Fannie and Freddie Still on Shaky Ground; Fed Announces Rescue Plan

WASHINGTON, D.C. - The Federal Government, over the weekend, announced their intention to rescue Freddie Mac and Fannie Mae, should the need arise. The Treasury Department and the Federal Reserve will provide funds to the mortgage giants if and when it becomes necessary.

The emergency rescue plan involves 1.) the Administration asking Congress to pass legislation that would extend lines of credit on a temporary basis over the current billion $2.25 limit from the Treasury to Fannie and Freddie; 2.) giving the Treasury the option to buy equity in Fannie and Freddie; and 3.) granting the Federal Reserve Bank of New York the authority to lend additional funds to the GSEs.

Both Fannie and Freddie showed appreciation but were quick to say the plans are just a precaution. “We continue to hold more than adequate capital reserves and maintain access to liquidity from the capital markets,” said Daniel H. Mudd, President and CEO of Fannie Mae. “Given the market turmoil, having options to access provisional sources of liquidity if needed will help to strengthen overall confidence in the market. We will continue to do our part to provide liquidity, stability and affordability to the housing market now and in the future.”

Richard F. Syron, Chairman and CEO of Freddie Mac shared Mudd’s sentiment, “The company (Freddie Mac) is adequately capitalized, has a large liquidity portfolio and access to the world's debt markets. We are in the process of finalizing our June 30, 2008 results and we estimate that they will show we have a substantial capital cushion above the 20% mandatory target surplus established by our regulator. We expect the results will also show that we have a much greater surplus above the statutory minimum capital requirement. The company's capital and liquidity resources will enable it to continue to serve its public mission as it has always done.”

Still, the announcement from Federal Government along with the assurances from Fannie and Freddie CEOs did little to quell investor worries. Despite early stock rebounds on Monday morning, shares of both Fannie and Freddie suffered later in the day.

Investors are right to be jittery. Fannie and Freddie own or back more than half the mortgage debt in the U.S. which amounts to more than $5 trillion. Once the two beacons of stability in the mortgage crisis – the futures of Fannie and Freddie are now in peril. Their survival is crucial to not only the U.S. housing market, but to the nation’s overall economy as well.

- By Staff Writer, Originator Times

IndyMac Customers in Mad Rush to Withdraw Money

PASADENA, CA – IndyMac customers are lining up at some of the thrift’s 33 retail branches in Southern California to withdraw their hard-earned savings, clearly panicking after the financial institution’s assets were seized late Friday by federal regulators.

IndyMac – formerly the 7th largest savings and loan and the 2nd largest independent mortgage lender in the nation - is now the largest regulated thrift to fail and the 2nd largest financial institution to close in the nation’s history.

The company, based in Pasadena, California and founded by Countrywide nearly two decades ago, began shutting down mortgage lending operations last week. On Friday, the financial institution’s assets were seized by federal regulators and the financial institution was taken over by the Federal Deposit Insurance Corporation (FDIC). That move formed IndyMac Federal Bank, FSB, the conservatorship created by the FDIC to continue to provide banking services in communities served by the former IndyMac Bank, F.S.B.

As far as IndyMac customers are concerned, not much will change. They should simply view the situation as a change in ownership. Loan customers are advised to continue making their payments as usual.

FDIC Chairman Sheila C. Bair said that banking customers have no reason to panic. “The fact is that for insured depositors, IndyMac’s conversion has been largely a non-event,” Bair assured the public. “The more than 200,000 customers of IndyMac with deposits of $18 billion are fully protected. It's important to keep in mind that the small percentage of uninsured are still covered for their insured amounts and half of their uninsured money. As assets of IndyMac are sold, they may receive even more. They have had continued access to their funds through ATMs, debit cards, and writing checks, and it will be business as usual.”

IndyMac reported deposits of $19.06 billion at the end of the first quarter, 2008. The FDIC covers basic insurance limits of $100,000 per depositor with an additional $250,000 for IRAs. Accounts such as annuities and mutual funds are not insured at all. Banking customers who have uninsured deposits can file a claim with the FDIC. The FDIC estimates that the total of uninsured deposits hover around $1 billion and about 10,000 depositors have funds that exceed the basic insurance limit. Bair said that Indymac banking customers who have questions about their deposits may contact the FDIC deposit insurance specialists at 1-877-ASK-FDIC.

“The banking system in this country remains on a solid footing through the guarantees provided by FDIC insurance,” said Bair. “Our industry-funded reserves are strong and our insurance guarantee is backed by the full faith and credit of the United States Government. No bank depositor has ever lost a penny of insured deposits. On this, our 75th anniversary, we will continue that proud tradition."

- By Staff Writer, Originator Times

Buying A Restaurant? Make Sure You Check Its Karma!

Restaurants have Karma! They really do. Karma isn’t something you see exactly, it is something you feel. A restaurant's Karma is something you feel the moment you walk into a restaurant.

I first discovered the idea of restaurant karma many years ago while working in several college dormitory cafeterias at the Hotel School at the University of Denver where I was a student. We were required to work in three almost identical facilities as part of our work program and I discovered an amazing thing. The feeling of each cafeteria was different even though the facilities and the food were identical. The difference between them, (and the differences were dramatic), was caused by the person managing the facility. The personality of the manager affected not just the attitude of the employees but the quality of the food, the cleanliness, speed of service and no doubt the bottom line. I worked in all three locations and I found myself changing, in a sense, taking on the personality of the person in charge in each facility I worked in.

I have been involved in the restaurant business virtually all my life. I have worked in restaurants, managed restaurants, had ownership in restaurants, and have bought and sold hundreds of restaurants. When I walk into a restaurant for sale I stand back and try to "feel" what is going on. I look at the big picture, and I look at the smallest detail. I look at everything from the smallest detail such as the cleanliness in the cracks of the grout in the bathrooms to the "big picture" items.

I also learn a lot about the restaurant by asking the staff simple questions. When I ask a question, I am not only looking at the answer, I am looking at the attitude of the person giving the answer. Ultimately, what I have learned is that the karma of a restaurant is directly related to the person or persons who have the most control over the running and development of the restaurant. Sometimes the person, who created the concept, is not the person who manages it on a daily basis. Believe me, when you meet the owner and you meet the manager, if there is a big difference between them, you will see it in the operation.

I think that sometimes, an owner or manager is not able to feel his or her own restaurant because they are so integrated into the fabric of the business. In this sense, they can’t see the "forest through the trees".

The way you treat your employees, your vendors, your customers, it all comes back to you. And keep in mind everyone has strengths and weaknesses. A restaurant with a strong tough no non sense owner or manager will have a different feel than a restaurant with a "happy go lucky" type owner/ manager. Trust me, the restaurants will feel different. And chances are, the owner or manager won't even know why. The karma of the restaurant will be a direct reflection of the characteristics of the owner or manager. So goes the person, so goes the karma.

When I valuate a restaurant, naturally I study the financial performance of the business, but I also take into consideration the karma of the restaurant or how it feels when making my estimate of value. I am interested in not only knowing what the results are, but why and what needs to be done to make them better. Understanding a restaurant’s karma is just one aspect of the art of brokering restaurants.

- Jeff Back
founder of J. Back & Associates Restaurant Real Estate

Extra insurance coverage urged for condos

Sometimes, we need a painful experience to prod us into doing what we should have done in the first place.

On Oct. 1, 2007, a serious fire ravished a condominium building in the Adams Morgan section of Washington, D.C. Fortunately, it does not appear that there were any serious injuries, but many condominium owners and renters will now have to relocate until the building -- and the damaged units -- are restored.

There was property loss, both in the common areas of the building and within those units where the fire occurred. And clearly there will be a lot of smoke and water damage to the personal property of many of the residents.

Let's talk insurance: In every condominium and cooperative apartment building, there is what is known as the "master insurance policy." The legal documents governing these associations require that a certain level of insurance coverage be obtained. When you went to buy your unit, your lender insisted on receiving proof that there was a master policy and that the coverage was consistent with the association's legal requirements.

But contrary to what many owners believe, the master policy may not cover you for all of your personal loss. According to the Insurance Information Institute, the master policy "covers the common areas that owners share with others in the building like the roof, basement, elevator, boiler and walkways for both liability and physical damage." If, for example, someone trips on the stairs, the master policy will provide coverage, and should that person file suit, the master will also cover the legal costs incurred by the association.

If a unit is destroyed, the master policy will pay for the restoration of the walls and the ceilings. In some cases (depending on the insurance policy) if your appliances are damaged, the policy will reimburse you for the cost of replacement. Keep in mind that every insurance policy contains a deductible, and you should inquire of your association manager what that number is.

But any improvements that you -- and even previous owners -- made to the unit will not be covered. The insurance term is "betterments"; if you added wallpaper or remodeled your kitchen or bathroom, these upgrades will not be covered by the master.

Many owners do not understand this, and find out only when it is too late. An unfortunate -- but typical -- situation is where an owner inadvertently lets his or her bathtub overflow, causing water to cascade down into all of the units below. The master policy will cover the cost to repair the ceilings and the floors, but your valuable Oriental rug and expensive plasma television set that were damaged will not be covered.

You need to obtain your own individual insurance policy. In the trade, it is referred to as an "HO-6" policy. This will give you coverage -- subject to your own deductible -- for the betterments in your unit, and for your personal furniture and clothing.

Depending on your own financial situation, the HO-6 policy can also include such things as reimbursing you for monthly assessments and alternative lodging while you are unable to reside in your unit; water and sewer back-ups (which are all too common especially in older buildings); and even expensive jewelry, stamp or coin collections, or fur coats.

Some associations require that every owner obtain the HO-6 policy, and I have always strongly recommended that every association make this a requirement.

You should be able to obtain this kind of policy through any insurance agent. But in my opinion, the best approach is to obtain that policy from the same carrier that issued the master policy.

Take this very common situation: a common-element pipe burst, causing major flooding damage throughout the building, including in your unit. The condominium association files its claim against the master policy, and you file your claim with your insurance company. However, each company points it finger at the other one, stating that it is the obligation of the other carrier to cover the claim. Often, when faced with this situation, I merely tell both agents: "Guys, both the master and the HO-6 policy were issued by the same company, so why not just work it out on your own, and make sure that both the association and the owner are properly compensated for their losses?"

If you own a condominium unit, you must learn the difference between a unit and the common elements. Your unit consists of the area between the four walls, from the floor to the ceiling. Common elements include, for example, the elevators (unless they go to specific units in which case they are called limited common elements); the roof; and the mechanical equipment that services all of the units in the building.

But it's not that simple. For example, pipes that serve only your unit will most likely be considered part of your unit -- even though those pipes go down the walls outside of your unit.

It is important that you understand these concepts. Your association declaration will provide you with this information, but if you get confused with the legal (and architectural) terms, consult the association's property manager, its attorney or even the insurance agent for your building. It is absolutely critical for every owner to carefully read -- and reread periodically -- these legal documents.

If you are renting your unit, you probably will not need protection for your tenant's personal property. However, you still need coverage in case someone gets hurt in your unit, and accordingly should still obtain the HO-6 policy. And you should make it a requirement in your lease that your tenants purchase "renters insurance" -- called an HO-4 policy -- so that they too will have protection in case problems arise.

Damage to condominium units can come from many sources. The hot water hoses in your washer can burn out. Your fireplace chimney can get stuffed up, unable to provide the necessary updraft. Or the rubber seal under your toilet gets worn down.

One never knows when these problems occur. More importantly, disasters are often out of your control; they are caused by your upstairs neighbor. I am currently involved in a situation where the upstairs owner accidentally drilled a hole in a sewer-line pipe, causing extensive damage to the unit below.

The cost of this insurance is nominal, considering the risk and the exposure involved. The October fire should be a strong incentive to pick up this protection today.

-Benny L. Kass

Summer Heat - to Pool or not to Pool

Whenever it gets hot, I, along with some others, would love to JUMP in to that Cool Pool, and just relax...and have a party by the Pool. What a great idea, especially when it gets HOT! I have to admit, as a kid, I'd always thought it would be cool to own a pool. In fact, growing up, I use to go with my family all the time. We had lots of fun.

However, on the flip side of owning a pool is the regular maintenance including pool cleaning, and making sure that the PH Balance is right. Also, for parents of young children, the pool can be a safety hazard, and those issues would need to be addressed.

Is it worth it to own a house with a pool? You tell me.

Does it increase the value of the house above and beyond the cost to put one in?

I'd have to say that the existence of a pool plays little into the determining factor of the homes value. However, just like landscape, a gorgeous pool can definitely make the difference in the sale of the house.