Like many things in life, there is perception and there is fact. Often times they get confused in the media, which likes to tout negativity not positivity.

On a recent interview by Paul Kangas of Nightly Business Report with Richard Bove, a banking analyst, I feel he gives a more balanced perspective on where the banking sector is at present. I have commented and have excerpts of his interview.

On the bail out- support by the federal government of Fannie Mae and Freddie Mac "I think the fact that the federal government has moved in, however, does tell you that these companies will not fail. The bigger question, though, is, do we really need these two companies? And I think that a year from now, you will see that there will be legislation that will probably break them up and make them into much smaller entities. "

I suspect that the government will try to limit in some sort the damage that any one company can inflict on the economy. Much the way it broke up ATT initially, which spawned a number of telephone companies, a consumer has choices from many different carriers. Right now the two major makers of liquidity in the secondary market are Freddie and Fannie. Without them the banking system would be unhealthy as few loans would be made. Many people are concerned that the banking malaise is widespread. Yes there are troubles across the board, but not as much as people think.

"I think that the regional banks are actually in relatively good condition. And I think there are a number of ways to measure that. One way is to take a look at their loan losses or their nonperforming assets as a percentage of their loans. If you do that, you see that today the banking industry in this country is at a 3 percent ratio whereas in 1990 it was over 6 percent. "

Currently the banks with the highest percentage of non-performing loan are as follows: Downey Financial (13.9%),Corus Bankshares ( 13.2%),Doral Financial( 12.8%),Indymac( just failed) ( 10.5%) FirstFed Financial     ( 6.7%)Oriental Financial Group( 6.12%),Bank United Financial (5.4%). IndyMac was the largest and Washington Mutual (WaMu) one of the 10 largest is only at 3.9%

When you look at some of the other aspects of the banking system they are not as bleak as it might seem from just looking at loan losses.

"What we are trying to say is, look, number one, there is more equity in the banking system today than there has been in a number of years. Number two, that there is higher reserves in the banking system than there has been for the last couple of years. Number three, deposits are rising in the banking system, which is a very positive metric. Number four, the loans are increasing in the banking system. And number five, their margins are flat. So while the whole world seems to be concentrating on the bad loans, if they look beyond bad loans to the fundamental functioning of the business, they would see that the banks are not in terrible trouble. "

I think as a consumer there are a few things to do. Reality is often distorted and the best values are often when the news is darkest. With Santa Cruz real estate for example, there are lots of media stories of how bad the market is. In reality there are some great deals on homes in Santa Cruz. TheLive Oak area had a lot of building in the 2004-6 time period and many of those rising market loans were done with either stated income or sub-prime loans. You can buy a 3 bedroom home in that are for under $600,000 in a number of locations and recently some of the new homes for around $700,000. That is a great deal for a home that is less than 10 years old. Search the Santa Cruz MLS on my www.propertyinsantacruz and see for yourself.

In Watsonville, California, another area that saw a lot of new building, you can buy a newer home for as low as $450,000. These homes were selling 2-3 years ago for $650,000 +. So while people are frightened by the bad news, the investors who are taking risks will be handsomely rewarded in less than 5 years, in my opinion. Santa Cruz real estate has some great values and these in Watsonville represent some of the best at the low end.

The risk to the buyers for holding off ,is that with increasing efforts of the Federal Reserve Board ,the interest rates will rise I predict in the 4^th quarter 2008 and go up from there by at least half a point by this time next year. While congress will have to put in lots of regulatory work to curb this rampant greed that afflicted Wall Street and the major banks, we should come out of this better. So the risk for buyers for sitting on the sidelines waiting for the media to actually say something positive ( except PBS imho), is higher interest rates and more restrictive policies.

Banks like to sell loans, that is how they make their money. Foreclosing homes in Santa Cruz County is not what they like to do. So the first step one needs to do is to decide I want to buy a home, then get to a lender and get your loan approved. With all the banks that are going bust, many of the loans that consumers used to be able to get are no longer available. It is more critical now than ever to get your financing in place because of changing bank lending guidelines and appraising issues. It is crucial more than ever before to use an experienced lender. This market is not for the freshly minted loan officers. A great one I recommend is Woodward-O'Connor Mortgage in Capitola. You can reach Stephanie at 831-479-3303.