Bernanke Asset Purchases Risk Unleashing 1970s Inflation Genie, by Craig Torres,

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For the second time since he became chairman in 2006, Ben S. Bernanke is leading the Federal Reserve into uncharted monetary territory.

Bernanke next week is likely to preside over a decision to launch another round of large-scale asset purchases after deploying $1.7 trillion to pull the economy out of the financial crisis, comments from policy makers over the past week indicate. This time, with interest rates already near zero, the Fed will be aiming to increase the rate of inflation and reduce the cost of borrowing in real terms. The goal is to unlock consumer spending and jump-start an economy that’s growing too slowly to push unemployment lower.

Estimates for the ultimate size of the asset-purchase program range from $1 trillion at Bank of America-Merrill Lynch Global Research to $2 trillion at Goldman Sachs Group Inc., with economists at both firms agreeing the Fed will likely start by announcing $500 billion after the Nov. 2-3 meeting. The danger is that once the Fed kindles price increases, inflation will be difficult to control.

“By reducing real interest rates and trying to break the psychology of ‘Why spend today when I can buy goods cheaper tomorrow,’ they are hoping to drive growth that would be more commensurate with a pickup in employment,” said Dan Greenhaus, chief economic strategist at Miller Tabak & Co. in New York. “The risk is a late 1970s type of scenario where the inflation genie gets out of the bottle.”

The U.S. Treasury Department yesterday sold $10 billion of five-year Treasury Inflation Protected Securities at a negative yield for the first time at a U.S. debt auction as investors bet the Fed will be successful in sparking inflation. The securities drew a yield of negative 0.55 percent.

‘Unacceptable’ Inflation

William Dudley, president of the New York Fed and vice chairman of the Federal Open Market Committee, yesterday repeated that current levels of inflation and a 9.6 percent unemployment rate are “unacceptable” and said the Fed needs to take action, even though expanding the balance sheet isn’t a “perfect tool.”

“To the extent that we can do things to improve the economic environment, we certainly owe it to the millions of people who are unemployed to do so,” Dudley said in response to audience questions after a speech in Ithaca, New York. Policy makers haven’t yet decided whether to buy additional assets, he said.

A second jolt of monetary stimulus would expand the Fed’s $2.3 trillion balance sheet to a record and likely work through the exchange rate as well as interest rates, said former Fed governor Lyle Gramley. A weaker dollar would boost U.S. exports and push prices higher as the cost of imported goods rises.

Competitive Exports

“It is a channel that works not only from the standpoint of encouraging more growth and making exports more competitive, but if you’re worried about inflation getting too low, this tends to put a little upward pressure” on it, said Gramley, a senior adviser at Potomac Research Group in Washington.

An index of the dollar versus six major currencies is down 5.2 percent since Sept. 20, the day before Fed officials concluded their last meeting by saying inflation measures were “somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability.” The Standard and Poor’s 500 Index is up 3.8 percent since then.

A 10 percent decline in the dollar in the first six months of next year would push the economy above estimates of trend growth, moving indicators on inflation and employment more rapidly toward the Fed’s policy goals, according to a simulation run by Macroeconomic Advisers LLC on their model of the U.S. economy.

Effect on GDP

Gross domestic product would rise 1.1 percentage points more than the St. Louis-based firm’s baseline forecast for next year, to 4.8 percent. In 2012, growth of 5.7 percent would exceed the baseline forecast by 1.3 percentage points.

Unemployment would fall to 7 percent by the end of 2012, 1.4 points lower than the firm’s baseline forecast. The consumer price index, minus food and energy, would rise 0.4 percent and 0.7 percent more each year.

A continuing rally in stocks could also provide an added lift to growth, the firm’s simulation showed.

The firm, co-founded by former Fed governor Laurence Meyer, predicts the Wilshire 5000 stock index will jump 14 percent next year and 16 percent in 2012. The index tracks the impact of rising asset prices on household net worth. An additional 10 percent gain in the stock index in the first half of 2011 boosts growth by 0.1 percentage point and 0.3 percentage point more than the firm’s baseline forecast.

‘Transmission Mechanism’

“The transmission mechanisms are risk assets and a lower dollar,” said Steven Einhorn, who helps manage $5 billion at hedge fund Omega Advisors Inc. in New York. “Exports will respond over the next six to 12 months, and a further lift in risk assets will have benefits in more consumer spending as it lifts households’ net worth.”

A weaker dollar won’t be welcomed by U.S. trading partners concerned about the danger of competitive devaluations as nations seek to boost exports and growth.

Bernanke received “criticism” at a meeting of Group of 20 central bankers and finance ministers in South Korea last weekend, said German Economy Minister Rainer Bruederle.

“It’s the wrong way to try to prevent or solve problems by adding more liquidity,” Bruederle told reporters. “Excessive, permanent money creation in my opinion is an indirect manipulation of an exchange rate.”

$500 Billion

Economists Jan Hatzius at Goldman Sachs and Ethan Harris at Bank of America predict the Fed will spread an initial $500 billion in asset purchases over six months. That is the figure mentioned in the Oct. 1 speech by Dudley, who said $500 billion in purchases could have the same effect as cutting the benchmark federal funds rate by as much as a 0.75 percentage point.

The FOMC’s meeting next week could be contentious, with regional bank presidents such as Charles Plosser of Philadelphia and Richard Fisher of Dallas expressing concern in public remarks about a second round of asset purchases. Neither is a voting member of the FOMC this year.

Plosser told reporters Oct. 20 that high unemployment may not be “amenable to monetary-policy solutions” and added that he was “less inclined to want to follow a policy that is highly concentrated on raising inflation and raising inflation expectations.”

Fisher said central bank officials must be mindful of the effect their actions are having on the dollar.

Dollar Impact

“We need to be aware of the impact whatever we do has on other variables, and one of the variables is the dollar, the value of the dollar against other currencies,” Fisher said in an Oct. 22 interview in New York.

The prospect of an easier policy for a long period could prompt foreign investors to use Fed purchases as an opportunity to unload longer-term Treasuries, said Vincent Reinhart, former director of the Fed Board’s Division of Monetary Affairs.

“This might put more pressure on the exchange value of the dollar than the Fed is willing to tolerate,” said Reinhart, a resident scholar at the American Enterprise Institute in Washington.

Some commodity prices have already started to move up in anticipation of further Fed stimulus. Gold futures traded on the Comex in New York have risen 22 percent this year to $1,338.90 an ounce, while silver is up 40 percent.

“The Fed would like to talk up as many asset classes as it can,” said Scott Minerd, the Santa Monica-based chief investment officer at Guggenheim Partners LLC, who helps oversee $76 billion.

Asset Bubbles

“The history of the Fed, over the last 20 years, is one of bubble to bubble: one bubble deflates to create another bubble,” Minerd said. “We are certainly heading into the mother of all bubbles with commodities and gold.”

Another danger for the Fed is that its policy fails to have the intended effect, damaging the central bank’s credibility, Reinhart said.

“What happens if they bulk up the portfolio by another $500 billion in the next six months and there is no material change in markets or the outlook,” he said. “Presumably, the Fed will double-down and buy some more, but at some point, people will ask, ‘Is that all there is?’”

U.S. central bankers cut the benchmark lending rate to zero in December 2008. Seeking more stimulus, they launched a $1.7 trillion program to buy mortgage-backed securities, housing agency debt and U.S. Treasuries. The purchases ended in March.

Jackson Hole

Bernanke told central bankers in Jackson Hole, Wyoming, in August that those purchases “pushed investors into holding other assets with similar characteristics,” lowering interest rates on a broad range of debt.

While a second round of Treasury purchases would also lower nominal rates, the FOMC has been explicit about the need to lower real interest rates through higher inflation, minutes of its Sept. 21 meeting show.

The personal consumption expenditures price index, minus food and energy, rose at a 1.4 percent annual rate in August. That’s below the Fed’s long-run preference range of 1.7 percent to 2 percent. The year-over-year increase in consumer prices jumped as high as 14.8 percent in 1980 during the administration of Jimmy Carter.

Even moderate rates of inflation can shift wealth through the economy. Companies can make more money because their prices rise faster than wages. Households can also benefit as incomes eventually rise while costs on fixed-rate debt stay the same.

Chipotle Mexican Grill Inc. chief financial officer John Hartung told Bloomberg Television Oct. 22 that he expects inflation to be in the low-single to mid-single digits next year. “We would welcome modest inflation along with the continued pickup in consumer demand,” Hartung said.

To contact the reporters on this story: Craig Torres in Washingtont ; or Scott Lanman in Washington at

To contact the editor responsible for this story: Christopher Wellisz at

Chris Dudley’s Tax Cut: Capitol Gains

People are upset that Chris Dudley wants to cut the Capitol gains tax by 73%.   In this down economy who is going to be paying any capitol gains in Oregon over the next 4 or more years?  We might as well get rid of Capitol gains for businesses that pay living wage jobs and hire Oregonians and increase taxes on businesses that hire people from out of state.  The tax cut should only count if the job goes to someone that lives in Oregon.  We could also tier a deferment for the tax over the next 10 years to ensure businesses are motivated to grow through this down cycle and advance employment.   Just saying….LOL

Obama Administration Awards Additional $1 Billion to Stabilize Neighborhoods Hard-Hit by Foreclosure, RisMedia

RISMEDIA, September 13, 2010—U.S. Housing and Urban Development Secretary Shaun Donovan awarded an additional $1 billion in funding to all states along with a number of counties and local communities struggling to reverse the effects of the foreclosure crisis. The grants announced today represent a third round of funding through HUD’s Neighborhood Stabilization Program (NSP) and will provide targeted emergency assistance to state and local governments to acquire, redevelop or demolish foreclosed properties.

“These grants will support local efforts to reverse the effects these foreclosed properties have on their surrounding neighborhoods,” said Donovan. “We want to make certain that we target these funds to those places with especially high foreclosure activity so we can help turn the tide in our battle against abandonment and blight. As a direct result of the leadership provided by Senator Chris Dodd and Congressman Barney Frank, who played key roles in winning approval for these funds, we will be able to make investments that will reduce blight, bolster neighboring home values, create jobs and produce affordable housing.”

The funding announced today is provided under the Dodd-Frank Wall Street Reform and Consumer Protection Act. To date, there have been two other rounds of NSP funding: the Housing and Economic Recovery Act of 2008 (HERA) provided $3.92 billion and the American Recovery and Reinvestment Act of 2009 (Recovery Act) appropriated an additional $2 billion. Like those earlier rounds of NSP grants, these targeted funds will be used to purchase foreclosed homes at a discount and to rehabilitate or redevelop them in order to respond to rising foreclosures and falling home values. Today, 95 cents of every dollar from the first round of NSP funding is obligated—and is in use by communities, buying up and renovating homes, and creating jobs.

State and local governments can use their neighborhood stabilization grants to acquire land and property; to demolish or rehabilitate abandoned properties; and/or to offer downpayment and closing cost assistance to low- to moderate-income home buyers (household incomes do not exceed 120% of area median income). In addition, these grantees can create “land banks” to assemble, temporarily manage, and dispose of vacant land for the purpose of stabilizing neighborhoods and encouraging re-use or redevelopment of urban property. HUD will issue an NSP3 guidance notice in the next few weeks to assist grantees in designing their programs and applying for funds.

NSP 3 will take full advantage of the historic First Look partnership Secretary Donovan announced with the National Community Stabilization Trust last week. First Look gives NSP grantees an exclusive 12-14 day window to evaluate and bid on properties before others can do so. By giving every NSP grantee the first crack at buying foreclosed and abandoned properties in these targeted neighborhoods, First Look will maximize the impact of NSP dollars in the hardest-hit neighborhoods—making it more likely the properties that communities want to buy are strategically chosen and cutting in half the traditional 75-to-85 day process it takes to re-sell foreclosed properties .

NSP also seeks to prevent future foreclosures by requiring housing counseling for families receiving home buyer assistance. HUD seeks to protect future home buyers by requiring states and local grantees to ensure that new home buyers under NSP receive homeownership counseling and obtain a mortgage loan from a lender who agrees to comply with sound lending practices.

In determining the allocations announced today, HUD, as it did with NSP1, followed key indicators for the distribution formula outlined by Congress. HUD is using the latest data to implement the Congressional formula. The formula weighs several factors to match funding to need in the 20% most distressed neighborhoods as determined based on the number and percentage of home foreclosures, the number and percentage of homes financed by a subprime mortgage related loan, and the number and percentage of homes in delinquency. To estimate the level of need down to the neighborhood level, HUD uses a model that takes into account causes of foreclosures and delinquencies, which include housing price declines from peak levels, and increases in unemployment, and rate of high cost and highly leveraged loans. HUD also considers vacancy problems in neighborhoods with severe foreclosure related problems.

In addition to a third round of NSP funding, the Dodd-Frank Wall Street Reform and Consumer Protection Act creates a $1 billion Emergency Homeowners Loan Program to be administered by HUD. This loan program will provide up to 24 months in mortgage assistance to homeowners who are at risk of foreclosure and have experienced a substantial reduction in income due to involuntary unemployment, underemployment, or a medical condition. HUD will announce additional details, including the targeted areas and other program specifics when the program is officially launched in the coming weeks.

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Federal Housing Stimulus: How Much More?, Diana Olick, CNBC

New reports are rolling around Wall Street and Washington today that the Obama Administration is considering yet another economic stimulus package; this round would be for small businesses. This comes just one week after increased chatter about more government stimulus for housing.

Congress returns the week of September 13th, and as Democrats face an uncertain election this November, you know they’re going to be looking to make average Americans feel more secure about their finances.

But how much has housing stimulus really helped?

Through July 3, 2010, the IRS reports a bill of $23.5 for the home buyer tax credit, according to a letter dated yesterday (September 2nd) from the Government Accountability Office to Rep. John Lewis, Chairman of the House Ways and Means Committee’s Subcommittee on Oversight. $16.2 billion for the first time and move-up credits and $7.3 billion for interest-free loans which recipients will begin repaying in January.

The Department of Housing and Urban Development has also already allocated nearly $6 billion for the Neighborhood Stabilization Program, which gives state and local governments and non-profit housing developers funds to acquire property, demolish or rehabilitate foreclosures and offer assistance to low- to middle-income homebuyers for down payments and closing costs. In the coming weeks it will add $1 billion to that. Just this week HUD Secretary Donovan gave NSP grantees a leg up over investors, by providing a first right of refusal for those grantees to buy foreclosed homes.

The talk around Washington is for yet another home buyer tax credit, this time perhaps for short sale and foreclosure buyers. Unfortunately every time we get a short-term stimulus, we get an inevitable drop off in sales and prices, as we’re experiencing now. Yes, we saw a mini burst of buying from credits last fall and this spring, but the overall numbers are still way down, and inventories are still far too high.

The one steady in gauging housing is confidence, and until we get that back, sales will remain weak for the foreseeable future.

Government stimulus, arguably, sells houses, and we need that to bring down our currently record-high inventories.

But Government stimulus is also temporary, and everyday buyers and sellers recognize that, which doesn’t add to their already faltering confidence.

Questions?  Comments?

Multnomah County Foreclosures

It has been nearly 5 months since ( has been updated. As of July 6th, 2010 the site will be updated weekly again. Each week the Notice of Default lists for several counties in Oregon and Clark County will be posted. This information is public information and is provided to make it easier for real estate buyers and the professionals that serve them to develop opportunities in the Oregon market.

Visit Multnomah Foreclosures, download the Notice of Default reports for free and help the Oregon Market grow!


Mortgage Insurance Premiums increased from 1.75 to 2.25% – Effective April 1st
· Seller Contribution decreased from 6% to 3% – TBA early Spring

· Increased Monthly MI – Effective date TBA

Increased down payment for borrowers with lower credit scores TBA

TAX CREDIT: Buyer must have a binding purchase contract by April 30th to qualify for tax credit.


A 200k purchase price after April 30th may have up to a 15k impact on the borrower.
(Assuming current rates stay the same. Well…we all know what happens when we assume J)


Convert any “shoppers” into BUYERS between NOW and April 30th!

Don’t hesitate to call or e-mail with any questions you may have concerning how this will affect your clients.

Melissa Stashin

Sr. Mortgage Banker/ Branch Manager
NMLS #40033

Pacific Residential Mortgage, LLC

2 CenterPointe Dr. STE 500

Lake Oswego, OR 97035

(503) 670-0525 x113

(971) 221-5656 Cell

(503) 670-0674 Fax

(800) 318-4571 Toll Free

Multnomah County Foreclosures Web Site Updated with New Lists was updated today with the largest list of Notice Defaults to date. With Notice of Default records dating back nearly 2 years. idocuments the fall of the great real estate bust of the 21st centry.

All listings are in PDF and Excel Spread Sheet format.

Multnomah County Foreclosures

Oregon’s rich getting richer and all others falling behind, wage study shows By Jeff Manning, The Oregonian

A new analysis of state wages shows that the gulf between Oregon’s wealthy and everyone else continues to widen.

Oregon’s wealthiest are not only earning more, but the rate at which their incomes are growing far outstrips the middle class and the poor.

Meanwhile, the middle class continued to encounter stagnant wages this past decade — even during the vaunted economic boom that preceded the bust — and saw its compensation fall back to 2001 levels in the recession-racked year of 2008, according to a draft analysis of wage trends by the Oregon Employment Department.

Inflation-adjusted annual wages for Oregon’s top 2 percent of earners hit $153,480 on average in 2008, a 29.5 percent increase from 1990.

Workers at the 50 percentile, meanwhile, earned $32,659 in 2008, an increase of just 2.4 percent over 1990 after adjusting for inflation.

“Wage inequality in Oregon rose steadily between 1990 and 2000, declined slightly in 2001 and 2002, and continued to increase to its peak in 2007,” the study said.

The analysis considers only wages. The disparity would be far greater if the numbers included investment income.

The growing income gap takes on a new significance as Oregonians consider Measure 66, which would increase by 1.8 percentage points the marginal tax rate on personal income above $250,000 for couples, $125,000 for an individual.

Long after Measure 66 is a distant memory, however, the wage gap will pose a daunting challenge, threatening America’s view of itself as a land of equal opportunity, some economists argue.

The free-market fervor that has gripped the country since the Ronald Reagan administration has allowed the country, for the most part, to remain competitive in a globalized economy. But some contend that the trickle-down economy has sent just that — a trickle — to the masses, while steering a torrent of riches to the wealthy.

“There’s something going on at the very top, an explosion of the ‘uber-rich,'” said Bryce Ward, a senior economist with Portland-based consulting firm ECONorthwest. “There’s been no growth in a decade for the middle.”

Fiscal conservatives generally have dismissed concerns about income inequality as “class warfare.” They argue that economic growth benefits rich and poor alike.

But recently, there has been some recognition from the right that a struggling middle class and a dysfunctional underclass poses a threat to all.

In a controversial and much-cited article that ran this winter in the quarterly National Affairs, conservative writer and entrepreneur Jim Manzi argues that the growing income disparity poses a dilemma for which there is no obvious answer.

“If we reverse the market-based reforms that have allowed us to prosper,” Manzi wrote, “we will cede global economic share; but if we let inequality and its underlying causes grow unchecked, we will hollow out the middle class — threatening social cohesion, and eventually surrendering our international position anyway.”

It wasn’t always this way.

Liberal-leaning economists point to the decades after World War II as a golden era when the economy enjoyed sustained, vigorous growth, despite high taxes, and the benefits of that growth were evenly spread across the socio-economic spectrum.

Those growth years helped create the middle class as we now know it, a huge group that enjoyed low unemployment and big wage gains and even some degree of retirement security.

The golden era began to wane in the 1970s.

The economy struggled, inflation ate up people’s buying power, as did double-digit interest rates. And for the first time in decades, wages no longer grew in lockstep with gains in economic productivity, said Heidi Shierholz, a labor economist with the liberal Economic Policy Institute.

A laundry list of powerful forces contributed to the stagnating wages: The decline of organized labor, the erosion of the minimum wage, the shift from a manufacturing-based to service-based economy, and, perhaps most of all, the globalization of the economy, Shierholz said.

Manzi adds immigration to that list. While globalization forced American employers to compete with low-wage foreign operations, immigration provided a stream of low-skilled workers across our borders willing to accept less.

American political leaders turned to free-market policies to see them through the uncertain new era. The Reagan administration deregulated industries and cut taxes. George W. Bush followed up with further tax reductions in the name of spurring the economy.

The free-market policies helped America pull out of the economic doldrums. But Manzi and many other economists contend the rising tide did not lift all boats.

“Rising inequality would have been easier to swallow had it been merely a statistical artifact of rapid growth in prosperity that substantially benefited the middle class and maintained social mobility,” Manzi wrote. “But this was not the case. Over the same period in which inequality has grown, wages have been stagnating for large swaths of the middle class, and income mobility has been declining.”

It’s this decline in social mobility — the ability of Americans to rise beyond their socio-economic origins — that worries Ward. The rags-to-riches story that has long been a bulwark of the American Dream still happens. But it’s becoming more rare, he argues.

“My concern is just with opportunity,” Ward said. “There should be no correlation between your parents’ earnings and yours.”

In a 2007 article he co-wrote about wage inequality, Ward pointed out that in 1965 the typical CEO earned 24 times what the typical worker earned; in 2005, 262 times.

Along with stagnant wages has come what sociologist Jacob Hacker calls “the great risk shift.” In a trend that has only picked up steam in the recession, employers have slashed health care and retirement benefits, leaving workers to shoulder more of that burden.

Jared Bernstein, an economic advisor in the Obama administration, describes the new paradigm as the “yo-yo” economy, for “You’re on Your Own.”

At least one prominent economist argues that income inequality has already taken a devastating toll.

University of Chicago economist Raghuram Rajan, former director of research at the International Monetary Fund, posits that stagnant wages for the bulk of Americans contributed to the economic crash. Millions of Americans wracked up unprecedented debt earlier this decade because their compensation failed to keep up with the cost of living, Rajan theorizes.

The nation’s financial sector enabled the debt bubble and then sliced and diced bad loans into bad mortgage-backed securities.

It all blew up in 2007 and 2008.

The recession’s impact is reflected in the Employment Department wage numbers.

The study compares wages for four-quarter employees (those who worked all four quarters but not necessarily full-time) from 1990-2008 for four different income groups.

Oregonians earning at the 50th percentile saw their inflation-adjusted wages grow 4.5 percent from $31,866 in 1990 to peak of $33,318 in 2004. The group’s income has fallen every year since then, finishing 2008 at $32,659, the lowest level since 2001.

In contrast, those at the top 98th percentile of earners saw their inflation-adjusted wages climb 31 percent in the same 18 years from $118,453 in 1990 to a peak of $155,496 in 2007.

The downturn took its toll on the high earners as well. Their income dipped to $153,480 in 2008.

Wage numbers are not yet available for 2009. But given the state of the economy, they likely won’t improve for any income group.

Oregon ended 2009 11th in nation for foreclosure, Portland Business Journal

Lenders foreclosed on 34,121 Oregon homes in 2009, three times more than in 2007 and well ahead of national trends.

According to year-end figures released late Wednesday by Irvine, Calif.-based RealtyTrac Inc., there were 90 percent more foreclosure actions involving Oregon residences in 2009 than in 2008 and a whopping 303 percent more than in 2007, when the meltdown began.

The picture wasn’t any better nationwide, with nearly 4 million foreclosure filings against 2.8 million U.S. properties, 21 percent more than 2008 and 120 percent more than 2007.

The report showed that 2.2 percent of all U.S. homes or one in every 45 residences received at lease one foreclosure filing during the year.

“As bad as the 2009 numbers are, they probably would have been worse if not for legislative and industry-related delays in processing delinquent loans,” said James Saccacio CEO of RealtyTrac. “After peaking in July with over 3621,000 homes receiving a foreclosure notice, we saw four straight monthly decreases driven primarily by short-term factors: trial loan modifications, state legislation extending the foreclosure process and an overwhelming volume of inventory clogging the foreclosure pipeline.”

Nevada, Arizona and Florida had the nation’s highest foreclosure rates while California, Florida, Arizona and Illinois together accounted for half of all activity.

Oregon ranked 11th, with 2 percent of all homes affected, or one in 47.

Clackamas, Columbia, Deschutes, Jackson, Jefferson, Josephine and Yamhill counties had Oregon’s highest foreclosure ratings.

Washington state ranked 24th, with 35,268 foreclosure actions, 132 percent more than in 2007.

Banking Crisis for Dummies

The financial crisis explained in simple terms ………………………..

Heidi is the proprietor of a bar in Berlin. In order to increase sales, she decides to allow her loyal customers – most of whom are unemployed alcoholics – to drink now but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around and as a result increasing numbers of customers flood into Heidi’s bar.

Taking advantage of her customers’ freedom from immediate payment constraints, Heidi increases her prices for wine and beer, the most-consumed beverages. Her sales volume increases massively.

A young and dynamic customer service consultant at the local bank recognizes these customer debts as valuable future assets and increases Heidi’s borrowing limit.

He sees no reason for undue concern since he has the debts of the alcoholics as collateral.

At the bank’s corporate headquarters, expert bankers transform these customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS. These securities are then traded on markets worldwide. No one really understands what these abbreviations mean and how the securities are guaranteed. Nevertheless, as their prices continuously climb, the securities become top-selling items.

One day, although the prices are still climbing, a risk manager of the bank (subsequently of course fired due to his negativity), decides that slowly the time has come to demand payment of the debts incurred by the drinkers at Heidi’s bar.

However they cannot pay back the debts.

Heidi cannot fulfill her loan obligations and claims bankruptcy.

DRINKBOND and ALKBOND drop in price by 95 %. PUKEBOND performs better, stabilizing in price after dropping by 80 %.

The suppliers of Heidi’s bar, having granted her generous payment due dates and having invested in the securities are faced with a new situation. Her wine supplier claims bankruptcy; her beer supplier is taken over by a competitor.

The bank is saved by the Government following dramatic round-the-clock consultations by leaders from the governing political parties.

The funds required for this purpose are obtained by a tax levied on the non-drinkers.

Finally, an explanation I understand.

This should clear up any / all questions… Enjoy! J

Melissa Stashin

Sr. Loan Officer / Branch Manager

Pacific Residential Mortgage, LLC

2 CenterPointe Dr. STE 500

Lake Oswego, OR 97035

(503) 670-0525 x113

(971) 221-5656 Cell

(503) 670-0674 Fax

(800) 318-4571 Toll Free

Point of Order by Matt Stashin, Pacific Residential Mortgage Company

We’ve all heard the news: the dark storm clouds of the financial meltdown will cost the taxpayer hundreds of billions of dollars, if not several trillion by the time it is all said and done. Unemployment numbers are set to skyrocket. The U.S. automakers need a bailout, following suit after so many others. Retail sales were down substantially during the holiday shopping season. People are keenly aware of the possibility of layoffs. Are we done yet? Probably not.

But amidst the ominous storm clouds lingering on the horizon, if one looks very closely, a platinum lining is visible amongst those clouds. One first reaction might be, “are you kidding?”. However, after a bit of reflection, one can begin to see the sun reflecting off that platinum lining.

Regardless of an individual’s opinion of the bailout, the soon-to-be former administration and the role of the government in residential housing, the opportunities available in the market place today are unprecedented. We all recognize home values have dropped substantially in almost every neighborhood. And if this is coupled with extremely low interest rates (did someone say rivaling the lowest in 40 years?), the buying power of the consumer has not been more keen.

One doesn’t have to look far to find a bargain. And with these interest rates, all factors have aligned in favor of the buyer. Sounds pretty good, huh? Well, it is for those who have put themselves in a good position to purchase a home. History will show them to have been very savvy. It pays to buy low, at the incredible interest rates, and watch one’s equity build substantial wealth over time.

In today’s marketplace, 20% down isn’t the only option. There still exist a limited number of financing options with little to no down payment. In order to better prepare one’s self, a quick check of your credit scores are in order. is a way to find out how your credit history will be analyzed by lenders; credit scores in excess of 740 give access to the best programs and pricing on interest rates. At least 2 years on the job, showing steady income will help on the employment front. Assets are nice to have, but not necessary to have in abundance for all programs. One will want to make sure that checking account statements (2 month’s worth) show no overdrafts. In today’s marketplace, lenders are more cautious than ever when it comes to loaning money to buy a home, but obtaining mortgage financing is still relatively painless when one chooses to work with a seasoned professional mortgage broker.

With a mini refinance boom going on due to these record low interest rates, one issue the mortgage industry will have to face is the potential for a scarcity of funds. Today, due to the federal government’s conservatorship of Fannie and Freddie along with the strategy to have the Federal Reserve purchase mortgages, many fears have been eased regarding the availability of mortgage money. But a new problem may be just ahead. Wall Street, which capitalized about 60% of the mortgage market, has all but disappeared. Banks are publicly being told to lend money, while their regulators are telling them to maintain adequate reserves, which translates into holding onto their cash. Couple this with the mass exodus of foreign investment into the U.S. mortgage market, and one can imagine a market in which there is more demand to borrow than there is money to loan.

Consider this: the Treasury department is issuing T-bills with very low yields that may not be attractive to buyers and the Federal Reserve will, at some point, rely on the funding created by the sale of T-bills to have enough capital to continue to purchase mortgages through Fannie and Freddie. If the appetite for low-yield T-bills drops off substantially, which may be a very real possibility, a liquidity crisis in the mortgage market could manifest itself.

How does this apply to someone today who is considering purchasing a primary residence, a second home or an investment property? My point is this: don’t wait. A scarcity of funds will cause interest rates to skyrocket, overnight. Jumbo funds seem to be disappearing already, although conventional financing to loan amount limits of $417,000 is readily available. Banks don’t seem to be interested in tying up their liquidity in large loan amounts. To me, this is a sign. Not a “doom & gloom” sign, but a warning sign nevertheless. My interpretation here is now is the time to act. The banking system is sound, but mortgage financing is not the banking system. And when capital is being used at the current rate due to the refinance boom, it sets me to wondering how this will impact the availability of funds for mortgage lending throughout the course of this year.

The federal government has a very tenuous road ahead of it this year. The conservatorship of Fannie and Freddie was meant to be a temporary situation and, as it is currently in place, will terminate at the end of 2009. Between now and then, the best and brightest minds in our country will have to reinvent the mortgage market. With many banks still teetering on the edge, one must think these low interest rates will take a toll on the availability of funds. Who will be interested, long term, in 4.5% paper? As the stock market starts to rebound, investors will be looking for higher returns on their money and interest in current mortgage paper yields will wane thereby creating a scarcity of funding for new lending.

Thought the storm clouds continue to linger, and they may even get a bit darker in the near future, It is my opinion that today is perhaps the best opportunity to invest in real estate that has existed in decades. For the money, this seasoned mortgage professional thinks now is the time to get mortgage financing before it becomes a scarce resource. Those that buy houses now will likely look like a genius down the road.

Am I saying this is a sure thing? NO; any investment carries risk and should be carefully evaluated. But I am saying when one peers into the storm clouds above and sees the shiny reflection of the sun off the platinum lining, one should strongly consider that the combination of low home prices and low interest rates is a sign to buy before the clouds all break up and disappear. And everyone knows the opportunity has slipped away once the storm has passed. And so I say, keep wear a raincoat and keep an umbrella handy while shopping for a home out under the storm clouds.

Matt Stashin

Pacific Residential Mortgage, LLC
2 CenterPointe Dr. STE 500
Lake Oswego, OR 97035
(503) 619-0482 Direct
(503) 670-0674 Fax
(800) 318-4571 Toll Free

Oregon jobless like 1981; new help for homeowners? by Ryan Frank, The Oregonian November

Oregon jobs: Oregon lost 14,100 seasonally adjusted jobs between September and October, the biggest decline since February 1981. That’s no typo. Since 1981. Rich Read has the story.

Food stamp requests rising in Medford/Bend: The two housing markets powered by Californian transplants during the housing boom now see big jumps in food stamp requests. “I’ve been here 16 years and this is more than I’ve ever seen,” said Lisa Lewis, the state’s self-sufficiency program manager for the Medford area. Many of the people asking the state for help have never been in a welfare office before. They are “blue-collar professionals,” Lewis said. “They’re dry-wallers, electricians, plumbers.”

St. Helens mill shutdown: Boise says it will layoff 300 people from its St. Helens paper and pulp mill, a major Columbia County employer.

Homeowner help?: Lawmakers are again pushing financial officials to send help directly to homeowners to help them avoid foreclosure.

Hotel forecast, um, not good:
Hotel occupancies are forecasted to fall to 58.6 percent in 2009, the lowest rate since 1971. “The deteriorating outlook for the economy is impacting travel habits and spending, and hotels are expected to experience reduced occupancy levels, and to a lesser degree, some room rate erosion through 2009,” said Scott Berman, principal and U.S. Leader of PricewaterhouseCoopers’ Hospitality and Leisure practice.

Anybody got some upbeat news?

Mortgage Implode: Time to Get Your Bailout…The ‘Gimme Mine Coalition’

2% Interest Only 5-year loans available again?!? Yes, but beware.

-Home Owners and Mortgage professionals, this one is for you.

I am a big advocate of mortgage modifications that include a fully documented re-underwrite and re-qualification of every borrower in America allowing a maximum of 28/36 debt to income ratios with market-rate 30-year fixed mortgages.

Yesterday, the video camera was calling my name so I decided to go into more color on mortgage modifications.  Pass this video around to friends and family. Take matters into your own hands because it is obvious nobody will be riding to the rescue anytime soon.

That being said, I do believe a large scale home owner bailout will come, but it will likely involve giving up present and future equity in your home.  Right now you do not need to do that.  You can even negotiate into the modification a better reporting of this event to the credit reporting agencies with some banks.

In recent weeks I have seen banks get very aggressive including reducing principal balances to lower than the present home values and giving borrowers 2% interest only loans for five years.  Wachovia offered to buy down a friends mortgage to 2% on a 30-year fixed, however, they had to refi through FHA and carry a silent second for the principal balance reduction needed to get them to the FHA limit for the area.  This sounds great but I do not advocate a super low interest only rate without a principal balance reduction. Getting 2% today with no principal reduction just kicks the can down the road and will cause major troubles then.  Without a principal reduction you are still stuck unable to move or refi.

I truly believe that there is a small window in time that exists right now where banks can’t handle any more foreclosures and you hold all the cards. The last thing the bank wants is another foreclosure and 65% write down.  If you play your cards right you can win and the bank can have a long-term customer paying her mortgage payment each and every month who will some day own the home. That is what it is all about.

I also went into great detail on mortgage modifications on July 4th and I urge you re-read the posts. There is information in here you must know BEFORE taking on this task. You have to know what to ask for because banks are a ‘for profit’ business, which means decisions are not going to be in your best interest. – Best, Mr Mortgage

Can Home Buyers Get Help When Still Making Their Payments?

Must a Borrower Stop Paying in Order to Get Help?

by Jack M. Guttentag

Inman News


“Is it true that mortgage servicers will not help borrowers who are in trouble until they stop making their payments? I am a home retention counselor, and I keep hearing from people referred to me that they have received no response from their servicer because they have not yet missed a payment. I would hate to advise people that they have to stop paying if they expect to get any help if it is not true.”

There is certainly much truth to this because I have heard the same story from numerous people I have counseled, whose stories I have no reason to doubt. The most common thing I hear is that they were told by the servicer to come back when they were two payments behind.

There are understandable reasons why borrowers who are delinquent on their payments receive more prompt consideration than those who are current. To the degree that servicers are faced with more requests for help than they can handle at one time, they have to set priorities. The number of borrowers in trouble has ballooned over the past year, outstripping the efforts of servicers to expand their capacity to deal with them.

Setting Priorities

A plausible way to set priorities is in terms of the degree of urgency of the problem. A borrower 60 days behind in his payment is closer to foreclosure, and if he is going to be saved, he needs faster action than a borrower who is current. So borrowers who are current get placed at the bottom of the list of borrowers requiring special treatment, if they are even placed on the list at all.

This tendency is reinforced by the fear of free-riders. All borrowers would like to get a better deal on their mortgages, whether they have trouble making their current payments or not. If loans are being modified to help borrowers, some borrowers who are not in financial distress will try to take advantage of the situation by pretending that they are. But potential free-riders may not be willing to become delinquent because that would hurt their credit. By only considering modifications for borrowers who are already delinquent, the servicer reduces the number of potential free-riders.

In addition, the practice of dealing only with borrowers who are delinquent keeps loans in good standing for longer periods. Consider the borrower who loses her job but has savings sufficient to cover the payments for some months. Investors would prefer that the borrower make the payment out of savings for as long as possible, since she might find another job during this period, avoiding the need for any modification of the mortgage.

Moving Up on the List

If I were a borrower with reduced income but with good prospects of recovery, I would make the payment out of savings, avoiding the hit to my credit. If I considered the prospects of recovery to be poor, however, I would stop paying and husband my savings. This would move me up on the servicer’s priority list for special treatment. While it also moves up the hit to my credit, that is something that would happen anyway as soon as my savings were exhausted.

If I did not have a problem making the current payment but would have a problem dealing with an anticipated payment increase, I would handle it differently.

First, I would determine exactly how large the payment increase would be. If the increase stemmed from an interest-only loan reaching the end of the interest-only period, the new payment could be found using any monthly payment calculator (including calculator 7a on my Web site) inputting a term equal to the remaining life of the loan. If the increase stemmed from an ARM (adjustable-rate mortgage) adjustment, the new payment wouldn’t be known exactly until a month or two before the adjustment, but an estimate based on the current value of the rate index would provide a good estimate.

A Detailed Budget

Step two is to develop a detailed budget which documents the point that the expected payment is not affordable. Use the form provided by Genworth to show your income, expenses, and assets.

Submit your document to the servicer well in advance of the anticipated payment increase. There is no guarantee that it will lead to a contract modification before the payment increase materializes. However, it gives you a good shot to move up in the servicer’s queue by providing the concrete detailed information that servicers require. It also keeps you out of the hands of the modification hustlers who want to be paid upfront for doing what you can do yourself.



How Long Will it Be Before the Foreclosed Homeowner Feels Relief From the 700 Billion Dollar Bailout

Not soon enough if ever. Let me explain.

Bush announced that the first 250 billion dollar infusion is targeted for the banks. Which will take time to do and time to see if it works. Which will mean that the balance of the money will not be used (350 billion dollar) until the next president is inaugurated in January 2009.

However, the Bush Administration has unveiled additional mortgage assistance for homeowners at risk of foreclosure. The HOPE for Homeowners program will refinance mortgages for borrowers who are having difficulty making their payments, but can afford a new loan insured by HUD’s Federal Housing Administration (FHA). There are a lot of issues to be dealt with, plus pre-qualifications needed by the homeowner, which means it will take time to be effective.

So what is offered by both candidates and when will it start?

Barack Obama proposed more immediate steps to heal the nation’s ailing economy, including a 90-day moratorium on home foreclosures at some banks. Obama proposed that banks participating in the federal bailout should temporarily postpone foreclosures for families making good-faith efforts to pay their mortgage.

Sen. John McCain proposed a plan to help millions of people around the country facing foreclosure by ordering the Treasury secretary to purchase and renegotiate faulty home loans.

The plan is aimed at homeowners who owe more than their houses are worth or who are otherwise in danger of foreclosure. The government would use Fannie Mae, Freddie Mac and private mortgage brokers to pay off the troubled loans and refinance the homeowners, making their payments more affordable.

Again, this will take time and concerted effort by the powers to be to implement any program before relief is felt by the homeowner who is facing foreclosure or who is in foreclosure.

The common thread above is TIME, no matter what you like or dislike about the government, the presidential candidates, or what is going on in Washington (D.C.).

Bankers/ Lenders, realtors, real estate investors, and all scam artists want you to believe that you do not have enough time and, especially, they do not want you to know how the foreclosure process works.

You are nothing more than a new profit center for them, and they only have their best interest at heart (not yours).

I have a short video that will show you how scam artists work, and it may help you understand what not to do. Check it out: