It Ain’t Over Till It’s Over


real estate timeIf you saw the Dec 14, 2008, 60 Minutes broadcast featuring a segment titled, “A Second Mortgage Disaster On The Horizon?” you’d probably be scratching your head asking yourself when this meltdown will end.

The segment had Scott Pelley interviewing Whitney Tilson an investment fund manager who is supposedly the new guru on the mortgage bubble explosion.

Tilson is part of Amherst Securities. Amherst is an investment firm specializing in mortgages. Amherst is widely regarded as mortgage and financial detectives. If a guy was going to be funny he could call them the CSI of the mortgage trade. On the other hand, what isn’t funny is the possibility Tilson’s predictions that Alt-A and option ARM loans are about to add to the already huge pool of misery.

He says his data tells him that even though there are the billions of dollars in sub-prime mortgages that reset last year and this year, the full impact of the Alt-A and option ARM resets haven’t hit yet. Tilson says this has the potential to add another $1 trillion in Alt-A mortgages and about $500 to $600 billion in option ARMs to the pool.

I guess if this actually happens we could say we are now talking about real money given all of the bailout dollars being bandied about and given away like they were food samples at the local big warehouse store. The ha ha part to this is that food samples seem to be harder to get than dollars.

Misery On Top Of Misery

To make matters worse, a lady named Sean Egan was also interviewed. Egan runs a credit rating firm that analyzes corporate debt. So do a lot of other people. However, Egan has been cited by Fortune Magazine as being one of six Wall Street pros who predicted the fall of the financial giants. Her expectations for 2009 is that it will be miserable and 2010 not only miserable but probably even worse.

Now this flies in the face of what all the federal government talking heads were, and are, saying. From the Prez on down, the word is recovery begins to happen in mid 2009 and continues through 2010 when the worse should be over. Personally I believe the private sector talking heads but that’s me.

Tilson did do some propagandizing for the stock market but this post isn’t about the stock market, it’s about real estate. It seems to me if these two people are anywhere near the bull’s eye of accurate prognostication, real estate bargains will be available for at least two years. Given that is true, it seems we need not be in a rush to buy a property simply because it is way below market. After all, there will be a new glut of inventory in the very near future that will further depress prices.

My Plan

I don’t know about you, but I plan on saving all my nickels and dimes for the new year’s real estate fishing trip in my back yard. I should be able to land a few whales. I can only speak for my back yard which is Nevada, the leader in foreclosures, but I would imagine whales are alive and well in every market.

I define whale as that house today going for at most 40% (flexible to 45%) of the 2006 price. 2006 is my arbitrary date. Pick your own.

I won’t go into my data analysis method because you undoubtedly have your own. If it has worked well for you in the past, it will work well for you in the future. Good luck and may the real estate gods smile on your new year of opportunities.

Photo Credit: Tim Morris

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  1. Prof. Samuel D. Bornstein on

    I would like to bring a very important bit of information to your attention that relates to this economic crisis that was overlooked until now.

    On Sunday, 12/14/08, CBS 60 Minutes aired a segment “The Mortgage Meltdown”.

    Scott Pelley’s piece on the 2nd Wave of Foreclosures overlooked a critical fact.

    The segment missed the fact that this next wave of Foreclosures in 2009 Will Take Self-Employed and Smaller Businesses who have these TOXIC mortgages. In fact, ALT-A, Option ARMS, Interest-Only, the TOXIC Mortgages that are considered the “Troubled” assets in TARP were specifically marketed to the self-employed who fell prey to them.

    The upcoming defaults on these risky “Toxic Mortgages” will result in an increase in foreclosures. But worse, once these small businesses fail, the resulting loss of jobs will cause millions to add to the ranks of the unemployed. Note that self-employed business owners (16.2 million according to the SBA) employ between 1-10 employees.

    An NASE survey at , was the first to provide compelling evidence of small business involvement in the upcoming toxic mortgage crisis. The survey was created by Prof. Samuel D. Bornstein and Jung I. Song, CPA of BornsteinSong Consultants in Oakhurst,NJ,and was conducted by the National Association for the Self-Employed (NASE) which issued a Press Release on November 21, 2008.

    According to this survey, it is estimated that 3,709,800 small business owners hold Alt-A and other toxic mortgages, and 1,279,800 are already delinquent as they have missed one to three or more monthly mortgage payments at mid-November, before the expected Resets that are scheduled to begin in 4th Quarter 2008 through 2012.

    These small business owners will be at-risk of payment shock and default as their monthly mortgage payments skyrocket. Small business owners were especially targeted for these Alt-A loans which required little or no documentation of income which appealed to many small business owners who previously were unable to qualify.

    The resulting defaults will be the cause of the upcoming second tsunami wave of foreclosures that will dwarf the subprime crisis and will take many homeowners and small business owners.

    See the NASE website under NASE NEWS for the Toxic Mortgage Survey.

    Thank you,

    Samuel D. Bornstein
    Professor of Accounting & Taxation
    Kean University, School of Business, Union, NJ

  2. I am not going to go fishing for houses. I think we are to in debt as a country and this will cause huge inflation. I think we may be near a huge depression. I wouldn’t consider buying a house until 2012. I see how much money the fed is printing. It is going to be scary. China might sell the bonds and we will sink into a great depression very easily.

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