The Four Investment Profiles

Today I was reading about the Four Investment Profiles - and I found it interesting when thinking about the current market.

The four profiles are :

1) Investor
Loves Opportunity
Buys the right thing
2) Collector
Loves Ownership
Buys Something
3) Speculator
Loves the Action
Buys Anything
4) Observer
Loves Ideas
Buys Nothing

I think we've had a bunch of speculators. Folks that love the idea and the action and really do just buy anything. And frankly, this works for a while. As long as the market was going up - everyone gained.

Now that we are having a correction, the speculators are getting caught. The wave of speculation has gone out and now we are finding who had their pants down.

The unfortunate thing is 1) most of these folks won't take responsibility for their actions. They will blame it on banks or realtors or sellers - and they'll lose. They'll blame their irresponsible speculation on anyone else and not get the lesson. There are fundamentals of investment.
2) 3% of the mortgage market has affected the world monetary market. The responsible investors that only buy sustainable value - and have strong portfolios - are now paying more for their money. The speculators have made it more difficult for the rest of the market to buy.

I watched this last wave of speculators and I sometimes felt bad that I wasn't working a bunch of crazy deals for speculators. It was hard not to jump on that bandwagon. But, that's probably why I've been in the business for so long, I have a hard time selling what I don't believe in. And I don't believe in an investment that's not sustainable.

Mortgage Rates Rise

I get asked about rates a lot. The public's perception is that; if the Feds are lowering rates then mortgage rates should be dropping also.

Mortgage rates follow the TBill - not the inter bank offer rate - and the TBill is rising fueled by inflation worries.

I really like Mark Dotzour's explanation below:


MORTGAGE RATES RISING
COLLEGE STATION (Real Estate Center, Reuters) – In the Feb. 8 edition of RECON, Real Estate Center Chief Economist Dr. Mark Dotzour proclaimed that there will likely be no better time than the present for home refinancing for years to come. Turns out he was right on the money — less than two weeks later, mortgage rates were on the rise again.
“We’ve seen almost a three-quarter percent jump in rates on 15-year mortgages since I made that call,” Dotzour said.
Rates for fixed 15-year mortgages now average 5.55 percent, while rates for fixed 30-year mortgages are averaging 6.09 percent, up 0.37 percent from the previous week. Rates on one-year adjustable-rate mortgages (ARMs) remain at 5.72 percent.
According to the Mortgage Bankers Association, the seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ending Feb. 15 fell 22.6 percent to 822.8, the lowest level since the week ending Jan. 4.
“I think we’re in one of those weird situations where the Federal Reserve is likely to cut the one-day interest rate to banks, which will lower short-term treasuries, but the ten-year treasury, which is what mortgages are priced on, is going to go up because of the continued fear of inflation,” Dotzour said.
“Commodity prices are going through the roof and bringing back big-time fear of inflation, and that’s starting to get priced into the ten-year treasury, which is going to mean mortgage rates are likely going to continue to go up,” he said.

Conforming Loan lLimits

The economic stimulus package passed and everyone is asking when the conforming loan limits will increase. Well, the latest answer is July 1. But remember, the Fannie Mae and Freddie Mac conforming loan limits of $729,750 are temporary measure available 7/1/08 - 12/31/08 while it appears the Federal Housing Administration loan limit is a permanent measure.

More on this as I hear more.

Economic Stimulus Package - Loans at $729K

Besides the $729K loan limit - there are some great incentives for businesses, from the IRS Newswire:

2008 Economic Stimulus Act Provides Tax Benefits to Businesses
WASHINGTON — In addition to providing stimulus payments to individuals, the Economic Stimulus Act of 2008 provides incentives to businesses. These incentives include a special 50-percent depreciation allowance for 2008 purchases and an increase in the small business expensing limitation for tax years beginning in 2008.

Be Patriotic - Get out and spend some money!

Mortgage Workout Relief

Here's the info from the IRS website regarding Short Sale Workouts and the tax consequences:

Mortgage Workouts, Now Tax-Free for Many Homeowners;
Claim Relief on Newly-Revised IRS Form

WASHINGTON — Homeowners whose mortgage debt was partly or entirely forgiven during 2007 may be able to claim special tax relief by filling out newly-revised Form 982 and attaching it to their 2007 federal income tax return, according to the Internal Revenue Service.

Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, enacted Dec. 20, taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was less than $2 million. The limit is $1 million for a married person filing a separate return. Details are on Form 982 and its instructions, available now on IRS.gov.

Economic Stimulus Package - Loans at $729K

Subject: Economic Stimulus Package Passes
Date: Thu, 07 Feb 2008 15:12:31 -0800

The bill finally passed, there was some concern it would fail because
Senate Republicans were opposed to adding an extension of unemployment
insurance, additional funds for low-income home heating assistance
programs known as LIHEAP, an energy tax package and expanded incentives
for small business investment as requested by Senate Democrats. The bill
also raises the conforming loan limit to $729,750 for high cost areas.



Article from Roll Call...




Senate Adds Seniors and Vets to Stimulus Package; Plan Headed Back to
House


Thursday, Feb. 7, 2008; 5:18 pm
By Emily Pierce,
Roll Call Staff


________________________________

After a tense week of partisan bickering over an economic stimulus plan,
Senate Democrats and Republicans quickly maneuvered today to give senior
citizens and disabled veterans tax rebate checks and passed a bill that
appeared likely to receive swift House concurrence.

By a 91-6 vote, the Senate agreed to add seniors, veterans and the
widows of veterans to a House-passed bill to provide tax rebate checks
to low- and middle-income tax filers and also added limited tax
incentives to small businesses. The vote on final passage of the bill
was 81-16.

The House was expected to quickly pass the Senate deal later today,
according to Democratic aides. House Democratic and Republican leaders
earlier had agreed to back additional benefits for seniors and veterans
and additional restrictions aimed at preventing illegal immigrants from
receiving rebate checks.

The bipartisan movement in the Senate came after Democrats failed by one
vote on Wednesday evening to get the 60 votes needed to beat back a
filibuster of a larger Senate Finance Committee package that included
seniors and veterans as well as an extension of unemployment insurance,
additional funds for low-income home heating assistance programs known
as LIHEAP, an energy tax package and expanded incentives for small
business investment.

Even though their victory was muddied by their shifting strategies over
the past week and a half, Democrats touted their ability to "improve"
the House measure in the face of stiff resistance from the White House,
Congressional Republicans and even their own party's leadership in the
House.

"Most Senate Republicans were quick to endorse the House stimulus bill
with no revisions, even though we pointed out initially that we thought
it was inadequate and we had to add to that," said Senate Majority
Leader Harry Reid (D-Nev.) of the GOP's position two weeks ago. "If we
had listened to the advice of our Republican colleagues ... 21.5 million
seniors would have no part of this stimulus package. If we had listened
to them, 250,000 wounded Americans would have had no benefit from this."


Reid had attempted during the Wednesday vote to convince Republicans
that they would have only one shot - through the Finance package - to
provide rebates to seniors and veterans, even though he said last week
he would hold a separate vote on the seniors and veterans question.

On Tuesday, Reid said he was "not much of a bluffer" and dared
Republicans to vote against the Finance package. But most Republicans
called Reid's bluff on Wednesday evening and blocked the Finance package
from moving forward.

"I feel very strongly we did the right thing," Reid said of his
take-it-or-leave-it gambit. "As a result of that, I feel very confident
we picked up two votes more. I thought we'd pick up one more. Someone
who was going to vote with us didn't."

Democrats persuaded eight Republicans to vote with them on Wednesday,
but they need nine to prevail.

The relatively modest changes the Senate was able to achieve Thursday
were portrayed by some Republicans as a "cave-in" to their more recent
demands to add only seniors and veterans to the House bill.

Publicly, however, Republicans lauded the deal as a win for the American
people.

Senate Minority Leader Mitch McConnell (R-Ky.) called it "an important
bipartisan accomplishment."

McConnell said the final deal "demonstrates that we are once in a while
able to come together for the country."

Despite earlier objecting to any changes to the House bill, McConnell
said Republicans felt the simple modifications the Senate made were good
ones, and added that regardless of how the package ultimately came
together, "the news today is that we got there."

More Credit Crunch - FYI

Banks Make it Tougher to Get a Loan

http://www.bloomberg.com/apps/news?pid=20601087&sid=aBVR4W34oDrY&refer=home

It got tougher for U.S. companies and consumers to get loans in the last three months, a survey released by the Federal Reserve on Monday shows.

The survey, conducted in January, was available to Fed policymakers last week and helps explain its total 1.25 percentage point rate cut in the last month.

The survey showed that 80 percent of banks raised standards on commercial-property loans — a record. About 55 percent of banks toughened terms for prime home loans, up from 40 percent in October, while 85 percent of respondents made it tougher to get nontraditional loans, up from 60 percent, the survey said.

"It's definitely a broader-based tightening than we've seen before," says Edward McKelvey, senior U.S. economist at Goldman Sachs Group Inc. in New York. "The economy is weakening, and weakening in a pretty substantial way."

Source: Bloomberg News (02/05/08)

Credit Crunch

I was talking with a client this morning - it looks like I am going to be refinancing his investment property. The lender that he is currently with sent him a statement saying they will not extend his loan - it's a 5/1 - because they no longer do investor loans!

Additionally, I got a statement from American Express. I've had a business credit line with them for the last 20 years in the amount of $25K. The notice said that due to credit risk in my line of business they were reducing my credit line to $1K!

The market is really nuts right now. Lenders are scared and the money markets are contracting.
There is an economic stimulus package that could raise conforming loan limits as high as $725K - more probably to the $625K range - and that would help us here in California. We are still going gangbusters in Dallas - where 92% of the loans are conforming!!