YOU MUST READ THIS. IT EXPLAINS WHY THE BAILOUT IS MESSED UP!!!

Mid-Day Market News & Commentary by Chris McLaughlin, November 13, 2008
http://www.shortsalesriches.com/welcome.html
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We have a fr'ee webinar scheduled for tonight! "Government Morons Just Made the Foreclosure Crisis Worse. How you can Profit from Their Stupidity."
So go now to register for the webinar that's held on Thursday night at 9 PM EST, 6 PM PST, while there's still room:
http://www.thursdaynightwebinar.com
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This is a long one today, folks. And I'm going over most of this tonight on the webinar, but it is important! Feel free to forward this on to friends and colleagues so they understand what's really happening out there. I have an MBA from Georgetown University and I had to put it to use this week!

A funny thing happened this week...and this is absolutely the
truth. I was walking down the hallway and two Realtors came up and said "Chris, you'll never believe what happened ... the bank actually called me today and asked when we could close on my short sale."

Yes, two banks. In two separate transactions. Both called. And were nice. And were proactive. What the hell happened?

A lot.

This is important. You need to understand what's going on out there. The reason I write these market commentaries isn't because I have a passion for typing or a love for possible carpel tunnel syndrome, but rather because everything, and I mean everything, impacts housing. And today's news was simply a reiteration of what I've been saying for weeks.

Treasury Secretary Hank Paulson did a 180. No, even though the guy is bald and might in a former life have been a skater dude, his 180 was on his approach. He had a lot of money to play with, and he's wasted no time deploying it. The Troubled Asset Relief Program, or TARP, allocated Paulson $700 billion to invest in troubled assets.

He initially told Congress that he proposed buying up troubled assets, but that "would take time to implement...and would not be sufficient given the severity of our problem." So when Paul got half of the $700 billion, he injected $250 billion into many banks, shoring up their balance sheets and giving investors confidence that even though the bank had exposure to bad mortgages, it would be strong enough to survive.

So he kicked the idea of buying up all these troubled mortgages to the curb. It's gone. Outta here.

You see, as time went by, Paulson noticed a more severe threat coming, one that he needed to address more so than the illiquid securities. Paulson now has $60 billion left.

Consumer debt. Yeah, those pesky credit cards, car loans, and student loans are all frozen. As Paulson noted: "Approximately 40 percent of U.S. consumer credit is provided through securitization of credit card receivables, auto loans and student loans and similar products. This market, which is vital for lending and growth, has for all practical purposes ground to a halt."

So Paulson wants to allocate most of the remaining dollars on tackling this problem.

But why doesn't Paulson just throw the last $60 billion at the foreclosure problem?

He's not allowed to, and he really thinks it isn't a great idea anyhow.

You see the TARP only granted him authority to invest in troubled assets. He's not allowed to essentially give away money - he has to buy an asset. So a proposal whereby the government would help a lender by buying down their loan isn't feasible with this current reality. Unless they are buying the security, the TARP doesn't allow Paulson to just pay for principal reduction on someone's loan.

And Paulson is a smart guy. He thinks, rightly so, that the banks themselves will manage the modifications, short sales, and REOs rather than the government, as they are already setup to handle the problem (okay, that was my joke of the day, right!?!).

His concept is that the government needs to come to the rescue to provide liquidity, to give confidence to people that banks won't fail, and to invest the government's money rather than spend it.

Most believe it unlikely that Paulson will tap the TARP again, for his next $350 billion installment, as the Obama Administration will likely oversee the next deployment.

But he's done with buying bad loans, and it is highly unlikely that idea will come to the table again. He thinks the market conditions have changed, and his proposal to buy illiquid mortgage backed securities, or collateralized debt obligations, is history. Gone. Outta here. No more.

What the heck does this mean?

A lot.

You see, some of our clients who were short sale listings were calling us wondering what to do ... and loss mitigators seemed to be dragging their feet in the last month, all believing that Uncle Sam was coming to the rescue and would ultimately be off the hook. Instead, Treasury injected capital into the banks themselves, to shore them up, but it did an about-face and decided not to use the cash to buy up all the mortgage backed securities. As I noted before, even if they had, it didn't mean the government was actually buying the foreclosed house--they were just buying the underlying security.

So, again, what does all this mean? It means that we're back to business as usual, and the banks now understand it. You're going to hear more from the banks now about loan modifications, because frankly the banks need to do everything they can to keep people that want to keep their house in it. But these proposed loan modifications won't even really make a dent in the problem.

Why, you ask? Folks think about it. How much time does it take to negotiate a 2nd lien holder away, or to deal with a condo association that has back dues? The proposals by the government for "refinancing" are ridiculous because they are essentially short sales--but rather than selling, they are refinancing. But the same amount of work has to go into it! And guess what? The government is going to compensate the lender with a whopping $800 fee for doing so. After they take their cut the loan office gets $400.

Would you do a short sale for $400? We both know the answer to that.

So as I said yesterday, the only way out of this foreclosure mess is to stimulate demand. We need tax credits, and we need them NOW. We need downpayment assistance for qualified borrowers. We need the government to come in and either buy down the rate or give guarantees that will drive interest rates lower.

That's how we're going to stop foreclosures: they will end when demand is back, which means that housing prices will stabilize and people will understand that there might be equity yet in their home.

So what is my challenge to everyone? Get real about short sales. Get real about REOs. Get real about distressed properties. They are here to stay. This is when you will make your money! This is the moment. This is the time. Don't read the nasty headlines out there ... you can do this, and you can profit!

What should you do right now? Make sure you're on the webinar entitled: "Government Morons Just Made the Foreclosure Crisis Worse. How you can Profit from Their Stupidity." It is being held tonight at 9 PM EST, 6 PM PST, while there's still room:

http://www.thursdaynightwebinar.com

We're limiting the webinar to just 30 people for personal attention. Get on it quickly!

More tomorrow...

See you at the top!

Chris McLaughlin, J.D., M.B.A.
web: http://www.shortsalesriches.com/welcome.html

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