Investor Surge: Making Lemonade on the Mortgage Meltdown

By Brad Keiser, 6-13-08

My friend Tom and I coach our daughter’s basketball team together. Tom is in the aviation fuel business but is a pretty innovative guy both in coaching and in business. He asked me the other day, “Brad, you are a former banker isn’t there some way for an opportunistic guy to take advantage of this whole credit crunch sub-prime fiasco?” In short, let’s try to make some lemonade out of the housing market lemons. So we started “brainstorming” some ideas, a process whereby you simply table ideas off the top of your head without regard to how silly they may sound.


They ranged from providing lawn care services to realtors or lenders, kind of hard to get a prospective purchaser to even look at an empty house where the grass is standing a foot high. Perhaps a rental service where we would manage and rent properties already foreclosed and unoccupied on behalf of lenders who could at least receive some stream of revenue rather than have the property sit empty and overgrown for a year or two before finally getting auctioned at a sheriffs fire sale price to an “opportunistic someone” sitting on a pile of cash to invest. Maybe, some type of mortgage “loan work out service” because many of the people caught up in the subprime/foreclosure mess are not sophisticated enough to negotiate with a lender. A few other ideas we dismissed quickly as half-baked and I won’t bother to elaborate on here.


We agreed that even in times like this there are still people out there with capital to invest or solid credit to obtain financing. The Federal Reserve’s rapid reduction in interest rates has spurred increased activity in home sales and refinancing according to a couple of my mortgage broker friends, but it has also caused a precipitous drop in CD rates too.  There are investors who actually wait for a stock to bottom before initiating a trade or on the other hand are so afraid of the stock market that they only invest in CDs or maybe investment property.  


My father is such a guy, strictly CDs or investment property not the stock market. He even bought savings bonds when I was a kid to save for my college education.  His investments always went up over time not down. As a teenager I spent a fair amount of time cleaning, painting and mowing his numerous rental properties to make a buck. I went to college on a basketball scholarship, coincidentally not long after I graduated Dad and Mom bought a house on the ocean.


My experience in real estate investing has been similar. I learned at a young age the mantras of real estate investing. “Location, location, location” is tried and true particularly with condominiums. “Buy land because they aren’t making anymore of it;” the people who own those rental storage unit businesses are in the land business, the storage unit just pays the mortgage. One of my own, “brick buildings don’t need painted.”


If my friend Tom and I (or you) were going to go “bottom fishing” for investment property in today’s market what would be our criteria on a property?  Has the market finally bottomed such that you can take advantage of fire sale prices on foreclosures? Is there a way to cherry pick a property that has huge upside before it ever hits the market post foreclosure? That is to say, smart investors often make their gain because they bought at the right time at the right price, not necessarily because of when they sold it.


Investor guru, Jim Cramer, host of CNBC’ Mad Money TV show has gone on record as saying that the stock market is forward looking, and if “housing stocks have already bottomed, it is a good indicator that the housing market is at or near the bottom.” Cramer also pointed out, “we have seen this time and again, when the homebuilders cut prices 30%, that’s been the magic level, houses start being sold. That’s what caused the bottom in western Florida, once they cut prices the houses moved.”


In a recent TV interview, Bob Toll, Chairman and CEO of the publicly-traded homebuilder Toll Brothers said, “Naples(FL) is back, we couldn’t give away a home a year ago it didn’t matter what the price was, now we are out of our speculative inventory. That’s why we were able to raise prices in Naples because we’ve sold off the entire inventory we were stuck with. Now we can get back to the “to be built business.” Seems Wall Street is convinced, according to USA today after Toll Brothers released their recent earnings report “the company’s shares rose 3.1% after Toll Bros. recorded its lowest cancellation rate in a year, and the quarterly loss came in under analysts’ consensus expectations.”


Hmmm, if location is paramount we need to look for a real estate market where the “bottom” has already happened and things have started to turn upward. Since the first baby boomers have just turned 60, the demand from retirees moving from the cold north to the west coast of Florida will continue for some years to come adding to the property appreciation factor. The cosmopolitan nature the east coast of south Florida has taken on over the years where half the population doesn’t speak English has actually caused some long time residents to move north. Likewise, the west coast of Florida has become known as a more desirable environment both for current Florida residents and the snowbirds of the north.


Retirees, soon to be retired or simply investors like my Dad sitting on a pile of cash with CD rates around 2% could probably buy a condo in Naples with little or no financing. Use the place some, rent it some, getting both enjoyment usage and a cash return on their investment and see some nice appreciation in the property just between now and the time they would actually retire. Meanwhile, Tom and I have found a few brand new, never lived in condos in Naples that were owned by some speculators, who got overextended and forced into bankruptcy.  The combination of bankruptcy proceedings and foreclosure process simply adds to the timeframes of resolution. So by working with the lenders taking the hit on these lemon loans they made to the speculators, we are helping them to expedite “closing the book” on the combined saga and in the meantime helping some opportunistic investors/buyers make some lemonade on fire sale prices on properties not even listed. Let me know if you are thirsty — our supply of lemons is limited.


Brad Keiser is President of Jonda Financial Group, Inc. and he can be reached at


Pursuing High Rates on Your Savings: FDIC and Risks

Just remember — the higher the rate they are willing to pay the higher the risk you are taking. There are exceptions, because of the issues of perceived risk versus actual risk. The same caveat holds true for low rates — just because it is a very low rate doesn’t mean that it is safe. Banks do fail and FDIC insurance works fairly well, but you need to be well-documented and you need to be prepared to re-invest in what will be lower rates of return. 

The following article I found to be particularly helpful in assessing the risks and following the somewhat roundabout procedures of applying to the FDIC for your money up to the allowed maximum. I did find that the time for refunds to reach you is much shorter than I had thought.

Rate uncertainties
How secure are those high-yield bank interest rates?
PALM BEACH GARDENS, Fla. (MarketWatch) — Generous interest rates on deposits have been promoted by the very institutions that lately are cited in the news for financial troubles.
Are these institutions safe? Beware that if one fails and the FDIC takes it over, an assuming institution may cut your interest rate dramatically — even if you’re locked into a long-term Certificate of Deposit.

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If your rate is lowered, you will be allowed to withdraw your funds penalty-free within a specified time frame. But in a low-rate environment, you could face the unpleasant prospect of reinvesting your money at lower rates, despite the high yield you thought you had nailed.
Nevertheless, provided that your account is an FDIC-insured deposit, you should get your money, including accrued interest, as soon as possible if your bank fails. But be sure to abide by convoluted FDIC rules and make sure all your bank funds are covered in advance. Here are some major issues to consider:
  • Do business only with an institution that provides FDIC insurance on deposits. Not all do. Make certain your bank is FDIC-insured by searching the “bank find” tool at
  • Stay within FDIC insurance limits, generally $100,000 per person per institution, but higher under some circumstances. A family of four, for example, can cover as much as $1.5 million by titling accounts so they fall into separate account categories. For more information on specific categories, go to this FDIC page.
  • If you invest in a deposit through a broker, be sure he or she is reputable, keeps good records and is responsive. FDIC deposit payouts have been delayed when brokers failed to quickly provide the FDIC with necessary records. Sometimes your funds could pass through more than one broker, a factor the FDIC needs to know. Also, you may find yourself exceeding FDIC insurance limits if you have other funds at the same failed bank to which your broker transmitted funds.
  • Your investment at a bank must be a deposit, such as a CD, checking account or savings account. Securities, such as stocks, bonds, mutual funds and annuities, are not FDIC-insured.
  • Don’t neglect your FDIC-insured accounts or you could lose your rights to them. If your bank fails, you have 11-1/2 years to claim your deposit account, or it becomes the property of the FDIC. If there’s no activity for 18 months from the date of your bank’s failure, the FDIC turns the funds over to the state’s unclaimed property division. Federal rules require that after 10 years, states must return unclaimed deposits to the FDIC.
Deposits returned within days
FDIC spokesman David Barr said that in most cases, depositors are reimbursed the next business day after a bank fails. He says the longest FDIC employees can remember depositors losing access to their funds was in the 1999 failure of First National Bank of Keystone, in West Virginia. Bank customers waited from Sept. 1 to Sept. 7.
So, what about assertions that the FDIC can take up to 99 years to repay? “Completely a myth!” Barr said. Some stockbrokers, he said, have perpetuated this misinformation in pitches to get clients.
If the FDIC can’t immediately find an acquiring institution, some checks may get returned for insufficient funds. But, Barr said, you often can work with the institution charging those fees to get them removed.
Is it safe to send money out of state if you have a power of attorney for someone else? Generally, geography doesn’t matter, said Steve Hartnett, associate director of education for the American Academy of Estate Planning Attorneys in San Diego. “A bank account would be governed by rules of the domiciled at death,” he said.
Nevertheless, “I don’t know that I would want my money in an institution that’s going to go under,” Hartnett said, because there might be a “hassle factor.”
No exceptions
One of the greatest problems in bank failures relates to revocable trust accounts. Those accounts, which many people use to secure more FDIC insurance coverage, too often get opened “in trust for” disallowed beneficiaries.
Revocable trust beneficiaries qualify for separate FDIC insurance coverage only if they are parents, siblings, spouses, children or grandchildren. They can’t be a “significant other” or a “niece or nephew.”
If you incorrectly name your niece or nephew, deposits in those accounts could be lumped with other deposits in your name, and inadvertently put you over the insurance limit.
Another problem may occur if your bank fails and you’re leaving money to a qualified beneficiary who is a minor. State laws typically prohibit you from leaving $100,000 to a 10-year-old.
“You probably need a guardianship,” Barr said. So be sure that you first contact a lawyer or estate planner.
The FDIC, Barr said, makes no exceptions for mistakes.
Spouses Gail Liberman and Alan Lavine are syndicated columnists. Their latest book is “Quick Steps to Financial Stability” (Que/Penguin). You can contact them at End of Story
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