If you haven’t been under a rock for the past week, I’m sure you’ve heard about the collapse and takeover by the FDIC of IndyMac bank. Read the headlines and you’ll see that it was because of risky loans made at the height of mortgage lending and the eventual 8.86% of it’s loans that became delinquent this year. Read a little further into articles and discussions and you may find that this wasn’t the main reason for the collapse and takeover. While IndyMac was having financial issues, they had made significant changes in their business including aggressively following conforming loans that they could sell on the secondary market. They were on their way to a turnaround before public figures and the media got involved.

Federal regulators singled out Senator Charles Schumer as having a big part in contributing to massive withdrawals, which totaled $1.3 billion in the 2 weeks before the bank was shuttered. With comments like “I am concerned that IndyMac’s financial deterioration poses significant risks to both taxpayers and borrowers,” and stating that the bank “could face a failure if prescriptive measures are not taken quickly.” he helped to erode consumer confidence in IndyMac. This created a run on the bank to withdraw money and create a liquidity crisis for IndyMac and the eventual downfall.

There are few banks right now that could withstand a run on their bank from depositors as these funds are needed to run their business and to be lent out creating profit for the company. Would IndyMac have survived if the media and the Senator hadn’t eroded confidence and helped create a run on the bank? That’s for people a lot smarter than me to debate but I can tell you this. They would have had a lot better chance to make their turnaround happen if it hadn’t happened.

This is all fine you might say but you’re not making me feel good about the economy and investing right now. What are you trying to do? Well, all of this creates uncertainty and most importantly opportunity in our market. What happens if another 1 or 2 major banks go under? How confident will people be to put their money in banks and how “secure” will your money be in a deposit account or a CD? Don’t get me wrong, I’m not spelling doom and gloom, I’m just taking it to the extreme to make a point. The current values of homes are not a good representation of their actual value. Why is this? It’s because of the lack of financing and capital available to the average consumer. Will this change? Sure, but it’s going to take awhile. What happens when funds start to be available easily to the average homeowner and consumer again? That will equal more buyers equaling more demand and higher prices. We are just going to see the shakedown in the industry in the meantime.

So we’re looking at a lack of accessible capital for the average consumer or home buyer and we’re looking at uncertainty in the banking industry, which will probably further this in the next couple of years. Home values nationwide are at 1997 levels erasing 10 years of appreciation, and areas like Detroit the home values are even lower. If you’re not drooling right now thinking about all of the money you’re going to be making in this market, please… read on.

More millionaires were made in the Great Depression, per capita, than at any other time. What was the main backing force behind these millionaires? Real Estate. What was happening during the Great Depression? Financial Institutions closing, a lack of available capital for the average consumer, and a lack of buyers for houses, which stalled prices and values. I’m not saying we’re headed for another Depression but look at the comparison with our housing market now? Millionaires are made during uncertain times by investing in REAL Assets like real estate when values are low. We’re not talking about rocket science here, we’re just talking about taking ACTION based on facts and numbers in uncertain times. You can be a scared part of the herd that makes a run on your bank because everyone else is doing it or you can be sensible, make some investments where the numbers work now, and you can be a future Millionaire. The choice is yours.

Successfully Yours,
Jared Pomranky
Detroit Market Expert

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