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Five Key Points on Buying a Short Sale

On September 15, 2010, in Housing, Personal, by Tim

Now that our attempt to purchase a short sale property has come to a disappointing conclusion (see this item from Monday for full details), the catharsis of sharing a few parting thoughts on the subject seemed to be in order so as to, perhaps, help others who might be in the middle of trying to buy a short sale property or thinking about doing so.

In contrast to the plight of underwater sellers, there appears to be little positive to relate from the buyer’s end of the transaction  which consists of varying degrees of uncertainty, frustration, delays, and disappointment in what is an emotional roller coaster ride that no one deserves but, as was the case for the two of us, people are all too willing to give a shot because the house that they really want became available as a short sale at a reasonable asking price.

But, there is good news for short sale sellers – those who borrowed and spent way more than they should have – in that you can probably live there in your own house rent free for quite some time while the banks, real estate agents, and doe-eyed buyers stumble through this process that only seems to serve one purpose – “extend and pretend” for the banks, delaying the realization of losses for as long as possible.

Sellers can play the “extend and pretend” game too. Ideally, you’ll want to try to get your mortgage modified for about a year and, after that fails, then see if you can keep your home listed as a short sale for another year, bolstering your personal finances by tens of thousands of dollars during that time since you’re not making any mortgage payments.

If you think I’m bitter, you’d be absolutely correct.

Here are a few thoughts from an unsuccessful buyer’s perspective that might be helpful to anyone involved in or interested in trying to buy a short sale property.

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Punish the Savers – Part 64

On September 9, 2010, in Debt, Economy, by Tim

Among the many other oddities in our financial world that are now accepted as “normal”, future historians will be left to pass judgment on how, here in 2010,  U.S. monetary policy continues to punish the group that the nation needs most if it is to somehow restore balance to its money flows – savers.  This New York Times story takes up the issue:

Perversely, coming after a devastating financial crisis caused by companies and households that feasted on borrowing, ultralow interest rates are penalizing people who have paid down their debt and are now trying to save. It is also punishing those who rely on the proceeds of their nest eggs to pay the bills.

“It’s the whole point of low rates, to entice borrowing and discourage saving, but it means a massive wealth transfer from savers to borrowers,” said Greg McBride, a senior financial analyst at Bankrate.com. “It is a trend on steroids now because interest rates have been cut to the bone.”

For example, anyone keeping $500,000 in a 12-month certificate of deposit earning a rate of 1.5 percent annually — one of the best savings rates available nationally these days — would earn $7,500 a year, hardly enough to live on. Just three years ago, that same investment would have generated $26,250.
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“You have spent your life being prudent, building a nest egg for your retirement, and now the returns are terrible,” said Todd E. Petzel, chief investment adviser at Offit Capital Advisors, a wealth advisory company in New York. “I am 58 years old. I know lots of my peers who are thinking of retiring, and they are scared to death.”

I really feel for a lot of these fifty-somethings and their elders who are just now learning how central bankers have stacked the deck against them and are, unjustifiably, as scared of owning gold as they are of outlasting their meager savings, now earning one percent.

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Copper, Citibank, and Long Term Investing

On September 7, 2010, in Bonds, Our Culture, Stocks, by Tim

We’ve been hearing a lot about the troubles of 104-year old copper heiress Huguette Clark because the Clark fortune was made in these parts and the local news outlets  never seem to tire of retelling the rich history of mining in Southwest Montana. Now, the story seems to be going global, the Telegraph filing this report and another account coming from down under.

A LAWSUIT accuses Citibank of costing a 104-year-old heiress’ trust fund up to $US80 million ($87 million) by failing to invest its money properly, the New York Post reported overnight.

More than 70 years after a $US3 million fund was established for reclusive Manhattan copper heiress Huguette Clark “the trust’s value was still only $US3 million” because it was never invested in stocks and bonds as it should have been for at least part of that time, claim explosive documents filed by two former Citibank trust officers.
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The two former trust officers are soon set to meet with the DA’s office, which is probing possible mismanagement of Ms Clark’s $US500 million fortune by her lawyer, Wallace Bock, and accountant, Irving Kamsler.
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Ms Clark’s trust fund was set up by the heiress’s mother, Anna, in 1926, the year after Ms Clark’s father, US Senator William Clark, died. The eccentric heiress spent her life obsessively collecting dolls and shunning visitors, marrying once – briefly – and having no children. She has lived for the past two decades in Manhattan hospitals.

Her story only came to light recently after the media reported that Mr Bock kept her few, distant relatives from visiting her and had not objected to a convicted sex offender, Mr Kamsler, serving as her accountant.

This MSNBC story was apparently what prompted this latest round of news coverage. Whether the charges have any merit or not remains to be seen – it’s just kind of nice to know that somebody is suing Citibank for something.

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TARP2 and Millions of New Visas

On August 31, 2010, in Economy, Housing, by Tim

Hedge fund manager and author Andy Kessler recounts the recent history of the U.S. failing to rid itself of toxic assets and proposes some solutions to today’s economic and financial market ills in this Wall Street Journal op-ed($) today.

• QE toxic. The Fed’s quantitative easing has been focused on buying Treasurys as well as packages of high-quality mortgage assets. It’s time to go back to the original TARP and start buying toxic assets directly from banks, no matter the price. If they become insolvent, set up the Treasury to inject capital a la TARP2 and allow the Federal Deposit Insurance Corporation (FDIC) to implement a quick-turnaround, prepackaged bank resolution and receivership. Clean those balance sheets up for good, else we relapse into financial crises again and again.

• Import buyers. Someone has to step up and buy those 1.5 million extra homes in inventory. I would wager there is a backlog of high-paying jobs for educated foreigners well beyond what H1-B visas allow to trickle in. In the name of financial stability, create a million visas for qualified immigrants, say, those with a masters or Ph.D., and watch home prices start to rise.
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There are so many price distortions that markets, let alone business leaders, are confused as to what is real. So they sit on their hands. The only way out is to let prices go to where they need to go to clear the overhang. This is especially true of housing and the housing assets clogging up bank balance sheets. Next time banks are under fire (and I hope we are not heading toward a next time), buy them out, fire management and restart the franchise with a clean bill of health. We are starting to see what the alternative is.

That sure sounds like a better plan than the one that we’ve been working to over the last couple years. As an addendum to that last item, it sure would be nice to get the banks out of the business of selling houses because they seem to be much more content to sit on them at their “mark to fantasy” prices than sell them, a development that, left unchecked, could result in another lost decade following the one that we just started.

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Beware the Banks’ New Credit Cards

On August 30, 2010, in Banks, Consumerism, by Tim

More evidence that banks and other institutions are already finding ways to skirt recently enacted regulations designed to protect consumers and will, someday, probably make an even bigger mess than the one the nation is still in the process of cleaning up comes in this WSJ report about purveyors of credit cards becoming quite creative recently.

Amid all the junk mail pouring into your house in recent months, you might have noticed a solicitation or two for a “professional card,” otherwise known as a small-business or corporate credit card.

If so, watch out. While Capital One Financial Corp.’s World MasterCard, Citigroup Inc.’s Citibank CitiBusiness/ AAdvantage Mastercard and the others might look like typical plastic, they are anything but.

Professional cards aren’t covered under the Credit Card Accountability and Responsibility and Disclosure Act of 2009, or Card Act for short. Among other things, the law prohibits issuers from controversial billing practices such as hair-trigger interest rate increases, shortened payment cycles and inactivity fees—but it doesn’t apply to professional cards.

Until recently professional cards largely had been reserved for small-business owners or corporate executives. But since the Card Act was passed in March 2009, companies have been inundating ordinary consumers with applications. In the first quarter of 2010, issuers mailed out 47 million professional offers, a 256% increase from the same period last year, according to research firm Synovate.

I’ve noticed these coming in the mail lately, but, like every other credit card solicitation, they quickly end up in the circular file. There has been only one exception though. We recently took American Express up on their gold card offer in return for getting a free Bose SoundDock Music System after we make $100 in purchases. The annual fee goes from free to $175 after a year, so, you know we won’t end up being long time gold card holders.

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INSIDE JOB

On August 25, 2010, in Banks, Economy, Our Culture, by Tim

Here’s what looks to be one of the better films about the financial crisis – INSIDE JOB – from Academy Award nominated filmmaker Charles Ferguson, narrated by Matt Damon.

Favorite line: “These people are risk takers, they’re impulsive. You see a lot of cocaine use, prostitution” and don’t miss another smackdown of Hubris Incarnate with a Fatter Wallet (Frederic Mishkin) at about the 1:35 mark.

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