Turley Blog

Here is a repost definitely worth repeating from almost 2 years ago, I hope it’s not an annual re-post…

Our difficult economic situation is not a recession or depression it is a “RESET-SSION”. What we need is a reset of our expectations in many areas of our life. Until we understand the deeper issue driving much of this “reset-ssion” we will struggle with our expectations.

Here is the deeper issue: our population is rapidly aging. Ten years from now the United States will have 100,000,000 people 65 years or older, in a country of 300,000,000 – 30% of our population! Here are 5 Significant Perspectives from Resolve Lending, Inc. (5SPRL) concerning the other economic and demographic spill the government cannot cap.

1. “Demographic trends are the most critical drivers of our economy in modern times, as they predict not only the peak spending and productivity but also innovation early on and retirement later through consumer and work life cycles.” Dent

2. I have never been so aware of how demographics affect our lives. Let me ask you, how productive are you at 30-40 years old? Boomers were 30-40 from 1975-2005 -- How productive will they be at 65 years old? Generation C turn 32 around year 2017…100,000,000 - see April Post

3. “A resurgence of inflation will be one of the fears of the late 2009-10, just before the worst deflation crisis since the early 1930’s! It’s not that the government will not try to inflate its way out of the next crisis. It’s that the massive write-off of real estate and business loans will outweigh those efforts and contract the money supply—which means fewer dollars chasing goods or deflation in prices.” Dent

4. Catch the last part of #3 – I have a long running debate with a good friend about why there will not be massive inflation – as many pundits believe. The write offs and massive pay downs of debt is so much faster than the government can spend. Massive debt reduction is a deflationary tool; the government cannot spend fast enough to outstrip the massive balance sheet reduction going on.

5. What we are experiencing is not a recession or depression; it’s just “reset-ssion”! Reset your thinking to 40% less. I have called it the 40% recession and on average most people will be worth 40% less (combined stocks and real estate).

I have been around for a long time and I’ve never seen rates this low – if you are not in the mid to low 4’s on your loan give me call to review. We can even do loans when you house is well over 100% of its value.  

5-7 years ARM’s and 15 year fixed can get you into the 2’s and 3’s

It would be great to connect,

Jeff - 425-802-3019

Albert Einstein is quoted as saying, “Compound interest is the eighth wonder of the world.” Yet, I do not hear anyone talk about how the “compound devaluation” of your money benefits you.

Ask anyone older than 55 years old what 1968 was like. You will hear these words: civil unrest, riots, wars, sex, good music and lots of weed which made the music better in their minds. Do those words sound familiar? In 1968 the 80 million baby boomers were 26 years old. Currently, 100,000,000 Generation Y’s are 26 years old. Many will say, “But it is so much more prevalent than in 1968.” Well there is 25% more young people today and a zillion more communication devices to tell us about it.

Here are 5 Significant Perspectives from Resolve Lending, Inc. when it comes to Generation Y.

1. Demographics don’t lie – we are not projecting 100 million – they have already been conceived.  When the boomers average age is 65, Gen Y will be 35 – Gen Y will not live with Mom and Dad forever –  See CDC link below to confirm numbers.

2. If you think Gen Y is not as “consumer driven” as their parents, “just look at their toy boxes” or ask anyone who works in the cell phone industry (ATT, HTC, Sprint) – they have been riding this Gen Y spending wave for the past 10 years. Or ask, why are “video games" so big right now?

3. Generation X had only 75 million and was called the “lost generation” – and you wonder why we had such low unemployment for so long (10 years)? We will see higher unemployment for a while just like in the 80’s when Boomer's then 32ish invented their way out of high unemployment.

4. If you are part of Generation X – we have seen the spending waves of the 80 million boomers and we will reap the benefits of the 100 million of their children. - Hold on to your home (s)! 

5. Throughout history the greatest innovations came out of the Gen Y type boom generations. Now think about a generation which interacts at our “current speed of light” for their entire life. We will see the greatest innovations in the next 15-20 years. Hopefully it is more than Facebook.

Listen wisely to what the media will say about cultural issues and remember there are 25% more today than in the past – this goes for most countries with young populations. Gen Y will not be an exact reflection of the boomer hysteria from 1965-2005 but if you listen closely you will hear the words: “Mirror, Mirror on the wall who is the greatest of them all” and you might start to see a clear reflection.

Call or email anytime, it would be great to connect,

Jeff

Website: http://www.cdc.gov/nchs/hus.htm (Special Report on Death and Dying, page 115)

As many of you might know the large scar under might right eye was from a car accident suffered in 1989 when a car I was riding in accidently slid off a cliff near Leavenworth, nearly plunging into the Icicle River. Just a few minutes before the car hit the ice and went flipping over the cliff “the driver” reminded me to buckle up, saving my life. Most of us growing up never wore seat belts but around 1984 the seat belt law was enacted thanks in large part to John States. Yes, I’m grateful to the driver, without the reminder there is little doubt I would not be here today. Yet, in the Prologue to his book the Black Swan, Nassim Taleb offers an even deeper thought about what he calls the heart of “in-gratitude” (those we in-directly owe a debt). Don’t I owe a deeper debt of gratitude to John D. States who dedicated his life to auto safety? How much in-gratitude lives within me? I want to live with a deeper sense of gratitude.

Here are 5 Significant Perspectives from Resolve Lending, Inc. which are from Nassim Taleb’s most recent book, “The Bed of Procrustes.” * italics are my added comments.

1. An idea starts to be interesting when you get scared of taking it to its logical conclusion. We should continue to foster scary ideas.

2. If you know in the morning what your day looks like with any precision, you are a little bit dead – the more precision, the more dead you are. *the older I become the more imprecision I want to live with, yet it is a struggle, because precision is stagnantly comfortable.

3. You have a calibrated life when most of what you fear has the titillating prospect of adventure. – *I like that….. ‘a calibrated life’.

4. A man without a heroic bent starts dying at the age of thirty. –ouch!

5. Over the long term, you are more likely to fool yourself than others – don’t be a fool.

It would be great to connect,

Jeff

I am sure by now that you know I am a little bit of a demographic nut, because I believe much of what has happened in the past 20 years was driven by technology, technical algorithms, ignorance and most importantly demographics. Recently I read an article that helps us to understand what will happen in the next 20 years – plus make you smart at a party. Understand the baseline: the United States has 300 million people; China has 1.3 billion; and India has roughly 1.2 billion.

Here are 5 Significant Perspectives from Resolve Lending, Inc. concerning our Demographic Future. *Nicholas Eberstadt – see full article

1. In the last 100 years our planet has gone from 1.6 billion people to 6 billion people. “This global population explosion was in reality a health explosion; people stopped dying like flies.” Yet in the past 50 years the explosion has reversed and slowed greatly due to a slowdown in reproduction. (Key - low fertility today leads to population aging tomorrow!)

2. China: I’m growing weary of hearing how great China has become. Take this into consideration. Over the next 20 years China will have a geriatrics catastrophe when 300,000,000 (current U.S population) citizens will be 55 years and older. China will grow old before they grow rich. If you think we have a healthcare crisis think about theirs!

3. Japan: This country has their struggles as well. “By 2030, the country’s median age will be above 52 years, with 30% of the total population being 65 or older. The economic implications of these impending changes are far from positive.”

4. India: “Thanks to the disproportionate growth of India's manpower pool, the country's dependency ratio will be falling, and the society will remain relatively youthful. Such changes in population structure could facilitate higher levels of national savings and investment -- and, thus, economic growth. In short, India appears to be a poster child for a potential demographic dividend.”

5. United States: “The United States will avoid the demographic stagnation and decline that faces most other OECD countries. The U.S. population, according to U.S. Census Bureau projections, is set to grow by 20 percent, or over 60 million people (from 310 million to 374 million), between 2010 and 2030. By such projections, the United States' population growth rate will nearly match India's.”

So why should you care? Well much of the gloom and doom does not take into consideration our strong growth possibilities for the United States, and one of our greatest intangible assets. Eberstadt’s final thought: “Humanity has one additional ‘secret weapon’ in accelerating growth in the years ahead: knowledge production and technological innovation. The revolutions of the past generation in health and life sciences, information technology, and materials science point to the sorts of opportunities that may lie ahead for improving productivity. More than ever before, research and development must be incentivized to reward risk takers.” Western thought has always accelerated in risk and remember we have always had fewer people than the rest of the globe.

I am bullish on the United States today and in our future!

Jeff

http://www.foreignaffairs.com/articles/66805/nicholas-eberstadt/the-demographic-future

http://en.wikipedia.org/wiki/List_of_countries_by_populationd greed from every corner of the world.

I have come to realize that in all aspects of my life HOPE is a choice, a discipline and a duty. When I was younger HOPE often came naturally. Now as I edge closer to the midseason of life, HOPE has become a duty (aka responsibility). More importantly, hope and endurance should be soul mates. While thoughts like this float around in my head - I hope you find a few significant.

Here is a look back at the highlights over the past 12 months from “5 Significant Perspectives from Resolve Lending, Inc.”:
1. I am starting to believe we live in an era of GOOGLIZED followers. A GOOGLIZED follower is someone who has a “thin slice of internet knowledge” then wants to use their “thin slice” to influence leadership. The problem with our current information age is leadership has become flat because everyone at the table believes they are as intelligent as the leader themselves. (Of course if they were to BING their knowledge, they would have a much deeper understanding.)

2. It is not a depression or recession it is a “Reset-ssion” of our expectations going forward. Remember, 10 years from now the United States will have 100,000,000 people 65 years or older, in a country of 300,000,000 – that’s approximately 30% of our population. Demographics are one of the greatest economic indicators.

3. “Around the year 2005, a sudden spark will catalyze a Crisis mood. Remnants of the old social order will disintegrate. Political and economic trust will implode. Real hardship will beset the land with severe distress that could involve questions of class, race, nation and empire. Yet this time of trouble will bring seeds of social rebirth; Americans will share a regret about recent mistakes….” This was written in 1997 in “The Fourth Turning” by Strauss/Howe.

4. Apathetic Life: I am learning over and over that when I become cynical, I become apathetic. Therefore a cynical heart breeds an apathetic life.

5. It’s always great to hear what you have been reading, shoot me an email and let me know. Here are a few great books I read this year which I highly recommend: Lords of Finances by Ahamed; The Great Crash of 1929 by Gabraith; The Fourth Turning by Strauss; and Failure of Nerve by Friedman.

Have a very Merry Christmas and Happy New Year!

Jeff

The Turley Plan: Solution to our Current Housing Crisis

By Jeff Turley 10/22/2010

Plan:

Provide incentives for current mortgage holders and accelerate purchases of shadow inventory through 15-20 year amortized loans at lower mortgage interest rates (15 yr- 2% & 20 yr- 2.5%). Thereby, reducing the overall U.S. mortgage debt nearly 30% within 5-7 years and decreasing the overall inventory to 6-8 months, within 24 months.

Example:

· 2.5% - 20yr $200,000 = $1,059 payment/$650 principal per month

After 60 months $158,941 - 20% reduction of debt

· 2% - 15yr $200,000 = $1,287 payment /$954 principal per month

After 60 months $139,872 - 30% reduction of debt

· 6% - 30yr $200,000 = $1,200 payment / $200 principal per month

After 60 months $189,000 - 5% reduction of debt

Offer 15-20 year term amortized loans to borrowers willing to stay in their home for the next 5-7 years; therefore accelerating principle reduction to 30-40% within the 7 year timeline. In addition, it is essential to allow a limited amount of “stated income investors” who have 20-25% down payments to purchase homes.

Goal:

· Eliminate the massive shadow inventory

· Allow 20-25% down payment purchases for investors with accelerated payoffs (20/15 year) – Investment properties at 60% within 60 months (60/60 plan)

· Allow 5-10% down on new owner occupied purchases (No FHA Needed)

· Allow 2^nd home mortgages with 20% down payments

· Eliminate 30% of the national mortgage debt within 7 years

· Give current borrowers a shorter term horizon to eliminate debt

· Allow current mortgage holders, regardless of current mortgage status or credit history

· Eliminate strategic foreclosure as an option for current borrowers

Problem:

The erroneous focus on “lower payments” has been part of the problem. Payments have never been the problem for 95% of borrowers – equity has been the issue. If borrowers have equity then they will not strategically walk away from a property.

Our current mortgage crisis also includes our shadow inventory created by the speculation bubble of 2003-2007. Most politicians, pundits and even lenders have a difficult time realizing the “true speculation bust” we experienced. The speculation was not driven by fraud, as much as the “stated income loans, at high loan to values on investment properties.” We have been attempting to solve the wrong problem with an even worse solution. Our current solution is to create a 30 year refinance boom, which only sets most mortgage holders further behind by stretching their debt over a new 30 year term – essentially going backwards.

In addition, FHA has become the new sub-prime charging fees of nearly $10,000-$15,000 (+3-4%-SRP) just to secure the loans, not withstanding, pushing most mortgage debt back to 30 years again. Payments are not killing the housing market; equity is killing the housing market. Ninety-five percent of primary residences make their payments on time. Consumers do not have a payment problem, but rather a balance sheet problem. Historically the natural foreclosure rate is 2%, therefore there will always be some who cannot make their payments. When most borrowers have the majority of their assets in their home, lowering their payment does not solve the problem.

Shadow Inventory:

Current inventory are homes currently listed; the shadow inventory is the killer:

· Bank owned homes

· Current permitted uncompleted homes

· Homes banks could own if they chose to foreclose, but have not foreclosed

· Current homes ready to be sold once a rebound happens

· Boomers ready to unload investments and 2nd homes

Solution:

Reduce debt through shorter term amortization and the lowest rate possible, which will in turn strengthen the equity, even for those 30% underwater, within 5-7 years.

Banks should offer across the board to all current home buyers and current owners a 20 year fixed rate at 2.5% or a 15 year fixed rate at 2%. These rates should be given all current home owners and homes currently for sale within a permitted period of time – or permit time for new homes to be built. We need to protect against future building taking advantage of this program, as this program specifically targets our current and shadow inventory. A current mortgage holder can reduce their current $200,000 mortgage to $100,000 in 10 years or less. On a $200,000 mortgage the principal reduction is about $650-950 per month. On a home currently underwater, a mortgage reducing 20%-30% of the principal in 60 months creates a view everyone can see. Furthermore, the borrower would have a difficult time renting for less than 2.5% on a 20 year rate.

Critical - Big Idea:

Eliminate shadow inventory quickly by using investors – however this time around the emphasis is debt reduction. Fannie/Freddie can be given to “stated income” investors with 20-25% down and adequate reserves. No hassles. No issue. Limited guidelines. The speed of money is essential at this point in our recession. Limit the rentals a person can own to less than ten. Allow 20% down on a 2.5% rate and the investor will be at 60% loan to value within 60 months – this is key! Anyone with this type of future equity will not strategically walk away from their home.

Investor is the Savior – “Get them in the game”:

Believe it or not the investors are essential to getting us out of this current economic mess. The housing glut was built for speculators (investors) because a large percentage of these homes were built during 2004-2007 for speculators who have been shut out of the recovery. Investor “stated income” loans are not evil loans if used correctly. I would agree, “Interest only, 100%, non-owner, stated income loans” are evil.

Stated income, with twenty percent down with a 2.5% rate on a 20 year fixed is not the enemy at all; it is intelligent. If you allowed investors to have rental properties at 2% or 2.5% then with a 20% investment at 2011 values within 60 months (2016) they would have net 40% equity – without factoring future appreciation. Our shadow inventory can be reduced in 24-48 months – this program would not be offered to newly built homes beyond a certain permit date to protect against future real estate bubbles. The purpose of this program is for current shadow inventory and the elimination of debt. Also, the program is only offered until our surpluses have come back into a healthy 6-8 month timeline.

Paradigm Shift:

Mortgage holders need to be able to see results quickly and 60 months is the psychological key to this paradigm shift.

Here are a few more of the paradigm shifts:

· Come to a clear understanding that we do not have a “payment problem” but rather an equity crisis – 95%-97% of primary residences still make their payments on time

· Borrowers will not be able to rent for the amount of their payment plus equity of their payment, stabilizing the strategic foreclosures issue

· Current investment properties have not been able to take advantage of current lower rates, allow them to be refinanced on this program

· People can see down the road 5-7 years; They need to see a more immediate benefit; 30 years is too far out

· Lower rental rates will help the economy

· Make this loan program easy -- No matter what the credit score or past history, give borrowers this program across the board

· Federal government will net more because the interest write offs will be less

Execution:

Allow all lenders to refinance at a flat rate – roll in simple low cost fees. Twenty year and fifteen year rates are bought down with government funds to get to 2% and 2.5%; or have a bond program set up by the Federal Reserve to purchase those bonds at targeted rates. The government will not lose money on this and will get the money back in approximately 10 years.

· Simple low cost refinances with few guidelines attached

· Appraisals not needed on refinances

· Option Arm and Jumbo loans need to be included

· Allow this loan to be assumed for the purpose of crisis consideration

· Refinances (cash out) and 2^nd mortgages are prohibited for the life of the loan

· Loan has to be held for 5-7 years

· Guideline the mortgage note and deed of trust, not the borrower

· Current investment properties/rentals will be included in program with limited guidelines

· Allow this program to be assumed tax-free for family members

· Current bank inventory needs to be on the market by a set timeline

· 20/15 year fixed on owner occupied homes – ONE TIME ONLY

It is critical to remember – if a borrower is given the option to lower their payment or reduce debt, nine out of ten times they will take the lower payment. It is essential for the 15 and 20 year fixed rate loans to be the only option for this program at these low rates of 2%-2.5%

We must stop considering lower payments as the issue and start believing reduction of debt and the investor as our path to recovery.

Sincerely,

Jeff Turley - President
Resolve Lending, Inc.

jeff@resolvelending.com 425-519-3665

Recently I read these prophetic words: “Around the year 2005, a sudden spark will catalyze a Crisis mood. Remnants of the old social order will disintegrate. Political and economic trust will implode. Real hardship will beset the land with severe distress that could involve questions of class, race, nation and empire. Yet this time of trouble will bring seeds of social rebirth; Americans will share regret about recent mistakes….” This was written in 1997 in “The Fourth Turning” by Strauss/Howe. Precise predictions of events 10 years prior, demands my attention, enticing me to read on... because this has happened before…

Here are 5 Significant Perspectives from Resolve Lending, Inc. out of “The Fourth Turning.”

1. Crisis mood: Strauss/Howe have an amazing historical philosophy which is not linear, but seasonal or cyclical. Each generation can be roughly seen as four seasons: spring, summer, fall, and winter. Guess which one we are in now? No SPF needed.

2. Political and economic trust will implode: 2006-7 started the fourth turning; it is now winter – prepare well, look back through history and remember… “This has happened before".

3. Yet this time of trouble will bring seeds of social rebirth: Spiritual Awakenings happen every one hundred years. “In 1995, the Nobel laureate economist Robert Fogel declared that ‘to understand political trends and future economic development, one must understand the cycles of religiosity in American history and the reform movements they spawn.” – It’s fascinating how spiritual revival and money are intricately intertwined.

4. Real hardship will beset the land: The Churchillian quote comes to mind, “the further one can see back, the further one can see forward.”

5. Americans will share a regret about recent mistakes: “Mr. O'Neal, the man considered most responsible for Merrill Lynch's disastrous foray into risk-taking, told me in an interview last year that in the fall of 2007, when he saw that the firm's problems were insurmountable, he had a deal to sell Merrill to Bank of America for around $90 a share.” – WSJ /11-5-09 My question has always been which world class board of directors (BofA or Merrill) was dumber? BofA for offering $90 or Merrill’s for not taking it. Merrill was forced to sell for about 90% less then they thought 12 months later.

Strauss/Howe say, “America’s next rendezvous with destiny will begin in roughly ten years (05-07) and end in roughly thirty years.” (2025)

In the meantime rates are beyond amazing,

Jeff

Our difficult economic situation is not a recession or depression it is a “RESET-SSION”. What we need is a reset of our expectations in many areas of our life. Until we understand the deeper issue driving much of this “reset-ssion” we will struggle with our expectations.

Here is the deeper issue: our population is rapidly aging. Ten years from now the United States will have 100,000,000 people 65 years or older, in a country of 300,000,000 – 30% of our population! Here are 5 Significant Perspectives from Resolve Lending, Inc. (5SPRL) concerning the other economic and demographic spill the government cannot cap.

1. “Demographic trends are the most critical drivers of our economy in modern times, as they predict not only the peak spending and productivity but also innovation early on and retirement later through consumer and work life cycles.” Dent

2. I have never been so aware of how demographics affect our lives. Let me ask you, how productive are you at 30-40 years old? Boomers were 30-40 from 1975-2005 -- How productive will they be at 65 years old?

3. “A resurgence of inflation will be one of the fears of the late 2009-10, just before the worst deflation crisis since the early 1930’s! It’s not that the government will not try to inflate its way out of the next crisis. It’s that the massive write-off of real estate and business loans will outweigh those efforts and contract the money supply—which means fewer dollars chasing goods or deflation in prices.” Dent

4. Catch the last part of #3 – I have a long running debate with a good friend about why there will not be massive inflation – as many pundits believe. The write offs and massive pay downs of debt is so much faster than the government can spend. Massive debt reduction is a deflationary tool; the government cannot spend fast enough to outstrip the massive balance sheet reduction going on.

5. What we are experiencing is not a recession or depression; it’s just “reset-ssion”! Reset your thinking to 40% less. I have called it the 40% recession and on average most people will be worth 40% less (combined stocks and real estate).

I have been around for a long time and I’ve never seen rates this low – if you are not in the mid to low 4’s on your loan give me call to review. We can even do loans when you house is well over 100% of its value.

Jeff

425-802-3019