[Jim Brubaker]

I think that its a good acceleration indicator.

There are some tricks here that you are overlooking. A Realtor can withdraw the listing and then resubmit it as a new listing with a lower price. That way it won’t show up as a reduction.

A second thing that happens, the Realtor will list the price at some ridiculously high amount. Then he lowers it to a more reasonable level but still quite high. In walks the man with the ego who wants to go a little lower to his price or nothing. Bang you got him.

Another item I would like to figure out a way to track are the FISBO’s.

[Jim Brubaker]

I beg to differ. Even though what we are expressing are just opinions. The first two cycles that you mention, I wouldn’t classify a bubbles. There is no argument over the present one as it is a bubble.

Most home owners are in and out of the market every 5 years. If you have a no doc I/O loan, your going to walk in the next two years. If you don’t walk, I can almost guarantee a divorce in 3 years and then a forclosure. Money problems will ruin any marriage.

The baby boomers are starting to retire, and when LA says that crime has dropped 25%, its not better law enforcement, its 25% fewer young people to buy baby boomer houses.

To add some levity to the discussion, the Titanic was a big ship that turned slowly.

What we are looking at here is, people have borrowed 6 trillion dollars in the last 5 years. Who is holding the paper? I just hope its not my IRA!

If you look back at history, most of the loans that defaulted in the 1930’s were interest only loans. When the poor sucker went to refinance, the bank would refuse to refi. It didn’t have the money to say yes.

I say 5 years to bottom.

[Jim Brubaker]

She said it had been listed at $799,000 but “now it is listed at $699,000-$729,000.”

In your above quote, how does the variable price work. I thought that the house was apraised at a certian value and you went from there. Will the house appraise for 729,000, and if it does, does that mean that a bid of 699,000 entails some sleigh of hand? What does a house value that has a range mean to the buyer?

[Jim Brubaker]

It is a toss up right now.

We are on the edge of a sword. Fall to one side and its deflation fall to the other, hyperinflation.

I don’t know how much you have in funds to invest, but here is a link to treasury bills, which you can buy directly and you don’t have to mess around with the banks $100,000 fdic insurance limit
http://www.publicdebt.treas.gov/sec/sectndr.htm

I would recommend the 3 month t-bills which are renewable and stagger them so they don’t come due all at once.
I’d also recommend putting 10% of your assets in gold, which ever way the market goes, the price of gold should move one decimal point in 20 years.

Cash could be king in the near future, If people default on their bills, interest rates have to go up.

Having a high liquidity is a rare state to be in for most people today, I would hold on to the cash and wait
opportunity is close by.

[Jim Brubaker]

How can you justify the cost?

I bought a house in 1985 as a rental, real good price, my payements were 300 and the rent I received now is 825.

I made my living in San Diego selling VA repos to investors that wanted rental real estate in 1998. In 2001 I couln’t look someone in the eye and tell them it was a good time to buy real estate.

In order to invest in real estate sucessfully, you need to be able to purchase the place for 100 times the monthly rent. That isn’t going to happen around here real quick.

The question you have to ask yourself, why would anyone buy real estate to rent at a negative cash flow?

Of the answers I can think of, common sense is not one of them.

[Jim Brubaker]

What is Fanny Mae?

Congress created Fanny Mae and Freddie Mac. Their purpose was to buy bank loans made for purchasing a house. A bank or lender only has so much capital. Once its reaches a limit of assets -deposits, it cannot loan any more.

At this point the loan is sold to Fannie Mae and the bank gets their capital back and can reloan the money. They get to keep a management fee say 1% for watching over the loan (I could be wrong on this), but as I understand it, if they can turn over say 1,000,000 10 times in one year they can make 10% on management alone.

Fannie Mae packages these loans in packages of say $10 million and sells them on the open market. Now from what I understand, if the package doesn’t perform as expected, it can be returned or the bad stuff is exchanged for good stuff.

Mind you there is an expected number of loans that will be payed off early and and expected number of defaults.

Now the clincher is, that since it was created by the Congress, there is an implyed guarantee that it cannot go broke. That is why people are so eager to buy the packages. Your 401k is not guaranteed and neither is your IRA.

Now say they get 1% off of each transaction also, every piece of crap that is rubber stamped in a rising economy isn’t going to smell bad in a rising real estate market. It will be sold at a profit and put back into the pool.

With the real estate market going up, their ability to accept all and every loan doesn’t really come into question. Lets make money and lots of it.

Its when the market starts to go down. From what I have read between the lines, is that Fannie Mae’s packages to investors lately have a higher rate of default.

The question that is arising; are they taking their bad loans and throwing them into a new package for investors, giving them a few months of lag time before they are returned as bad? They are being accused of this presently although indirectly. Congress has told them to divest some of their holdings.

There is also another thing they can do since they are so big. They can take an options position on the market, put or call and then sell their package at a loss and make a bundle on the position. (This is not what they are really doing, their method is very convoluted, this is just a way of simplifying it. The Wall Street Journal had an article on how they could lower interest rates that was more definitive).

Hope this is of some help to you

[Jim Brubaker]

Right now Fanny Mae guarantees their packages that they sell to the bond holders. I don’t think that that can last.

These Mortgage bond holders, are probably 401k’s, IRA’s and other non Federally insured retirement accounts.

They’ve taken 6 trillion dollars of real estate and revalued it at 12 trillion. Marking that to market could be very painful for everyone of us.

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