Signs we are in for rough seas...

A couple days ago, I attended a seminar for mortgage brokers looking to increase their deal flow. One of the many stats cited by the seminar speakers indicates that there's been a 40% attrition rate among loan officers. The positive spin is that there are fewer loan officers chasing the same deal, altho deal flow has decreased significantly, especially refi's. In any case, since I have a couple mortgage planners in my affiliate network, I wanted to get an indication on how bad the industry was, as all I heard from them was doom and gloom about the mortgage industry. My attendance at the seminar confirmed it. I got depressed via osmosis.

Thru a referral from a realtor friend, I visited a senior loan officer, one of the top revenue producers in the country prior to the mortgage industry balloon popping. He went from funding up to 104 loans a month to virtually nothing today. He's lost 5 of his 7 homes, basically losing millions in equity, and starting over. He is sharp, proactive, a strategic thinker--and broke, with a plummeting FICO score. He's working 3 times as hard on each deal, and each deal is bringing in one third the revenue he used to make on loan origination fees. In essence, he has to work 9 times as hard to fund one deal. And only 1 in 10 applications are being funded (the seminar speakers said 1 in 5 applications are accepted). It got me thinking--here was the one of the top producers in the country, and it was no fluke as he was on top of his game. Yet, he was flat broke. What is going on here?

I told him I'm having my best year ever, and so are my affiliate partners in the lending and real estate business. Why? Because my clients protect their equity, thriving even in a severe real estate downturn. I create a need for clients to either refinance--or to sell their existing home, and purchase a new one, in order to acquire new tax-deductible debt. It's due to Rule 264, which defines the limits of acquisition indebtness. Most individuals are unaware of this rule--and so are their CPA's.

The aforementioned loan officer is sharp, he may become a client, and we definitely will work together to shore up his clients' balance sheets. It's too late for some, but there are some who will need our assistance.

I also visited another realtor friend who was a multi-millionaire the last time we met. He owned 5 beautiful homes scattered across the bay area, each worth over a million each. Today, he is upside down on all of them, barely able to fill up the gas tank on his luxury SUV. I know the technical definition of a recession is two consecutive quarters of negative GDP growth, but I really don't care what the government statistics cite. We are deep into a recession--and it's going to get worse. These aren't exactly low-paying jobs people are losing.

The anecdotal evidence is mounting--UBS' mortgage-backed securities department laid off 400 of their staff of 450. JPMorgan Chase bailed out Bear Stearns, the country's 4th largest investment bank. Bank of America bailed out Countrywide--the country's largest mortgage lender. And Texas Pacific Group, a private equity firm, injected billions of capital into Washington Mutual, that little commercial bank on every street corner. It's the ultimate trifecta--investment banks, mortgage banks, and commercial banks. This triple crown of exploding debt is going to implode the US economy. On the other hand, the thoroughbred Big Brown didn't have a chance at his Triple Crown...

And the government continues to artificially deflate reported inflation numbers for their best interests, but to the detriment of every American consumer, but especially retirees living on a fixed income, tied to the cost-of-living index. What's noteworthy is that the cost of food and fuel are not included in the inflation index, with the reason being they are "too volatile" month-to-month to be included in the "core" inflation index. Well, that's Jim-dandy, but the problem lies in the fact that those are the two household components whose costs are skyrocketing. Does anybody really think inflation is only growing at 3%? Pleeze...

In any case, last Tuesday, one of my mortgage planner partners is refinancing 7 properties for 4 of my clients, totaling approximately $4 million. I'm also putting those very same clients into something that is safe, liquid, earns more than their tax-deductible mortgage interest, and compounds tax-free. For those that don't know me well, I'm applying Missed Fortune concepts, a safe, conservative strategy on building wealth by optimizing current assets.

Last night, I had a meeting with a former colleague, who is now at a major investment bank (one of those two-name ones). Altho Missed Fortune concepts are antithetical to what Wall Street espouses, even he agreed to the unconventional, yet straight-forward principles. His caveat is that a money manager can beat Missed Fortune strategies if he/she can achieve a 15% annualized return, pre-tax. I say, good luck...most hedge fund managers strive for 12-15% pre-tax growth, and most money managers underperform the Lipper market averages. My clients earn the index averages tax-free, with a guaranteed floor, and sleep at night. Albert Einstein said "Compounding interest is the 8th wonder of the world". If that's true, tax-free compounding is the 9th wonder.

Doug Andrew, my mentor and friend, really is a genius. Each component of Missed Fortune isn't novel--but how he has taught me to structure each plan--both liabilities and assets--THAT is the secret sauce.