The current state of the mortgage mess

Since the very beginning of the mortgage foreclosure crisis two years ago there were rumblings of fraud by the lending institutions. A very few isolated cases of proven fraud made local newspaper headlines. More information has been available on-line at web sites and blogs specializing in consumer issues, mortgage/financial issues and real estate. Until the past few weeks this news stayed very much under the radar and out of the national network television/national newspaper headlines. That is beginning to change.

Mortgage fraud is a much more important to real estate investors. Many investors were holding rental and/or lease-option/owner financed properties which were financed by major lending institutions/banks. The investors were also hit hard by the bursting housing bubble and facing foreclosure on financed properties. This is a business for investors and they were much more inclined to fight back, researching the lenders’ legal requirements for foreclosure and hiring attorneys to protect their vested interests in financed properties. Most homeowners facing foreclosure, however, were broke(could not afford their mortgage payments), ignorant of the law, unaware of the rights as borrowers and not inclined to try to fight a big bank(no money for attorneys’ fees).

It makes a lot of sense to have rampant mortgage fraud in the current situation. The lenders were not any more prepared for the massive way of mortgage defaults that swept over the country than were the homeowners. The necessary procedures, personnel and knowledge were just not there. Many of the lenders relied on outside companies to handle the paperwork for foreclosures and those companies were not any more prepared than the banks themselves for the sudden tidal wave of defaults.

This situation resulted in many corners being cut and legal requirements being ignored in order to be able to keep up with the increased flow of foreclosure paperwork. County court systems were also not prepared and did not pay enough attention to the paperwork presented them during foreclosure proceedings. Now, even though there have been complaints from the very beginning, these issues are coming to light in the mainstream media because of federal investigations into the practices of the mortgage industry.

The big lenders want to shrug off these illegal practices(mortgage fraud) as merely “technical issues”. Court decisions on issues of legal procedure, however, tend to place a great deal of importance on “technical issues”. It will be very interesting to see if any of the lending companies, processing companies or individuals involved ever face criminal prosecution or if any of the affected former homeowners ever receive any recompense.

One widespread “technical issue” that has come to light is bank officers signing affidavits without personal knowledge of the truth of the information contained in the affidavits as required by law. Unauthorized bank and processing company personal forging the signatures of bank officers on foreclosure paperwork also appears to be common and accepted practice and is also illegal. Large volumes of foreclosure papers seem to have been signed without a notary present to witness the signatures as required by law. These are very serious issues. The presence of any of these issues in any given foreclosure procedure would be legal grounds for the dismissal of that foreclosure. Tens of thousands of foreclosures seem to have been pushed through the court system in this way. It is fraud on a massive scale and it happened because the lenders either were not aware of the proper procedures or did not feel they had the time to follow the proper procedures. Ignorance of the law and time issues are not normally well-received excuses for fraud in other areas of business and should not be considered adequate excuses for mortgage lenders.

Now we wait to see where things go from here. If the federal government does the right thing and decides to prosecute lenders and processing companies and individuals for fraud, it will get very messy and drawn out and clog the court systems for years. And what can possibly be done for the former homeowners, who have already been evicted from their homes and the houses sold at foreclosure auction or privately by the banks? Or will it all just get swept under the carpet as an unavoidable consequence of the housing bubble fall-out and the feeling that banks are already under too much pressure?

"Green" mining investments?

Mining is one segment of my “green” investing strategy with which some might not agree. I would argue that mining is absolutely essential to most “green” technologies, including wind power, solar power, super-conductivity, advanced battery designs, highly efficient LED lighting and smart-grid just for a start. Without the metals and other diverse elements supplied by the mining companies of the world, modern electronics and “green” technologies would not exist. Silver and gold, copper and iron have always been important to the electronics industry. Just as important to modern semiconductors are the “rare earth” elements.

The rare earth elements are not really rare but are quite common and well distributed in the earth’s crust. They are, however, fairly difficult to purify into usable form. The rare earth group consists of 17 elements mostly in the lanthanide series of the periodic table. They most commonly occur in nature as oxides and are often intermixed at the same location. Highly-concentrated deposits suitable for mining operations are well distributed around the planet.

The problem today is China’s domination of rare earth mining and production. China now produces over 97% of commercially used rare earth elements. This situation came about because Chinese production was cheap and rare earth elements were an excellent export commodity. The rise of the native Chinese electronics industry increased domestic demand for rare earths. China is in the process of stopping export of these essential elements.

The need for more locally produced rare earth elements is putting a spotlight on mining and refining companies capable of replacing Chinese supply. There is no shortage of these companies and most of them are quite “cheap”. When the major electronics producers start feeling the pinch of reduced Chinese rare earth export policy these mining companies are in a position to see rapid, long term growth and share-price increases. A few of the companies I watch most closely are Great Western Minerals Group(GWMGF), Avalon Rare Metals(AVARF) and Sociedad Quimica Y Minera(SQM).

Let me reinforce the importance of the rare earth elements to “green” technology. These elements are used in almost all semiconductors including photovoltaic and PETE(photon enhanced thermal emission) cells. Rare earths are absolutely necessary for the strong magnets needed for efficient wind power and hydroelectric generation. Low-temperature superconductors require rare earth elements. LED lighting depends on rare earths. Many lasers, high-refractive-index glass formulations, colors for phosphors and LED’s and glass, fluorescent lamp bulbs, ceramic capacitors and portable x-ray machines all depend on rare earth elements.

My view is rare earth mining and production companies outside of China are a great short- and long-term investment. They should do nothing but continue to increase in value and share price(unless bought by a larger or wealthier competitor). Our part as “green” investors is to push them as hard as we can to make their mining and production operations as “green” as possible. It is also our responsibility to push the EPA and all other responsible government bodies with oversight authority to do their duty and ensure all rules and regulations are followed.

Solar power innovations

New developments are really starting to pop in the solar power arena. Most businesses and individuals will readily admit that solar power is one of the waves of the future. They have been slightly hesitant to jump on the bandwagon themselves, however. The numbers of businesses installing solar power or heating and its adoption by government agencies in the U.S. has been disappointing. So has the performance of publicly traded solar stocks.

I think we have reached a collective turning point. Whether or not global warming is real has been mostly decided in most minds, regardless if because of natural or man-made causes. European and Chinese adoption of the technology is leading the world and making the U.S. seem like a dimwitted laggard. Large global companies and the military have seen the writing on the wall concerning petroleum-based power production and are making the move to renewable sources of energy. New solar research is revealing many ways to make this energy source both cheaper and much more efficient.

Global Solar of Tucson, Arizona specializes in thin, flexible solar panels that do not need mounting racks like traditional rigid polycrystalline panels. This allows them to be glued to roof surfaces with no penetration. They perform well in areas receiving no direct sunlight. The panels are currently produced in 19-foot-long by 1 ½-foot wide strips. They are now seeking certification for the panels.

A few companies are experimenting with selling small solar panels having built-in micro-inverters. This allows plug&play installation of as many or as few as wanted at the time. More panels for greater power output can be added later. This should be a growing trend allowing companies and individuals to “get their toes wet” before diving in to a full(and still expensive) solar array installation. Green Ray Solar in Westford, MA has received UL certifications for its solar panels containing inverters.

Research at University of California will lead to much more energy-efficient smart-phones and other hand-held devices. This extra efficiency would allow these devices to run on solar power rather than high-powered batteries alone. Think about the extra freedom having solar powered phones, mp3 players, portable GPS units and laptops allows the user. No more worrying about running out of battery power or down-time while recharging the battery.

The National Renewable Energy Lab has discovered a new technique to greatly improve the efficiency of existing solar-panel technology by allowing the absorption and conversion of all wavelengths of light. Acid etching the silicon photovoltaic wafer producing millions of tiny holes in its surface and turns it black. The process is fast and easy to produce. The new process could reduce production costs of solar panels as well as increase their efficiency.

Solar power will continue to evolve rapidly during the coming years. New discoveries in the field will make this energy source continually cheaper and easier to access. This is the reason I actively invest in a number of solar energy stocks and will continue to do so. This industry has not yet lived up to its potential concerning share prices but that day is coming soon and smart investors will be ready when it arrives.

photo courtesy of: freephoto.com

More efficient lighting with LEDs

The future of lighting, all kinds of lighting, is LED’s. Only a major and totally unanticipated discovery would prevent LED’s taking the place of incandescent and fluorescent lighting during the next five years. LED’s will soon dominate the lighting industry because they are much more energy-efficient, they stay cool, they are small and light-weight, and they are more earth-friendly to manufacture and dispose.

Energy-efficiency and operating temperature are closely linked. Incandescent light bulbs waste approximately 90% of the electricity used producing heat instead of light. Fluorescent bulbs waste nearly half of their power as heat. LED’s produce light with more than 90% of their electrical draw. This enormously reduces the amount of energy needed to light an area while also reducing the energy needed the keep that same area cool. The lights themselves are now quite expensive but the energy savings will make up for the price difference. Prices will rapidly decline as demand and production increase(remember how “expensive” compact fluorescent bulbs were when first introduced?).

Longevity is the LED’s forte. Most currently being sold will last at least five years if never turned off. For most businesses, changing dead light bulbs is a daily or weekly(at least monthly) necessity. Switching to LED lights could allow a maintenance department to forget how to change a light bulb. How many saved labor hours, reduced storage space and inventory could this be worth to the average business? How much aggravation and space could be saved in the average home?

These are the reasons for the “LED Section” of my investing watch-list. I now monitor: Cree, Inc.(CREE) of Durham, NC; Veeco Instruments, Inc.(VECO) of New York, NY; Carmanah Tech Corp.(CMHXF) of Victoria, BC, Canada; XODTEC LED, Inc.(XODG) of Taiwan; Obelux of Helsinki, Finland and Bridgelux of Sunnyvale, CA. My not-so-secret wish is that Obelux and Bridgelux go public in the near future. These companies should all have a very bright future in the lighting industry.

Veeco Instruments makes the equipment other companies need to produce LED lights. Cree is one of the oldest and best established LED lighting manufacturers. Carmanah specializes in self-contained solar-powered outdoor LED lighting units. Obelux specializes in aviation and architectural lighting and has just announced a 200,000 candela white LED aviation marker light that is Federal Aviation Administration approved and uses just 350 Watts. Bridgelux is lead by ex-Seagate Technology CEO Bill Watkins and has already applied for over 250 patents covering various aspects of LED light production.

Stock market performance of these companies has been less than stellar so far. This is expected in with just-emerging technologies. As a greater variety of products becomes available, product prices drop and the importance of energy-efficiency increases, share prices of these companies should soar. I continue to wait and watch and monitor new developments within the industry.

Large private-sector companies and governments, led by the military, will undoubtedly be the early-adopters of large-scale LED lighting, followed by smaller companies and then individuals. Starbucks has already committed to making the switch in all of its stores. The U.S. Navy has committed to LED lighting on its combat ships. Many more forward-thinking organizations will soon figure out the many advantages of LED lights even at present prices. By the time they have to change the first dead light, replacement prices will probably have dropped by 60% or more and the initial investment will have been repaid several times over in energy savings.

Creativity

My creativity takes a variety of paths and requires a variety of actions. I write about what I do and find interesting(this blog is just one example): real estate, investing, photography, food. I photograph(examples also on this blog): mostly nature and wildlife but also architecture, still life, portraits, weddings and to illustrate my articles. I cook: a range of cuisines and fusions centering on fresh, healthy ingredients. I invest: in local single-family homes and in world-wide stocks concentrated on earth-friendly technology.

Maintaining creativity in these areas means spending some time each day doing each of them. This keeps me in active practice and keeps the basics mostly out of the thought process. The constant practice means I don’t have to stop to think about basic punctuation or grammar or spelling while writing; I don’t have to stop to think about which lens focal length or f/stop to use to get the perspective and depth-of-field wanted in a photograph; I don’t have to stop to think about whether to sauté or roast ingredients for an experimental dish; I don’t have to stop to think about how to enter a “buy” or “sell” order for stocks. Constant practice by constant doing takes the very basics of an activity out of the thought process and allows focusing on the creative aspects of the activity: to tell a story or just report the facts, everything in the frame in sharp focus or only the main subject, a medley of complementary flavors or the predominance of lemon/dill.

Continuous research is also a creativity booster. I read pretty much everything from science fiction to action/spy novels to stock/real estate investing techniques/theories to photography magazines and manufacturer’s equipment updates/new releases. It is important to think about these new(or old) ideas and how they tie in with personal philosophies/practices. I do not have the budget for a new lens but Canon has just released a 8-16mm fisheye zoom lens, stimulating me to think about new ways to use my current lenses. An organic gardening blog or Twitter post causes me to try a new spice or vegetable, a short story contest entry gives me style ideas to incorporate into my real estate column posts. I try to maintain a Zen attitude about life and always be open to new ideas and ways of doing.

Operating this way most effectively keeps me out of ruts. Concentrating too hard or too long on one activity or one technique puts me into a rut, which is then difficult to get out of. If I find myself not getting excited about photographing wildlife or landscapes I will park downtown and spend some time wandering around looking for interesting street scenes or architectural details or man/nature juxtapositions. If I feel uninspired for my next real estate column I might research the latest battery technology breakthroughs as a mental refresher. When feeling burned out on a house rehab a long swim in the Gulf of Mexico can get my thoughts back on track.

My Personal Investing Strategy Ingredients

I have overhauled my stock investing strategy and portfolio to better reflect my environmental and political beliefs and the realities of the current investing market. Investing in what you know and are comfortable with, I still strongly believe, is the way to success. I know the technology and energy sectors and environmental science issues. Intense self education let me shift from my former “buy & hold good undervalued companies” to my current “buy when it’s down and take reasonable profits before it goes farther down”.

Converting the portfolio is an interesting and ongoing process. I developed a list of several hundred companies that fit my criteria. These companies are directly or peripherally involved with: solar power, wind power, geothermal power, “next-generation” nuclear power, fuel cells, batteries, flywheel energy storage, electric vehicles, hydrogen/natural gas vehicles, smart grid, organic agriculture, sustainable aquaculture, water treatment and supply, waste management, and a variety of other earth-friendly fields. There are plenty of companies to choose from in all of the above listed areas. These companies are diversified enough to not leave me vulnerable to a crash of one market sector. These are definitely growth industries on a global scale and are also geographically diversified.

Converting the investing strategy is more difficult, but it is obvious to me that the days of buying shares of a good company at a bargain price and knowing that they would be worth much more in five or ten years is a thing of the past. This is very much a mental adjustment for me. In today’s stock market investors must be light on their feet. Investors must keep well informed about business/investing and larger global issues. Investors, to be successful, cannot become emotionally attached to the companies in which they are investing.

I am benefiting from these changes. I feel good investing in companies that improve the situation for everyone. I am more confident and more successful for specializing in the “green” niche: I can know the companies in greater depth, have a better “feel” of the business issues involved and better see things in context. I was formerly a generalist but now understand the advantages of being more specialized as an investor.

Removing texture from a ceiling 1

The current rehab project has one “bedroom” that was originally a screened sun-room. There is an original exterior-wall window still in place between it and the living room. The interior walls were ¼” exterior-grade plywood shot with heavy plasticized popcorn texture, but the joints were all cracking anyway because of wall movement from inadequate framing. The ceiling had a heavy coating of conventional popcorn texture and also had some quality issues. There were only three receptacles all on the same wall. The room had no door and there was no closet.

The latest step of this rehab was the removal of the ceiling texture to allow refinishing to a smooth surface. I had never done this particular job before and received a very helpful hint from a fellow investor and TBREIA member that most textures could be lightly dampened with water to soften them and then either flattened or removed with a dull-edged trowel. I was a little skeptical but decided to give it a try for lack of any better options. I did not want to remove the ceiling unless absolutely necessary.

I used an old window-wash spray bottle filled with plain water to mist the ceiling in 2’x4’ sections and gave it five minutes to soak in. It worked like a charm. Instead of a difficult, dusty, all-day job the ceiling was ready for refinishing in 2 ½ hours.

Investment property change of plan

I am now working on rehabbing an investment property purchased a few months ago. The original plan was to wholesale it to another investor as a rental. It was a conventional sale and the normal realtor 30 days until closing even though I was paying cash. Between contract and closing values in the neighborhood went down and sales in the area slowed to a near stop.

There still seemed to be some hope of scraping out a few dollars for a quick resale but interest was low. Soon other properties in better condition were selling for the same amount as my asking price. There was a lot of realtor interest but the slightly run-down property condition and odd floor plan put conventional buyers off. It was time to adjust the investment strategy.

The major problems with the house were old and ugly switches and receptacles, an improperly installed hung ceiling and ugly dishwasher in the kitchen and older, different-colored paint in every room. Taking care of these problems and painting the exterior trim should cost a few thousand dollars and a few weeks if I do the work myself and should make the house acceptable to a conventional buyer at a price that will leave me with a small profit. This seems like a wiser course of action than insisting on a straight resale and losing money on the deal.

In most if not all of life it pays to be adaptable and open to new ideas. I am certainly using a different strategy for the stock market than just a few years ago. Real estate investing is no different. The market is constantly changing and successful investors pay attention and make the effort to change with it.