freddie mac

The Bailout Package???: Guest Contributor – Michael Lissack

An Open Appeal to the President and the Treasury: Humbly submitted by Michael Lissack!

Wall Street and the general public are unimpressed by the latest bailout suggestions. The only solution for our economy is to FIX the mess regarding housing PRICES. The economy is suffering from the risk of foreclosures and the inability of banks to properly value the mortgage assets on their books.  There is a solution.  Create a loan repackaging service at Fannie and Freddie.

Any borrower may ask to have their loan purchased by the repackaging service, but the service should only repurchase loans related to the primary residence of the borrower or a home which had been the declared primary residence of the borrower for at least six months following January 1, 2007.  If a home equity line or a second mortgage exists on a home it must be included in the repackaging.  Loans aggregating more than $1 million per home shall be ineligible.

Loans to be repurchased shall be valued at the lesser of the outstanding principal balance or 100% of the average of three appraisals.  The existing mortgage servicer/holder shall NOT be required to sell the loan (but the existence of the offer will create a market value for marking to market purposes).

The borrower of a repackaged loan shall agree to add a deed covenant granting the repackaging service 50% of the increased value of the home as of the fifth anniversary of the date of the new loan not to exceed the amount of the principal reduction from the original loan and the new repackaged loan.   The home can only be sold during these five years subject to this secondary lien.  The repackaging service can sell the secondary lien to a new owner of the home prior to the fifth anniversary date and to the original owner of the home (if he or she is still the owner) on or after the fifth anniversary date.

The Treasury shall subsidize all repackaged loans such that the stated interest rate for the first five years shall not exceed 4.5%.  New home purchases shall be offered immediate purchase of their loans by the repackaging facility.  This plan will stabilize housing prices.

I have enjoyed conversations with Michael over the years, and I really like his thought process.  What your comments about Michael’s open letter to President Obama?

freddie mac

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!

freddie mac

The Congress Passed The Real Estate Economic Stimulus Bill Today!

President Bush is still searching for an improvement of his legacy…this may be IT!

Today the Congress sent President Bush the real estate economic stimulus package. This is BIG! This morning the Realtors Marketing Association had our State legislator, Guy Houston, share with us his views of not only the importance of this bill, but several other very important legislative measures that need to be passed as soon as possible for Californians. I will give you more information about his comments later in this article. Below is the email I received from the California Association of Realtors regarding the stimulus package passed today.

The Senate version expands rebate checks for seniors and disabled veterans and includes the same increases to the conforming loan limits for both GSE and FHA found in the House stimulus package. The House just passed the Senate version of the bill and it will now be sent to the White House. The President is expected to sign the legislation by the end of the week, ahead of the Congressional self-appointed deadline of February 15^th. The increase in the conforming loan limits will last through 2008, but C.A.R. and NAR continue to lobby for FHA and GSE reform, making these increases permanent.

The U.S. House of Representatives passed a stimulus package last week that raised the FHA and conforming loan limits to as high as $729,750 in high-cost areas. By increasing the loan limits, borrowers will see immediate relief with new liquidity in the mortgage market and the nation will see an additional 300,000 home sales. Research shows that an increase in the FHA limit would enable an additional 138,000 Americans to purchase homes, and 200,000 families to refinance their homes safely and affordably.

Additionally, raising Fannie Mae and Freddie Mac’s (GSEs) conforming loan limit will provide immediate relief to borrowers and alleviate downward pressure on current housing markets. For instance, increasing the GSE loan limit could result in more than 300,000 additional home sales and strengthen current home prices by 2-3%.

The critical role that GSEs play in providing liquidity to the mortgage market has never been more evident than it is today. The national subprime meltdown has had a dramatic impact on both the cost and availability of mortgages in many markets. Since August 2007, the interest rates for jumbo borrowers have been more than 1 percentage point higher than conforming loans, which can cost homeowners up to $400 month in higher interest payments.

Guy Houston’s additional comments today focused on the bill he is sponsoring in the California legislature that will allow consumers to more easily deal with their lenders as they work through the real mortgage crisis that is actually ruining families throughout the State. He also addressed the bill that he sponsored that requires builders that pile on additional fees to new homes to have those fees be spent within the community where they are charged. The California Association of Realtors was not pleased with his bill because they viewed it as a tax. But, today he again explained that it is the first time that the State has mandated developers to spend any money they collect from these fees within the community collected from. Until this bill was passed the developer could spend that money anywhere they wanted. The Realtors Marketing Association has Mr. Houston speak each year giving us an update on what is happening with legislation that impacts real estate. He again did a great job of keeping all of us informed today.

I will keep you posted as to any new developments with any legislative issues that impact our East Bay real estate community. Until next time…