As a trust deed investment company (and private real estate lender), our focus at Sterling is on short-term, collateral-based loan financing for real estate projects (usually commercial).  We also facilitate investor participation in these loans.  Because many of our investors are IRAs and 401(k)s, we sometimes get inquiries about the possibility of obtaining loan financing for properties being purchased outright by retirement accounts.  We don’t actually do that kind of lending, but it comes up often enough that we thought it would be helpful to post some links about it here.

First of all, it’s important to know what you’re looking for.  For an IRA to secure a mortgage loan, the lender must be able to provide a non-recourse loan.  This means that the loan can be secured only by the subject property, and that no other assets can be attached in the event of non-payment.  (If you consider that the borrower in this case would be a qualified account, rather than an individual, it makes sense that this limitation would be necessary.)

A search for non-recourse loan or non-recourse lender or IRA lender should yield a variety of options — there are a suprising number of small banks now adding this specialty.  Here are links to a few we know of  (no recommendations — we just know that the offer this kind of loan):

North American Savings Bank

First IRA Mortgage

American Home Loan Center

Charlie Munger, vice chairman of Warren Buffett’s Berkshire Hathaway, published a parable on Slate recently entitled “Basically, it’s over.”  The parable tells of the downfall of a nation called “Basicland” as it increasingly seeks paper profits through a casino economy — i.e., by migrating from traditional securities to derivatives and piling on debt.

(Read “Basically, it’s over” on Slate.com)

Not surprisingly, the piece has generated copious comments all over the internet, and has been quoted and paraphrased on dozens of prominent web sites, including on Marketwatch, the Christian Science Monitor, and CNBC, among many others.

Munger’s mapping of recent US financial history to that of Basicland seems unchallenged by editors and commenters alike.  But, the question remains, can the ship be righted before we meet the fate of Basicland, and the US itself becomes Sorrowland?

Retired Citigroup CEO John Reed testified to the Senate banking committee earlier this month on “Implications of the ‘Volcker Rules’ for Financial Stability,” and what the observations of Paul Volcker and his associates about the roots of the financial crisis suggest must happen for meaningful reform. (Download transcript here.)

Some highlights:

On the causes of the crisis:

• previous assumptions about the self-preservation behaviors of large financial institutions proved false — financial institutions either didn’t or couldn’t take steps to protect themselves;
• although the interest rate environment is widely believed to have contributed to the crisis, our financial system should be designed to function properly in any interest rate scenario;
• financial services should never have been permitted to have the kind of impact on the economy as a whole that they currently have;
• there were regulatory failures galore, including: the complete failure of rating agencies; failure of supervisors to identify swaps as insurance products requiring reserves, to note alarming decapitalization of the sector, to understand counterparty risk and to regulate no doc/low doc lending; and the poor judgement of accelerating loan activity through Fannie and Freddie to “an uneconomic extent;
• unprecedented activity in securitized loans, which were intended to be sold to “knowledgeable investors” but wound up on bank’s balance sheets instead.

On effective reform:

• Capital reserve requirements should be increased dramatically — possibly doubled;
• Financial institution liquidity should be examined regularly, at least annually;
• Industry activities should be compartmentalized, keeping riskier activities (and cultures) separate from everyday banking;
• Traded instruments should be sold on public exchanges to the extent possible (improving information flow and real-time pricing);
• A consumer financial protection agency should be established.

Earlier this month, Josh Fischer was invited to present during PENSCO’s monthly webinar. Josh’s presentation — Mortgage Pool Investing: the Simplest, Safest Way to Begin Investing in Trust Deeds” — offered IRA investors an overview of investing in real estate notes through mortgage pools, and the advantages these investments offer for retirement investing (including easier diversification, income, and the opportunity for compounding).

If you missed the presentation and would like to view/listen to the webinar, visit this page.

We also have more information about mortgage pool investing available on our mortgage pool page, as well as more information about retirement investing on this page.

Banks too big to fail, made bigger by government intervention. Banks bailed out by recession-burdened taxpayers, now fighting to retain mind-boggling bonuses. The same banks, now fighting tooth and nail to obstruct regulatory efforts to keep it from happening again. How did we get here? With impressive and fascinating detail, Too Big To Fail aims to document exactly how it all went down.

Whether you’re more concerned that the government stepped in to control the industry — or that the it now appears to be beyond the control of the government — if you’ve got strong opinions about the financial crisis and financial regulation, you’ll appreciate Andrew Ross Sorkin’s meticulously researched account of how the intervention went down. Even though many of the players and the outlines of the negotiations were publicized in mainstream media, the details covered in this book — such as emails and texts exchanged, the timing, location, participants and even dialogue of the desperate meetings, and even an image of Hank Paulson’s appointment book — give you a vivid sense of the characters and the pace and stress of the various meltdowns and interventions.

It may even change your mind about some of the people involved — even if it doesn’t change how you view the end results of their actions. (A New York Times reporter and columnist, Sorkin had a ringside seat to the action, allowing him to capture a nearly complete accounting of how the deals went down, but he mostly leaves his opinions out.)

Bottom line: if you’re interested in Wall Street, following the twists and turns of the financial industry, or you’re a fan of previous business-insider bestsellers like Den of Thieves, Barbarians at the Gate and When Genius Failed: The Rise and Fall of Long-Term Capital Management, the fast-pace and juicy details of Too Big should provide you a satisfying and engaging read.

An amusing story on the WSJ predicts that the Indianapolis Colts have a good shot at beating the sentimentally favored Saints in this weekend’s Super Bowl.  Apparently, the market predicts an AFC victory … unless a rally occurs by the end of the day.

Read it, here:  Can the market predict the Super Bowl?

A new analysis by the Dallas Fed suggests that, while at its highest in decades, unemployment in the current recession is not nearly as severe as in the Great Depression.

Economix blog on NYTimes.com

Josh Fischer, managing director of Sterling Pacific Financial, has been invited to present at PENSCO’s monthly webinar series on self-directed IRA investing.

His presentation, “Mortgage Pools: the Simplest Way to Start Investing Your IRA in Trust Deeds,” will provide an overview of investing in real estate notes, and the “mutual fund” approach offered by mortgage pools.

PENSCO’s team will also introduce their services — which allow retirement investors to truly diversify their IRA funds beyond the public markets into investment alternatives like trust deeds (notes), tax liens, real estate, private equity and more.

If you’re rethinking your retirement investing for the new year — and are interested in learning about all your diversification options — you should check out this free webinar from PENSCO.

For more information (and to register), visit this link.

Richard Thaler, a pioneer in behavioral economics, is the latest to question why so many underwater borrowers are continuing to pay their mortgages in a New York Times column.

Thaler notes that borrowers feel a sense of responsibility about continuing to pay even when their properties are grossly overvalued — and a sense of shame about foreclosing.  (Executives at companies with underwater mortgages, meanwhile, will evaluate their options purely on the basis of stakeholder economic benefit.)

Curiously, though, when borrowers see their neighbors accepting foreclosure and moving on, the stigma lessens. Individuals then begin to view the decision more like businesses do, based on economic factors rather than avoidance of shame.

Interestingly, Thaler argues that this is a powerful reason for the government to step in and mandate mortgage modifications.  Why?  Because mass foreclosures benefit no one, and, as unemployment lingers and borrowers start thinking more strategically and less emotionally, more will accept foreclosure as a strategic option.  Adjusting mortgages would prevent this behavior, allowing note holders to continue to receive payments — and avoid the huge costs and operational entanglements of repossessing huge numbers of overvalued properties.

What do you think?

Read Thaler’s column here.

With Roth conversion open to all taxpayers this year, regardless of income, opinions on both side of the fence are being expressed vigorously.  Some characterize the opportunity to convert as a huge gift from the government, while others feel just as strongly that it’s nothing more than a huge gift to the government!

A recent article in the New York Times highlights most of the issues on both sides of the question — and will help you think through whether or not conversion makes sense for you:

New Rules Ease Roth IRA Conversions, But Should You? (New York Times)