenants out of a property, ask if they have made plans for their pets.
2. Identify animal welfare organizations and animal control contacts in your area, and keep the contact information on hand.
3. If you know that the occupants are looking for rental properties, suggest they check with the Humane Society or local shelter for pet-friendly rental listings, or advise them to check out Web sites like PeopleWithPets.com, or HomeWithPets.com.
4. Distribute animal adoption literature, or Web resources like No Paws Left Behind whenever suspect it might be useful.
5. After the owners or tenants have moved, ask neighbors if the former occupants had pets. Check to make sure no pets were left behind.
6. Ask people you may have visiting the property to keep an eye out for abandoned pets.
7. Call your local Animal Control, the American Society for the Prevention of Cruelty to Animals (ASPCA), the Humane Society or other shelter for help with rescuing abandoned pets.

Please feel free to share any ideas you think could help other REI professionals who encounter this unfortunate problem.

When I wrote the first installment of this two-part Blog last week, I had no idea that more bank failures were so close on the horizon. But before we delve into my thoughts on steps you can take to protect your money, I thought a recap of recent events might help to inspire (if not incite) some of the procrastinators out there who’ve delayed the now urgent task of policing your deposits.

Mutual of Omaha’s Wild Kingdom

Federal regulators pulled the plug on another bank Friday, this one with nearly 30 branches in Arizona, California and Nevada. Today, Mutual of Omaha commenced with clean-up efforts by taking over deposits from First Heritage Bank of Newport Beach, its parent company, Arizona-based First National Bank Holding Co., and its spawns, First National Bank of Nevada and First National Bank of Arizona. The Phoenix Business Journal also reports that the Federal Deposit and Insurance Corp. (FDIC) will retain the banks’ real estate-plagued loan portfolios. Perhaps this will lighten the burden for Mutual of Omaha.

Insurance in an Unsure Time

As if we haven’t all heard the rumors, read the news and seen the red flags waving in the wind gusts produced by this financial storm, now is proving to be a better time than ever to examine your current level of FDIC protection and read up on other available opportunities to insure your deposits greater than $100,000.

Are your Deposits Earthquake Proof?

Amid the financial tremors in the banking industry, experts of every stripe are saying that if you’ve got deposits at any bank in excess of $100,000, your money is at risk. As we’ve all been learning in recent months, when it comes to insuring some of your weightiest deposits, some banks may be more equal than others. On this note, I would like to bring to your attention a great story MarketWatch ran in the wake of IndyMac’s demise. Here are some additional suggestions, observations and resources to help you to protect your money.

What Does FDIC Cover?

Here is the synopsis, but please don’t take my word for it, check with your bank and visit the FDIC Web site for the critical details.

• $100,000 for a single depositor,
• $200,000 for a joint account,
• $250,000 retirement accounts, with some exclusions and
• $100,000 for each owner of revocable trust accounts, if requirements are met.

The FDIC also provides separate insurance coverage for deposit accounts maintained in different categories of ownership such as joint accounts and revocable trust accounts. Make sure you’re clear on the regulations don’t hesitate to consult a financial professional if you’re not crystal-clear on what you’ve got and to what extent it is protected.

The $100,000 Question: Is your Bank Insured Beyond the FDIC?

Here are two examples of interesting approaches to insuring accounts beyond the FDIC’s scope. Unfortunately, only time will tell how well they hold water. Still, the opportunity to mingle convenience with your peace of mind is a rare one in financial planning. Depending on your situation and location, these options may be worth your second glance.

Spread your Wealth with CDARS

If your bank participates in Certificate of Deposit Account Registry Service (CDARS) program, you can have up to $50 million dollars in Certificates of Deposit (CDs) along with the security the FDIC offers for your funds

With CDARS, our bank spreads the CDs out among enough other banks to ensure that the part of your money in each bank is under the FDIC limits. In other words, you get the benefit of having multiple bank accounts with less than $100,000 in each one — without the headache of opening, tracking and managing multiple accounts yourself.

Once you’ve identified which CDARS bank will give you the best rates, accessing the program is easy. All you have to do to participate is sign a document agreeing to allow the bank to spread your money around. CDARS says there are no additional fees to you. And you only get the one bank statement.
see which CDARS bank gives you the best rates.

Depositors Insurance Fund (DIF) Covers Massachusetts
Massachusetts requires its state-chartered savings banks to carry expanded insurance through the Depositors Insurance Fund (DIF), which covers all deposits over the FDIC’s limits, so depositors have had relatively little to worry about since 1934, when the program was first implemented.

This is great news for those of us who bank in the great Commonwealth, but the rest of us may have to try a little harder to protect our finances from the economy’s swelling potential to shove more financial institutions off the edge and into failure’s ominous abyss

Get Ahead of the REI Pack
I hope these posts help you to protect the wealth and retirement accounts I know you’ve worked so hard to achieve. Sign up my “What’s Working & What’s New” monthly and special reports and you’ll be among the first to learn about timely special reports like these, cutting-edge webinars and other developments in our world- the world of Real Estate Investing. Joining the community at GaryBoomershine.com is easy: just use the yellow fields at the right side of my GaryBoomershine.com home page or on the right side of the Boomer’s Blog’s main page. Like always, I pledge to never share your contact info with anyone or inundate you with useless messages.

Following the Fed’s Friday takeover of Countrywide’s spawn, Indymac, and amid mass speculation regarding the solvency of the Fed’s chartered duo FannieMae and FreddieMac, reporters and analysts twittered all weekend trying guess which ailing financial institution is most likely to fall next.

Naming names at this point may be difficult to do with much accuracy because, as the New York Times points out, even the beleaguered IndyMac escaped the Fed’s last list of financial institutions that it considers to be at risk of financial failure. Come August, when the Fed is scheduled to update its rankings, it seems inevitable that this list will grow.

… And the Band Played On
In a statement issued just before the Asian markets opened Monday, and well-before the morning’s widely anticipated auction of Freddie Mac debt, the U.S. Treasury Department said it’s asking Congress to extend its line of credit should Freddie or Fannie need stealth intervention.

This news comes on the heels of the Fed’s seizure of Indymac on Friday. Clearly, the housing market’s woes and floundering U.S. economic growth create suffocating conditions for the banking industry. Though some of my best friends are bankers, I wouldn’t give any of them a deposit over $90,000 these days. And to anyone who is flying commando with unsecured deposits, I know a guy who could totally hook you up with a deal on some “gently used” Countrywide Financial Corp. stock.

More Banks Poised for Failure
The New York Times reports what more banks are destined for failure in light of current analyst reports: “The troubles are growing so rapidly at some small and midsize banks that as many as 150 out of the 7,500 banks nationwide could fail over the next 12 to 18 months, analysts say.”

Banking Analyst Richard Bove issued a list of at-risk banks over the weekend. In his “Who Is Next?” report for Ladenburg Thalmann, Bove named banks he considers to be in the “danger zone.” CNBC reports that some of these financial institutions include: Downey Financial, Corus Bankshares, Doral Financial, FirstFed Financial, Oriental Financial, and BankUnited Financial. According to Calculated Risk, even Washington Mutual was named in the report where Bove divided non-performing assets by reserves and added common equity.

MarketWatch says that Downey Financial reports its non-performing assets hit 14.33 percent of its total assets in May, up from 10.75 percent at the end of February. Last year, the institution’s non-performing assets were a mere 1.3 percent. Such a slip in not unprecedented in 2008. Even without Countrywide’s Angelo Mozilo’s tutelage, mightier institutions have fallen.

Who’s Who of Financial Blunders?
Including IndyMac, Calculated Risk reports that five banks have hit the pavement so far in 2008, and that number is likely to grow as larger banks struggle to meet their current set of challenges:

2008 Bank Failures and Deposit Amounts

• Douglas bank: $53.8 million
• Hume bank: $13.6 million
• ANB Financial: $1.8 billion
• First Integrity: $50.3 million
• IndyMac: $19.06 billion

Running with the Devil
Monday is bound to be a rough one, folks. Like I mentioned here when Bear Stearns crashed a few months ago: I know I predicted in Q4 2007 that a major bank would fail, but this is getting ridiculous! For those of us who remember the Savings and Loan fiasco of the late 1980s and early 1990s, this news may be especially hard to take. (If only we were dealing in penny stocks and Main Street institutions today instead of the global economy and Wall Street….) Mr. Keating: Please take a bow, you’ve been replaced.

I spoke with a highly-regarded financial adviser over the weekend who said she has more faith in a platinum Van Halen comeback than she currently has in the markets. Her advice these days is golden, if you know what I mean. Most of the financial experts I know are at a loss for words at the moment. Maybe that’ll change when Freddie hits the block — either auction or chopping. Who can say at this point? What do you think about this mess? Drop me a line and let me know how you see it in your part of the world.

There certainly has been no shortage of sad news about real estate lending’s havoc on the economy lately. Once-shocking news articles about soaring foreclosure rates, dramatic price drops and the Fed’s efforts to treat Wall Street’s apparent hemophilia ebb and flow with tide-like rhythms, occasionally seeming slapstick in their essence.

News stories about the bloodletting on Wall Street can permeate the real estate investor’s consciousness like a Bob Dole TV ad for Viagra: You respect the fact that it may help your operation some day … but mostly you just want Bob Dole to resume his position as a war hero, self-made millionaire, Senate powerhouse and third-person presidential candidate. Only if there were a little blue pill to cure Wall Street’s performance issues however, could the beleaguered U.S. economy rebound any time soon.

Just as surreal as the esteemed American political icon’s widely publicized bout with erectile dysfunction are this week’s musings in Fortune magazine about the economic “Doomsday” it predicts would follow the all-too-possible failures of Fannie Mae and Freddie Mac. This government-sponsored duo owns or guarantees about $5.2 trillion in home mortgages, comprising approximately half of all outstanding U.S. home loans.

Fannie and Freddie Falter
Fannie and Freddie made a face plant on Wall Street this week, prompting the New York Times to discuss how they’ve managed to squander more than 60 percent of their market value this year and how the current mortgage bailout plan under consideration in Congress, if passed, would up the ante for taxpayers should either institution fail.

IndyMac Hits the Chop Shop
In the meantime, the Wall Street Journal reports that Countrywide’s spawn, Indy Mac has begun dismantling its operation. The mortgage lender and savings bank has announced plans to cut its workforce in half and sell 60 percent of its branches to Prospect Mortgage Co. Just last year, IndyMac was the 9th largest mortgage lender in the U.S.

These folks get objective, if not gentle coverage of their business practices in the news media. But when it comes to the real estate entrepreneurs who dare to attempt to make a living cleaning up the mess that the mortgage industry made, even some of the most widely respected news outlets too often resort to inaccurate depictions of our business, scorn and now, even metaphors that seek to identify us in the Wild Kingdom.

REI’s Proud Scavengers Run Circles Around the Competition
This week, CNN had the nerve to call real estate investors “vultures.” Frankly, I resent that. Not only because, unlike the bald bird of prey with keen vision, I have hair on my head and am slightly myopic. But also because real vultures mostly prey on carcasses, and I believe that the real estate market still contains a great deal of life. Come on CNN, it’s not as though we created the problems that have led to widespread foreclosure blight in the real estate markets hardest hit by the lending industry’s lapses in sane business practices.

if we’re the economy’s birds of prey, what does that make the folks who wrote billions in bad loans that have plagued once-mighty housing markets and jeopardized the stability of the U.S., if not the global economy?

A real estate investor featured in CNN’s story had to explain to the reporter that our industry actually helps neighborhoods and property values to recover from the devastation associated with high-density foreclosures. You’ll find this paragraph near the bottom of the lengthy CNN article.

When real estate owned (REO) homes sit vacant and are neglected for extended periods of time, the investor explains, they often become havens for squatters, drug dealers and the dangerous sorts of criminal activity that prompts most qualified buyers to flee a real estate deal with Blair Witch Project-like frantic abandon.

Navigate your Real Estate Business through the Economic Abyss
Clearly, the real estate deals are out there. But in tough economic times, it is more important than ever that we make the right decisions about our businesses. A timely Inman News poll posed the following eternal question: “Which of these items are the most vital to an agent in surviving a real estate market downturn?”

The following answers may surprise you, though they confirm what I’ve been saying all along: Marketing is everything in this business. (For more information, register for a free copy of “Secret Handbook of the Direct Marketing Revolution: Strategies to Guaranteed Success for Real Estate Entrepreneurs,” the report I wrote with Dan Doran to address obstacles faced by investors in today’s often cloudy markets.) To prove my point, here are the results of Inman’s poll:

• 0% Figuring out where to distribute data for for-sale properties I have listed.
• 32% Deciding how to spend my marketing dollars.
• 25% Knocking on doors, picking up the telephone.
• 11% Investing in new technology, communications tools.
• 32% Keeping in touch with past clients.

Is REI is the Little Blue Pill for Wall Street’s “Problem”?
So, while CNN calls us “vultures” one may wonder what other investment opportunity out there is part of the solution, rather than an endorsement of our great nation’s institutional failures? With so many economic indicators pointing down, what have any of the major players in the mortgage debacle done to help neighborhoods, families and local tax bases to recover from the mortgage crisis?

Ponzi Moves on to Greener Pastures
In March, we reported that money management firm Black Rock Inc., and hedge fund Highfields Capital Management were backing a new firm to buy distressed mortgages, betting that investors would snap up bargains in the beaten-down sector. The new company, Private National Mortgage Acceptance Company, or Penny Mac, has quietly been raising capital from private investors to help borrowers restructure loans to avoid foreclosure.

Penny Mac stars Stanford Kurland, who spent 27 years at mortgage giant Countrywide Financial Corp., as its chief executive officer and Morgan Stanley Global Residential Mortgage veteran David Spector as its chief investment officer.

Housing Wire recently reported that Penny Mac currently has $2 billion in its “war chest” to buy discounted, distressed mortgages, and will fund its own in-house servicing platform. in May, Penny Mac backer Black Rock reportedly negotiated a deal to buy $15 billion in subprime mortgage exposure from UBS, the Swiss bank that has been floundering since its boom-time tango with Countrywide Financial and other problematic U.S. lenders. (Here’s an awesome article in the Wall Street Journal that touches on this issue.)

Hey CNN: If we’re vultures, what do you call the evil geniuses behind that flip?! Oh wait, CNN’s intrepid staff of crack reporters hasn’t really covered that story in much detail. Sometimes I wonder if we all wouldn’t be more in-the-loop if we got our financial news from Animal Planet.