Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson held a press conference last week to discuss the Bush Administration’s current objectives to aid struggling homeowners in an effort to stave-off foreclosure. While I love Jackson’s efforts to increase FHA lending limits and his support of the FHA Secure initiative, Paulson’s “big-plan” or his “hastily conceived and problematic solution,” as Barron’s described it, to freeze interest rates on sub-prime mortgage loans to avoid a spike in home foreclosures needs to be put up on the drawing board a few more times.

I struggle with what can truly be accomplish with this plan, as it is presented today, that won’t come back to haunt us down the road when the Note modification comes due. Why does the government even need to get involved? I’ve heard it’s due to a breakdown in communication with homeowners not knowing that their bank is interested in helping out with a possible modification. Wow, are we being serious here? Not everyone should be awarded a modification or “freeze” of their interest rate and responsibilities in the first place. Without question, there are some cases that do need special attention-if the homeowner takes the initiative to investigate all their possible options. The initiative would at least show that the homeowner has motivation to stay in the property now and in the future.

What would happen if we weren’t in an election season? This is such a great time for both sides of the aisle to throw stones and come up with their plan to save the universe. The only problem with that sentiment is that the “known universe” does not need to be saved! The nation, and more specifically our leaders, should focus on the long term issues and avoid such emphasis on short term problems that will inevitably work themselves out. Yes, there will be increases in foreclosures for a fraction of the overall outstanding mortgages written over the last 5 years (give or take). The normal market will work this out. If mortgage rates are frozen for any specified period of time, isn’t that simply delaying the inevitable problem that will rear its ugly head down the road when the modification is expired? What about the natural correction that benefits the affordability factors? When more homes are on the market prices go down and the public benefits from this, then the market inevitably swings the other way.

There is so much mud being thrown here and the issue of foreclosures related to sub-prime ARM lending is being exacerbated by the political process and the media. This needs to be worked out bank-by-bank, borrower-by-borrower. Borrowers that have a desire to stay in their homes, which are abundant in our society, will make an effort to work out terms with their bank or mortgage-servicer. This group of homeowners has multiple options that need to naturally be worked out by selling the home, refinancing, special circumstances Note modifications, etc.

Yes, foreclosure is an option, maybe not pretty, but an option nonetheless, and there is not indication, by any broad measures, that Paulson’s plan to delay the inevitable is good for the homeowner, the economy, or the real estate market in general.

This seems to be the question I get from my friends-at parties, dinners and relatives. “Dave, when do you think the real estate market will hit bottom?”

That’s the big question these days, and I’m not sure that anyone has a definitive answer to it. Some of the greatest minds in this sector of the economy are arguing time frames and dollar values with conflicting outcomes, reflecting large deltas in thought and opinion.

People posing these questions to me fall into one of two camps: camp one, “local and personal,” and camp two, “national and economic.” I try to assess the questions and determine what camp the curiosity is originating from prior to offering insight. I do this because I feel strongly that these issues cannot be defined on a national basis and can only truly be looked at on a local basis when determining “what should I do to position myself best in today’s real estate market?” I agree there is a national impact due to so many MSAs (Metropolitan Statistical Areas) reflecting slower real estate appreciation or even real estate depreciation; however, it would be a mistake for homeowners and potential homebuyers to take a “national statistic” into consideration when making a decision as to when to sell or buy a property.

Turn to any media outlet, and you will see that they have all jumped on the bandwagon to share opinion and innuendo that is based on “national statistics.” I have heard a number of comments and reported stories that flat out were not accurate as it relates to many parts of the country on a localized basis. Yes, there are areas that are bad; however, there are areas and “Micropolitan Statistical Area” neighborhoods, hundreds of them in fact, that are showing strong stability and continued appreciation rates. The public should deploy common sense when assessing how a specific media report reflects on their specific MSA-Micro or Metro.
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I believe there are some interesting and substantial changes coming relating to the “macro economic cycle.” Before I get started on this topic, you may want to know where I get my information and who I speak with concerning these topics. Well, it comes from anywhere and everywhere - both sides of the aisle and both sides of the world. I personally love economics and I’m a bit of a geek in that I enjoy feeding my brain with business stats vs. sports scores (don’t get me wrong - love sports). Some of my favorite media outlets are CNBC, The Economist, Harvard Business Review, Bloomberg, Forbes, etc. I listen and read like crazy. I try to keep up with what the Fed is saying, other central banks - and it’s fun to have economic debates with various brilliant business people and economist in my direct sphere of influence. The opinions and possibilities that I have shared (and how they relate to our industry) did not actually come from any specific source, but more a personal breakdown and employed common sense as I see and read the data. Not many have actually listened to my predictions over the last year - but some of what I have been looking out for is now showing up in various media outlets.

You have two main topics of discussion, very closely related, but two topics nonetheless that I find extremely interesting and “Global Shifters” as I like to call them. I want to attack the “savings vs. spending” issue first - then move on to the Stagflation concept (and possibility).

Think of it like this: Try to visualize money flowing between the two spheres of our planet on a big highway - coming and going. Now, think of a highway during rush-hour - in most cities one side of the highway is packed and the other side cars zooming to their destination. This is pretty much how the “money highway” looks today that stretches between the US (major economic power) and Europe & Asia, et al. The “traffic” is on the inbound to the US side of the highway. Why is this? Simple - Europeans and Asians are “savers” and Americans are “spenders.” As Americans maintain a healthy appetite for spending - Europeans and Asians are happy to aid the US in financing such habits. Again, visualize the money highway - Europe and Asia money flowing inbound to the US - but very little money is flowing back due to Americans borrowing and spending it - which is what has sustained our economy for the last few decades - and predominantly the last 15 years of growth.

Now, you may ask: Why does Europe and Asia save instead of spend? Well, there are a few answers to this question and it is not only private consumers, but also private and public businesses that have followed a healthy regime of savings vs. spending. In both Asia and Europe it can be argued that they are simply more conservative than the average US citizen. In addition to this, without going into a two hour dissertation, these massive economies had suffered big booms and big crashes in the past that set a “new tone” for financial behavior - both “people” and “corporations.” When there is a great deal of dollars, or liquidity, flowing into the market it spills over into other countries that need to borrow it - thus the “pump was primed.” If the US is the proverbial pump then Europe and Asia is the proverbial well.

Now - here’s the big question: What if one of two things or both happen?

1. What if Americans change their spending habits and start to save?

2. What if Europe and Asia start to spend?

3. Or both, what if the pump stops needing water and the well runs dry and needs water?

The answer is simple-the traffic on the money highway flips the other way - the traffic jam would be headed into Europe and Asia and traffic heading into the US would be drastically less congested.

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 I would like to share a little bit about myself in my first post. This is a great place to start due to the simple fact that what I am attempting to achieve is a more “personal approach.” I want you to know what “I think”-not what would be “presented in a memo.”

My goal is to provide open and honest information relating to every aspect of my career. I don’t think for a minute that my opinion is necessarily the “right one”-collaborative intelligence is the only way to achieve true understanding. I hope that the information I provide will enhance my sphere of influence’s understanding of my beliefs, passions, and directions I take as a leader.

I believe this blog will be a powerful tool so that people within the PRMI organization, investor conduits, banks, people in the industry in general, and other important relationships in my life will have a better understanding of the direction I chose to take or the opinion I may have about any number of subjects.

If you were to ask me: Where do you see yourself in your personal life?

I love it! I can’t get enough! I only wish I could slow down the clock when spending time with my wife, Tracy, and our two kids, Rae and Jett, each night or weekends-it really is the best part of my life. I love the times I have with friends-or “down time” with Tracy. I truly believe that I know how to have a great time and take full advantages of any and all resources to emphasize “play times.” Watching my kids grow is truly the most amazing thing I have ever experienced. My time spent with friends and recreation is accomplished with fervor-always looking for an opportunity to create an unforgettable memory!

If you were to ask me: Where do you see yourself in your career?

Again, love it and can’t get enough! I feel as if I’ve built a great rocket ship, set it on the launch pad, we’ve lit the engines-and now we are ready to take it to the moon! That is the best analogy I could provide to best describe PRMI and my career. I am extremely passionate about my work. I try very hard to improve my skills as the CEO of PRMI and as a businessman and salesman. I hope that my industry and the people I work with in my business community see me as a fair and honest professional. I believe in those qualities and feel that I naturally look to those values when leading my company. I believe I have attracted those type of people into the PRMI organization and that is a major factor to our success over the last 9 years +.

Moving forward:

This blog will obviously be focused on my career and topics (new and old) relating to mortgage lending. However, I will certainly share some of my personal life-this is an outlet to share opinion and insights on any aspect of my life.