As the securitization market for mortgage loans has effectively been "frozen" for several years as I had forewarned many of my readers in various regional and national real estate publications several years in advance of the "official" start of The Credit Crisis back in 2007, we primarily have seen loans being funded which are backed by governmental bodies via Fannie Mae and Freddie Mac (both taken over by the U.S. government back in September 2008) and FHA (government insured financing).

Through the 1st Quarter of 2010, government insured or backed financing represented over 96.5% of all mortgage loans nationwide. This 96.5% number is absolutely staggering for a country which was built upon the idea of a "Free Market" way of life.

Since 2004, many of the largest private money insurers began withdrawing their funds from the private residential mortgage securities markets. In 2005, "Derivatives" money (i.e. funds backed by Credit Default Swaps, futures, options, and other complex insurance and banking hybrid contracts) began to monopolize (or "colonize") the mortgage securities markets which later proved to be horrific for the financial markets.

A "derivative" is an agreement or contract which is not based or backed by anything real or tangible. It is more of a financial agreement between two parties which is supported (or "derived") from the value of an underlying asset or event (such as the default or non-payment of another financial instrument). As the derivatives money began "freezing", there were less buyers for mortgage bond debt since 2005 as well.

As I have created financial charts in the past to better support my viewpoints in regard to how bad the world's financial meltdown is today, there may be over 1,600 TRILLION DOLLARS worth of primarily unregulated derivatives in existence worldwide (as compared to approximately $7 or $8 trillion in combined residential mortgages nationwide, $4 or $5 trillion in total U.S. bonds in existence, etc.).

The Credit Crisis (for the 100th time) is primarily due to the "unwinding" of these overvalued, complex, and essentially worthless (in some cases) derivatives. It is NOT just a "sub-prime mortgage" problem as portrayed by many in the media as they try to blame the struggling U.S. homeowner for this problem. "Sub-prime" debt represents just a tiny portion of the overall derivatives debt worldwide.

Many of these same financial derivatives have been leveraged another 10, 20, 30, 40, or 50 plus times their face amount by the owners of these same financial instruments. Many derivatives investments (on and off balance sheet investments) absolutely DWARF the entire combined net worth of many of our largest banks and insurance companies worldwide. If many of the top 20 largest U.S. banks acknowledge how bad their overall financial losses in these complex financial instruments, then they would effectively be insolvent.  

To better visualize this risky form of "financial gambling", please imagine placing $100 on the color "green" on a roulette table. If you win your bet, you may take home approximately 40 times the amount of the bet (or $4,000). However, if you lose the bet, then you owe the casino $4,000. Now, please imagine making that same bet with $1 Trillion Dollars. Could you or your bank afford to take a $40 trillion dollar loss today?

For the past few years, the Federal Reserve (and the U.S. government) has been either directly or indirectly (via various anonymous "emergency loans" to banks and insurance companies) backing, supporting, or purchasing the securities for both residential and commercial loans.

Supposedly, the Federal Reserve has purchased close to $1.25 Trillion of mortgage-backed securities in recent times. In addition, the Federal Reserve has been the main purchaser of U.S. Treasury Bond debt over the past few years (over 80% to 90% of all U.S. bond debt, according to various financial reports) since there were so few domestic or international buyers interested in U.S. bond debt (AAA rated debt too).

In April 2010, the percentage of delinquent mortgage-backed securities (MBS) increased 41% in the month of April alone. This increase may have added an additional $12.8 billion of non-performing commercial paper on top of the estimated $184 plus billion of non-performing mortgage backed securities nationwide.

As retail spending and consumer spending overall (represents approximately 2/3s of our overall U.S. economy) continue to struggle, this means that there may be more commercial loan defaults which only hinders the value of these existing mortgage-backed securities even further for the banks (or other investors).

As such, I am continuing to spend more time on commercial loan workouts (or "cramdowns") as existing lenders are now more than willing to accept multi-million dollar loss payoffs at 100% to 250% plus discounts off their existing face amounts.

If the "Fed" had not stepped in to purchase U.S. Treasury Bond debt, then long-term mortgage rates would easily have shot up to the high double digit numbers since 30 year mortgage loans are tied to the yields of the existing 10 year Treasury Bond. With less buyers for this bond debt, then these yields or rates tend to increase significantly in order to attract new bond buyers. In 1981, the U.S. Prime Rate hit 21.5%, and some 30 year mortgage loans hit 16% so current mortgage rates are historically cheap right now.

In Europe, the Bank of England and the European Central Bank (ECB) have also been the main purchasers of mortgage backed bonds and securities partly through "Repo" deals. Prior to 2007, private investors purchased almost 95% of all European mortgage-backed securities. Sadly, private European investors now purchase just 5% which is very similiar to the U.S. numbers too.

According to Shadow Stats, various major universities, and numerous economists, the true U.S. unemployment numbers (actual, underemployed, self-employeds who can't find work, frustated short-term workers) are closer to 20% to 22%+ right now.

During the depths of The Great Depression (1929 - 1939), the unemployment numbers hit 25% nationwide. During The Great Depression, some of the more challenging years were back in late 1931 and 1932 era when various banks began to "collapse". "Bank runs" soon followed as customers flocked to their banks for much needed cash. This is when the FDIC came into existence to better insure the bank customers' savings accounts.

Today, we have come full circle in that we now are at the mercy of the government to back, bailout, insure, and solve our ongoing Credit Crisis. Let's hope that the FDIC, Fannie Mae, Freddie Mac, FHA, SBA, and other government backed entities will be there for all of us in both the short and long term.

Equally as important, let's hope that more private capital begins to enter or re-enter the financial markets once again in order to begin to "unfreeze" the securities and secondary markets at some point very soon.

In December 2009, the number of California foreclosure cancellations increased 26.5% to 13,243 mainly due to increased loan modifications. For the first time ever, the number of foreclosure cancellations surpassed actual bank REO (Real Estate Owned) foreclosure sales in which the properties revert back to their respective banks if no third (3rd) party bidders purchase them at the final Trustee's Sale on the courthouse steps.

In 2009, lenders had to discount the opening bids at the final Trustee's Auction Sale by almost 40% in order to potentially attract investors as the existing mortgage debt typically exceeded the true market value in many cases. I saw many properties go to final Trustee's Sales recently in which the existing mortgage debt was over $ 1 million, but the current market value price ranges were closer to $600,000 so these discounted opening bid numbers do seem realistic to me.

Yet, the vast majority of Trustee's Sales across the state had very few true buyers who actually showed up to purchase the properties. In almost 97% of the foreclosure auctions last year alone, there were no bidders who purchased these properties with all cash (or 3rd party private financing). As a result, the foreclosured properties typically ended up back with their respective bank or mortgage loan servicer.  

Over 80% of all scheduled Trustee's Sales were postponed at least one time last year as well as lenders were trying to delay the huge "wave" of non-performing and foreclosure properties from hitting their "books" in too short of a time period. I have seen many properties scheduled for final Trustee's Sale be postponed for up to one or two plus years as well.

Under the new HAMP (Home Affordable Modification Program), the U.S. Treasury provided financial incentives to mortgage loan servicers to provided new modified work-out loans for their existing borrowers. In the last few months of 2009, there were approximately 30,000 permanent loan modifications which were completed primarily due to the HAMP program.

The increase in loan modifications by way of the HAMP program is a major reason why there was such a big increase in foreclosure sale cancellations (as opposed to just "postponements") in recent months due to the loan modification work-outs with lower interest rate, payment, and reduced principal amounts in some cases.

As I have noted several times in the past, many banks must set aside up to $8 dollars for every $1 dollar loss tied to foreclosure losses. Many banks are currently low on their own cash reserves just as most borrowers are today as well. In many cases, banks maintain close to 1% of their bank deposit funds in actual cash reserves which typically equates to ATM money and minimal bank vault cash.

Partly due to how banks leverage their customer's bank deposits via the U.S. banking system's "Fractional Reserve System" which allows them to leverage their investments up to 10 to 50+ times their actual bank deposits, the continued financial problems in the U.S. banking system make it challenging for many banks to either take back more foreclosed properties, or to make new loans to their customers.

As the Credit Crisis continues onward, there are some incredible investment opportunities if you know where to look, and if you know how to find the cash to get in and to get out of the property as soon as possible so you may realize your gains sooner rather than later.

We continue to provide our clients both the targeted investment data which finds the best discounted foreclosure properties as well as we may provide them with a large portion of the capital (debt and equity money) to buy the foreclosed residential or commercial properties.

For more information, please send me an email or call me today.

As home values continue to fall in most parts of the U.S. partly due to the nationalizing of the mortgage and financial markets, buying homes for short or long term appreciation may not be the best option these days.

Mortgage lending continues to tighten up for both residential and commercial mortgage loans, and stated income loans may be banned nationally in the near term after the Senate recently voted to pass a bill in favor of the banning of "no income verification" or "stated income" mortgage loans.

As a result of the tightening of the financial markets, real estate values may continue to fall in both the near and the long term. One of the best ways to potentially profit from the continually worsening housing markets is to buy properties at the final foreclosure sale or through tax sales in various regions which may allow potential investors to buy properties for literally cents on the dollar.

We have created both a software and a financing system which targets the best foreclosure or tax sales properties in Southern California for our clients. To learn more, please contact me for additional information.

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.

Mortgage loans held by U.S. banks which are secured by apartment buildings (5 plus units) increased to a record 4.6% default number in the 1st quarter of 2010. This delinquent mortgage percentage number was almost twice the number just one year earlier. In the 4th quarter of 2009, the mortgage default number was 4.4%.

Typically, apartment buildings are considered the safest type of commercial property nationwide as compared with the other perceived riskier type commercial properties such as retail, office, industrial warehouse, and hotel properties.

As the global recession continues to worsen, consumer demand for apartment units, office, retail, industrial, and hotels have weakened over the past two (2) years. As a result, vacancy rates are up, and income is down significantly.

Some financial analysts predict that overall apartment vacancy percentage rates may peak at just over 8% later this year which may be the highest apartment vacancy percentage rate since 1980.

There may be an additional 5 million homes which go all the way to foreclosure over the next two (2) years, according to various financial analysts. A record high number of 4.63% of all mortgages nationwide were in some form of foreclosure in March 2010. An even more staggering 9.54% of all mortgage loans in the USA were more than 90 days late.

As I have said and written many times over the past few years, I continually hear stories of homeowners who are able to go one or two years without making a mortgage payment before their existing lender finally begins the foreclosure process.

The primary reason, from my perspective, that more banks don't file foreclosure faster than they have in recent years is that the banks do not want to acknowledge how bad their financial losses are partly due to their own concern about their stock values as well as potentially triggering even more catastrophic losses for themselves by way of defaulting on their Credit Default Swaps or other complex derivatives.

Existing homeowners who may be currently delinquent may want to try to get a loan modification approved with a lower principal, interest rate, and payment option, or try to get a short sale approved to another home buyer before the existing values in their neighborhood potentially worsen even more.

Sadly, serious mortgage delinquencies are now 30% more than just one year ago so the trend continues to worsen and not improve as portrayed by some financial analysts.

For the first time since June 2009, new housing starts rose above 500,000 as approximately 593,000 new homes were started under construction. In Orange County, California alone, new housing starts exceeding 55,000 new homes.

Over the next few months as we enter the peak summer buying months, we may see more buyers entering the home buying marketplace primarily in the FHA mortgage loan price range which is typically in the low $400,000 price range. In certain high priced home regions like coastal areas of California, FHA purchase loans (up to 96% to almost 97% LTV), the loan amounts may go as high as $729,000.

As the take-out (or long term purchase loans) mortgage financing market is what usually drives home sales in various real estate markets, I expect that most new home construction nationwide will be in the lower end of the housing price spectrum since that is where most of the available mortgage money is these days (i.e. Conforming (less than $417,000) and FHA money).

According to both the National Association of Realtors and The Pending Home Sales Index, homes sales were up in the month of March partly due to the typically strong Spring selling time period as well as the use of the home buying tax credit which appealed to many buyers.

The forward-looking home selling index rose 5.3 to 102.9 from 97.7 in February. In addition, the March 2010 home selling index was up 21.1% over the March 2009 index which was at just 85.0. This information reflects home sales and pending escrow contracts. The closings usually take place one to two months later.

In the short term, any good news is encouraging these days during our ongoing economic slowdown. We should all hope that the positive home selling trends continue in the near term.

The key to the continued home selling success may be tied to the directions of the national unemployment numbers which continue to be somewhat negative right now. Hopefully, the job market may improve later in the year which may improve the residential and commercial real estate markets even more.

The U.S. Treasury continues to need massive amounts of capital to fund our various government programs as they recently redeemed over $596 billion in short term Treasury Bills for the month of April alone. This is an all-time world record amount for one single month. If you add in an additional $47 billion in longer term Treasury Notes, the amount rises closer to $650 billion.

Thirty (30) year fixed mortgage rates are tied to the direction of the 10 year Treasury Bond yield. With less demand from Treasury Bond buyers, the yields should then begin to rise which should also parallel the increase in longer term 30 year fixed mortgage rates.

In theory, current thirty (30) year mortgage rates should be much higher than the approximate 5% to 5.5% conforming mortgage rates right now. However, rates continue to be artificially low due to both the almost record low short term rates via the Federal Reserve's lending and investment actions to date.

It seems to me that thirty (30) year rates may be on an upward trend in the near term. Should that happen, then it may hinder real estate values even more in both the near and long term. It may make more sense to refinance sooner rather than later in order to lock into these artificially low rates as the Treasury borrowing continues to escalate.

As I have written for years, the true number of distressed properties or delinquent mortgages is significantly higher than what is published in most media outlets. In some "bubble burst" regions like California, Nevada, Arizona, and Florida, the potential delinquent mortgage numbers may be anywhere from 200% to 400% larger than what is being reported right now.

There are a number of reasons why U.S. banks are not readily admitting to how large the impending and forthcoming foreclosure "wave" is right now. First, banks do not want to admit or acknowledge how bad their financial losses are right now partly due to their concerns about their own stock values of their financial entities.

If the banks acknowledge their losses and take their financial "hit" for their quarterly or annual reports, then it may trigger a default on some on their off-balance sheet derivatives investments like Credit Default Swaps (a glorified hybrid form of an insurance and financial instrument).

A default of a multi-trillion dollar Credit Default Swap would effectively bankrupt the bank's parent company as many multi-trillion dollar Credit Default Swaps have also been leveraged 10 to 50 plus times their face amount.

To learn more about Credit Default Swaps, please view this video from the "Videos" section which is in regard to Long Term Capital Management's (LTCM - a $3 billion hedge fund business) collapse which almost single-handedly caused the world's financial markets to "freeze" back in the mid-1990s. LTCM was losing up to $500 million per day due to their hedge fund losses. Video link here -

http://www.youtube.com/watch?v=xGfXyVtiB1E

The Credit Crisis is really all about the unwinding of primarily unregulated Credit Default Swaps, Mortgage Backed Securities, Interest Rate Options Derivatives (these financial instruments were the primary cause of Orange County's 1994 bankruptcy through their Merrill Lynch investments), Structured Investment Vehicles (SIVs), and other financial and insurance hybrid instruments.

The Credit Crisis is NOT a "sub-prime mortgage" problem as originally portrayed by many in the business media as delinquent "sub-prime mortgages" represent a tiny fraction of the delinquent financial debt worldwide.

To better visualize how large the entire Credit Default Swap and derivatives market is worldwide, some analysts project the current valuation of the derivatives market to be close to 1,600 TRILLION DOLLARS. As a comparison, the combined value of all of the real estate, bond, and stock markets on planet Earth was recently valued at a grand total of 100 TRILLION DOLLARS.

Many of the largest big banks in the U.S. have had to rely upon bailouts from the Federal Reserve in recent years via anonymous lending facility programs such as The Term Auction Facility, Term Securities Lending Facility, or as many as ten (10) additional anonymous lending facilities.

Banks borrow and lend money using a "Fractional Reserve" lending system in which they tend to leverage their deposits somewhere between 10 to 100 times the amount of cash on hand (i.e. customer's deposits).

As such, the amount of outstanding loans in the form of credit card, automobile, business, or real estate loans may completely dwarf the bank's true cash balances. In addition, most U.S. banks effectively maintain the equivalent of 0% to 1% (effectively ATM and minimal vault money) of their entire customer savings balances actually within the bank's vaults.

In late February 2010, a recent financial analysis projected that there were possibly 4.6 million plus mortgages in the U.S. now over ninety (90) days delinquent. Many of my associates are telling me stories about homeowners who have not made a mortgage payment in over two (2) years, and they still have yet to receive a foreclosure notice.

In various "Trust Deed" states like California, lenders may not be able to pursue the delinquent homeowner for any future financial losses should the homeowner "walk away' from their "upside down" property if the homeowner used a "purchase money loan" to buy the property. If the property owner used a first mortgage loan or a concurrent 1st and 2nd (or a "piggyback" loan) to originally buy the home, then they may many times walk away from the property without fear of the lender coming after them for their losses.

If the property owner place a 2nd loan just one day after the original purchase date or refinanced their existing purchase money 1st mortgage (rate and term or cash out), then the lender may later pursue the property losses for any financial losses as they can do in Texas, and in many other states around the USA. For more advice on this complicated subject, please consult with your own financial advisors.

Barclays Bank and the Wall Street Journal are predicting about 1.6 million in distressed property sales this year via short sales or foreclosures. While this number is large, it is still 3 MILLION less than the projected 4.6 million plus mortgages which are thought to now be more than ninety (90) days delinquent.

In many cases, a bank may have to set aside up to $8 for every $1 dollar in acknowledged foreclosure losses. Since most large banks are effectively insolvent, they do not have the cash reserves readily available to cover any additional foreclosure losses.

In many situations, the stressed and cash-strapped homeowner is actually healthier financially than their own bank who struggles to avoid financial insolvency themselves. The smaller credit unions and community banks tend to be financially more solvent these days as they were less reliant upon the risky Credit Default Swap and other derivatives investments for higher yields in the past.

The good news is that more short sales are being approved these days as banks have to unload their non-performing loans anyway possible these days. In addition, there are more foreclosure investment opportunities than ever before if you know where to look for them.