It is important to take a step back as our global and national economies continue to struggle with headwinds. Are we experiencing real growth or are we in full recession? I believe we can easily eliminate the first option. Payroll reports, unemployment, exports, manufacturing, etc. We are in a weak spot with few bright spots to cheer us up. Although rents, home prices and home sales have increased slightly in real property, keep in mind that these numbers are still lower than the previous lows. While this would represent a significant 10% increase in percentage terms from what you used to earn in salary per month, which was $10,000, the price of a home has recently risen to $5500. It would probably not excite you. Real estate is the same. I expect prices will remain flat for at least two more years.
The technical definition of a recession is two consecutive quarters in which there has been economic contraction. Other definitions, such as the International Monetary Fund’s, indicate that our country and many other countries are in recession. Even politicians, not known for being honest and open, don’t claim that we are in good times. Let’s take a look at some examples of what is actually happening.
We learned last week that Scranton, Pennsylvania, had only $5000 in its bank account and that all public workers were being paid $7.25 an hour. This includes the mayor. San Bernardino, a California city of 209,000 people, just filed for bankruptcy. It is likely that other cities will follow suit. The common theme in most trouble municipalities is high levels of deficit spending, excessive union wages, and outrageous pension obligations. Sometimes, bankruptcy is the only option to lower costs and bring back prosperity to a city.
As I’ve said before, the economy must find its natural bottom if it is to recover fully. Instead, both the federal and state governments continue offering silly programs that have failed in the past. One of my favorite quotes was “Government – If you think that the problems we create in our society are bad, wait until you see how we solve them.” California’s governor is about to sign a law that will make lenders less likely to foreclose. I think some parts of the law are sensible and I support them. These include (1) not starting foreclosure simultaneously with loan modifications, (2) requiring banks and lenders to assign one group to each mortgage situation, and (3) banning robosigned documents. The remainder of the bill is a mess that will only increase costs for lenders who in turn will pass those costs on to consumers.
Federal Housing Administration (FHA), at the federal level is in serious trouble. FHA covers loans that require only a 3.5% downpayment and will accept payers with credit scores below 580. The FHA, along with fellow government-associated entities Fannie and Freddie are responsible for 90% of home loans in the U.S. FHA loans that were not in compliance rose 27% over the first quarter 2011, and foreclosures increased 17%. Meanwhile, nearly half of all government-guaranteed mortgages that had been modified defaulted again within 12 months (source: 7/9/12 CNN Money).
The FHA model is clearly in trouble and taxpayers will need to come to its rescue. If a 3.5% downpayment is required, but the closing costs of the property include 5-6% realtor commissions and 2% other closing costs, the property will be upside-down even though its value is stable.
The Federal Reserve, which keeps interest rates low and punishes savers, constantly puts money in the market, as well as snuggling up to the big banks, is responsible for the monetary policy. They have failed to achieve anything so far and will not succeed in the future. Simon Black said that they have a false premise that guides their decisions. They believe we can all become wealthy by borrowing and consuming, instead of producing and saving. It is time for us to pay the price. Command-control political elites possess a “recessionary gene” that allows them to make decisions that sound good to slow learners, but defy common sense in all aspects. We will not see true recovery unless they get out of their way.
Alan Noblitt, a note buyer, also assists people who wish to learn how to sell mortgages. You can find information about how to sell mortgages in the Articles section or by clicking on the You Tube button located on most pages.
The technical definition of a recession is two consecutive quarters in which there has been economic contraction. Other definitions, such as the International Monetary Fund’s, indicate that our country and many other countries are in recession. Even politicians, not known for being honest and open, don’t claim that we are in good times. Let’s take a look at some examples of what is actually happening.
We learned last week that Scranton, Pennsylvania, had only $5000 in its bank account and that all public workers were being paid $7.25 an hour. This includes the mayor. San Bernardino, a California city of 209,000 people, just filed for bankruptcy. It is likely that other cities will follow suit. Common themes across all problem municipalities are high union wages, excessive pension obligations, and deficit spending. Sometimes, bankruptcy is the only option to lower costs and bring back prosperity to a city.
As I’ve said before, the economy must find its natural bottom if it is to recover fully. Instead, both the federal and state governments continue offering silly programs that have failed in the past. One of my favorite quotes was “Government – If you think that the problems we create in our society are bad, wait until you see how we solve them.” California’s governor is about to sign a law that will make lenders less likely to foreclose. Some parts of the law are sensible and I support them. These include (1) not starting foreclosure simultaneously with loan modifications, (2) requiring banks and lenders to assign one group to each mortgage situation, and (3) banning robosigned documents. The remainder of the bill is a mess that will only increase costs for lenders who in turn will pass those costs on to consumers.
Federal Housing Administration (FHA), at the federal level is in serious trouble. FHA covers loans that require only a 3.5% downpayment and will accept payers with credit scores below 580. The FHA, along with fellow government-associated entities Fannie and Freddie are responsible for 90% of home loans in the U.S. FHA loans that were not in compliance rose 27% over the first quarter 2011, and foreclosures increased 17%. Meanwhile, nearly half of all government-guaranteed mortgages that had been modified defaulted again within 12 months (source: 7/9/12 CNN Money).
The FHA model is clearly in trouble and taxpayers will need to come to its rescue. If a 3.5% downpayment is required, but the closing costs of the property include 5-6% realtor commissions and 2% other closing costs, the property will be upside-down even though its value is stable.
The Federal Reserve, which keeps interest rates low and punishes savers, constantly puts money in the market, as well as snuggling up to the big banks, is responsible for the monetary policy. They have failed to achieve anything so far and will not succeed in the future. Simon Black said that they have a false premise that guides their decisions. They believe we can all become wealthy by borrowing and consuming, instead of producing and saving. It is time for us to pay the price. Command-control political elites possess a “recessionary gene” that allows them to make decisions that sound good to slow learners, but defy common sense in all aspects. We will not see true recovery unless they get out of their way.
Adam Mcbrian, a note buyer, also assists people who wish to learn how to sell mortgages. You can find information about how to sell mortgages in the Articles section or by clicking on the You Tube button located on most pages.