What the heck is going on?

Mortgage refinances up
Fannie Mae said on Friday that its mortgage refinancing volume nearly doubled in March from the prior month to $77 billion. Tom Lund, executive vice president of Fannie Mae's single-family mortgage business, said "A majority of our business volume in March was in refinanced loans, and we anticipate that volumes will increase even more as millions of additional homeowners become eligible to refinance under the President's Making Home Affordable plan." Under the program, Fannie Mae can refinance loans up to 105 percent of a home's value, allowing borrowers, some of whom owe more than their home is worth, to refinance.

Treasury Department extends deadline for PPIP
The Treasury Department says it will extend the deadline by two weeks, until April 24, for private fund managers to participate in the administration's Public-Private Investment Program (PPIP), to purchase distressed assets from banks. Department officials also say fund managers will not have to satisfy all three criteria released last month to participate in the program, which provides government capital and guarantees to spur purchases of the toxic assets.

Bailout goes surreal
Ok, this is getting weird. Now several U.S. banks that have already been bailed out by the government because of toxic assets, including Citigroup, Goldman Sachs, Morgan Stanley and JPMorgan Chase, are thinking about buying more toxic assets -- the assets about to be sold by rivals under the Treasury's $1 trillion plan. John Mack, Morgan Stanley's chief executive, told staff his bank was considering how to become "one of the firms that can buy these assets and package them where your clients will have access to them," according to the Financial Times. Spencer Bachus, the top Republican on the House financial services committee, said it would mark "a new level of absurdity" if financial institutions were "colluding to swap assets at inflated prices using taxpayers' dollars." For some reason the banks have declined to comment.

GM
Speaking of gaming the system, GM's new CEO Fritz Henderson keeps changing his mind about bankruptcy, depending on the day of the week, or the weather, or whether he needs taxpayer money or not. Last week it was bankruptcy, this week it's not. Henderson said on CNN's State of the Union that there would be more job cuts and plant closings, but that bankruptcy was not inevitable. GM has already received $13.4 billion and requested an additional $16 billion. Says Henderson: "We are planning to get the job done. Our preference would be to do it outside of the bankruptcy process, [but] if it cannot be done outside a bankruptcy process, it will be done within it." Thanks Fritz -- good to know you have a plan.

Chrysler and Ford
Chrysler has also asked for a new round of aid. David Axelrod, a senior adviser to President Barack Obama, said, "We want these to be going concerns -- not wards of the state." Is it just me or is decorating the nursery and offering billions of dollars worth of baby food NOT the best way to encourage independence in potential wards of the state? The only bright spot in all of this is that Ford says it completed a tender offer and reduced its debt by $9.9 billion. The auto maker says an offer to purchase notes from its financing arm produced $3.4 billion in securities tendered. Ford Motor Credit will use $1.1 billion to purchase that debt. But don't start jumping up and down quite yet -- U.S. auto sales fell by 37 percent in March, the 17th month in a row of declines.

Now on to our real estate investing education section...

Big Bank Losses & the Future of Short Sales
Recently released data by the Office of the Comptroller of the Currency (OCC) reports commercial banks lost well over $3.4 billion in interest rate derivatives during the last quarter. This is an especially unsettling number when you realize this is the first time in the history of the USA that bets on interest rates have failed.

To understand the significance of this it is important to first realize the CDO or credit default swaps represent less than 8 percent of the derivatives market...with over 80 percent of the remaining portion of the derivative market represented by interest. To date, most of the banking crisis has been concerned with bad mortgage loans and even a few credit default swaps...together they comprise only a small portion of the total derivative market which represents an estimated $200 Trillion (yes, trillion!).

So, how does this relate to short sales and other investments?

In plain language...

Banks are losing money from betting on interest rates. If banks and other lenders can't make money from current business practices what is the likely outcome? Change of course. Change is likely to come in the form of higher rates, tougher lending standards and more stringent down payment or other requirements...it won't happen overnight so savvy short sale buyers will recognize the writing on the wall to take action now.

The current national (and even global) financial melt-down is likely to grow worse before getting better. Yes, the Federal Reserve was put into place to prevent a major banking crisis from wrecking havoc on the nation in a 1929 style run but keep in mind, despite the stabilizing efforts of the Fed, inherent differences also place the system at risk. For example, derivatives were all but non-existent. According to the Office of the Comptroller, the five biggest banks in America control 96 percent of the total derivatives. This means a new round of failure, bail-outs and banking crisis could hit the nation at any moment should even one of these banks be exposed to major losses. Remember, banks must "make good" on those losses but with only 10 percent or even less of the capital required to pay out a claim, banks are simply unable to do so; creating the risk of a domino like default scenario.

This is another reason banks are not lending - they are frantically attempting to hoard as much cash reserve as possible in order to hedge against the risk of a default looming in the future. Again, savvy short sale investors should recognize the ongoing threat of tighter lending standards far into the future -without government intervention (and even with it), purchasing a home for decades into the future may simply be out of reach for many Americans.

Make sure you are doing business with a solid bank. Short sales investors have two options; deal with small local banks that have strong bottom lines, didn't engage in derivatives or other risky investments and are able to work with you personally...or, work with one of the A rated big banks. To find out how your bank is rated, visit http://www.TheStreet.com or http://www.MoneyandMarket.com with publishes a list of the best and worst banks across the nation.

Today's recommendation:
http://www.shortsalesriches.com