East Bay Real Estate: Critical Financial Times! Paralysis Is Not An Option!

In the midst of the biggest financial meltdown since the 1930s Jim Walberg is still focused on making lemonade out of lemons.

You remember my article about “Do not be fearful”?   Well, this is the most important time to keep a focus on this mantra given the economic meltdown that accelerated in our country this past week.  We need solutions, and we need them fast!  There is no getting around the fact it is a historical financial mess.  My focus is to always get to “what is” as fast as possible, and start making lemonade out of the truck load of lemons that has just been dumped on all of our front porches.

I have a Realtor friend in Naples, Florida.  His name is Mike Lissack.  He is one of the smartest financial minds that I know.  He came to real estate from a long and successful career on Wall Street where he was named by Worth Magazine as one of “Wall Street’s 25 Smartest Players”,  and is one of the top 100 Americans who have influenced “how we think about money.”  Before he retired from money management he directed more than $25 billion of investments, supervised their financial reporting, and assisted in the design of their risk management and investment operations.

So, we are corresponding about the financial meltdown that is surrounding all of us.  He has some pretty interesting ideas as to what he would do if he was in charge of the direction our Nation takes next regarding making sure these events never happen again.  I felt it was important for you to also review what he proposed to me as what he would do immediately.  So, here it is:

Mike Lissack’s view on the financial solutions of our current crisis:

“A vast portion of the mess is caused by the mark-to-market accounting rule and the lack of liquidity (and thus a market and thus a meaningful market price) for uncertain and “tainted” assets (mostly mortgages, credit card debt, and related derivatives).

“The mark to market rules ASSUME a liquid market and thus meaningful market prices.  Such is not our present environment. It is too late in the game to suspend the mark to market rules.  That solution would have worked well a year ago, but today investors would merely be even more spooked by the uncertainty.

“The solution lies in recognizing the shift between equity and debt which the market turmoil has created.  Since the government now control Fannie and Freddie it also controls the very mechanisms to solve the problem.

“Fannie and Freddie should mandate that every conforming loan outstanding be subject to an appraisal for the underlying property.  If the appraisal suggests a loan to value ration in excess of 110%, it is time to recognize that a PORTION of the loan is in reality an equity investment.  All such loans should then be subjected to a mandatory split such that 90% of the appraised value receives a Fannie/Freddie guarantee and the other piece does not.

The first piece would have an established market value based on par for the principal and current interest rates. The second piece would become in effect participating equity.  Banks and borrowers should have the option of exchanging the second piece for up to 75% of the future appreciation in the property valuing each 25% of future appreciation (above the current  appraised value determined above) at 5% of the current appraised value of the home.

“These two steps would restore value to perhaps 70-80% of the currently illiquid uncertain mortgage assets plaguing the US financial markets. The mess would be over.”

Do you get the message?  Mike knows what he is taking about.  Check out his second email to me regarding his thouhts after the AIG bailout.  Let me know your thoughts.  Also, if you want to contact him directly, go to www.Lissack.com .  Until next time….I guarantee we will figure out a way to make lemonade out of lemons with this financial mess.  Do you know why?  BECAUSE WE DON’T HAVE A CHOICE!

Related posts:

1. The Bailout Package???: Guest Contributor – Michael Lissack
2. U.S. Financial Meltdown Bailout – Is It Time For HOPE?
3. Fannie Mae & Freddie Mac Bailed Out Today! Boom Or Bust?

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Filed Under: Blog, News, Real Estate

Tagged: east bay real estate, fannie mae, Financial Crisis, Financial Meltdown, freddie mac, Jim Walberg, Mike Lissack