Tag Archive for 'bailout'

Real Estate versus the Bailout: Can an REIT Hedge against Inflation?

Published
by
Editor
on January 31, 2009
in Market Conditions
. 4 Comments

Newsflash: the dollar is going to Hell, post Bailout.

Even worse, the Boston Herald’s Barry Armstrong recently recommended investing in REIT (real estate investment trusts) as a hedge against the extraordinary rate of inflation we’re going to see in the next few years.

I read some data from far too long ago, disproving this theory based on numbers from the 1970’s and the 1980’s. Since we may reach an unprecedented rate of inflation in the near future, I’m not sure why anyone would publicly say that REITs are the go-to against inflation. When so many REITs are so closely connected (if not part of) the stock market, why, why, why would anyone recommend this to a broad base of Boston readers? New York REITs are just beginning their downward spiral, and believing that they could really be a hedge against the coming inflation seems like a decent hedge against reality.

It’s going to be a bold guess to determine what’s going to be the magic hedge in the next five years. Where will you be holding your money?

What a Main Street Obama Bailout Might Look Like for Homeowners

Published
by
kmunsell
on November 9, 2008
in Market Conditions and Progressive Trends
. 27 Comments

With change on the way and a new President-Elect in the wings, homeowners are wondering whether or not the billions of dollars being spent to prop up the U.S. banking system will make it down to troubled homeowners.  It’s highly likely that a mortgage assistance package is on the way, possibly through a partial redistribution of the existing $750 billion bailout package.

To understand how Barack Obama’s government may help homeowners, you need not look any further than the IndyMac takeover in Los Angeles. IndyMac went belly up in July and was taken over by the feds. While bank deposits were covered through the FDIC, the government also inherited a portfolio of highly distressed mortgages.  Rather than continuing the trend of foreclosure proceedings on accounts 90 days overdue, the feds started working directly with homeowners, on ways to reduce their debt-to-income level on their loans to ultimately allow homeowners to remain in their homes.  

The goal for helping those with IndyMac loans was to reduce the debt-to-income (DTI) ratio of principal, interest, taxes and insurance to below 38%.  To help homeowners get to an affordable payment schedule, the feds have been willing to adjust IndyMac loans by:

  • Reducing the interest rate permanently;
  • Reducing the interest rate over the next five years with a gradual increases after five years so long as the DTI for the home owner stays under 38%;
  • Extending loans from 15 to 30 or even 40 years;
  • Forgiving some of the original loan amount ( principal forbearance ); or
  • A combination of the above.

For every mortgage that can be adjusted so that the homeowner can continue the payments, the government can actually save money. The time and money costs of foreclosing a property, combined with depressed home prices, in many cases would greatly outweigh the costs of helping people stay in their homes by adjusting their mortgages. Couple this with the social benefits and it stands to reason that an “Obama-dency” would be inclined to extend this practice to Main Street, U.S.A.