Alan Greenspan on 60 Minutes: Housing Market and Economic Forecast

Alan Greenspan was interviewed on CBS's 60 Minutes with an outlook on the US housing market and economic forecast.

Greenspan stated "... we're gonna get through this particular credit crunch... we always do..."

This is a reinforcement that the real estate bubble hasn't burst... it's just taking a well-deserved break.

An innovative vision: Residential Rental Real Estate as an Asset Class (RRRAAC)

Blue Moon Capital is more than a money manager, more than a real estate investment company/wholesaler/hard money lender/reo buyer/ turn-key opportunity provider... Blue Moon is an innovative company with a vision of creating "Residential Rental Real Estate as an Asset Class."

"Well I had always been fond of real estate, and i saw it was an opportunity to do something in the industry that nobody has ever done before... and that is create residential rental real estate as an asset class, which up until today nobody has ever realized that it has the potential that it does today primarily because the industry considers residential rental real estate as cumbersome, awkward, hard to manage but we look at a process whereby we can make it manageable..."

Blue Moon Capital Overview on YouTube

Calming Seas in the Credit Markets

It appears that most of the high profile news about the "Credit Crunch" is out there. At least this wave. Lenders have had some time to locate and identify enough of the subprime risk that is either currently in their portfolios, been packaged and sold to investors, or in the pipeline and being processed in order to evaluate and put some measure of quantitative valuation on their risk exposure. Some lenders have already started to add loan products back to their menus and some large lenders have decided to retain the loans in their own portfolios instead of selling them to the secondary market. By doing this they do not take the risk of having to sell the loans at a discount which would result in a loss to them. This also is giving them a competitive advantage over less financially sound banks by allowing them to make loans their financially weaker competitors cannot and consequently taking away market share ..

By: Ron Ojeda, Capital Development, Blue Moon Capital, LLC

It's a bird... It's a plane... It's... ... Bank of America!

Notable News:
Bank of America to invest $2 bln in Countrywide: WSJ
"NEW YORK (Reuters) - Bank of America Corp plans to invest $2 billion in Countrywide Financial Corp, the mortgage lender that has faced a liquidity crunch this month, the Wall Street Journal said on Wednesday." Source: www.reuters.com

WaMu leads the pack back in

After speaking with a number of mortgage professionals, I have gained knowledge that WaMu is once again offering stated income loans for W-2 borrowers.

While that may not sound like a dramatic announcement in and of itself, the mere idea that a large national lender is restoring loan products to their menu is a sign of a reversal of the trend of the last three weeks.

It should be considered that WaMu has one of the strongest balance sheets in the industry and this may be indicative of what other financially strong lenders, such as Bank of America and Wells Fargo, might do in the near future. -By: Ron Ojeda, Capital Development, Blue Moon Capital, LLC

Visions of Rollercoasters and "Dead Cats"

By Ron Ojeda, Blue Moon Capital

Debt and equity markets from Chicago to New York to overseas continued to react to the uncertainty created by an illiquid debt market. Last week started with three days of gains that were the best we’ve seen since March of 2003. But the lion’s share of those gains were experienced in a relatively narrow band of the S&P 500; financials, materials and energy markets were the sectors hardest hit since mid July.

With that lack of breadth, most savvy traders had one eye on the door. On Thursday when BNP Paribas, the largest bank in France, barred withdrawals from three of its’ asset backed securities funds, the broad selling started. Nine out of ten sectors in the S&P 500 were down more than 2.5%. By the way…that’s why it’s illegal to yell “Fire!” in a crowded theater. If it were not for the “dead cat bounce” on Friday with the market recovering late in the day from a 213 point drop to finish at down just 31 points, the market would have suffered its’ fastest 1000 point drop since the five days following September 11^th, 2001.

Given these events it is important to remember that the equity markets are simply the tail of a very big dog. That dog being the global debt markets. Friday finished the week off with a manic trading day driven by global central bank activity. The European Central Bank infused more than $130 billion into the markets on August 9^th, the highest amount since September 11^th, 2001, and an additional $84 billion on Friday with The Bank of Japan. The Bank of Canada and The Bank of Australia followed suit.

The Fed added reserves of $38 billion accepting mortgage-backed securities as collateral for overnight loans or repurchase agreements (Repos). The Fed will normally buy a combination of Treasury, Agency and mortgage-backed debt.

Bond investors, home mortgage buyers and jobless mortgage banking industry employees alike, who have been negatively affected by these events of the last month, have been anxiously looking for someone to blame. Unfortunately, this may be a time for them to look inward to see some of the culprits. Home buyers who stretched too far and borrowed against too much of their equity, mortgage brokers who sold inappropriate products to their customers and most importantly, the bond investors who enabled this activity by buying what Wall Street had to sell.

In the early 1990’s Wall Street was faced with a compelling problem. With a large wave of the population moving toward retirement, they needed an even larger amount of investment-grade income producing investments. With several money managers restricted on the quality of debt they could buy by their written investment policy statements, where were they going to find that investment?

Someone had a brilliant idea that would transform speculative paper into investment grade paper, "What if we bundle all these loans together into a pool? We can reduce the risk to the investor by diversifying his risk amongst all these loans.” Collateralized Debt Obligations were born and Large to small investors with mutual funds have been inadvertently feeding the beast ever since.

With the luxury of the big picture and hindsight as its’ benefactor, it appears the herd has had its’ way…again.

By: Ron Ojeda, Capital Development, Blue Moon Capital, LLC

Update: Lenders Tighten Belts

Signs of Change

It shouldn’t be a mystery that the lending industry is carefully rethinking their actions and changing their standards after last week’s crisis. So far, we have seen one of our several national lenders start to tighten their belt a couple notches in hopes of disqualifying more individuals for risky loan types such as the payment option loan, which is often sought after by investors looking to leverage for positive cash flow.

Blue Moon was advised early this week that the payment option loan type was still available to only strong borrowers with 680+ FICO scores, and with an additional 3 points at closing. To be fair, all loans are going to be requiring more “skin in the game” from the borrower, whether it be in the form of more points upfront or higher interest rates. The increased rates on loans across the board are a reflection of the lender’s uncertainty about what will happen over the next 30-60 days. Since they don’t’ have enough information to evaluate the risk at this time, they simply are charring above market rates to cover all contingencies.

Eventually, as it becomes more apparent as to what the real impact of the sub prime foreclosure chapter is, rates and underwriting standards will be brought into line. Today the impact to real estate investors is that they should expect tighter underwriting standards and additional costs, either upfront or over the course of the loan.

As we’ve seen in history, difficult situations in financial markets, being stocks or bonds, have brought opportunity to investors. The corrections in the global debt markets is no different. Experienced investors have made their fortunes during these market corrections. They simply have to know how to take advantage of the market by understanding what they are investing in.