Author: Brian Brady (page 12 of 27)

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

It’s fall in San Diego, right?

Here we go again:

More than 1000 acres of land on Camp Pendleton goes up in flames, after a wildfire breaks out on the base Wednesday.

If you want to follow the action, check out this Twitter feed and this blog.  Social media are the 21 century version of the ham radio operators. Twitter played a big role during the 2007 San Diego Wildfires; it should be even more useful this year.

Think good thoughts for and send out prayers to Unchained graduate Don Reedy tonight. He’s in the eastern path of the fire.

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

From the Wayback Vault in The New York Times Building:

Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans.

”Fannie Mae has expanded home ownership for millions of families in the 1990’s by reducing down payment requirements,” said Franklin D. Raines, Fannie Mae’s chairman and chief executive officer. ”Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.”

Some Lessons I’ve Learned From The Credit Meltdown:

(1) Borrowers who can’t meet prime underwriting guidelines are “sub” prime

(2) When government regulates private industry to make crappy loans and the crappy loans are the cause of the crisis, you can’t blame the theory of deregulation; you must levy the blame at overregulation.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae’s and Freddie Mac’s portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

(3) When you move down the credit and income scale, you can expect more defaults.

Here’s Senator Obama, talking about his solution:

Finally, I will modernize our outdated financial regulations and put in place the common-sense rules of the road I’ve been calling for since March – rules that will keep our market free, fair, and honest; rules that will restore accountability and responsibility in the boardroom, and make sure Wall Street can never get away with the Read more

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

I didn’t believe it when I read it; the bailout bill is “earmarked” and ACORN is one of the beneficiaries of the largesse.   ACORN may control up to 20% of the $700 billion proffered by the Bush/Obama Bailout Plan.

ACORN?  Are you kidding me?  THIS is what ACORN really is (from Sol  Stern):

ACORN’s bedrock assumption remains the ultra-Left’s familiar anti-capitalist redistributionism. “We are the majority, forged from all the minorities,” reads the group’s “People’s Platform,” whose prose Orwell would have derided as pure commissar-speak. “We will continue our fight . . . until we have shared the wealth, until we have won our freedom . . . . We have nothing to show for the work of our hand, the tax of our labor”—claptrap that not only falsifies the relative comfort of the poor in America but that also is a classic example of chutzpah, given ACORN’s origins in a movement that undermined the work ethic of the poor. But never mind—ACORN claims that it “stands virtually alone in its dedication to organizing the poor and powerless.” It organizes them to push for ever more government control of the economy, as if it had learned no lessons about the free-market magic that made American cities unexampled engines of job creation for more than a century, proliferating opportunity and catapulting millions out of misery.

Remember, ACORN has been one of the largest groups to criticize “predatory lending” and the use of sub-prime loans.  Here’s ACORN President Maude Hurd, speaking about last night’s Presidential Debate:

“Given the recent turmoil in our financial markets and the ongoing negotiations around a bailout package for Wall Street, it’s not surprising that much of the debate focused on the current economic crisis, which was in many ways predictable.  ACORN has been sounding the alarm for years as more and more deregulation stripped protections for consumers and basic safeguards of sound lending.

Senator McCain failed to acknowledge the trigger of this explosive crisis: predatory lending, which entrapped hundreds of thousands of homeowners into toxic mortgages they could not afford fueling record numbers of foreclosures.  If Mr. McCain is unwilling or Read more

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Wanna have some fun?  I have an idea about how to “save” the banking industry.  Through mergers and acquisitions, the banking cartel grew to become infallible.  Dave Shafer pins the tipping point of this crisis to the repeal of The Glass-Steagall Act of 1933.  I’m not so certain he’s incorrect.

The intention of The Glass-Steagall Act of 1933 was to avoid this:

Commercial banks were accused of being too speculative in the pre-Depression era, not only because they were investing their assets but also because they were buying new issues for resale to the public. Thus, banks became greedy, taking on huge risks in the hope of even bigger rewards. Banking itself became sloppy and objectives became blurred. Unsound loans were issued to companies in which the bank had invested, and clients would be encouraged to invest in those same stocks

Do the 1920’s sound like this decade? As Dave Shafer points out,  the Gramm-Leach-Bliley Act of 1999 ENCOURAGED  the financial behemoths  explaining  “economies of scale” as the primary reason for the repeal of Glass-Steagall.  While financial institutions with strong technology infrastructures can reduce the cost of banking processing functions, the GLB act of 1999 discouraged what Greg Swann calls “flinty banking practices” and encouraged rampant speculation, this time in risky home loans rather than new stock issues.

We were so interested in free online banking that we fed the growing gorilla until he bloated to 1600 pounds. Today, we’re shocked that he busted out of the cage and is chewing up the zookeepers and zoo patrons.

Let me try an analogy for those less interested in economic history .  You once had neighborhood grocery stores.  Certainly, economies of scale favor the supermarket approach.  Distribution costs drop which lower retail food prices.  As those supermarkets vertically integrate, they branch out into ownership of trucking companies, slaughterhouses and farms.  Prices keep dropping and everybody is happy. A chicken in every pot becomes two and all praise is given to the phrase “economies of scale”

Then, a company like Starbucks comes around and the demand for coffee, on a retail level, skyrockets.  Supermarket companies, now owning the commodities Read more

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

I’m going to republish a little forecasting I did, about ten months ago, on Active Rain.  I’ll offer some comments in italics (discussing 2009) and welcome yours in the comments section:

Lenn Harley caught something I said a year ago and found it to be prescient (her word); I wish I were wrong.   The comments in her post suggest that I should talk about the upcoming year; I really don’t want to do that because I don’t have great “visions” for 2008.  Some thoughts about the next 12-18 months:

1- More not less of the foreclosure activity we saw these past 5-6 months will continue through 2008.  A combination of ARM resets, tightened loan guidelines, and affordability problems will affect American homeowners in a  dramatic way.  It’s easy to levy the blame on Greenspan, mortgage originators, Wall Street, or REALTORS but at the end of the day, the “greed” ultimately came from the homeowners.  The American homeowner, aided by some opportunistic market participants, got drunk on the drug of materialism, financed by a world wide capital glut.He partied up the profits while the clock struck twelve.  The foreclosures and continued short sales will be the hangover from the five year orgy we had in the first part of the decade.

Well, duh.  I didn’t need a looking glass to see that.  It now looks like Wall Street was the sugardaddy that financed this party, by borrowing from foreign investors.  They’re paying dearly for it today.  The good news for 2009 is that those drunken sailors from Wall Street (my apologies to beer-sipping Navy veterans) are getting rounded up and placed in rehab programs.  We might see some stability after this most recent intervention.

2- The housing recession will extend to the American economy. Homeowners drew upon home equity like a a high-roller draws chips at the Venetian hotel in Vegas.  Nobody will “stand up” for them with the bookies anymore.  The money spigot is shut and won’t be turned on no matter what the Fed does to interest rates.  Less money means less disposable spending dollars.  While, Virginia, there still is a Santa Claus, he Read more

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

This Presidential election campaign is exciting to watch.  Team Obama benefits from the continued free fall on Wall Street.  Sean Purcell reminds us that folks on that side of the aisle like to say “I’m from the government, we’re here to help you” yet the other side is the one proposing massive government intervention by purchasing defaulted mortgage loans from troubled banks.

This is a rework of the RTC plan.  I speculated that it might happen, after reading this article, on Wednesday:

There is something we can do to resolve the problem. We should move decisively to create a new, temporary resolution mechanism. There are precedents — such as the Resolution Trust Corporation of the late 1980s and early 1990s, as well as the Home Owners Loan Corporation of the 1930s. This new governmental body would be able to buy up the troubled paper at fair market values, where possible keeping people in their homes and businesses operating. Like the RTC, this mechanism should have a limited life and be run by nonpartisan professional management.

Sounds like a plausible emergency stabilization plan, right?  Will Congress fast-track this through or will we see Nancy Pelosi go against what Congressman Frank believes, and start saying that the government should not be interfering in financial markets?

Disarray favors Obama.  Stabilization favors Mc Cain.  Will Congress do everything they can to delay this emergency plan until after the election.  After all, they are the government; they’re here to help (if you vote for them).

Point of Disclosure:  In all fairness, Barack Obama conditionally endorsed the Paulson Plan this morning.  The question is , “Can he get Pelosi to play along?”

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

banks and securities firms look to “hook-up” with each other:

Morgan Stanley slumped more than 46 percent in early trading as investors fretted about its ability to quickly find a buyer or cash infusion from a foreign investor. Rival Goldman Sachs Group Inc. skidded 25 percent.

Morgan Stanley shares rallied to close up about 4 percent while Goldman Sach’s stock was lower by almost 6 percent. And Washington Mutual Inc. shares soared more than 48 percent.

The next hangover is gonna be even worse…cuz when the lights come on, we’re all gonna be ugly.