News of the finance

A year after the worst financial meltdown in more than 60 years and in the wake of an equally historic recovery, analysts are closely watching the pile of cash set aside by the big banks to cover future bad loans known as provisions for credit losses.

The reason is simple: If the provisions get smaller, it’s a sign that the economy is truly on the mend just as most economists predicted. If, on the other hand, the money pile gets bigger, that would suggest the banks are preparing for a less positive future.

We get our first peek of the year at what the industry is expecting when Canadian Imperial Bank of Commerce reports its first-quarter results this morning, kicking off earnings season for the big banks.

Analysts generally believe the worst is over or soon will be with provisioning declining in 2010 against the backdrop of a strengthening economy.

Jim Bantis, an analyst at Credit Suisse, scaled back his forecast for 2010 credit-loss provisions at the Big Six from $12-billion to $10.6-billion because of recent stability in credit card losses and the absence of large corporate loan losses.

John Aiken, an analyst at Barclays Capital, is similarly optimistic. “All signs point to improving credit quality and lower provisions,” he said in a research note.

Brad Smith, an analyst at CI Capital Markets, takes a more bearish view, pointing to continued deterioration in credit conditions in the United States in the past three months of 2009. “With limited improvement evident in recent domestic employment and bankruptcy data, scope for adoption of a more optimistic view of domestic credit in our view remains limited,” Mr. Smith said in a note.

Another reason for the concern around loss provisions is the sheer scale of the underlying borrowing. While Canadian banks have become global models for conservative risk management practices, the behavior of some of their customers has become a major cause for concern for some industry insiders.

Household borrowing compared with income has risen to 145%, from around 95% two decades ago and could exceed U.S. levels in the next three years, according to Moody’s Canada. The concern is that if the economy suddenly deteriorates or if interest rates take a jump, many of those borrowers could find themselves unable to make the payments on their loans.

Peter Routledge, a senior vice-president at the rating agency, questions whether the banks are properly considering such a scenario. The conventional wisdom is that Canadians will try to meet their mortgage payments even if the house price falls below the value of the loan, and that idea is baked into many bank forecasts.

The trouble is that consumer behaviour is often very difficult to predict and historical performance is not always the best guide, Mr. Routledge said

I don’t know if you have heard the news yet but starting Feb 1^st HUD is temporarily suspending the

90 day seasoning period on new mortgages.  As real estate investors that is awesome news.  It means we

can turn properties faster but even more importantly combined with the first time homebuyer’s credit it is

bringing in a lot more buyers that can get mortgages for starter and move up homes.

MUSTANG Note Services is dedicated to providing a unique service to individuals like you, who have sold property and are currently receiving monthly payments on a real estate contract. I work with buyers nationwide who are interested in purchasing monthly payments secured by real estate.

A typical transaction takes 21 to 45 days, provided there are no unusual circumstances. The typical closing procedure will include a credit evaluation on the note payor, a property appraisal and a title search. All of these costs are usually paid for by the note buyer.

If you would like a complimentary evaluation of your note’s value, www.cash4cashflows.com/mkserealestatesecurities or contact me by email mustangnotes@gmail.com. I look forward to working with you in the future.

Ten real estate articles of interest for the week of 2/22/10 – 2/28/10 with a focus on the interests of Memphis Real Estate Investors.

1.  Looney Ricks Kiss files for Chapter 11 - The famed Memphis architectural firm is trying to navigate through tough times.  They’ve had a hand in designing many Memphis landmarks.

2.  Looking Ahead: Wharton gives Rotarians glimpse of future - Most people dislike politics, especially local politics, but when the mayor speaks about future plans and projects, real estate investors should pay attention.

3.  Freddie Mac losses mount, warns of foreclosures - CEO Haldeman warns of a “potential large wave of foreclosures” still to come.  The article also talks of the desire for new legislation so this doesn’t occur again, but it sounds like 2011 is the earliest hope of it getting done.

4.  Commercial real estate raises red flags for bankers - Dire warnings from some corners of the financial industry are predicting a wave of small bank failures as more than $1 trillion of commercial real estate debt matures in the coming years.

5.  Memphis College of Art buys South Main building - A short round-up of commercial projects going on in Memphis.

6.  Commission to limit adult businesses - If this passes, it will be a sad day for a few of our readers.

7.  Memphis named No. 1 for real estate steals - Thats right.  According to U.S. News & World Report, Memphis was No. 1 on the list with a price-to-income ratio that’s below its 15-year average at just 1.17.

8.  Memphis ranks No. 351 in national wealth study - Nothing to be proud of here, but when you see article #7 above, you begin to realize why so many investors from around the world love to buy cash flow rental properties in Memphis, TN.

9.  Existing home sales drop - The numbers were down month-over-month but up year-over-year.  I tend to focus more on year-over-year.  On a month to month basis, there are too many silly variables that can affect the numbers, such as the amount of snow fall.  The impact of this tends to be mitigated when looking at longer term numbers.

10.  Property Transfers: 2/28/10 - Real estate transfers of $100,000 or more as shown in the records of the Shelby County Register’s Office.

Our website: www.luckyaproperties.com

Today, I am an almost excited man.

I’ve just seen a news headline that the particular bank that has become my nemesis (the one with the same letter three times in the name) has just been the busiest recruiter at IIM-Ahmedabad.

So, all my problems will now be over. Maybe soon i will even receive my bank card. Those who read the piece i wrote on 13th February will be aware I was having an itsy bitsy little problem trying to do something as simple as a replacement Debit/ ATM card from said un-named bank.

Well, the saga after the last i wrote was that i had requested the bank (after spending hours trying to navigate the labyrinth of the phone banking) to send the card again. I did receive phone calls on two occasions from the courier company. On both occasions arrangements were made for delivery at my home at 4.30pm and arrangements to guarantee that someone would be present to receive ……… but, it wasn’t necessary as nothing came. Now, it’s all been quiet for the last 9 days which probably means that I’m back to stage one. Dare I risk running the gauntlet of the phone banking again?

Or, shall i simply wait a little while and let the formidable brains of IIM-A to solve my problem? However, i fear that might take a while. First, someone will have to write a case study, then they will have to drink lots of coffee, stay up loads of nights and then may well propose that accounts like mine get closed as customers like me don’t represent a big enough profit margin (and he’s also a trouble maker).

Oh well, i guess this makes sure i don’t spend too much. But, everyone should know – your bankers really love you lots, and lots, and lots. Honest!!

Marathon negotiations “in the Senate on financial regulatory reform were set to continue on Sunday with a renewed focus on financial consumer protections after key Republicans rejected a compromise offer from the banking committee chairman,” Reuters reports.

Sources told Reuters Saturday night that neither Democrats nor Republicans had embraced an offer made on Friday by Democratic Senator Christopher Dodd to scale back President Barack Obama’s proposed Consumer Financial Protection Agency (CFPA).

The consumer watchdog idea remained a stumbling block to a bipartisan agreement on tightening bank and capital market oversight, a top domestic policy priority for Obama.

Dodd had circulated “a proposal to make the CFPA a division of the Treasury Department, instead of an independent agency, which the president recommended in mid-2009 and which the U.S. House of Representatives has endorsed.”

But in a setback for Dodd, his offer has been rejected by the banking committee’s top Republican, Senator Richard Shelby, and fellow Republican Senator Bob Corker.

Republicans dislike “rule-writing power Dodd proposed for the consumer division, but not necessarily to the idea of the division itself being located in the Treasury Department or another federal agency.”

Meanwhile, some Senate Democrats are beginning to worry that the bill may become too watered down in these bipartisan talks.  They may try to add amendments when it hits the floor for debate.

(credit image – getty)

So simple, together we could make it happen. Oh and ignore the 6,000 odd votes against as most were generated automatically by Goldman Sachs the greedy bankers. Robin Hood Tax.