With the absence of a government plan to pay off the national debt I put forth my own.
Here are the assumptions.
We owe about $11 trillion
Our debt will grow by $2.3 trllion. per year for 10 years
In 2019 our total debt will be about $33 trillion
With 300 million people thats about $110,000 per person
If we start today and each person pays about $1,166 per month for the next ten years, at the end of ten years our debt will be paid.
I have 5 people in my family and I am the only one who produces an income, so my share is $5830 per month. Of course this is on top of the taxes I already pay. I better get to work...
Wednesday, September 2, 2009
Tuesday, September 1, 2009
More Questions For Geithner
Here are some suggestions for questions I will ask Treasury Secretary Timothy Geithner at the CNBC Town hall meeting on Sept 10.
Given the existing public and government debt of over $11,000 bn. almost $40,000 per man woman and child in our country and the planned deficits of the future how will America pay off her debt?
Banks are reporting profits since the stimulus suspended mark-to-market accounting, this allows banks to carry these toxic mortgage assets on their books at unrealistic inflated bubble values. With the overhang of commercial real estate that must be refinanced over the next few years, the chickens are coming home to roost when the properties can not be refinanced due to tightened underwriting criteria and declines in market values. Is the Treasury prepared to bailout these bank, insurance companies and pension funds if they become under capitalized as a result of commercial delinquencies?
Do you support more transparency at the Fed, in particular shedding the light of day on the emergency lending to troubled financial institutions or the audit the Fed bill?
Do you support giving more power to the Fed as a so-called "super- regulator"?
Given the existing public and government debt of over $11,000 bn. almost $40,000 per man woman and child in our country and the planned deficits of the future how will America pay off her debt?
Banks are reporting profits since the stimulus suspended mark-to-market accounting, this allows banks to carry these toxic mortgage assets on their books at unrealistic inflated bubble values. With the overhang of commercial real estate that must be refinanced over the next few years, the chickens are coming home to roost when the properties can not be refinanced due to tightened underwriting criteria and declines in market values. Is the Treasury prepared to bailout these bank, insurance companies and pension funds if they become under capitalized as a result of commercial delinquencies?
Do you support more transparency at the Fed, in particular shedding the light of day on the emergency lending to troubled financial institutions or the audit the Fed bill?
Do you support giving more power to the Fed as a so-called "super- regulator"?
Monday, August 31, 2009
Questions for Geithner regarding commercial mortgage modification
By Ted Schmidt
I was invited to Washington, D.C. by CNBC to question Treasury Secretary Tim Geithner in a town-hall meeting on September 10. The question I plan to ask is this:
I was invited to Washington, D.C. by CNBC to question Treasury Secretary Tim Geithner in a town-hall meeting on September 10. The question I plan to ask is this:
In July you testified before the House Financial Services Committee. Rep. Maloney asked what administrative guidance the Treasury will issue regarding commercial loan modifications as they did with residential modifications. You said "we have not made a judgment as to whether that is necessary, appropriate or possible and would be willing to discuss it in more detail". Would you please elaborate on what plans the Treasury has to address the issue of commercial modifications?
What would you ask him?
What would you ask him?
Saturday, August 15, 2009
A New Paradigm For Commercial Real Estate Financing?
By Ted Schmidt
Commercial real estate is financed primarily through three channels, portfolio lending, commercial mortgage backed securities (CMBS) and direct cash purchases.
Portfolio lenders are regional banks, insurance companies, pension funds and others that lend money directly to commercial property owners. These loans stay on the lenders books for the life of the loans. Portfolio lenders have pulled out of the market and are actively trying to reduce their exposure to commercial real estate.
CMBS loans are made by mortgage banks that fund the initial transaction and then sell the income stream that the loan produces as investment vehicles on the stock market. The CMBS market seized up in 2008 following the sub-prime crisis and even with efforts from the Federal Reserve with the Term Asset Lending Facility (TALF) program to "prime the pump" the market is still effectively locked down. The TALF program allows institutional owners of CMBS to use the securities as collateral for extraordinarily low interest rates loans. This was designed to grease the wheels of the CMBS market but does not address the nearly $270 bn. capital deficiency on the exiting $800 bn. in maturing loans in the next 2 years.
Effectively there is nowhere to go. The options for both borrower and lender are few. Fed Chairman Ben Bernake says that these loans "ought to" be modified. Portfolio loans have some chance of being worked out and restructured since it is easy to identify and contact the owner. The major obstacle for regional banks who own these loans is that if they modify the loan or accept a short sale, they have to recognize the loss on their books. At a time when they are already hurting for capital they are reluctant to acknowledge the loss and would rather keep it on their books at full value. CMBS's cannot be modified because IRS rules that would render invalid the mortgage conduits tax exempt status. (these rules were changed 09-16-09)
Commercial property buyers remain on the sidelines as values plummet. Property owners and portfolio lenders are in still in denial about the true market value and can only sell at distressed prices. Right now, only seller financing and all cash deals are being accomplished in the commercial real estate space. Property owners are seeking commercial loan modification alternatives.
We need an entirely new way to fund commercial real estate transactions. Will the government step in with a commercial real estate bailout? Who will they bail out? Will congress pass new laws that will circumvent servicing agreements and force investors to accept renegotiated terms? These questions need to be answered.
We need a new paradigm in commercial lending. Comments please.
Commercial real estate is financed primarily through three channels, portfolio lending, commercial mortgage backed securities (CMBS) and direct cash purchases.
Portfolio lenders are regional banks, insurance companies, pension funds and others that lend money directly to commercial property owners. These loans stay on the lenders books for the life of the loans. Portfolio lenders have pulled out of the market and are actively trying to reduce their exposure to commercial real estate.
CMBS loans are made by mortgage banks that fund the initial transaction and then sell the income stream that the loan produces as investment vehicles on the stock market. The CMBS market seized up in 2008 following the sub-prime crisis and even with efforts from the Federal Reserve with the Term Asset Lending Facility (TALF) program to "prime the pump" the market is still effectively locked down. The TALF program allows institutional owners of CMBS to use the securities as collateral for extraordinarily low interest rates loans. This was designed to grease the wheels of the CMBS market but does not address the nearly $270 bn. capital deficiency on the exiting $800 bn. in maturing loans in the next 2 years.
Effectively there is nowhere to go. The options for both borrower and lender are few. Fed Chairman Ben Bernake says that these loans "ought to" be modified. Portfolio loans have some chance of being worked out and restructured since it is easy to identify and contact the owner. The major obstacle for regional banks who own these loans is that if they modify the loan or accept a short sale, they have to recognize the loss on their books. At a time when they are already hurting for capital they are reluctant to acknowledge the loss and would rather keep it on their books at full value. CMBS's cannot be modified because IRS rules that would render invalid the mortgage conduits tax exempt status. (these rules were changed 09-16-09)
Commercial property buyers remain on the sidelines as values plummet. Property owners and portfolio lenders are in still in denial about the true market value and can only sell at distressed prices. Right now, only seller financing and all cash deals are being accomplished in the commercial real estate space. Property owners are seeking commercial loan modification alternatives.
We need an entirely new way to fund commercial real estate transactions. Will the government step in with a commercial real estate bailout? Who will they bail out? Will congress pass new laws that will circumvent servicing agreements and force investors to accept renegotiated terms? These questions need to be answered.
We need a new paradigm in commercial lending. Comments please.
Sunday, August 9, 2009
No End In Sight To Commercial Real Estate Financing Crisis.
By Ted Schmidt
The commercial real estate crisis continues and it is proving to be more devastating to banks than the residential sub-prime crisis that sparked the financial meltdown in 2008. The Financial Post reported that US banks have been charging off (effectively assigning to the write-off bin) their commercial real estate loans at the fastest pace in since the late 1980s.
The majority of bank failures this year have been a result of commercial real estate losses and the number of regional banks that will fail in the coming quarters will increase. "Commercial real estate in the United States of America is going to get worse consistently over the next several quarters," said Jamie Dimon, CEO of J.P. Morgan Chase & Co., last month when he discussed his company's earnings.
The government will eventually attempt to solve the crisis by passing laws circumventing existing commercial mortgage backed securities (CMBS) servicing agreements and offer incentives to servicers as they do now for modifying residential loans. This will cause a tremendous loss of confidence among investors and cause more declines in CMBS values, bank write downs and failures.
Last quarter banks showed improved earning mostly because of free money from the Fed, trading profits and accounting changes. This will prove to be short term as the economic stimulus wares down and the inevitable change in monetary policy forces interest rates up.
The commercial real estate crisis continues and it is proving to be more devastating to banks than the residential sub-prime crisis that sparked the financial meltdown in 2008. The Financial Post reported that US banks have been charging off (effectively assigning to the write-off bin) their commercial real estate loans at the fastest pace in since the late 1980s.
The majority of bank failures this year have been a result of commercial real estate losses and the number of regional banks that will fail in the coming quarters will increase. "Commercial real estate in the United States of America is going to get worse consistently over the next several quarters," said Jamie Dimon, CEO of J.P. Morgan Chase & Co., last month when he discussed his company's earnings.
The government will eventually attempt to solve the crisis by passing laws circumventing existing commercial mortgage backed securities (CMBS) servicing agreements and offer incentives to servicers as they do now for modifying residential loans. This will cause a tremendous loss of confidence among investors and cause more declines in CMBS values, bank write downs and failures.
Last quarter banks showed improved earning mostly because of free money from the Fed, trading profits and accounting changes. This will prove to be short term as the economic stimulus wares down and the inevitable change in monetary policy forces interest rates up.
Saturday, July 25, 2009
Gov Has No Plan for Coming $1 Trillion CMBS defaults
Earlier this week, Fed Chairman Ben Bernake appearing on Capitol Hill said that commercial mortgages packaged into CMBS "ought to" be modified the same way residential mortgage backed securities are now.
The total arrears on all CMBS reached $817 billion in June. This represents a 4.5% delinquency rate. This has increased from a 2% rate last year and is expected to reach $1 Trillion by the end of the year.
On Friday, Treasury Secretary Timothy Geithner, appeared before the House Financial Services Committee.
Rep. Carolyn Maloney, who described the commercial mortgage situation as a "ticking time-bomb" questioned Geithner about commercial loan modifications. She asked what administrative guidance the Treasury will issue as they did with residential modifications. He said "we have not made a judgment as to whether that is necessary, appropriate or possible and he would be willing to discuss it in more detail".
Rep. Maloney went on to ask what the problem is with giving modifications on CMBS the same as residential mortgage backed securities. He said "it is an enormously complicated set of issues and we will talk to you and your staff about it later".
We will have to wait and see what will happen in the coming months as the fuse burns down. It is obvious by Giethners testimony that our leadership in Washington has no plan to deal with this issue. Giethner does not even know if it is necessary?
The total arrears on all CMBS reached $817 billion in June. This represents a 4.5% delinquency rate. This has increased from a 2% rate last year and is expected to reach $1 Trillion by the end of the year.
On Friday, Treasury Secretary Timothy Geithner, appeared before the House Financial Services Committee.
Rep. Carolyn Maloney, who described the commercial mortgage situation as a "ticking time-bomb" questioned Geithner about commercial loan modifications. She asked what administrative guidance the Treasury will issue as they did with residential modifications. He said "we have not made a judgment as to whether that is necessary, appropriate or possible and he would be willing to discuss it in more detail".
Rep. Maloney went on to ask what the problem is with giving modifications on CMBS the same as residential mortgage backed securities. He said "it is an enormously complicated set of issues and we will talk to you and your staff about it later".
We will have to wait and see what will happen in the coming months as the fuse burns down. It is obvious by Giethners testimony that our leadership in Washington has no plan to deal with this issue. Giethner does not even know if it is necessary?
Saturday, July 18, 2009
Commercial Mortgage Modification Consulting
Commercial Mortgage Modification Consulting, by Ted Schmidt
Commercial property owners are increasingly under distress in today's economy. Over the next few years billions of dollars in commercial mortgages that were made in the bubble years of 2004-2007 will need to be rolled over with new financing. The problem is that many of these loans were made with loose underwriting standards to feed the demand for CMBS's. Now that values have declined 30-50% or more in some hard hit areas, refinancing is out of the question. Right now the water is receding and curious onlookers are rushing to the water's edge as the tsunami approaches.
Property owners are left with few choices and loan servicers are left with even fewer. Commercial securitization and servicing agreements prohibit loan modifications without unanimous consent of the actual securities owners. This is almost impossible since they are spread all over the world. Furthermore, senior tranche holders will never agree to modification since they stand to lose money to the benefit of the riskier junior tranches.
The only way to modify these loans is by judicial cramdown in bankruptcy or by other action of law. At some point the government will get involved to make provisions for commercial loans to be modified. The first few bailouts did not address the commercial real estate problem. There is likely to be a shift in political will towards forcing commercial modifications.
As for loans that are not securitized, there is an opportunity to negotiate and come to a resolution that works for all parties.
Consulting Opportunities
These business owners will want to prevent or delay a foreclosure to preserve the cash flow that they are receiving. In some cases these are high income individuals who have lost their primary source of income and are living off the cash flow from their building. Other cases are small businesses that have suffered a downturn in business and have fallen behind. The opportunity exists in helping these people save their property and preserve their income.
Commercial property owners are increasingly under distress in today's economy. Over the next few years billions of dollars in commercial mortgages that were made in the bubble years of 2004-2007 will need to be rolled over with new financing. The problem is that many of these loans were made with loose underwriting standards to feed the demand for CMBS's. Now that values have declined 30-50% or more in some hard hit areas, refinancing is out of the question. Right now the water is receding and curious onlookers are rushing to the water's edge as the tsunami approaches.
Property owners are left with few choices and loan servicers are left with even fewer. Commercial securitization and servicing agreements prohibit loan modifications without unanimous consent of the actual securities owners. This is almost impossible since they are spread all over the world. Furthermore, senior tranche holders will never agree to modification since they stand to lose money to the benefit of the riskier junior tranches.
The only way to modify these loans is by judicial cramdown in bankruptcy or by other action of law. At some point the government will get involved to make provisions for commercial loans to be modified. The first few bailouts did not address the commercial real estate problem. There is likely to be a shift in political will towards forcing commercial modifications.
As for loans that are not securitized, there is an opportunity to negotiate and come to a resolution that works for all parties.
Consulting Opportunities
These business owners will want to prevent or delay a foreclosure to preserve the cash flow that they are receiving. In some cases these are high income individuals who have lost their primary source of income and are living off the cash flow from their building. Other cases are small businesses that have suffered a downturn in business and have fallen behind. The opportunity exists in helping these people save their property and preserve their income.
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