Richard's Real Estate Thoughts

Over the last several months, my persistent question is how 6% foreclosure rate can bring down a housing market, then a credit market, then a banking industry, then a national economy, then a global economy.

The numbers have never added up.

The Great Depression had 25% unemployment. We have been in the 5% unemployment range. GDP fell this quarter, but less than expected. Not a definition of crippling credit crisis and global recession.

The numbers do not add up.

FNMA and Freddie Mac made A paper loans, full documentation. How did they get in shape to require a bailout?

The numbers do not add up.

Then I learned Fannie and Freddie bought "credit enhanced" subprime loans and Alt A mortgages. These purchases were outside their charter. They bought the mortgages with full knowledge of Congress and the regulators.

How did they get away with it? My guess - lobby money.

What is a credit enhancement? At first I did not understand that phrase.

Some months later I learned what credit enhancement means - insurance in the form of a credit default swap.

A credit default swap is a way to share risk on an investment. It is an unregulated market. Why is it unregulated? It is allowed because of the Commodity Futures Modernization Act passed in 1999 and signed by President Bill Clinton.

Why was this move to unregulate the investment industry taken so soon after the S&L crash? My opinion is lobby money.

Reading about credit default swaps can cause confusion.

The credit default basically is a guarantee given for a paid premium. The guarantee is that should a bond fail the bond investor will be reimbursed in full the bond amount. Bonds typically do not fail. Seems like good income for the credit default insurer, for a low risk.

Even if the bond fails, most likely the failure should not wipe out the entire bond value.

My question is how did credit defaults cause the entire industry to crash. If the bond fails, credit default pays and takes the partial loss on the bond default. How can these losses be so high?

The numbers do not add up.

A little further study on credit default swaps. The actual credit default market is in the range of $60 trillion.

Now misplacing $60 trillion can mess up an economy.

The entire mortgage debt is $12 trillion. How can the credit default swap market that is supposed to be a guarantee for some of the bond holders (not all) in case of default of a particular bond?

I asked some knowledgable mortgage people this question. The answer. No one really understood. "It is complicated."

The numbers do not add up.

Take time to read this NPR report. Here is the NPR audio report of how credit default swaps work. Come to find out. Credit default swaps are not complicated. They simply are a swindle, a massive swindle, approved by Congress.

Investment bankers oversold the credit defaults. They swindled investors selling insurance that they could not back their guarantee. They allowed gambling on bond defaults by risk takers who purchased insurance on assets they did not own. They created mortgage loan programs that were fundamentally speculative and led to excessive defaults.

The authorities in Congress and in the regulatory agencies do not want a qualified family to be able to use seller funded down payment assistance to purchase a home with an FHA loan. But they are OK with a hedge fund overleveraging a bond guarantee and bringing down the world economy.

The authorities in Congress and in the regulatory agencies do not want a qualified family to be able to use community reinvestment funds or 100% conventional lending to purchase a home without a down payment. But they are OK with investment banks sellling bogus, unregulated, under capitalized insurance to bond investors.

Why are they OK with this? My guess - lobby money.

The authorities in Congress and in the regulatory agencies want to blame the families who worked to make house payments or loan officers who followed program guidelines. They want to distract attention from this very real and massive fraud and shift attention to minute errors on a truth in lending disclosure or lender paid service release premiums.

They want to focus attention on tens of dollars so we miss trillions of dollars.

My opinion is that a vote for an incumbent is a vote for corruption. But that is just my opinion.

BTW, that $700 billion bailout that was supposed to buy defaulted mortgages and rehabilitate them so they could be resold into the mortgage investment market - who is getting the money? And what is it being used for?

For those who are pissed at the media, it may be your anger is a little misplaced. Keep the finger pointed straight at Congress and the investment bankers. The ones who put us in this mess are the ones who are responsible now with getting us out, debating the new regulatory environment and in charge of $700 billion to bail out our economy.

Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

FHA, VA, Rural Development, Reverse Mortgages, Construction Permanent, Renovation,
FHA Renovation, Mortgage Modification and Loss Mitigation

Mortgage lending offices located in Chattanooga, TN
rsmith@aamonline.com

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There is more on the use of bailout funds in today's AP press. Banks are apparently using the capital investment funds to purchase other banks. At least a partial purpose for these acquisitons was mentioned to ease the possible need for Federal takover of weaker banks and to strenghten the overall banking system.

This may be a good policy goal, although it looks more like government is now in the business of determining which banks will win out and which banks will lose.

To me it just seems like more indication that the bailout lacks direction and its effectiveness may very well be lessened  as a result.

It may be that the markets are not responding well and quickly in part because the bailout is not restoring markets, it is not helping stabilize housing, assisting struggling home owners, reducing foreclosure trends, rewriting high interest rate adjustable loans, buying back defaulted mortgage, or even making new loans.

None of the intended use of the funds that I read said anything about helping big banks get bigger.

I would love to hear your comments.

One of the problems with approving the initial bailout plan was that there were few details about the details and the mechanics of purchasing defaulted loans. Further problems with passing the bailout was concerns whether purchasing the mortgages would actually help with the mortgage markets. Questions were also asked as to how the bailout purchases would help struggling homeowners and slow foreclosure trends.

The plan was passed after much pressure and much pork was added.

Then the plan was changed to focus more on purchases of bank stock, with the idea that adding capital rather buying defaulted mortgages would have greater impact on market liquidity.

Over the weekend it appears that bailout money might come available for other market participants, to include insurance companies, auto makers, transit agencies, hedge funds, security dealers, foreigh banks.

This is to me a scary proposition, that the funds will be misdirected and totally miss the intended purpose.

We passed a vague bill, with lots of pork, but little specifics for the main piece of legislation and little oversight.

Without a direction and a plan, we may now be about to misdirect the bailout funds so that they so diluted as to be insufficient to have the corrective impact that was hoped.

Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

FHA, VA, Rural Development, Reverse Mortgages, Construction Permanent, Renovation,
FHA Renovation, Mortgage Modification and Loss Mitigation

Mortgage lending offices located in Chattanooga, TN
rsmith@aamonline.com

Join me on LinkedIn, Facebook, Twitter

The Federal Reserve determines and carries out monetary policy to promote goals of high employment, sustainable growth, and stable prices. The Reserve tightens monetary policy to curb inflation. It loosens monetary policy to ease unemployment.

There are three basic tools that the Reserve uses to implement monetary policy. Open market operations, discount window operations, and establishing banking reserve requirements.

Open-Market Operations are the purchase and sale of government securities issued by the Treasury Department and sold by securities dealers. It is called Open Market because these purchases are made on the open market from approved securities dealers. Purchasing the securities infuses cash into the banking system by putting the cash into the dealers' own depository banks.

The reserves of these banks are increased which enables them to lend more to consumers or other banks through the federal funds accounts.

The use of open market operations - buying more securities to infuse cash or selling more securities to limit cash - has as the present goal targeting the Federal Funds interest rate. That has not always been the goal. In fact open market operations has not always been the primary tool for monetary policy. It has evolved into its present role since the Depression, focusing at times on the money supply and at times on the Federal Funds Rate.

The primary target now seems to be just bare liquidity.

Have the bank losses from foreclosures, securities, derivatives, credit default swaps, dropped the bank reserves so low as to require these hundreds of billions of dollars just to keep the banking system at its 10% reserve requirement?

Is the Federal Reserve infusing massive amounts of money, by buying securities, simply replacing balance sheet capital that has been lost?

Who has the money that has been lost?

If a home is bought with a loan $100,000 and is foreclosed and sold at $80,000, the home owner has lost a home and the bank has lost $20,000. But has the money supply fallen by $20,000?

The bank has lost $20,000 capital, and therefore cannot make $200,000 in new loans.

Is this the problem that the cash infusion is fighting?

Are there other issues?

In normal times the Federal Reserve uses open market operations to offset normal fluctuations in money supply, technical adjustments to allow for moderate growth and to counter temporary supply fluctuations caused by the normal conduct of business at a national level.

At times the Federal Reserve decides to act to fight unemployment or inflation. To do this the Reserve will increase or decrease open market purchases more than needed for daily technical correction.

The recent infusions though go beyond technical adjustments or even inflation or employment targets.

What is the target? What is the future impact? Have we permanently increased the money supply? Who has the lost money? Will the Federal Reserve need to counter this current cash infusion later with an equally restrictive policy?

Who might know the answers to these questions?

Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

FHA, VA, Rural Development, Reverse Mortgages, Construction Permanent, Renovation,
FHA Renovation, Mortgage Modification and Loss Mitigation

Mortgage lending offices located in Chattanooga, TN
rsmith@aamonline.com

Join me on LinkedIn, Facebook, Twitter

Dr Kay Andrews, Vice President of Education Initiative with the Chattanooga Chamber, spoke Thursday morning at the Enterprise Gateway Council Chamber meeting. She talked about the importance of education from kindergarten through the secondary grades to sustain the growth and development that Chattanooga has experienced over the last decades.  She described the job expectations of the coming Volkswagen plant. Competency in math and science, loyalty, problem solving, dedication, experience, mature.

Additionally along with the Volkswagen plant, new suppliers for the VW plant will bring employment opportunity to the many counties around the Chattanooga area. These employers will also demand competent and educated workers. She offered statistics from Greeneville, SC who several years ago experienced the changes brought by the BMW plant, showing the promise and the demands which we now face.

Here are the headlines from today's news paper.

Times Free Press Training will ensure VW quality to maximize the benefit to the Chattanooga area - otherwise the "company will import talent from outside." We need to remember there are a lot of newly unemployed, experience automotive workers who may be interested in moving down south.

Associated Press Children less likely to graduate , the "US is stagnating while other industrialized countries are surpassing us."

The City of Chattanooga impressed the Volkswagen representatives by its successful transformation of the city - downtown renovation,  the park system, the cultural offerings, the outdoor amenities, the push for environmental standards, the foresight to create the industrial park at Enterprise South.

Chattanooga has a proven track record of successful corporation between government, business, and community groups. We have cause for pride, but we also cause to get to work to be ready for the changes about to come upon us.

We are moving from being a town with world class potential to being a city with world class expectations and demands.

Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

FHA, VA, Rural Development, Reverse Mortgages, Construction Permanent, Renovation,
FHA Renovation, Mortgage Modification and Loss Mitigation

Mortgage lending offices located in Chattanooga, TN
rsmith@aamonline.com

Join me on LinkedIn, Facebook, Twitter

The Housing and Economic Recovery Act, the housing bill, passed in July provided for increased loan limits to $417,000 for FHA's Reverse Mortgage, the HECM. The bill called for the limit to be increased to equal the Freddie Mac limit for a single family home.

FHA has interpreted this provision by setting a single, national loan limit of $417,000. This new limit was expected to be effective November 1, 2008, but several lenders have been authorized to process and close HECM loans at the higher limit effective immediately.

This is exciting news for many of the nation's seniors, opening the availability of reverse mortgage to many who previously were not qualified.

FHA HECM reverse mortgages offer seniors the highest payout, significantly higher than is available with the conventional loan version, called

Reverse mortgages "do not require repayment as long as the home is the borrower's principal residence."

Basic borrower eligibility requirements are

1. minimum age 62
2. own the home
3. occupy the home as the primary residence
4. participate in an approved HECM counseling session

Call for more details. 

Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

FHA, VA, Rural Development, Reverse Mortgages, Construction Permanent, Renovation,
FHA Renovation, Mortgage Modification and Loss Mitigation

Mortgage lending offices located in Chattanooga, TN
rsmith@aamonline.com

Join me on LinkedIn, Facebook, Twitter

Halloween is near.
Beware of these five haunts.

Rot-N-Casket

Just off 153 at Lee Hwy, next door to America's Thrift Store is the

Hours are 7pm until close.

Sir Goony's is thought to be the best by some.

Hours start at 8pm. For more info call: 423-892-5922

The Haunted Hilltop was voted the best in 2007.

Friday and Saturday from 7pm, with Halloween Night fireworks at 9pm. Located 1 mile north of the lake on Hwy 58.

Call (423) 488-3956.  Admission is only $15.00 for all 3 events!

Rock City opens the Forest of Fear and the Enchanted MAiZE.

The Forest of Fear is open every Friday & Saturday in October.
The trail opens after dark (generally 8:00 pm) and is open at least until 10 pm. Many nights especially late in October the Forest of Fear will be open later to accommodate guests.

The Enchanted MAiZE is open
Thursday-Sunday September 19 - November 1
The hours of operation are based on the date.

MAiZE Days $9 adult MAiZE Nightz $10 adult
Forest of Fear $15

The Haunted Cavern at Ruby Falls

Opens at 8pm. Call 423-821-2544. 

Happy Halloween.

Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

FHA, VA, Rural Development, Reverse Mortgages, Construction Permanent, Renovation,
FHA Renovation, Mortgage Modification and Loss Mitigation

Mortgage lending offices located in Chattanooga, TN
rsmith@aamonline.com

Join me on LinkedIn, Facebook, Twitter

Ketner's Mill is one of the annual country fairs in the Chattanooga area. The fair make for a very enjoyable day.

I did not make it to Ketner's Mill fair, but several friends did. James Hicks is one who made the trip to Sequatchie and had a fun time with his family. James mentioned that the festival seemed smaller this year.

James was gracious enough to give permission to post some of his photos from the fair. You can see his slide show on Flikr.

Ketner's Mill

The view at Ketner's Mill fair.

Horse pulling the surghum press.

Blacksmith at Ketner's Mill.

Bread Basket, one of vendors at Ketner's Mill.

Thanks to James Hicks for sharing his photos.

Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

FHA, VA, Rural Development, Reverse Mortgages, Construction Permanent, Renovation,
FHA Renovation, Mortgage Modification and Loss Mitigation

Mortgage lending offices located in Chattanooga, TN
rsmith@aamonline.com

Join me on LinkedIn, Facebook, Twitter

Coolidge Park was the site of this year's Culture Fest.  This festival provided the opportunity for our citizens to learn about the many cultures which make up our community.   The cultures represented were from: the Philippines, Scotland, Ireland, China, and India. There were booths representative of Africa, Asia, South and Central America as well as our own Native American culture.

The first sight that greeted my eyes was that of children of all ages playing in the fountain.  Their squeals of delight set the tone for what I observed next.  Families both young and old gathered for a day of fun and learning...a mixture of many cultures and smiling faces. 

Chattanooga CultureFest, photo from RiverCity Company website

On September 27^th various groups set up tents sheltering displays which contained information about particular cultures as well as objects of art and clothing or accessories.  Organizations, which support different cultures, were also present letting the community know what was available.

The stage was used to showcase the dances and songs of different nationalities.  The participants wore clothing representative of their mother country. Some groups encouraged audience participation.  In addition there were demonstrations of athletic prowess from the Scottish and Asian contingents.  My students enjoyed the wall upon which they were able to place a sticker on the country of their origin. 

Of course, face painting, a festival tradition, was available.  One could also have his/her hair braided, or have a likeness captured in an oil pastel portrait.  For those who like body art, application of henna was available.

It was an opportunity to learn to appreciate our uniqueness and commonalities as Americans.  It was a time to reflect on how special our country is, to understand what it means to be a democracy, and to recognize what a fascinating blend of cultures our nation represents...We represent the world!

Guest blogger Susan Reid.

Coolidge Park is one of the top features of the Tennessee River Park system in Chattanooga. This weekend it is the site of the Girls Incorporated of Chattanooga Kick It for Girls Kickball Tournament. 

Girl's Incorporated was started in 1961 to support the needs of girls to grow, to take risks, to strive for academic excellence, to make healthy choices. Programs included a summer camp, a fall camp, and this kickball tournament.

Coolidge Park is a great place to enjoy a family outing. It will be even better this weekend watching these girls have fun playing the old time fun favorite - kickball.

 The Fall Break Camp is going on this week with challenging and stimulating sessions for girls ages 6-11 about science, technology, engineering, and math, for girls 8-14 about developing business plans and product design and marketing, for girls 14-18 about government, politics and advocacy.

The kickball tournament will be a fun time for the players and the observers.

Coolidge Park field, site of this Saturday's Girl's Kickball Tournament.

Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

FHA, VA, Rural Development, Reverse Mortgages, Construction Permanent, Renovation,
FHA Renovation, Mortgage Modification and Loss Mitigation

Mortgage lending offices located in Chattanooga, TN
rsmith@aamonline.com

Join me on LinkedIn, Facebook, Twitter