The U.S. Senate recently passed a bill which may outlaw all stated income (or "no income verification") real estate mortgage loans nationwide. The bill now will go to Congress for a vote as well. If Congress also passes this "no income verification" ban nationwide, then it may go into effect later this Fall, or early next year.
As the residential and commercial real estate markets continue to weaken, any attempt to limit the availability of non-conventional type mortgage financing may only further weaken both the national housing market as well as the overall economy.
Consumer spending traditionally represents approximately 2/3's of the overall U.S. economy, and sluggish retail numbers in recent times do show that many consumers are not spending as much these days. As a result, more retail shopping centers are closing down nationwide due to the high vacancy rates and reduced monthly income.
In the 1st Quarter of 2010, FHA insured purchase money mortgage loans surpassed all funded Fannie Mae and Freddie Mac purchase loans combined for the first time ever. As Fannie and Freddie typically control the bulk of all mortgage loans nationwide, this new trend setting situation with more funded FHA loans is not encouraging news.
FHA (Federal Housing Administration) has been technically insolvent for years. These highly leveraged (up to 97% LTV) loans have become the new "sub-prime credit" type mortgage nationwide for many borrowers as they allow lower FICO credit scores, lower cash reserves, and higher debt to income ration numbers.
The default rates for FHA are staggering which may only cause the financially weak FHA insurance program to worsen much more in the near term. In many cases, the mortgage borrower is financially more solvent and liquid than both their funding bank as well as the FHA insurance program, sadly.
The Federal Reserve has kept interest rates at artificially low 0% (ZERO) interest rates for the past 17 months in order to partly stimulate and improve the financial and real estate markets. The Dow Jones index is approximately 11% off it's highs from just one month ago as we enter the traditionally slow and stagnant Summer investing season.
The P/E (Price to Earnings) Ratio numbers seem to make no sense for many of the Dow 30 and the S & P 500 companies as so many of these stock values may be tremendously overvalued when compared to other P/E ratios used in years past.
In January of 1981, the Dow Jones index was near 960, and the U.S. Prime Rate hit 21.5% as the Fed tried to "quash inflation" back then. Today, the Dow is near 10,000, and the Prime Rate has hovered within the 3.25% to 4% rate range, and short term rates have sat near 0% (zero) for almost the past 1 1/2 years. What happens to the financial and investing markets if and when the short and long term rates begin to move upward?
True national unemployment numbers may be north of 20% now as opposed to the government's figures which are closer to 10%, according to various prominent economic forecasters. Gold continues to increase in price as it is considered more of a "safe haven" type investment than the more volatile and less liquid stock and real estate markets as gold now approaches $1,200 per ounce.
The U.S. Dollar Index has moved upward from 75 to 87 since last December. The U.S. bond market continues to struggle in recent times as it is challenging to attract enough true third party investors in the form of individual investors or foreign governments who may be willing to invest in the USA's short or long term debt at rates. The current bond offering prices and yields seem awfully low, and not in line with the potential risk of the investments.
The recent passing of the "Audit the Fed" bill by the U.S. Senate (passed 96 to 0) is both potentially positive (in the long term) and negative (in the short term). As many politicians and citizens have realized in recent years, the privately owned and controlled Federal Reserve has incredible power and authority in our day to day lives as well as operates in a very secretive and autonomous way.
Since the official start of The Credit Crisis back in 2007, the Federal Reserve has worked diligently to try to keep various banks, Wall Street investment firms, and insurance companies solvent and liquid by providing them with emergency loans in the form of Term Auction Facilities, Term Securities Auctions, and other similiar sounding "bailout" loans which may amount to many trillions of dollars.
As these loans were made anonymously to some of the biggest financial institutions in America, the "Audit the Fed" bill may force the Federal Reserve to release the list of banks, insurance companies, and Wall Street firms who received these same emergency loans.
If this information is made public, then it may potentially hurt the stock and bond values of these same financial institutions as their investors may soon realized how insolvent many of these same firms are today. This, in turn, may cause a further weakening economy for so many other reasons which may take another 10,000 plus words to better explain.
Short term, foreclosure and tax lien investments may be some of the better investment options for a "buy and flip" investment strategy (call or email me for details). The old "buy and hold" real estate investment method may not be as effective as the new "buy and flip" methods during the depths of the ongoing Credit Crisis as prices continue to stagnate, or fall in many regions. The ongoing "foreclosure wave" continues to increase in size which, in turn, may only further suppress future home price values.
As I still am concerned about a "hyperinflationary recession/depression" in the potential near term due to a weakening U.S. dollar coupled with asset deflation in the form of stocks, real estate, and other hard assets, investors must continue to pay attention to what is really happening in the financial markets to better understand how serious this economic and financial situation is here both in America and worldwide.