I thought I would post my thoughts on some things going on in the world around us, and try to find out if I am the only one that feels the way I do ..

ON Foreclosures ..
It seems clear that whatever the original intentions of the 'stimulus' package to put money into the hands of tax payers and consumers, actually only resulted in MUCH more money going into the coffers of the banks that created the crisis.  

If you haven't seen it, two guys with a site called THINK BIG, Work small have a very short, but to the point video that explains how and why the stimulus money will NEVER get to the consumer.  In fact, it clearly explains why instead of creating incentives to banks to restructure loans, it actually encourages them to foreclose, and LOSE as much money as possible, so their reimbursement and PROFITS will be greater.  If you don't believe me, check it out yourself at the following link ....


 http://www.thinkbigworksmall.com/mypage/player/tbws/23088/1111003


I confess I have been talking about this for months to others, but these guys NAIL it, and show clear examples of how much money banks are making to NOT cooperate, and NOT refinance existing loans.

As if that is not bad enough, they borrow at the discount rate (less than 1%), and are lending at over 5% most of the time. Their profit margin is the difference. (actual costs of creating the loan are always added on to the loan itself, or paid out of proceeds).  That margin is better now than it was before everything started.

The BOTTOM line is that the guy hired by our President to look out for our interests, is from the Federal Reserve PRIVATE banking system, and quite clearly is taking care of his own.  We can't really be surprised, after all, bankers and investment houses got us into this mess, and we hired a TOP banker to come up with a solution to get us out.  It is like paying a burglar to create a system to protect us from burglars. What is in it for him?  When he leaves his political life, he will go back to?   hmmmm .. where would you suspect ??  BANKING ? However, after he gets done changing regulations, it will be even easier to bilk the public and taxpayers.  We hired the FOX to protect the hen house, and if something isn't done SOON, the banks will own this country, and our National debt will be so great, our entire National budget won't be enough to pay even the interest.

The banks need to be cut out of the equation.  Here is an idea .. what if we use the SBA and CDC to bypass banks altogether ?  The government simply directly places loans to consumers, and takes out the middlemen.  The CDC for example, is an already established ' not for profit organization' that currently assists the SBA fund business loans now.  They could be expanded easily. They operate at flat rates, restricted profits, and thus costs are minimized.  

So with the new 'DIRECT Stimulus package' in place, instead of banks foreclosing on a $500,000 .00 loan, selling the property for $250,000, taking the loss, then getting reimbursed by the FDIC for the loss, plus profit, which results in a once homeowner now on the street, we do try this.  


Eliminate the buying of bad loans from the bank, and tell them they need to renegotiate the loan to save the mortgage at a 3-40 year amortization, 1-1.5% interest rate.  By doing so, they turn a non performing note, into a performing one at full value, but at a lower interest rate.  This is much better than taking a 35-70% write off or loss on the note.  It gets to go back on the books at full value, but with only 50% or so collateralized. The homeowner keeps the house, keeps making his payments, no tax dollars are lost, and foreclosures are abated. Homeowners know they can make the payments, inventory shrinks, property values begin to go up, and confidence starts returing to consumers.


If banks refuse to renegotiate, then it is on them.  They made the loans, they suffer the consequences.  They have a choice.


On the loans already purchased by the FCIC, or the Federal Reserve, or the Real Estate Trust, the The SBA / CDC Mortgage group, offers the properties in their inventory a new way to buy.  Offer to seel the property for the full value of the loan as when they assumed it, but restructure the payments to the buyer (commercial or residential) amortized at 1% interest over 40 years, lowering the payment to one they can afford, and paying back the taxpayers a NICE profit over the term of the loan.  The buyer gets a good deal, because the TRUE cost of the property (purchase price, plus interest over the term of the loan), is actually less than if they purchased at a discounted cost at todays interest rates.  The government takes NO loss, but instead creates a TRUE real estate trust with REAL property as collateral.  There would be new cash flow coming in (principal AND interest) on notes that otherwise would have been sold off at a discount, and the resulting loss moved over as an addition on the ledger to the NATIONAL DEBT.


Buyers would be willing to pay more than the property is worth for two reasons. The first is that they can afford to purchase it, based on the terms, and payment structure.  The second is that they know eventually the properties will be worth what they purchased it for, but that the total cost to them over the term of the loan is less than if they had purchased in under conventional bank financing.  It is a WIN WIN for the government, for the buyers, and for the tax payers.

Stop foreclosure fear, help people to know they will not lose their home or commercial property, and consumer confidence will start returning.  The economy can start growing again. Values will start to rise, and eventually the value of the property purchased will match the value of the loan.  Of course investors, banks, investment companies, and others that stretched themselves too thin will lose, but so what.  CONSEQUENCES provide experience that force us to change the way we do things.  Bailing everyone out, just enables more of the same.

ONE more thing .. Expanding the SBA, and CDC, and other EXISTING organizations is much less costly than creating an entirely NEW bureaucracy. Oh yeah, as an  EXTRA BONUS, all of these new home and commercial property owners are going to now start spending money on their new properties. Now THAT  IS truly STIMULUS.


But it's 'Just a thought' .. 


Michael ..