By Bill Coyne
The fed has decided to make a move that they hope will spur a growth in an economy that, although has been growing, is not growing fast enough to take in the growing workforce of new full-time employees reaching adulthood, or unemployed people who are actively looking.
Lower rate means more cash flow for borrowers and businesses alike who can take advantage. The argument has been that banks have used the money to speculate on commodities, driving up the cost of oil, food and other natural resources, rather than lend it out on loans that may be on the bubble. A 660 or even a 680 is now considered subprime for many banks. Commercial lines of credit are also not being leveraged. Many businesses, considered risky because of the current environment, are being disqualified before they even walk in the door. A restaurant, a builder, or any other company whose profits may take months or years to develop are not getting the liquidity they need to grow, expand, or even survive. The result has been many smaller businesses are taking on the work themselves and keeping that money which would otherwise go into hiring, or inventory
The stock market has grown to levels way beyond analyst’s expectations. Most have taken the profits and stored in cash, or paid good dividends to the investors that stuck with them. Since many feel tax rates will rise by year’s end (they automatically will revert back to pre-2003 tax rates if no extension is done), so investors are choosing to take their profits now. The quantitative easing allows banks to refill their open warehouse lines at the point of closing. This will drive yields much lower, since fewer bonds are outstanding at initial auction. But if inflation is the fear scaring our government, then you can bet it is scaring the savings driven middle aged population that is not spending. These people may not be experts in the stock or bond market, but they no one important thing: there is no free lunch!
These rates will help refinances and new borrowing for potential homeowners who see this as the best time to buy in history (it is!). What it will not do is drive up prices when the current foreclosure inventory is at 104 months nationwide. Many attorneys, Realtors and financial professionals who could help short sale a lot of these homes have given up the process altogether, as banks take a long time to evaluate conditions, BPO’s (broker’s price opinion market 30 day liquidation appraisal analysis done by the bank) are coming in too high or too low, and the lack communication between buyer, seller, and their respected advisers in the matter, compound the issue. Then the banks lending on the buying side want every house to look like it’s just been remodeled to the tee. Deferred maintenance is not tolerated as much as people would hope, given the situation. Wages, which are the true sign of a growing economy, must and has to go up. Work productivity is down, which is another sign of an overworked society. This can and will spur hiring early next year. So far, in the retail sector, the huge sales discounts prior to shopping
season are not as evident as they were in 2009, or 2008. This reinforces the growing sentiment and confidence on behalf of retailers that the shopping season will be up at least 10% from last year.
Now with the current stoppage of foreclosures by the behemoths Chase and Bank of America, some are speculating more gridlock at the lending table. Some people feel if banks cannot foreclose, then they will not lend. Many believe no judge will throw out hundreds of thousands of foreclosures, for fear of another collapse in banks, as it will send a message institutions will be stuck with billions of non-performing debt they cannot unload, not to mention court and civil costs they may incur.
What may happen is a rise in more modifications, the process to take back homes will go through an extra set of eyes and verification, which will buy the borrower more time to sell, and get back on his or her own feet. No matter who the person is, and what decisions they made, there is a process they are entitled to. Diverting from that process taints the credibility of any person or company seeking reimbursement. This may bring a rise to more short sales, which took over fc’s in total percentage of sales this summer. Banks lose, on average 15-20% percent less when they short sale, as opposed to foreclosing.
Some states, like New York, now require that verification be done on each REO by the legal department, so as to ensure the proper steps were taken. In non-judicial states, which are about half, this does not apply, yet. This should remind people these deals are not going away, your economy needs you, and learning the process will only make your business stronger, and your ability to network stronger as well. Short sales will make up half of all inventory by 2012. Get to know them, or good luck working your way around them.
Yes, 20% of homes are under water. But 80% are not yet. This means there are a ton of refinances to get to, if you answer your phone, make your calls, work your leads, as well as your networking. The average credit score, regardless of what people will tell you is still 681 nationally. This means most people still have a job, and most still pay their bills on time. That does not mean we do not acknowledge the suffering that is out there. Many people are hurting financially, and need to get back on track. Divorces are at all-time highs, too many have thrown in the towel and just given up their keys and said “I have had enough.” You cannot quit, you will never have as much time as you do today. If we forget about those that are on track, or penalize them for it. then we will all suffer.
You don’t watch a sports game hoping for a tie, you would not ask your kid to give up an A to an F student so he or she can get a C, so why penalize business people who are the true hope of hiring in this country? Capitalism is not perfect, and it promises nothing. It only promises the opportunity, which is how we get rewarded. If we have nothing to risk, then we gain nothing.
Now is not the time to feel jealously against those who we perceive have more than have than we do, or worse yet, feel guilty because we are that person. You want to do something about the situation, then when you have the money to buy, buy. When you can invest, do it.. If you can hire, then hire. When you are in a position to give, lend a hand out. Negativity is easy. In fact, being negative is the natural state of humans. Being positive, especially when the times seem like they do not call for it, is a hard thing to do. There are currently no books on how to be negative, how to feel bad about yourself, or how to bring others down when you are in the dumps. There are however, millionaires created on the message of positive thinking and positive action.
Americans need to give themselves credit once in a while, we are a giving nation who work hard, play fair, and want to see others win, because we know they bring us all to a higher place, but if only for a second. Good luck in November!
Bill Coyne is a mortgage consultant with Blueleaf Lending’s The Coyne Group, A subsidiary of Midwest Community Bank. He can be reached at