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Last week, Ben Bernanke presented his semi-annual Monetary Policy Report to the U.S. Senate Committee on Banking. He made very brief, albeit poignant comments on the Economic Outlook, Risks to the Economic Outlook and Monetary Policy.
The Economic Outlook
Bernanke stated that the U.S. economy has continued to recover, but economic activity appears to have decelerated somewhat during the first half of this year. After rising at an annual rate of 2½ % in the second half of 2011, real gross domestic product (GDP) increased at just a 2% pace in the first quarter of 2012, and available indicators point to a still-smaller gain in the second quarter.
He stated that although conditions in the labor market improved during the latter part of 2011, running at nearly 200,000 per month during the fourth and first quarters, the average increase in payroll employment shrank to just 75,000 per month during the second quarter. The jobless rate has recently leveled out at just over 8 percent.
He commented that although household spending has continued to advance, recent data indicates a somewhat slower rate of growth in the 2nd quarter because households remain concerned about their employment and income prospects and their overall level of confidence remains relatively low.
He stated that there have been modest signs of improvement in housing partly because of historically low mortgage rates. Both new and existing home sales have been gradually trending upward since last summer, but Bernanke stated there were still a number of factors continue to impede progress in the housing market:
On the demand side, many would-be buyers are deterred by worries about their own finances or about the economy generally. Other prospective homebuyers cannot obtain mortgages due to tight lending standards, impaired creditworthiness, or because their current mortgages are underwater - that is, they owe more than their homes are worth.
On the supply side, the large number of vacant homes, boosted by the ongoing inflow of foreclosed properties, continues to divert demand from new construction. And forward-looking indicators of investment demand, such as surveys of business conditions and capital spending plans, suggest further weakness ahead.
Overall, Bernanke suggested that the recovery in the United States continues to be held back by a number of headwinds, including still-tight borrowing conditions for some businesses and households and the restraining effects of fiscal policy and fiscal uncertainty. Moreover, he was concerned given that GNP growth is projected to be not much above the rate needed to absorb new entrants to the labor force, FOMC forecasts now have the unemployment rate at 7 percent or higher at the end of 2014.
Risks to the Outlook
Bernake pointed to two main sources of risk:
Euro-area fiscal and banking crisis - Europe’s financial markets and economy remain under significant stress, and the possibility that the situation in Europe will worsen further remains a significant risk to the outlook.
U.S. fiscal situation - As is well known, U.S. fiscal policies are on an unsustainable path, and the development of a credible medium-term plan for controlling deficits should be a high priority.
He stated that any fiscal decisions taken by Congress should take into account the fragility of the recovery and that recovery could be endangered by the confluence of tax increases and spending reductions that will take effect early next year if no legislative action is taken. He estimated that if the full range of tax increases and spending cuts were allowed to take effect, a scenario widely referred to as the fiscal cliff, a shallow recession would occur early next year and about 1-1/4 million fewer jobs would be created in 2013.
“The most effective way that the Congress could help to support the economy right now would be to work to address the nation’s fiscal challenges in a way that takes into account both the need for long-term sustainability and the fragility of the recovery. Doing so earlier rather than later would help reduce uncertainty and boost household and business confidence”, Bernake stated.
In view of the weaker economic outlook, subdued projected path for inflation, and significant downside risks to economic growth, he stated that the FOMC decided to ease monetary policy at its June meeting by continuing its maturity extension program (or MEP) through the end of this year. The MEP combines sales of short-term Treasury securities with an equivalent amount of purchases of longer-term Treasury securities. As a result, it decreases the supply of longer-term Treasury securities available to the public, putting upward pressure on the prices of those securities and downward pressure on their yields, without affecting the overall size of the Federal Reserve’s balance sheet.
Results of the 2010 Census are finally being released. One of the more interesting facts is how the job markets for private-sector businesses have continued to coalesce in the larger metropolitan areas over the last 10 years.
The Census Bureau defines a business establishment as "a single physical location at which business is conducted or services or industrial operations are performed." A company may consist of one or more establishments.
America's three metropolitan giants contain more than 1.1 million private-sector businesses, a number that is greater than the combined total for the next eight markets. New York City leads the nation with 533,395 business establishments, according to newly released U.S. Census Bureau U.S. Census Bureau Latest from The Business Journals Blacks trailing whites financially in Colorado, rest of U.S. Follow this company data for metropolitan areas. The counts for Los Angeles (330,969) and Chicago (236,704) push the total to 1,101,068 separate businesses.
The metro areas that rank 4th through 11th, respectively, are Miami-Fort Lauderdale, Philadelphia, Washington, DC, Dallas-Fort Worth, Atlanta, Houston, Boston and San Francisco-Oakland. They collectively have 1,088,487 business establishments.
New York unsurprisingly leads the nation in a second category, private-sector employment, with 7.27 million workers. It's followed by Los Angeles at 4.85 million and Chicago at 3.80 million.
But smaller markets dominate the rankings of employees per business. Tuskegee, AL is # 1 with an average of 30.29 workers at each of its private-sector establishments. The runners-up are Oshkosh, WI with 23.16 employees per business, and Sidney, OH with 21.79.
Complete information on various data released from the 2010 Census can be found here:
METROPOLITAN/MICROPOLITAN PRIVATE-SECTOR BUSINESS COUNTS (2010)
Top of Formhttp://www.bizjournals.com/bizjournals/on-numbers/scott-thomas/2012/07/top-3-metros-are-home-to-more-than-11.html?page=all&appSession=106498191916134
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The past weeks have been more than 'interesting' for the hard money commercial loan market. As the banks shut down lending opportunities almost entirely, we at Avatar Financial Group have been seeing requests for loans that would have been funded by banks in the past.
We take our role as a lender in these times seriously. We understand that people are counting on private lenders to help them weather the financial storm. Therefore, we are focusing all our efforts on commercial real estate loans, moving as quickly as possible to review properties and fund loans.
Until further notice, Avatar Financial Group will only fund commercial real estate loans starting at $1,000,000. We are not funding private residential properties of any kind in any state; we will continue to fund multi-family dwellings such as apartment buildings.
If you have a commercial loan request, use our online loan application to get the ball rolling. We'll contact you as quickly as possible to get you a firm quote.
Now that Sub-prime has basically disappeared, the hard money-money lenders are pretty much the only source of capital for many people.
Once a thought of a last resort strapped borrowers, hard money loans which have different lending standards than traditional mortgages, are attracting a larger, more affluent group of consumers.
Unlike a traditional mortgage, which is largely defined by credit scores and the borrower's ability to repay, hard money loans are based almost entirely on the value of the underlying asset. That means a borrower's income and credit score aren't nearly as important as they otherwise might be.
Borrowers needing a short term loan or a 'bridge' loan are required to have substantial equity in their collateral - either their home, investment property or commercial property - of 30-40%.
Consumers who need quick access to financing to close on a property in as little as 2 weeks or less are good candidates for hard money.
Consumers who do not meet conventional bank financing but have substanital equity in their property are good candidates for hard money.
Be prepared to pay higher interest rates and fees and you will want to refinance as soon as you can into a traditional mortgage. Once that is accomplished there should be no reason for another hard money loan.
A good broker never tires of finding a good tip to get attention and positive response from a lender. Surprisingly, I find very few good tip lists out there. If anyone knows of some, please share them with me (just shoot me an email). Here's a tip even veteran brokers might find beneficial:
Commercial Broker Tip: How to stand out from the crowd on the phone.
A lot of a broker's time is spent marketing, making connections, talking to prospective borrowers, and making connections with people who might refer business to them. A good broker is a bit of a chameleon: s/he understands how to speak to people in ways that make them comfortable. Often however, when it comes time to communicate with the lender, the broker is either 'all talked out' or ‘stressed out’. The same skills that bring in the clients are lost at that moment. My tip is: find them!
Recognizing your ability to make people comfortable and using that skill when communicating with everyone at the lender's office is going to set you apart from the usual crowd. Chances are, the lender you're calling has already fielded calls from twenty two fast-talking and three grumpy brokers by 11AM. Stand out from the crowd by saying hello, providing your full name and pausing for a moment if the lender wants to write it down along with your phone number and email address. Introductions and pleasantries should take 10 seconds or less; lenders are super-busy people, as you have probably experienced. Remember, you want them to warm to you, not wish you'd hush up and get off the phone.
Pace your presentation and begin with the bare facts. Here's an example that works:
“Avatar Financial Group, this is Allison.”
"Hi, Allison, this is Evan Jones from Mutual Brokers in Texas. Thanks for taking my call. I have a client with a retail strip mall in Dallas that he wants to refi. The property was valued by an appraiser last month for $2.1 million. He needs $1.6 million to pay off a first and get some cash out. Can Avatar fund that loan by the end of the month?"
Slam dunk! You're suddenly my favorite broker of the day! A pleasant tone in your voice, a brief acknowledgement that you are speaking to a human being, and a clear statement of the bare facts in 30 seconds or less means we can both get this ball rolling now.
The easy part? - the pleasant tone in your voice, a moment to repeat the lender’s name and say thanks for taking your call.
The more work-intensive part? - getting all the bare facts before you start calling. Get the following for those precious first 30 second communications:
- property type - be as specific as possible in 4 words or less
- location - city and state
- value, including how and when it was arrived at - critical additional data that sets you apart from the crowd
- loan amount - a ballpark is ok; be clear about the minimum the borrower can take and the amount the borrower would optimally like.
That last one - letting the lender know the minimum and optimal loan amount – can really set you apart in a lender's eyes. It lets them know you are pragmatic and will work with them to get the best deal possible without killing the loan. You and the lender have a common goal – to fund worthwhile loans and make a good living doing it. Here’s just one way to let the lender know you are on the same ‘team’ and ready to help make a deal work.
Even if you don't get to the finish line this time, chances are when your name comes up, you'll be described as an efficient broker who handles solid deals. In other words, someone the lender wants to hear from. Good luck out there!
Hard money commercial lenders tend to fund up to 65% of what is commonly termed, "the fair market value" of income producing commercial real estate property. Brokers would have an easy and profitable career indeed if lenders routinely funded 100% of the cost of purchase or even up to 80 - 90% of the value of properties for refinances. Since that's not the case, here are a few tips for creative loan packaging that will help to meet the needs of clients as well as the funding requirements of lenders.
Blanket Loans are loans utilizing more than one piece of real estate collateral. Here's an example of a commercial real estate blanket loan:
Assume a borrower wishes to purchase a retail strip mall at a cost of $2,000,000. As a hard money lender, Avatar will lend up to $1.3 million (65%) for the purchase. The borrower must come up with the balance. Note that hard money lenders will lend up to 65% of the lesser of the actual price paid for the property or the appraised value. If the borrower is getting a 'fire sale' price and the property is appraised at $5,000,000, the 'fair market value' of the property is still $2,000,000. It is the price for which the current owner is willing or is forced to part with the property on the market today. Therefore, we work with a price of $2 million and a first lien loan of $1.3. Read on...
Assume further that the borrower already owns two other pieces of property: an apartment complex with a recent (6 months or less) appraisal of $1,500,000 and a skating rink valued at $800,000. The skating rink has been in the family for years. It is free and clear. The apartment building has a mortgage on it for $420,000. Both properties operate with some profit. Here's the summary:
Property Value/Price Mortgage Skating Rink $ 1,500,000.00 $ 800,000.00 Apartment Building $ 1,200,000.00 $ 420,000.00 Total $ 3,700,000.00 $1,220,000.00 $ 2,405,000.00 65% of the value of
$(1,220,000.00) Less amounts to be paid off
to current first lien creditors
$ 1,185,000.00 Potential net additional funds
from a blanket loan
$ 1,300,000.00 65% hard money loan on the new property purchase $ 2,485,000.00 Total potential funds available by collateralizing all three properties
The borrower can potentially take out a loan to cover the cost of the purchase and have some extra working capital to make some improvements or market the properties as well. Blanket loans are an excellent way to get additional capital when 65% of the cost is insufficient.
I bought a television a couple of months ago. It’s a nice big LCD deal that now hangs on the wall of our living room. When we were buying it, my husband and I considered buying the television outright or purchasing the set on credit through Circuit City and Chase Bank. My husband and I are both young and have no college debt, so we thought; “What the hey! Let’s build some credit and take out an eighteen month, no interest credit line with Chase.” We took the television home and waited for our first bill.Permalink Posted in Miscellaneous
A month later, my husband and I moved apartments and called Chase, among other institutions, to have them change the address on our bill. This process took quite some time: it appears that you cannot change your address online, and my husband went through a number of cyclical telephone systems until he found a disgruntled operator who would change our address. After all, one would not want our television bill to go to the wrong house... what if we somehow missed a payment!
A few more weeks passed and we were expecting another bill. Days went by, and no bill arrived. Logging on to our online account, we figured out why: the operator at Chase had typed in a completely erroneous address. Names have been changed, but the principle remains: say our street name is Eastridge Way North., the address had been entered as Eridge Way. No “North” in sight. No wonder the bill had not arrived.
We paid our month’s bill online and got back on the telephone to correct the error. This time, however, getting hold of a human being was far more difficult than it had been previously. The toll-free number on previous billing statements took us through a cyclical nightmare where computer after computer assumed we wanted to make payments, buy products and complete a myriad of other tasks that had nothing to do with changing our address.
Our next tactic was to try and fool the computers. Every menu we got to, we hit zero in an attempt to reach an operator. The first few people we were routed to said that they couldn’t help us, but would forward our call to someone who could. Three out of four times, we were sent to either a new useless system or the original automated system that chases its tail in order to have you give it money. No pun intended.
The fourth woman appeared to be in a non-English speaking country, although she said her name was Jessica. She couldn’t change our address and she definitely couldn’t let us speak with a supervisor. Apparently, she didn’t have one. Jessica being pretty much useless, we hung up and called the actual store from which we bought the television. My husband ended up shouting over the top of the sales rep who insisted that he put us through to Chase’s billing department (read: automated lemming). Polite reasoning turned to anger and finally to begging as we literally pled with two different sales people that we be put through to a phone number that didn’t start with 1800, 1877 or the like. We’ll pay for the call! Please let us speak to someone who can fix our address!
Exasperated, a Circuit City manager told us the only thing she could do was send us back to the automated system, but that “if you press three a bunch of times, the computer will think you’re a merchant and it’ll send you to a rep.” With those highly technical, customer-service oriented instructions, we waited for the computer’s friendly tones and began madly hitting “3” on our telephone’s keypad. The success of our venture now depended on dictating our address to another person whose English was limited and who misheard the address twice before getting it right. We made sure not to hurry through the address, and we even spelled it out. Time will tell whether the person actually managed to fix our problem. The amount of time spent on the phone attempting to sort out this seemingly simple problem? Three and a half hours. Three and a half hours of our lives that, television or no television, we'll never get back.
The question is, why is it so hard to change one’s address through Chase Bank? Also, why does the bank wait for five days after you pay a bill online before processing it? My opinion is that this bank makes it particularly hard to do everything in order to have people mess up. They can offer eighteen month interest-free credit lines on purchases as menial as TVs because confused customers can think they’re making payments on time when in fact their payments are being processed after the due date and late fees and interest can be added to their accounts. Making it impossible to change an address also means that bills may arrive late (ours eventually arrived a week late). Another cute trick is to bombard customers with offers when they call and making it seem as though customers have to listen to all the offers before they hang up, for fear of negating everything they accomplished during the call.
We have made three payments on this television, but we’re thinking about paying the whole thing off next month and working on building credit elsewhere. It’s just too dangerous to deal with an organization whose primary goal is to have you trip up. Although we realize that banks have to make their money somehow, we are not going to be the victims of this type of scheme. The TV was worth every penny we were charged for it; the nightmare of trying to pay for it wouldn’t be worth all the TVs in the world.