Bailout Blackjack
"Bailout" has been the buzzword for weeks now as the Administration continues to look for ways to boost investor confidence in a market undermined by the securitization of mortgage loans. The real question is what does the government do with all these loans once it has acquired them from the banks that it decides to bailout?
Here is the gamble. Let's say ABC Bank has a pool of $100 Million worth of loans it needs to unload in order to return to a condition of reasonable liquidity−$24 Million is in default and $76 Million is current. Given the uncertainty in the market right now a prospective investor might only be willing to pay 30¢ on the dollar for the entire pool, or $30 Million. Ouch! So, the government steps in, attempts to more fairly assess the value of the pool based on possible additional defaults and pays let's say $66 Million (assuming an additional $10 Million defaults). Now what? First task is to work with the $24 Million in default to arrive at a workout with as many of those borrowers as possible; second, hope that less than $10 Million in additional loans go bad.
If the gamble pays off, the government and the taxpayers who fronted the capital for this bet win. If not, the economy sustains further losses. Desperate times call for desperate measures, so something had to be done. But as you can see from this example, there is a lot of room for error−not the least of which is the correct valuation of the pool. The good news is that there will be an aggressive push to stem the tide of foreclosures.
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What's the big idea?
Chill Factor 
In October of 1993 I was living in a small apartment in Brighton, Massachusetts about 2 miles from the Harvard Law School campus just outside of Cambridge. As fate would have it, the beginning of my legal education coincided with one of the worst snowstorm seasons in the Northeast and I did not have a car. Snowfall in metropolitan areas is pretty for about 20 minutes before it gets mixed in with the dirt and oil on the roads and pushed into huge piles onto the sidewalk by trucks clearing the road. This means you are often forced to walk in the street with cars passing by that have little traction. During my two mile walk to campus everyday I discovered something called a "wind chill factor"-the difference between the actual temperature, say 30 degrees, and the fact that it feels like 10 degrees when the wind hits you (especially if you haven't yet discovered the tremendous advantage of more layers of thin clothing rather just a big bulky sweater or jacket).
This morning for some reason those bone-chilling walks came to me as I looked out at the sunshine. I realized that the term "wind chill factor" doesn't exist for people living in Southern California. Somehow I find it much easier to think our real estate market in Southern California will rebound as it always has, since the only "chill factor" we deal with involves a lounge chair and a mojito.
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The Equinaire Real Estate Market Report is intended to provide you with timely answers to topical issues concerning the real estate market. If there is a specific topic that you would like to read about, please reply to this email and let
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Kwame J. Granderson
Equinaire
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Featured Property
Location: San Jacinto
Peak Price: $349,000
Approx. Market Value:$200,000
Avaiable at: $119,000
Projected Rent:$1,500
Mortgage Pymt (30 Yr Fixed)
Approx. $580
* Financials may differ depending on your own personal situation.
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Did You Know?
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Did you know that Coca-Cola was
originally green?
Did you also know that the interest rate you will
receive on your home loan will be determined in part by things that are
within your control (e.g., credit, loan amount) and in part by things over which you have no control?Click here to read more
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Investor Tip
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As a landlord, you cannot ask, a tenant for first and last months rent. You can ask for first month's rent and a larger security deposit provided the total does not exceed three times the rent.
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Need a Loan Modification?
Amerestart Can Help
Call 877.619.3258
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