June 2005 Archives

First off, I'm still looking for a free site meter and am soliciting input as to your experiences.



UPDATE: In the absence of suggestions, I'm trying SimpleHitCounter Here Limited but I think it'll do the trick. Please let me know if there are difficulties.



Second, I am kind of regretting the new amalgamation of links posts policy, as it effectively prevents me from sending things like "France Explodes! Film at 11" (See my post Tuesday 6/28) to carnival of comedy (as well as other things elsewhere). Nonetheless I'm going to stick to my guns.



Third (new) I'm told Powerblogs is going to migrate Searchlight Crusade to another server within a day or so. So if you try to comment and it won't let you (as opposed to requiring you to get a comment account) that's what's going on.



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Heh.Carlin on recent developements



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Da Goddess has a wonderful interview with a retired Marine, 86 years old. I love talking to people like this, and am sorry that I rarely meet them anymore.



Hat tip: World According to Nick



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What a maroon!



Hat tip: Uncommon Insanity



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From the local rag



First off, all this group does is report movement to the Border Patrol, as the article finally gets around to explaining in the next to last paragraph. They do not approach anyone. They don't enforce the laws. All they're doing is making it easier for the Border Patrol to do their job.



I took a client out California 94 to look at a property the other day. Seven border patrol vehicles between Barrett Junction and Cameron Corners. Lots of movement in the brush, too, and it didn't look like rattlesnakes or even mountain lions. Do I need to draw you more of a picture?



These invaders are willfully violating the law. It's not like there's any secret about the fact that you have to have permission to enter a country - any country. Most other borders in the world are guarded by the military, and when they spot somebody trying to cross without being noticed, they are arrested and deported. If those soldiers cannot detain said crossers, the guards shoot to kill.



Now, keeping this in mind, the paper doesn't leave much doubt about which side they're on, do they? An article designed to inflame fear of the evil right wing militias, it seemed like to me. "Armed" "Vigilantes". First off, a vigilante is one who takes justice into his own hands - punishing alleged wrongdoers on their own account. This does not describe someone who alerts the authorities and has no intention of taking any further action themselves. Most of the time, these are called good citizens. If your sister was being raped or murdered and some concerned citizen called the cops, wouldn't you think that person who called the cops was a good citizen? I can see calling the members of this organization the equivalent of the neighborhood busybody, but that's all and even that is subject to debate.



"Some of them are armed" and this somehow makes the them evil? Okay, the local rag never met a gun grabber it didn't love, but still. Boys and girls, if I was going out in the back country of San Diego these days, I'd be armed even if I was just trying to take a hike on a known and marked trail. It's a different world out there than when I was in Boy Scouts. When I was in my early teens, the only people you'd meet out there were fellow hikers and horseback riders. That has changed. I'm informed by contacts that this has become one of the hotspots for marijuana growing in the country, and the growers have a tendency to violently defend their investment. Plus all of the incidents of violence, vandalism, and intimidation that these illegal aliens perform on those who are property owners in the area would have me rightly concerned over my safety and wanting to take all reasonable precautions.



I am not anti-immigration. My wife's family came across the Rio Grande during World War I, before the immigration laws of the 1920s. Most of my ancestors came here a little further back, but American is American. We are a nation of immigrants because those already here needed as much unskilled labor as they could get. That has changed now, but we still need some immigration. I don't object to them, and providing they follow our laws - including in the method of arrival - I'll happily stand here and say "Welcome to America. How can I help you get started?" But it has to be measured and controlled, not the unchecked flood we are dealing with. This is an invasion in all but labelling, and it's time it was dealt with. I'm glad the border watchers are willing to do a more than their fair share. Maybe I'll buy them a couple cases of water or soda as my inadequate method of saying thanks.



Now, with all that said, I'm glad these other groups are monitoring the border watchers. I don't want these watchers given a free pass. If they do step over the line, I want them held accountable in a court of law.



Finally, here's the money quote:



"When people take the law into their own hands, it jeopardizes our system of justice, it undermines the rule of law, and it also encourages other citizens to take the law into their own hands," Velasquez said.



"It can also create anti-immigrant hysteria, racism, racial profiling and hate crimes."





Actually, it seems like to me that those negative things are caused by the huge and seemingly endless waves of those illegally crossing out southern border. Seems to me like the invaders are the ones taking the law into their own hands. The border group wants to put a stop to that, by the (sarcasm on) awful, horrible, an unprecedentedly mean (sarcasm off) method of alerting the authorities so those like, for instance, my wife's family don't face suspicion, problems with la migra, bad attitudes from other citizens, and so on and so forth. So that maybe those who are here legally and legitimately stand a better chance of finding decent employment that actually supports a reasonable standard of living. So that our public health programs aren't strained past the breaking point and maybe our own citizens and legal residents can get a better standard of care. For all those reasons and more, I want these illegal invaders gone.



TRAFFIC WHORE UPDATE: The Jawa Report invites self generated trackbacks.



The Credit Report

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I've just been told that starting July 1, 2005, I will have to have explicit written authorization to run credit.



It is not immediately clear to me from the information given whether this extends to non-mortgage credit providers (I've Googled and Yahoo'd and even Asked Jeeves several combinations of words each without success). If it does, this is probably one of the niftiest consumer protection things to come down the pike in a long time. On the other hand, if it's limited to mortgage providers, then it's probably a stab at making life difficult for Internet brokerages, which may do business at a remove of thousands of miles.



An Internet broker employee is talking on the phone with a client, not physically in the client's presence. They can be some of the cheapest loan providers out there, if they are so minded (as I keep saying, a far more important concern is how low a provider is willing to go, not how low they can go). So it becomes a real hardship on their business if they can't run credit without explicit written permission, whereas it's not a major issue with a more traditional brokerage. A loan quote isn't real unless you can lock it right now. Your loan can't be locked without running credit. And I can't run your credit until I send you a form and get it back. No big deal if I'm sitting right there. A real pain if I'm in California and the client is in Florida. I'm not even certain facsimile permission (no original signature) is acceptable, as it's not something that enters into my current business. This means a delay potentially of days while the form gets back to the lender. So life for an Internet broker suddenly gets a lot more challenging.



On the other hand, if it extends to all providers of credit, then it becomes worth the game. Mind you, an adult should be aware of what's going to happen if they give a social security number to a car dealer, furniture store, or anyone else. I've never heard of anyone using it just for liar's poker. Each time somebody runs credit, it's an inquiry - a ding on your credit. Inquiry dings are progressively damaging. There used to be a game among mortgage providers until the new rules a couple years ago - see if they could be the last ones to run your credit before it went under a threshold score, and some would run it multiple times if they could. Anybody running after that would be at a disadvantage.



With the new rules that every consumer should get down on their knees and give thanks to the National Association of Mortgage Brokers for getting through, consumers are now actually permitted to shop around for mortgage rates without getting dinged every time their credit is run - provided they run credit under a business code that say's "inquiry for mortgage." (So make sure your bank or credit union runs it under a mortgage inquiry code, and not a general inquiry code). All of the times it is run within fourteen days by mortgage providers count as exactly one inquiry. This gives consumers the ability to shop as much or more for a mortgage as they would for, say, a toaster oven, without being penalized.



But if the new rules apply to everyone, this is a good thing. Every time I start a loan, I have a set spiel that I go through. "Don't change anything, credit-wise, even if you think it will help. Don't buy anything. Don't charge anything on your credit cards. Make your normal payments. And don't allow anybody to run your credit for any reason. Don't even let them have your social. Because they will run your credit, I guarantee it. On every home loan, one of the last things that will happen before your loan is recorded at the county will be that the lender will run your credit again to make certain nothing has changed. And if anything has changed, you will very likely lose the loan (and the house if it's a purchase). Even if the escrow company has the money or it's actually been disbursed, the lender will pull it back. Until your documents are recorded with the county, don't breathe differently."



For a certain personality type, being told she can't shop for curtains and furniture and paint for her new house is nothing short of torture, and so I've learned to be very explicit. "It's okay to look, to talk to the nice salesfolk, and to get an idea of what you want. But don't actually buy anything. Tell the nice salesman who says he just 'wants to get a head start on your order' that your mortgage loan officer said that you're right on the line, and he if runs your credit and drives you under the line the first consequence to him will be no order. So tell the nice salesman that you're really protecting him by not giving him your social, because if he runs your credit and costs you the loan you'd have to tell your uncle Bruno, who's best friends with Tony Soprano, about it. And we all know what happens then."



Okay, things are not usually that bleak. It's usually just a higher rate you end up with. So your monthly payment is $40 higher, in addition to what you spend on the new stuff that caused money to go into that salesman's pocket. Doesn't that make you feel all Warm And Tingly towards that salesman? Didn't think so. But a certain percentage of the time, this new monthly payment you now have because you Bought Something means you Do Not Qualify for the loan. So: No loan. No house (if it's a purchase). No lower payment (if it's a refinance). No cash out of your equity (if that's what you were trying to do). And so now you've got this stuff, and no house to put it in. Or you've got to tap the vacation or retirement account to pay for it because you're not getting a refinance on reasonable terms. Not to mention all the times these people run credit and hurt people's credit scores without real permission when there's no mortgage loan in the offing. So I can put up with one segment of my industry have a slightly higher bar to jump over if that's the carrot.



Caveat Emptor

UPDATED here

Middle East prediction

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ChrisCam talks about a prediction he made for the middle east about three years ago:





About 3 years ago, I was having a discussion with my father about Iraq. I made the statement that I thought the President and his team had nothing short than reshaping the entire Middle East as their primary foreign policy goal. This would be the 21st Century version of the revolutions of 1848 in Europe. A broad, sea-change in that region that would allow its people to live freely and under liberal Democracy instead of under the thumb of the few. This, I said, would be America's generational committment to ensuring that a 9/11 would never happen again. Iraq, I said, was just part of the equation. The whole picture involved Syria, Saudi Arabia, Lebanon, Iran and Egypt, for starters. It would involve toppling regimes by force if necessary, by fostering grass-roots reform if possible and by diplomatic pressure if effective.



I think I was prescient.





You weren't prescient, Chris. I'm on record as predicting the same thing. It's just that we were both paying attention to what the President was saying, and realized he meant it, something that for some reason very few people believed until after the Iraq invasion when Libya decided to play nice just to be on the safe side. Saddam Hussein obviously didn't believe he meant it. Most of europe didn't believe he meant it. I'm absolutely certain that except for maybe a couple of the smaller states, the arab world didn't believe it.



And that's probably just as well. If those despots had really thought our president meant to install a democratic government in Iraq, our troops would have had a much harder time of it.



One of my favorite (and most parallel to true life) movie scenes is in The Shootist, where John Wayne's character is explaining to Opie Ron Howard's that technical competence is only a small part of the game. Far more important is being willing and mentally ready. Most of the time, by the time the other party figures out that you actually intend to shoot them, you've already done it. It is no less true strategically than tactically.





By the way, I'd like to install a sitemeter if I can find a free one that's not obnoxious, and would appreciate suggestions and/or experience



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Chicago Sales tax is rising to NINE percent.



Must be planning a lot of Kelo condemnations.



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Christopher Hitchens has a great column debunking the liberal myth about sacrificing children

Hat tip: Althouse



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Jane Galt has a great piece on remaking the Donkey party at Asymmetrical Information



Ronald Reagan was successful because he was a market maker, as is George W. Bush to some extent. The Donkeys haven't had one since JFK, which is why they're in trouble. Many of the great countries and biggest corporations of yesteryear are dust in the wastebasket of history today because they played it safe. In other words, sometimes the biggest risk is not taking one. The Donkeys are in that position today. They're thinking "tactics" when they should be thinking "grand strategy". The only reason the Donkeys haven't self destructed already is that the Elephants have made some serious errors of their own. Our national politics resembles not so much a battlefield as a play battlefield run by six year old boys whose real motivation comes from ego and carnage, rather than winning the war. But the elephants have stumbled onto a position that looks like a winner, and unless the donkeys wake up and do something competent, they're going to leave their enemies in not only clear but practically undisputed possession of the field - something I've said repeatedly is good for no one.



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I'm sorry to hear that Edloe has left the building.



As someone with two dogs who kept me sane and somewhat human during a very difficult period in my life, and who are getting to the point both in age (They're both 12) and health (scare last month: Mellon, who is the sweetest dog in the world, spent a week at the vet due to a back injury. I was afraid I was going to lose her.) where I can see this as a cloud on the not far enough away horizon, I can sympathize. I don't post pictures or blog about them much, but I. Love. These. Dogs. I don't even want to think about the day when one or both will no longer be here. My heart goes out to the Simons.



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No matter which provider, no matter what type of loan you get, nobody is going to loan you money without the appropriate documentation. The more documentation you have that you are a good risk, the better the rate you are going to get, and the lower your costs are going to be.



Everybody hates filling out forms and providing documentation. There's a billboard two blocks from my house advertising, "Stress free loans." Actually, these signs are all over. And I'll bet they bring in a lot of business. Low documentation loans are easy money - I could do them all day and all night, and make more money, and make the lender more money, while doing less work, than I can by hunkering down and actually serving my clients best interests. Those billboards say "stress free loans" which three words look like an English sentence meaning this will be easy, but the real translation to English reads, "Hello, I am a lowlife scum who wants to take advantage of lazy people who are too ignorant to know better by making a lot of money providing loans at higher interest rates and less favorable terms than they could obtain elsewhere."



The fact is, that for something dealing with this much money, if there is documentation you can produce to prove that you are a better risk and gets you a better rate, you should be eager to present it. If I can spend half an hour instead of fifteen minutes filling out forms and as a reward I save $40 or more every month until the next time I decide to refinance, I want to fill out the extra papers. If I refinance every two years, I have essentially been paid $960 for a quarter hour of work. That works out to $3840 per hour. I don't know about you, the reader, but even when I'm completely inundated with clients, I don't make that kind of money per hour. I don't know any job that pays that much, unless you want to include wealthy investor. And let me tell you, the wealthy investors I've dealt with are eager to spend the extra time filling out said forms. It really is a "Rich Dad, Poor Dad" situation. They know it will Save Them Money, and don't have to be sweet talked into filling out one more form or providing a little more documentation. They've got it already copied for me, and if I want their business, I'd better buckle down and get to work on finding the loan with the best terms possible. If you, the reader, wish to be wealthy, you could do worse than emulate their example.



There are, when you get right down do it, three different levels of documentation. The lowest level of documentation is NINA, which is short for "No Income, No Assets." There are other names for it ("No Ratio" being the most common). This is a loan where the rate you get is purely driven by your credit score (as well as other factors, such as the equity in your home or down payment you're making, but those are constants endemic to the situation, not variables about which I am talking). You're not even documenting that you have a source of income. You're basically saying, "Here I am! Gotta love me!" to the bank, and they really do love you because you're filling their coffers by paying the highest rates for your loan. Guess what? You're still filling out all the forms (or somebody is doing so on your behalf, which they can do to the same extent on other loan types!), and you're still providing all the documentation on the property - how much it's worth, proving you own it, proving the taxes are current, etcetera. Owing to identity theft laws, you can expect to have to provide two things that basically show that you are you. You can expect to deal with problems if the county doesn't show the taxes as current, your landlord or current mortgage holder shows you as being behind or that you have a history of being behind or the county doesn't show you officially in title of record, or any of a host of other potential problems, but hey, at least you didn't have to show that you've got a source of income!



The next level of documentation is a "Stated Income" loan. This is where you document that you've got a source of income, but not that said income is sufficient to justify the loan, so you tell the bank you make that much, and they agree not to verify the actual numbers. This is going to require two additional items: verification of employment, or a testimonial letter if you are self-employed, and reserves. Reserves are quickest to explain. Industry standard is money sufficient to pay the loan, your taxes, and your homeowner's insurance for six months, in a form that is sufficiently liquid such that the money can be accessed, for a long enough period that the bank will believe it isn't borrowed - and the bank will require documentation of its availability if it's in an account type such as 401k where access may be restricted. Verification of your employment is somebody in the HR department filling out a form on your behalf and verifying it over the phone. The testimonial letter for self-employed borrowers comes from your lawyer, accountant, or tax preparer on their letterhead saying that you really do have a legitimate business. It basically reads: "To whom it may concern. John Smith is self-employed as the owner of business X. He has been doing this for Y years. Based upon information provided to me, he will earn the same amount of money this year as last year." The person providing the testimonial must sign the letter. It really is only three sentences, but that person is putting their business on the line for you if it's not true. So they tend to require evidence if you're coming to them for the first time to get this letter written and signed.



The bank is basically looking for two years in the same line of work or at the same company to approve this one. Sub prime lenders may take a year or even six months, although their terms will not be as favorable. What the bank is looking for is evidence that you can really afford the loan. "He's got a source of income, He's got a good credit score, he's making all his payments, he's got money in the bank, okay, we think he's living with his means and can afford to pay us back. We'll lend him the money." There are variants on stated income of which "stated income, stated assets" is the most common, but these carry higher rates, higher charges, or both, in many cases actually end up looking more like a heavily propagandized NINA loan than anything else.



I've heard Stated Income (and NINA) commonly referred to as "liars loans", and they are often used for such, but that is not their intended use. As a matter of fact, people get in a lot of trouble with these loans, and many times it comes back on an unscrupulous loan officer or real estate agent trying to push something through for which their clients really aren't qualified. If you can't afford the payment, am I doing you a favor to qualify you for the loan? I submit that I most emphatically am not. On the other hand, I'll admit to having used the loans for that purpose in the past, but an ethical loan officer using it for this purpose should sit down, tell the people what the real payment is going to be, and make certain they can afford it - sometimes they're renting and their effective cost of housing is going to go down! And in that case, I submit that I probably am helping them if I push the loan through. On the other hand, if you're doing Stated Income or NINA (especially on a purchase) and the loan officer doesn't sit you down and cover what the payment is going to be within a couple dollars per month, and make certain you're okay paying it, this is a red flag in no uncertain terms!



What Stated Income is meant for is self employed people and people working on commission who really do make the money, but have write-offs such that their taxes aren't going to show enough income. Or people who had a bad year, or large losses or high write offs one year, but are still basically solid.



The highest form of documentation is Full Documentation (almost everyone says "full doc" because the unabbreviated phrase is a mouthful). This does not necessarily mean I've got to prove to the bank that you make every penny you actually make, but only that you make enough to justify the loan. The proof the bank will accept is very straightforward. Self-employed borrowers are still going to need that testimonial letter from stated income. They will additionally be asked for their federal income tax packet. This is all of the forms, front and back, that you sent to the IRS last April 15th, and perhaps the April 15th before that, too. It's got to be a signed copy, and it must include copies of any w-2s or 1099s that you get. People in the construction profession, as well as those who may be w-2 employees but work on commission will also need to furnish their taxes, and the bank's underwriter can always require it of anyone. It is to be noted that banks do not have to accept your loan on a stated income basis - they can require that you furnish full documentation.



Those people who are hourly or salaried employees of a company can usually get by the full documentation of income requirement with just w-2 forms. If you are a company employee, the last 30 days worth of pay stubs will also be required.



The basic rationale for this is simple. Very few people tell the IRS that they make more money than they do, because the consequence is higher taxes. So the bank is willing to use tax forms to prove your income. In the case of a w-2 employee, the company is telling the IRS that those are the wages it paid you, and therefore wants a deduction for, and you went and paid taxes on it, so the bank will usually accept that. Similarly, your pay stubs should have year to date pay on them. Here the bank will accept the word, metaphorically speaking, of a third party without a stake in the outcome of the loan.



A subset of the full documentation loan is the streamline refinance. As the name indicates, it is available on refinances only, not purchases. There are a lot of limits on these loans, but when I get to do one it is the easiest of all loans. Basically, it's a case where the same lender is now offering better rates, and no equity is being taken out of the home, and they'll allow you to do it because otherwise you'll take this client elsewhere. 90 percent of a loaf is much better to them than none.



Within the sub-prime mortgage world, they will often take the deposits from 12 consecutive months of bank statements (sometimes 6 or 24), usually discounted by a certain amount, and accept that as proof of income. This is called EZ doc, although there's nothing easy about it and as a matter of experience there are more fights with the underwriter and jumping through hoops here than with any other type of loan documentation. The rates are somewhat higher than for full documentation, but not nearly the rates for stated income. Mind you, sub-prime rates are higher in the first place as well. Furthermore, many of these sub-prime lenders will advertise the fact that "EZ doc rates same as full doc!" I shouldn't have to explain to adults that this translates to English as they don't give the lower rates to true full documentation loans, now should I?



So, on the subject of documentation, I think you should be able to tell that the higher the quality of your income documentation, the lower the rate that you are going to get from a given lender. If you can qualify, a full documentation loan is probably going to save you more than enough money to pay you to do the extra paperwork, which is marginal anyway. The only reason not to do one is if you can't supply proof that you make enough.



And as one final warning: If a loan officer requires originals not only of the forms they ask you to sign (original signatures required - really!), but of your own documentation, it is a BIG RED FLAG. I can't think of any document that lenders will not accept copies of. The only reason to require your originals is that they don't want you able to apply for a loan with someone else, so they're putting an end to your shopping, and once they've got them, good luck trying to get them back (at least until the loan is done so they get paid). A good loan officer needs good readable copies - not your originals.



Caveat Emptor!


UPDATE: This Article has been updated here

On a very regular basis these days, I'm running into people who took paid money for a get rich quick seminar and are looking to buy property for zero down and immediately sell it for a $50,000 profit. Somebody With A Testimonial Told Them How It Could Be Done.



Sorry folks but the people with the real secrets to getting rich don't sell them for $199 at the Holiday Inn. They didn't do it five years ago during the stock market bubble, and they're not doing it now in real estate. As I told people a few years ago in the stock market, don't confuse a rising frothy market with investment genius. And that rising frothy market will change - has changed. Deals like that do happen, even now with the market slipping. But they're always less common than the People With Testimonials will admit, and they are snapped up quickly. Usually they never make it as far as the Multiple Listing Service. Before they're even entered into the database of available properties, they are sold, and they rarely fall out of escrow because the people who buy them know what they are doing.



Consider, for a moment, yourself on the opposite side of the transaction. You're not going to intentionally sell your valuable property for less than it is worth, are you? And if you're buying, you're certainly not going to pay more than market value, are you? Remember that Wile E. Coyote ended up at the bottom of the canyon under a rock for more reasons than that the Author was on The Other Side. "Super Genius!" Says so right there on the label. But betting large amounts of money on the Stupidity Of The Other Side is a mark's game.



About the only reliable source of "quick flips" for profit are distress sales. In no particular order, most of these are people in foreclosure, estate sales where neither the estate nor the heirs can keep the payments up long enough to sell normally, and where somebody's been transferred and has to sell now.



These people get mobbed by prospective buyers, and by agents looking to represent them in the sale. Everybody wants something for nothing, and one of each group is going to get it. One agent is going to get a transaction where if it gets as far as the MLS, all he's got to do is type it in and bingo, the buyers will line up. One buyer is going to get to buy below market. Quite often, they're the same person. The multimillionaire brokers usually each have at least one going on.



The issue for these buyers in distress sales that is rarely addressed until it gets to actually making the deal is that they're going to need a certain amount of cash that they are prepared to lose. Putting myself in the position of the person who has to sell, I'm not going to give this person the sole shot at buying if I'm not pretty certain he can deliver. The only way to measure this is cash - how much they can put down on the property. How much of a deposit they can make that I can keep if they can't qualify. Remember that in this case the one thing a seller cannot afford is a buyer who can't consummate the deal quickly - unless the seller is going to get to keep something substantial for the experience. If you don't want to buy on those terms, than at that price someone else will. The multimillionaire real estate brokers, for instance. There are a lot of people who make a very good living at foreclosures because they go around from foreclosure to foreclosure offering cash for a below market price. Matter of fact, they pretty much saturate the foreclosure market. The chances of a seller in this position accepting an offer without a substantial cash forfeiture for nonperformance are basically identical to the chances of them having a listing agent that doesn't understand the situation. And quite often, that listing agent makes an offer himself or herself.



Get religion about this next point: There is ALWAYS a reason for a low asking price. Usually, a noticeably low asking price should be even lower than it is. Unless they're a philanthropist looking for some random person to donate money to, this seller wants to get as much for the property as they can. What they're hoping for is a buyer who doesn't know what a really bad situation they're getting into. "A cracked slab? How bad could it be?" is probably the classic example of this. These sellers have been dealing with the situation. They've had a reason to become intimately familiar with the problems. They're hoping for an unsuspecting buyer whose agent wants an easy transaction and will not explain to them, or simply does not know, what those buyers are getting themselves into. I could certainly keep my mouth shut and do more transactions, easier, if I didn't take the time to tell my buyers everything I know about what they're getting into. The universe knows that most of these good deeds don't go unpunished. But that's what I'm theoretically getting paid for, and as often as I do my job and it causes them to get angry and I don't get paid, it's preferable to the eventual consequences of not doing the whole job and getting paid for it.



There's a newsletter I get from the State of California every three months. It's always got a long list of people who are losing their licenses. So if your agent tries to really explain something like this, listen to them. They're not trying to talk you out of the Deal Of The Century so that Someone Else can get it. They're trying to make certain you go in with your eyes open. It's likely to be a better agent than the guy who thinks "Okay, I've told you that the hill is known to be unstable, so I'm covered. It's not my fault that you didn't instantly understand all of the implications."



The typical property where there is real potential for quick profit is going to require work. Work as in physical labor that you're going to have to do, or pay someone else to do. Not to be sexist, but "The husband died (or became disabled) and the wife couldn't keep it up," is a cliché because it is so common. Sometimes the work is easy - carpet, new paint, clean up the yard and bingo! The property jumps five or even ten percent in value! Sometimes the work is harder, and the profit is larger. And sometimes the buyer is basically going to have to tear the house down and start over. There is always a reason why the seller didn't do the work so they could make the profit themselves. Sometimes it's because they're lazy, sometimes it's because they can't. Sometimes it's because the work was risky, sometimes because it was expensive, and sometimes it's because the seller can get some poor fool to buy it who doesn't realize that they're going to have to make an investment that isn't worth the payoff.



Caveat Emptor


UPDATE: This Article has been updated here

Daily Kos writes of Two ways to address the war



His ways:





Promoting a withdrawal



We have a lot to be proud of over the past three years. We have freed the Iraqi people from a brutal dictator and given them their first taste of freedom. Iraq held successful presidential elections earlier this year, and the nation is now run by a democratic-elected government.



We have accomplished what we set out to do — bring freedom to Iraq and rid the region of the specter of Saddam's terror.



But now it is time to let the Iraqis take charge of their own lives. The future belongs to a free democratic Iraq, but it is a future they must fight for themselves.





See also Saigon, 1973. We had won on the battlefield then, too. Let's just throw the people who put their lives on the line for us, who really believed we intended to accomplish a stable, democratic government, to the mercies of those who have a vested interest in the failure of democracy in the region. If anyone believes Syria and Iran aren't doing all they can get away with to destabilize Iraq, you haven't been paying attention. If anyone believes this role won't expand if our troops are no longer watching, please contact me. I have some land.



Boys and girls, the mullahs in Iran and Assad in Syria can feel power slipping away as you read this. They have each abused and stolen from their respective peoples, who should be wealthy but are poverty stricken, for decades. They are in fear for their lives, their power, their wealth and their families. If we could afford to do so, the kindest thing we could do for these despots would be to invade now so they would at least face a reasonable trial, like Saddam Hussein, rather than being torn limb from limb in the streets. A free, democratic government in Iraq is a threat of incredible potence to them, just by existing. But that free democratic Iraq does not yet have the tools to defend itself against them. Battles aren't really won by generals. They are won by corporals and captains and training and equipment. The Iraqi Army has got about 30,000 men, last I checked, many of whom are half trained by any standard and all of whom are led by green officers up to at least field grade. They have almost nothing in the way of modern major battlefield equipment. Leaving now would be roughly like expecting Luxembourg to defend itself against Nazi Germany in 1940.



Nor is the strategic situation any better. There's a reason the terrorists keep targeting the oil production and distribution machinery. Actually there are many reasons. That gets going and stays going, and the Iraqi government now has money. Money with which they can build their country. Money with which they can get their economy going. Money to help their people live healthier lives. Money which they can use for development. Money which they can use for repairs. Money which they can use to recruit, train and equip a real army, all of which takes time. All of this gives the Iraqis a voice and a stake in the well being of their country. Once they've got it, it'll take conquest to take it away.



Externally, the pipeline is just as important. Let it get secure and let the oil start flowing again, and all of the euro-weenies and other powers who above all don't want their nice comfortable world disturbed will suddenly switch sides. Let the price of oil drop just a little with more in the offing, and watch terrorist sympathy become less popular with populist politicians across the world with no stomach for telling their constituents something they don't want to hear.



The Iraqis are in charge of their own destiny already. But they're not ready to defend it on their own yet.



Mr. Kos' other suggestion?



Afraid to call for withdrawal? Hammer on "accountability".



We are facing a crisis in Iraq, and yet no one is being held accountable. Our troops don't have enough men, equipment, or armor to effectively and safely do their job, yet those responsible for these deadly miscalculations remain at their jobs. They claim, as they always have, that Iraq is about to turn yet another corner, pass yet another milestone on the road to peace and prosperity. But the reality on the ground mocks those assertions.



We must have accountability in order to win this war. Those responsible for so many catastrophic mistakes must replaced by more competent, more effective, people.





That's it! Hold all the politicians who led the war accountable! That sounds like a good schtick! Anything to get the opposition.



Me? I think I'll hold Mr. Bush accountable for eight million voters fingers stained, stained I say, with purple and held up as badges of honor. I think I'll hold him responsible for a constitution that's eighty percent written in a country with no democratic traditions. I'll hold him responsible for a Provisional Government that handed power over to an elected Interim government which is doing a heck of a job. I'll hold him responsible for scheduling elections for sticking to his guns about deadlines for democratic actions, like writing a constitution and holding two complete rounds of elections. I'll hold him responsible for getting the Sunnis to join the government as power sharers rather than the old dictators or the new victims. Rumsfield I'll hold accountable for an Army that routed an entrenched power in days at the end of logistical lines ten thousand miles long. For an Air Force and Navy that no one can challenge on an even basis that provided that logistical support. I'll hold him accountable for equipment and training and procedures so good that in over two years of insurgency, our fatalities are less than 1.5 percent - far below those of any comparable power in any comparable situation at any time in the history of the world. I'll hold him accountable for policies that are training the Iraqis to handle foreign terrorists themselves. I'll hold them both responsible for the fact that the Iraqi terrorists appear to an increasing degree to be fighting each other.



Problem is, I haven't got the faintest idea what we can actually do to hold them accountable thus. Mr. Bush can't run again and Mr. Rumsfield isn't interested in the Presidency. We can't declare them kings or give them titles of nobilty, it's unconstitional. A national day of celebration with ticker tape parades just doesn't seem to cut it. Another national holiday might turn us into France, and I don't think either one of these fine gentlemen would want us to risk that.



Anyone?



Hat tip: Little Green Footballs



UPDATE: Slight editing change to remove duplicate sentence.

Refocusing

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I've decided I've allowed myself to become distracted from my main focus.



This blog was begun with the idea of consumer issues and education foremost. My ambition is to be as much the "go to" blog (or "go sub" for programming purists) as Michelle Malkin is for immigration or La Shawn Barber for race relations or The Truth Laid Bear for what's going in in the blogosphere.



Like them, I'm going to continue to cover other issues, and blog on other subjects, I hope with at least a fraction of their competence and vision.



I am committed to the Raging RINOs, and the Life Liberty Property Alliance as well. I also broadly support the goals of several other groups and hope to be considered one of their ideological friends. These include but are not limited to the Axis of Naughty, Gunbloggers, Milbloggers, and the Wide Awakes.



I'm not going to back off on any issue. I'm self-employed in a profession where all I need is a miniscule proportion of that market in order to do quite well. As long as I keep myself in compliance and keep producing a minimum amount of business, I'll have a place to work. If one person becomes offended and refuses to do business with me, quite likely somebody else will seek me out for the same reason. If you don't like my opinion and want to change it, you're going to have to convince me I'm wrong, misdirected, misinformed or just don't understand the situation. You can't call my boss and get me fired. You can't embarass me enough to shut me up. And I learned a long time ago how to handle threats. I don't suffer intimidators gladly.



But in looking over my blog yesterday, out of fifteen posts on the main page, only two covered the issues this blog was founded to address. That needs to change now It doesn't have to be twelve or fourteen. If I can keep it at five or above, I'll be happy. And so, from now on I'm going to do ONE "Daily Links" post, and add to, amend, and update as the day goes on. Trackbacks will be something I limit to when I do some serious work on an issue (or when invited). If anyone has a link on a consumer issue, particularly big ticket items such as financial planning, insurance, mortgage, and real estate where there is a real financial penalty for not getting it right the first time, I want to be on top of it. Send it to "issues at (the domain name)". It's going to be at least one link to your blog if I use it. I am and always will be on the lookout for helpful submissions and I actively want cobloggers for areas I'm not qualified in. If anyone has suggestions for how I can better automate my search for issues on my topic before the blogosphere, PLEASE tell me, as I'm pretty decent with search engines but not so hot with other web resources, especially automatically updating ones. (I'm just learning to use Blogrolling!)

New site policy: I'm only going to do one 'links' post per day, and update, amend or add to it as the day goes on. I will not send trackbacks on anything in the daily links post. I will not send trackbacks unless I do enough work on something that it merits its own post (or if invited to).



(my apologies to those Powerblogs sends one to automatically)



No, nobody sent me upset email or anything. I just decided I want to refocus a bit more on the blog's raison d'etre. I still want to put as many cool links here as I have time to find. I'm specifically trying to look at all RINOs and all LLPers, especially the ones further down the current popularity list. But all the stuff I've been doing the last week and a half as individual posts distracts attention from my main issue.



--------------




Text of President Bush's speech Here.



I didn't get to see it. Reading it seems like a rah-rah, albeit a rah-rah I believe in. See the "Holding Bush and Rumsfield Accountable" post. Perhaps more thoughts tomorrow.



--------------




Glenn Reynolds writes a column articulating what I've been saying for months. First I've seen it in the professional media. There's no "professional" clause in the laws or regulations giving generic providers of financial advice immunity from liability. Matter of fact, in most areas the laws and regulations protect those who act without explicit compensation to a larger degree than those who are so compensated. Why should journalism be any different?



--------------




On Chinese Strategy from Chris Cam



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More worthwhile stuff on Michael Ignatief's stuff from Decision '08



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Pigilito says... Interesting political developments in Spain



--------------


Okay, this IS important



This video has an important message



Listen. Take Heed. Be the message.



(Laugh a little!)



Hat Tip: Dean Esmay



--------------




FRANCE EXPLODES! Film at 11!



First, remember what happened last time they tried to build a nuclear carrier. Then click the link below. To paraphrase the Phantom of the Opera:



This has the makings of a Disaster beyond Imagination

California has just replaced the one page federal Good Faith Estimate with a two page Mortgage Loan Disclosure Statement. I haven't seen a lot of abuses of this yet, mostly no doubt because it is so new. I don't even know if there are solid regulations and implementation policies and standards on it yet. I haven't seen anything from the Department of Real Estate in the mail, and all web searches (including with the Department of Real Estate) come up with is a link to various lender's online form, not the regulations for filling it out. So I'm presuming that said regulations are similar to the federal Good Faith Estimate, especially as the only thing a recent seminar we paid for on changes in the business had to say was, "If you give the client a Good Faith Estimate, you will be held to have complied with federal regulations but not state of California regulations." Which implies that California didn't alter the existing federal standards so much as add a few more requirements, the effects of which are to leave all of the games loan providers play with the federal Good Faith Estimate intact, as well as adding a couple more. (See my two part essay on the Good Faith Estimate for a list of the most common of those games)



The first page of this new form is similar to the Federal Good Faith Estimate. The first major difference is that there is no explicit loan or rate quoted at the top, and the broker or lender must disclose whether each given cost of the loan is paid to the broker or to someone else. There is no explicit line item (as there is on the Good Faith Estimate) for "Estimated Closing Costs" to explicitly sum all of the things that are actual fees or costs of the loan, as opposed to reserve requirements or things that are your fees paid in advance, such as property taxes. Your property taxes are the same whether you have lender A, lender B, or no loan at all. Ditto your homeowner's insurance, school taxes (if any) and flood insurance (if any). Setting a form where they are part of a total to be compared, rather than apart from that total, is just offering the loan provider one more opportunity to play games or distract you from the really important information.



There is a sum of all the things the client is paying to the broker versus paid to others. I wonder if this might not backfire on the lending and packaging houses that got this part added. They're going to show a line of fees paid almost entirely to them, whereas the only things paid to or from an actual broker are origination fees (if any), processing fee (my processor works for me or for the brokerage, not the lender), and broker's rebate to client (if any, and which if it exists is something paid by me the broker to you the client - a good thing in most client's opinion). Psychologically a telling advantage, even if it doesn't really mean anything.



At the bottom of page one, there are subtotals for fees paid to others and fees paid to brokers, and then an overall total. Then there's a section which says "Compensation to Broker," explicitly adding "(Not Paid Out of Loan Proceeds)". In other words, this isn't coming out of your pocket, although they could certainly give you better terms by reducing their compensation in the vast majority of cases. But the fact that one broker is making more than another (or is required to state explicitly what they make where a direct lender or "packaging house" originating their own loans is not) does not mean you're not getting a better loan from them. Some brokers get discounts others do not. Some brokers disclose honestly and completely, others do not. Examine the loan you are getting - all of the terms, rates and conditions, and decide based upon those which loan is better. That's what makes a difference to you. The rest is a matador's red cape - a distraction from what is important.



Once again, this isn't important to you, the client, but it has in passing performed a service to many workers in the loan industry. Many lenders give bigger brokers a volume rebate, over and above the basic per loan rebate, and the brokers were keeping this a secret from even their own workers lest they have to increase compensation. Now these brokers have to disclose it to the clients. This means the brokers have to tell the loan officers about it so they can disclose it. Now that all loan officers know about it instead of only a few, those who are high producers and have leverage can say, "I'm helping you make all this money. I want part of it."



Page two of this two-page form starts with section I, which is a short accounting of the money. My inclination is not to trust this any more than anything on the Good Faith Estimate. In other words, whether this is accurate is likely to be a function of your particular loan officer's good will more than anything else. Once again, the only form where there are real penalties for being inaccurate is the HUD-1, which comes at the end of the loan, not the beginning. But it's a good intention, nonetheless, and perhaps one of these years it'll actually mean something even if your loan officer is Simon LeGreedy or has a nose fourteen miles long. Proposed loan amount less costs, less other stuff of yours that's getting paid off, less the purchase price of the home or payoff of existing loan. The idea is to give you an explicit "you're going to get this much cash" or "you must pay this much cash to make this balance"



Section II is something I want to draw your attention to: Proposed interest rate is a good thing to have, although there is no more guarantee that this is the rate you're going to get than a federal Good Faith Estimate. But it has a choice of two things to check off "Fixed Rate" or "Initial Variable Rate". Just because Fixed Rate is checked does not mean the loan they are discussing is fixed rate for the full duration of the loan. Let me repeat that: Just because Fixed Rate is checked does not mean the loan they are discussing is fixed rate for the full duration of the loan. It might be fixed for thirty years - or it might be fixed for three months. This is a good place for unscrupulous loan officers to offer misleading information verbally, while checking the correct box doesn't usually mean a whole lot.



Section III is proposed term of the loan. If something less than 360 months is written here (or whatever the amortization of the loan is in years), it's telling you there's a balloon at the end. Once again, there is no way to verify that if 360 months is what is written, it's real.



Section IV is proposed loan payment. Ideally it's computed based upon the amounts given in the previous three sections. Verify that it at least makes mathematical sense by running these numbers through an amortization calculator, or doing the calculation yourself. Many loan officers will play games with the payment because people shop loans based upon payment.



Section V: does the loan have a prepayment penalty, and on what basis? I'm glad to see this section here. I'll be even gladder if and when I see evidence the answers mean anything in the sense of legal penalties for lying. Lying about prepayment penalties has been rampant for a long time. Lying about prepayment penalties is a good way to make an absolutely awful loan look pretty good. Lying about prepayment penalties gets someone to sign up with the loan provider who lies because of this. And when you find out at the end of the loan process, when they present the loan documents, that they were lying (if you even notice, which many are expert at making sure you don't!), you may not have any good alternatives to signing those documents anyway.



Section VI basically tells you the lender cannot require credit life insurance or disability insurance. Many lenders would if they could. Not that disability insurance is a bad idea - quite the opposite in fact (I'm of two minds on credit life insurance, and this is not the place for that essay).



Section VII requires you the client to tell them, the lender about all the other liens on the property and hints at penalties for dishonesty. Not that the lender or broker is going to take your word for it, of course. But the gall of requiring a consumer to be accurate on this or face penalties, pay for the loan, etcetera when many brokers and lenders could submit the form to the Pulitzer committee for consideration in the category for best short fiction amazes me.



Section VIII is about Article 7, which covers loan amounts so small as to be irrelevant for all practical purposes in California. There's also a bit about whether or not a broker is lending their own money. This is potentially both confusing and interesting, but beyond the scope of this essay. It's good that they are requiring license numbers now. In California, you can easily look them up for past violations online at http://www2.dre.ca.gov/PublicASP/pplinfo.asp (many other states have similar registries). Not that someone without past violations is pure, and not that someone with them necessarily intends to do anything dirty to you. But it's good information to know. Another good place to check them out is with the Better Business Bureau, which compiles information on every business, members or not, at http://www.bbb.org/ You'll need a business name and address, phone number, or web site. Now, if they've got one strike against them, they could easily have been caught in circumstances beyond their control. But a pattern of abuses is a clear warning. A few days ago, I decided to risk $50 for a business card order with a company that has a truly awful rating BBB rating. The cards arrived two days later and I couldn't be happier with any aspect of the transaction. But my next order from them won't be any bigger until they have established a track record with me (and also I with them so they can see a long history of orders they want to keep coming, and which will stop if their service isn't satisfactory).



Section IX explicitly tells you, the client, that this is not a loan commitment. This is good, so far as it goes. I've spoken to many otherwise intelligent people who somehow had acquired the idea that because a loan provider filled out a Good Faith Estimate, it meant the loan was a Done Deal. It most certainly does not mean anything of the sort. No real estate loan officer EVER writes a loan commitment, and it's been that way for at least a couple of decades. Loan commitments are the exclusive province of the underwriter, who is intentionally and for anti-fraud reasons isolated from the client (i.e. the underwriter is not allowed to communicate with you directly). The most an ethical loan officer will say is "my experience does not show me anything that should cause you to have a problem"



Now, here's the rub, and an indication of what this section really should say. Does it not stand to reason that if the loan is not a Done Deal at all, it most particularly is not a done deal on the exact stated terms?



Caveat Emptor.



UPDATE: The Jawa Report solicits trackback pings for postings of our choice, so here is one. Thank you!




UPDATE: This article has been updated here

Beautiful Article

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From Villainous Company



Hat tip: POV



Okay, so it's not quite Bill Whittle. But it's good. And if you haven't read everything at Eject! Eject! Eject! go do so. Now. There will be a quiz for the rest of your life.



Here



Every so often, I get turned off by the nature of the easily available coverage, and I go check Chrekoff or Iraq the Model. They've never disappointed me yet.

$4 billion to stop this?

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MUSC Tiger posts with Live 8



$4,000,000,000 divided by 250,000,000 Americans equals $16 each.



I've got four people in my family $16x4 equals $64.



I think I can cover a couple outside my family also.



Two things required: Convince me it won't go to the kleptocracy. Actually, for this little, just convince me there's a decent chance it won't go to the kleptocracy.



A place to send the check. I haven't watched MTV since about 1985 coincidentally, so I'm likely to miss Live 8.



Got that, Mr. Bono?

Our First RINO Sightings

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Are now up at Says Uncle



Update: I can't believe I didn't catch that bad link to begin with.



My Favorites:



Wizbang on what we don't know



Big Cat Chronicles on Pebble Bed Nuclear Reactors



Classical Values on Who Chooses The Choices



Entries I've Previously linked:

Kelo and the Third Amendment

Modern Day Bandit Gangs - in the US









Lord of the (Blog) Rings

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Lord of the (Blog) Rings



With all of the time I'm spending lately at certain website following the buzz and tracking what's being said in various communities and topics of the blogosphere, this just seemed a necessary tribute when I thought of it in a sleep deprived state.



I'm sure it can be improved upon, as I'm not much of a poet even when my mental state is at its sharpest.



My apologies if it's been done before.



------------------------------------



Ten Rings for Higher Beings in Their Hallowed Halls

Twenty Rings For Mortal Beings doomed to vie

Five score rings for the top three things in their slots on high

One place for the Bear Lord in his house of links



Changing topics to rule them all

Communities to bind them

One Bear to bring them all

And to the Blogswarm bind them



In the land of N. Z. where traffics lie.











Truth in Labelling

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Dean's World has a great post on Calling Fascists Fascists



As you might have guessed from my slobbering rabid foaming-at-the mouth spittle flecked polemic post Saturday inspired by a post I found on Hugh Hewitt, I'm to the point where I just do not care if someone is offended by me calling it like I see it. I've spent twenty-odd years trying to be "nice" to these who ally themselves with "Anybody but America" and convince them with sweet reason. Ironically enough, all of the liberals I argued with for years but nonetheless respected woke up on September 11th almost four years ago and none of them has gone back to sleep yet.



For those that remain asleep, I doubt cold water will serve.

Mortgage - Questions you must ask every provider on every loan.

(This list is trying to be as exhaustive as possible, but is likely missing some important questions. If I missed one, send it to me: dm at )



What is the rate?



What is the amortization period?



Is there a possibility that the note will be due in full before the amortization pays it off? (Vaguely equivalent to "is there a balloon?" but a broader question)



Is the payment interest only, or principal and interest?



(if interest only) how long is it interest only, and what happens afterward?



Is there any possibility of negative amortization (the balance increasing) if I make the minimum payment? (if yes, warning!)



Is the nominal rate different from the real rate of interest I am being charged?



How long is the rate fixed for?



(If fixed for less than the full period of the loan) What is the rate based upon when it adjusts, what is the margin, and how often does it adjust?



What is the industry standard name for this loan type?



Is the rate you are quoting me based upon full documentation, stated income, NINA or EZ Doc?



(If full or EZ doc) Assuming I have other monthly payments of $X, how much monthly income do I have to document in order to qualify? (If this is more than you make, Warning!)



How many points TOTAL will I have to pay to get that rate.



How many points of origination will I be charged?



How many discount points will I have to pay?



What are the closing costs I will have to pay?



(because they are allowed to omit third party costs from all estimates and totals, you must add the answers to the next three questions to the previous question unless the provider specifically includes them)



How much will the appraisal fee be?



How much will total title charges be?



How much will the escrow fee be.



Who will my title company be?



Who will my escrow company be?

(If escrow company is not owned by title company, i.e. same name, be prepared for unknown additional title charges).



How much, total, will I be expected to pay out of my pocket?



How much, total, will be added to my mortgage balance?



With everything added to my mortgage balance, what will my payment be?



How long of a rate lock is included with this quote?

-------------



After you have finished talking to this person, go check out the numbers. If you have a calculator that can handle mortgage calculations, use it. If you're able to do the calculations yourself, even better. Otherwise, do a web search for payment calculators or mortgage calculators or amortization calculators, and try out a couple of different ones (because some web calculators on lenders sites are programmed to lie!). This is math - there is only one right answer! The numbers should come out the same except for rounding errors! If the difference is more than five dollars in any case, that's a red flag! (You should also make certain the reason for the difference is not operator error. For instance, automobile payment calculators assume a different first payment than mortgage calculators, but student loan calculators should be compatible with mortgages.)





Caveat Emptor

UPDATE: This article has been updated here

Posted by JCoke at Daily Pundit



He makes some incorrect assumptions. In point of fact, my calculator says that a person contributing 12.4% of a $20,000 yearly salary makes monthly contributions of $206.67 and if this earned interest at 5% over 45 years the value would be expected to come in at $418,797. There should be no tax consequences for rolling this into an annuity, where it continues to earn interest tax deferred. Assuming 5% Rate of return, something you can find fixed annuities at, a payment of $2248 monthly would be a 30 year fixed payout (not a "life with 30 years guaranteed"). If this is then taxed at 15%, this would be a net of $1910 per month, $22920 per year net to the person. This still loses to long-term inflation by a tad, but not nearly so much as Social Security.



Now if you computed it based upon 8%, far more realistic for a market investment, you get a nest egg of $1,090,089, which gives you $7998 per month, which even taxed at 28% gives you a net of $5759 per month, approximately $69,100 per year, which does substantially better than long-term inflation.



Note 1: It's the 45 year period which is the real enabler here.



Note 2: historical long term returns in the stock market have been closer to 10%, in which case, even taxed at 40%, the monthly net is $11982.



Note 3: Every insurance company has it's own mortality tables which have been revised upwards in recent years. I'm unable to locate a web based one which doesn't require your personal information. Looks like I've got to check some old connections.



Recent SF Reading part 2

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Recommended:



Conquistador by S.M. Stirling. Wonderful tale of "someone stumbled across an alternate earth 50 years ago". The people in this tale tend to be neither villains nor saints, but instead come across as real people, with real world virtues and failings. I geniunely hope he tells us more about what happens with this people.



Lord of Castle Black by Steven Brust. A novel in the universe of Jhereg, the second book of a planned trilogy about the end of the Interregnum. Not much to say but that I enjoyed it.



Gods Old and Dark by Holly Lisle. Third in the World Gates Series. Earth is part of a long chain of worlds. Those "above" Earth are all dead, killed by the Dark Gods that they may feast on Necromantic energies and increase in power. Against them are arrayed a loose group of Sentinels who mean to save the Earth if they can. Unfortunately, those who choose to fight a purely defensive war always lose, a fact the Sentinels are well aware of. But there are those who refuse to fight a purely defensive war...



The Victorious Opposition by Harry Turtledove. Sixth Book in the series. I shouldn't need to plug Turtledove. After defeat in the Great War, the Confederacy turns to a populist and blames a scapegoat. Seems more of a set up book than anything, but I want to read the next one!



Darknesses by L.E. Modesitt, Jr. Says it's the second book in a series, but I never saw the first and liked it just fine. If you like Modesitt, you will like this book, and he has done enough really good work that you need to pick one up and find out if you like Modesitt.



Mixed:



The Warrior's Apprentice by Lois McMaster Bujold. The first real Miles Vorkosigan book. Liked it well enough, but the antagonists never really did anything except react.



There Will Be Dragons by John Ringo. What happens when a future advanced nanotechnology economy crashes. Kind of formula but I liked it anyway. Promises to be first in a series.



The Unwilling Warlord by Lawrence Watt-Evans. This story is an enjoyable read that committed the sin of getting a little too cute. Otherwise well thought out.



For Love and Glory by Poul Anderson. There is something profoundly sad that the man who gave us Van Rijn and Falkayn and Flandry was obviously trying very hard in this, his last book. I unfortunately could not feel any dramatic tension even though I enjoyed the writing. Pick up one of his earlier works - it's hard to go wrong with anything he wrote before he started getting sick



Not Really The Prisoner of Zenda by Joel Rosenberg is another book in the Guardians of the Flame series. Once again, enjoyable enough but there wasn't a lot of plot to it.



The Grand Crusade by Michael Stackpole is the third or fourth book in the series. I think he got tired of the characters, because it's not up to the standards of the previous ones.



Truth Until Paradox. Three words: Bad Gaming Fiction. I would have been upset if I had paid money for it instead of picking it up at a book swap.

Dog bites Man (again)

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Captain's Quarters has a thoroughly worthwhile post on more kleptocracy in Africa. I suggest you read it. Good stuff.

I think it's time to move CQ up into my "Heavy Lifters"

here.



Most of us have lived through this scene once, and we made the wrong choice then. Which is why I find it so frustrating that a certain very vocal segment of the population apparently has amnesia about the consequences of that decision, and wants us to make the same damned mistake again. We got lucky last time when Reagan saved us. Remember the national mood of the late 1970s? Remember how precarious our position in the Cold War, and the world in general, appeared? If you're too young, ask someone who does remember - don't take my word for it.



For those who want me to go on the record about Vietnam, it may have been a Huge Mistake to commit our resources to it the way Johnson did. Actually, I'll go further and say it was the second worst mistake we've made in the last fifty years. But it was the all time grand champion, retire the prize because there will never be another mistake this boneheaded moment when having won on the battlefields, we allowed ourselves to be bluffed into cutting out on our allies. I would rather have been drafted on my eighteenth birthday and spent the next twenty years on a battlefield than what we went through then.



Our enemies today haven't forgotten that we were that stupid once. They are hoping they can convince us to be that stupid again. I'm a fat middle aged guy in questionable health with a young family. But I love that family enough that I refuse to allow my head to be placed in the sand so I can hope I'll be comfortable for a few more years when my daughters and their children would then have to deal with the consequences of my choice. Which wouldn't be pretty, and would be orders of magnitude worse. I'll buy my own equipment, pay my way over there, and spend the rest of my no-doubt short life trying to finish the job first. DO YOU UNDERSTAND ME?



As Instapundit said a few days ago, if I cannot label such people asshats, the word has no justification for existing.

Kelo

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Ann Althouse has a very reasoned argument on how Kelo and the narrowness of the voting doesn't give developers (among others) quite the green light we've been fearing. I must say that I hope she's right. But I think the nuance may be lost in the shock of the decision and the furor over it, which latter I've been as guilty of arousing as anyone.



I might cite as a counterexample Roe vs. Wade. The cultural shift it gave rise to from just such a narrow decision of the Supreme Court has been profound. (I truly hope we don't have Kelo diehards requiring their own litmus test thirty years down the line. I doubt there's the strength for a determined public resistance on this one.)



Hat tip: Dean Esmay

Every so often, I get a call out of the blue that starts something like this "Hello, I'm shopping for a mortgage. Just tell me your lowest rate."



I try to do the ethical thing, finding out on what sort of loan and all of the ancillary information that would actually make this useful information.



"No. Just tell me your lowest rate."



Every so often, I'll admit, I'm seriously tempted to quote them the lowest rate available on a month-to-month loan where the teaser rate has to be purchased with three and a half points - a loan such that I'd consider going homeless if that was all that was available.



Then I sigh inwardly and try to explain that unless I know the answers to a few question about the kind of loan that would be best for him, that's like being told the ultimate answer to the ultimate question about life, the universe, and everything is 42, without being told what base it's in, much less what the ultimate question is, so that that he, the consumer, has some way of knowing whether the answer may be appropriate.



"If you won't help me, I'm hanging up. *Click*"



And then one of my neighboring co-workers wants to know who that was, and this is what I tell them:



"Some Poor Guy who's terrified of salespeople setting himself up to get rooked for the five millionth time."



Another example: Quite some time ago, I was dropping some papers off with a prospective client, a salesman in a different industry. Somebody came up to him and asked, "How much for an Acme Widget Master 1234?"



"$X" was the reply. The guy walked off immediately. I asked my prospect, "Aren't you going to try and stop him? And I thought an Acme Widget Master 1234A56 cost $X+Y. They on sale?"



"Dan, I know you're new to the sales game, so I'll give you some help. That Guy is not my target market. He thinks he knows everything he needs to, and thinks he knows how to get the best price. He may actually know what he's doing and not need my expertise. But he wasn't going to give me the opportunity to explain that this was the price for the base model Widget Master 1234, and the Widget 789 with a couple options for about the same price is probably going to make him happier. You're not my target market, either - you know enough about these to be able to figure your needs pretty accurately. You came in and told me what characteristics you needed it to possess, which is why I told you about the A56 and quoted you that price. I was grateful gave me a chance at your business, but I didn't expect to be able to beat Major Catalog Company. All they're selling is the item. I'm selling not only the item, but also my knowledge and immediate availability, and help setting it up and technical support. Sure, That Guy is probably going to end up with something that frustrates the hell out of him at a price higher than he thought he'd pay, but he's terrified of me. He's not going to give me the opportunity to talk, and until that changes I refuse to waste my time trying."



One final example, even earlier: When my wife and I were newlyweds, we needed a household Major Item because our previous Major Item had failed. We went to several places shopping, among which were stores A and B.



Salesman at A: "You say you need type X? Oh, those are terrible, but if you spend $1000 modifying your home, you'll really love this product. Energy efficient, does a great job, and it's cheaper than the competition. No we don't have any of type X, but like I said, you don't really want those. They are awful."



Salesman at B: "You say you need type X? I'm sorry, but we don't carry any of those. I'm sorry but there's not enough demand, although I understand your situation. Tell me, have you found any anywhere? At C and also at D? What did you think of the alternatives? Thank you for helping me."



Several years later, we had need of a Different Major Item. I had kept the B salesman's card, and we went back and ended up buying from him, although we did shop elsewhere. We tried to go back again for Another Major Item recently, but he had moved on and we were disappointed, but talked with the salesperson who was there, and although we ended up buying elsewhere that time, I could see a cultural influence at work and we will continue to make a point of shopping there.



We haven't gone back to store A since the first conversation.



My point is this: Had I been Mr. Some Poor Guy, or That Guy, I would have bought from the A salesman - it was the cheapest product. Then another A salesman. And yet another A salesman. And been unsatisfied and unhappy, and generally angry at the need to spend a lot of extra money and frustration dealing with it each time - why didn't they tell him? Why weren't they simply honest? It must be because all sales scum are dishonest crooks!



Unfortunately, the real problem is not so much that the A salesman was a crook (he was a misinformed high pressure employing menace to society, but he did tell me I'd have to spend the $1000 extra), but that the strategy the customer employed is counter-productive, and does pretty much guarantee you're going to get conned - he wouldn't give the A salesman a chance to tell him about the $1000. I encourage keeping your guard up, but a request for context is an attempt to find you a product that meets your needs without costing you more than necessary. Wait until somebody actually tries to sucker punch you before you go for the right hook to the jaw followed by the one-two to the kidneys. Because the A salesmen (and women) play this game every day, and they're incredibly good at it, and it's going to be one of them that counters with a karate blow to the throat that scores a knockout (and the sale). Messrs. Some Poor Guy and That Guy are the sort who keeps the A salesmen in Lamborghinis.



The B salesman is good at a different kind of game. Typically make less money, especially at first, and so it is not the model taught by the How To Succeed in Sales Super School, and he's not the Superstar Sales Hotshot that corporate sales managers seek out to help increase their next quarterly bonus for staff productivity, but he's out there if you look, and a lot of companies from the corner shop up to the big corporations understand his value to their bottom line. Where A salesman is always hard at work looking for the next score (and is always a drain on their advertising budget, in whatever form), B salesman gets to the point where he's handling all he can with what comes to him, even generating spillover to other members of the staff. Even when he gets to the point where he's constantly saturated in business, he doesn't get stressed, he doesn't burn out, and he's not a source of problems.



Now, how would you like to find B salesmen reliably?



First, you're going to have to look hard. He's probably not going to be the first one you talk to. You're going to have to do some serious shopping. He's probably busy somewhere talking to a repeat client, not one of the vultures who are waiting around the sales floor to swoop down on you and grasp you in their greedy little talons. Second, don't expect a saint. Yes, he'll ask for the order, he may even use some pressure to try to get it. If he's not especially busy now, he's cultivating habits for later, and frankly, nobody wants to spend more time selling to a given client than is really necessary. They want to make efficient use of their time, and use the extra to either make more money with other sales, or just have fun. They are there to Make Money, not because they think standing around the sale floor (or whatever they do to generate clients) is The Most Fun They've Had With Their Pants On. They may like or even love their clients (I do the vast majority of mine), but if they weren't Making Money they wouldn't be there. The reality is that if they don't sell enough to make a living, they're not there anymore. There is a point, in all transactions, and with all customers, that it just is not worth dealing with them anymore. The sales person has things he'd rather be doing, whether it is dealing with a repeat customer's much larger transaction, spending time with the family, or just watching the game on TV at home. This point comes a lot sooner for a waffle iron than a house or a home loan, but there is a point where even the most desperate real estate agent stops initiating, stops returning, and finally stops accepting phone calls.



There is a cultural difference between the A salesman and the B salesman - they usually don't work in the same place. I've never seen a place that didn't have a strong preponderance of one or the other. There will usually be at least one A salesman on every staff, no matter how B culture the place is. But he'll find another job at an A culture establishment before too long. There are places that are so A culture that the B salesman just can't stand going to work there, so there typically aren't any B salesmen.



How to determine if someone is an A salesman or a B salesman



First off, a B salesman will always ask what you need it for, whatever the item. He may spend quite a bit of time asking about all the stuff you need, what your tradeoffs are, and all sorts of other information. This is a good sign. He's probably not looking for weaponry to force you to accept the El Cheapo Sterno can of fuel for the Bargain Price of only $9999.99, A Fraction Of The Cost (a very large fraction of 99 cents, but still a fraction). I've worked (briefly) with people who can sell ice to Eskimos at exorbitant prices, and if he's that sort, he probably doesn't need the information. Those sales people go straight for the kill. The more time he spends asking you about what you need or what you want or what your tradeoffs are, the happier you should be. The larger and more important the transaction, the more time he should spend asking you this stuff.



When he makes a recommendation or starts telling you about a product, he'll remember enough of what you told him to paraphrase it back to you, "Now, as I remember, you were telling me you were looking for something that A. Well, this item does A. And as I recall, you told me you were looking for B but had a budget of C. Well, I'm afraid all of out widgets with B cost more than C, but this one appears to meet all of your other needs. If you really need B, here's a widget that does B also, although it costs X more than C," or "I'm afraid we don't have any that do D, but I'd like to know if you've found any place that does?" Once he's shown it to you, he'll ask, "So does this do everything you're looking for, or does it fall short?" as well as questions like "So if you had this, you think you'd be happy, right?"



B salesmen will answer your questions clearly, directly, and forthrightly, and ask if this information answered the questions. He will be happy to give amplifications and clarifications, not keep repeating the same phrases.



Every sales person knows - because the sales manager makes sure he knows - that if the client leaves the premises, gets off the phone, whatever, a sale becomes much less likely. Every sales program I've ever heard of goes over and over and over this, ad nauseum. So it's not like it's any great secret. The B salesman knows it as well as the A. And they'll apply some pressure to get the sale now, whether it's considerable (B salesman) or an avalanche (A salesman). The B salesman won't trash the opposing products, though - he'll simply try to tell you where his is better, why it meets your needs, and why you should Buy Now.



It is always a clue that you're dealing with an A salesman if he finally tells you, in desperation as a last resort, "If you find a better price, come back and I'll beat it." First off, the fact that there's suddenly room on the price means it may be overpriced in the first place. Second, the reason the A salesman says that is that he really doesn't know - or care - what you want, and he's figuring to replace it (in most cases) What He Showed You with Something Cheaper That Seems About The Same when you come back. Finally, if a B salesman doesn't quote you a Pretty Damned Good Deal in the first place so he can Get This Transaction Onto The Books and go home, he knows he's going to lose customers, which are then not going to come back to him because he treated them right, and not going to tell others about him because he treated them right.



Getting back to the first shopping trip my new wife and I made together, in search of Major Item, along about the ninth or tenth store when we'd just bought what we needed, my wife said, "There is no in-between with you, is there?"



"Huh?" I replied brilliantly, having no clue what she was getting at. Remember, we were newlyweds at the time.



"These sales people. You're either the nicest guy possible or the worst (expletive) I've ever met. It's a side of you I haven't seen."



I was well aware that she had led a somewhat sheltered life until a few months before we met, and there are obligations that one has to educate your family in case you're not around. "Let me guess. You're talking about how I was joking and pleasant with B, C, and D, but cut A and G off cold, chewed E out, told F to get out of my face, and was hard on H but then friendly, and friendly again while asking pointed questions when we came back to buy?"



"Yeah."



"Beloved, B, C, and D were doing the best to help us find what we needed. They asked us intelligent questions about what we needed before showing us an item. They answered the questions I asked instead of trying to distract my attention, didn't push more than they should have, and in general were behaving like our needs were what was important. They knew you were there and were respectful to you, but they realized I was the one who was going to have to be sold, so I was the most important person in the room. Not them.



"H was a miscommunication that got cleared up. And you should ask questions again to make certain you understand just before you buy. She knew that she was likely to get the sale once we came back, and even more likely when she showed us she knew what she was doing. The questions were to make certain there were no more miscommunications - she knows what she's selling better than I do. It would be very easy for any kind of a sales person to misdirect a question while we're in the midst of the hunt. When I'm ready to buy, I'm going to make certain I understand everything I need to know about this Major Item, so I'm asking the questions in a different way to make misdirection or pat phrases obvious. H knew this, and gave me straight answers without evasions. And her product met our needs. So that's where I wanted to buy. As to why I was mean to the others, you know I'm always willing to be an (expletive) in a good cause, right?" She nodded.



"Well, A wanted to make the sale he wanted to make. Our needs weren't important. E thought she could get away with a lie, and I called her on it. I know she's going to make other sales, but not tonight. Penalty Box. F tried to use you as leverage against me. This would be acceptable though not welcome if I thought he was trying to meet our needs, but he wasn't. I told him we had to have X and his item didn't. And G didn't have a clue about X. The appropriate thing would have been to get help or tell me he didn't know but he'd find out and then go find out. He was wasting our time. And now we've got our Major Item, and we're going to go home and be happy with it and not waste any more time on this whole issue."



And we did. She still lets me do the most of the major shopping. But if a meteor hit me, she'd be a much savvier customer now than she was before I explained it. She's not afraid to deal with sales people. Which puts an end, in all senses of the term, to the Ultimate Consumer Horror Story.



Caveat Emptor.


The Third Amendment to our Constitution is one not often invoked, arising from circumstances no longer extant during the Revolutionary War, but still on the books.



Countertop Chronicles has a tongue somewhat in cheek (I hope) idea regarding how Kelo could be used to circumvent the Third Amendment.



Rule: Never give The Bad Guys free ideas.

Flame Warriors

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This brings back memories of the old usenet days in the 80s. Some of them fond. Some of them less so. Yes, I see hints of my then self in several of the cards. I do hope I've learned since then.



Hat tip: Enrevanche

Thomas Dissent on Kelo

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at Legal Information Institute



Hat tip: Orin Kerr at Volokh Conspiracy



I just read this. I'm not a lawyer, but the more I learn about Clarence Thomas, the more I respect him, his thought process, and his fundamental humanity and good sense. He has dealt with more slandering of his character than anyone should ever have to put up with. Scalia may be a stronger scholar, but I've never seen Thomas lose sight of human fundamentals in the legal minutiae.



He has assembled a body of work worthy of admiration, aspiration, and imitation. And that's the best thing I can say about anybody.



I realize that it's rather empty prestige granting no more weight to one's opinion. And I think the confirmation fight would make the whole Anita Hill thing look tame, to no noteworthy good purpose. But I'd love to see him as Chief Justice.

Everybody who reads him knows that Scott Ott of Scrappleface is a comedic genius with a biting satirical style. That's why he's just behind the Instapundit on my list of heavy hitters.



This is one more example



(Each person turned on to Scrappleface is a Ba'al Scout Merit Badge...)

Fixing Kelo - a proposal

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My mind wouldn't let me leave it alone. I got to thinking about how to fix this.



I think Congress could do fix this tomorrow. Simple Public Law.



The Congress of the United States, wishing to discourage abuse of eminent domain, henceforth enacts into law:



1. In the event of public condemnation of private property, the public entity bringing suit shall pay all expenses of the defending party in said suit, including but not limited to legal expenses, and any expenses incurred in evaluation of the property or documentation of this value. This compensation shall be immediately due and payable upon presentation of reasonable proof, and it shall accrue interest at a rate not less than double the prevailing customary rate, or additional charges incurred by the property owner as a result of tardy payment, whichever is greater. This compensation shall be paid regardless of the said suit's resolution.



2. In the event of a successful condemnation, the property owner shall be additionally compensated no less than the greater of either 150% of the fair value of the property determined in accordance with usual practices or 125% of the cost of replacement property.



Okay, folks. Pick it apart. Tell me where this fails.



(other than making communists unhappy, that is)



Update: Bill Quick at Daily Pundit notes that a Texas legislator had a similar idea.

Kelo

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Today's truly huge topic in the blogosphere is of course the Kelo decision from the Supreme Court. It's not that I'm uninterested. Quite the contrary. But so many from Eugene Volokh to Glenn Reynolds to Michelle Malkin to several of my fellow Raging RINOs



World According to Nick

Arguing With Signposts

My Pet Jawa comes up with this Uniquely Funny link



I could go on. The scholarship of some of these people is remarkable, particularly on such short notice.



(I just checked, and Scott Ott of Scrappleface doesn't have anything yet, but I'm expecting a doozy when it arrives)



My only contribution is the hope that this will be a "9/11 moment" that wakes the whole country up, once and for all, about exactly how much authority the government (especially the courts) have usurped for themselves under the cover of various interest groups defending said hijacking.



In other words, because it kept somebody powerful happy, it was allowed to go on.



This has to end. Just because your ox isn't being gored today doesn't mean it won't be tomorrow, and tomorrow may be too late.



I've seen a lot of stuff about how this will be used to create space for Wal-Mart. But consider: A business operation is no less vulnerable. What is there in law to forbid the government from mandating that unprofitable businesses remain in place? ("No, General Motors, we need those jobs to stay here.) From requiring that they relocate to poverty stricken areas, or build there in the first place, no matter how unsuitable?



This is about fat wallets, yes, but it isn't intrinsically and unavoidably linked solely to fat wallets. Below that, more importantly, is the ability to move things politically. Once the public taking of property depends upon who has the loudest political voice, no one is safe. Down this path lies madness. Stark raving insanity.



As those who have the misfortune of living in Zimbabwe or North Korea today, or any number of countries twenty years ago could tell you.



Edit: Corrected a type in Michelle Malkin's name.

from Jackson's Junction



hat tip: Dean's World



Oops! Double post! One deleted.

Cold Hard Numbers

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In my second blatant attempt today to boost traffic while one of my pet issues is before the blogosphere, while posts from the mighty Instapundit is fresh on the subject, and David Bernstein of The Volokh Conspiracy and Bill Quick of Daily Pundit also having spoken, here is a letter I've been sending out for a couple months to select prospects (minus the marketing stuff):



-------------------------




I have just recently attended a talk by Gregory Smith, the county assessor, on the future of home values in San Diego. He expects prices to continue to rise by 5-10% per year, citing scarcity as the reason. Basically, too few homes are being built, so we are in a situation with excess demand and not enough supply.



Now, public officials of the county of San Diego have an incentive to want prices to continue to rise. I tried to ask him a question about any other factors holding the price up, and he was unable to produce any.



Unfortunately for this point of view, high demand and scarce supply has a long history in the San Diego area. This has been a constant of the market, rather than a variable, since the late 1970s. Even during the last downturn, the problem was not a lack of interested buyers, the problem was that they couldn't afford the prices when interest rates went up. Sellers had a choice of selling at the prices people were able to qualify for or not at all. Many chose the latter option, it paid off in spades when interest rates fell and prices started rising again. Those in situations where waiting was not an option had no choice but to sell at lower prices.



The fact is that only 9% of the people can afford to purchase a home in San Diego. Even for wealthy investors who put $100,000 down on a $500,000 home with the intent of renting it out, their monthly cash requirements are $2528 to cover a 6.5% loan, plus approximately $500 per month to cover basic property taxes and then insurance, maintenance, etcetera on the property. Unless rents are well in excess of $3000 per month, which they are not, this amounts to investing $100,000 only to have to invest more every month in hopes that the market rise will eventually reimburse you. I agree with every respectable real estate investing guide that negative cash flow on an investment property is a recipe for disaster. This current situation in real estate has many parallels to the dot com investing bubble of several years ago.



Furthermore, we have many people who obtained short-term financing in the last several years, loans that must be refinanced within the next eighteen months, and will not be able to obtain terms that are as good or allow their adjustable rate loans to adjust. Either way, they are facing higher payments - payments that many are unlikely to be able to make. They will either sell voluntarily for what they can get, or involuntarily as the lender liquidates a nonperforming loan.



Even though long term rates are still remarkably affordable, short term financing, particularly on a "Stated Income" basis has become more prevalent for purchases, especially for beginning buyers, and these have risen enough to slow the market greatly. We are starting to see indications of a buyers market now. Homes are taking much longer to sell, and buyers are getting much more leverage on their offers. When longer term rates return to their historical margins above short, the effect will multiply. It doesn't take a genius - only a calculator - to know that when owner occupied rates go from 5.5% to 6.5%, somebody who could afford a $400,000 loan at 5.5% can only afford $359,000 at 6.5% (this difference is magnified for those willing to take interest only loans).



What does this mean to you, a homeowner? If you intend to hold onto your home for many years, I am confident that the market will eventually make good any short term correction. On the other hand, now is the time to secure the long term financing that enables you to hold onto the property profitably, while the high price of comparable properties helps your equity picture. (omitted text here)



If you are in a situation where you know that you are going to need to sell within the next few years, the time to act is definitely now, lest you lose more of your precious built-up equity to the short-term vagaries of the market. This market is going to get much worse for sellers before it gets better. (omitted text here)



And if you're looking to move to a larger house soon, the time to act is now to leverage the market! Sell while the market is still high, knowing that when prices recede later, the money you get from the sale will help you buy more house for less! (omitted text here)

UPDATE: This article has been updated here

This post was actually ready and schedule for tomorrow night, but with the mighty Instapundit actually blogging on the subject, and David Bernstein of The Volokh Conspiracy and Bill Quick of Daily Pundit I thought I'd strike while the iron is lukewarm and reschedule tonight's post for tomorrow! I also am working on an article analysing the Negative Amortization loan in depth which should be posted withing a couple weeks. The relevant information on Negative Amortization loans is several paragraphs down in the section on Alt A loans. I'll also redact some personal marketing information from a letter I've been sending out for about three months now and post it later today.





There are actually several distinct marketplaces consumers can obtain their funds from, and several types of providers. John the wealthy highly salaried person with great credit and a substantial down payment should not and usually does not obtain his mortgage from the same funds providers as his twin brother Jim, the self-employed, always-broke person with terrible credit and no down payment. They may deal with the same employee at the same business, but the funds and parameters for using those funds, are entirely different.



In order to make sense later on, I've first got to acquaint you with two concepts: yield spread and pre-payment penalty. The yield spread is what then lender pays the person or company who does the paperwork for your loan in order to give them an incentive to choose that lender, as well as any of several other reasons. The yield spread is based upon the rate of the loan, the type of the loan, etcetera



Prepayment penalty is a penalty you agree to pay if you sell your home or refinance before a certain period of time has passed. Industry standard is six months interest, with some lenders making this 80 percent of six months interest. Usually (not always) they will let you pay a certain amount over the normal, agreed upon principal per year without triggering the penalty, but if you sell or refinance out of their loan, the penalty is always triggered for the duration of the penalty. Some lenders will actually phase it out in stages, although this is not common.



Lest it be not plain to you, a prepayment penalty is a thing to avoid if you reasonably can. Let's say you get transferred and need to sell the house in six months, and that you have a $200,000 loan at 6%. That's six thousand dollars less that you will receive from the sale of your home, not to mention that the average person refinances every two years, which is typically the shortest pre-payment penalty. If you need to refinance within two years, that's six thousand dollars of your equity gone for no good purpose. Mind you, if you need the loan, and it gets you the loan, so be it. It's still a thing to avoid.



The top of the food chain from the point of view of consumers are the so-called A paper lenders. This market is controlled by the two federally chartered giants, Fannie Mae and Freddie Mac. Lenders who participate in these markets lend in full accordance with Fannie Mae and Freddie Mac rules, because they want to be able to sell the loan to them. In many cases, they actually do sell them seamlessly by retaining the servicing rights, and the consumer never knows they have done it. In others, they retain the loans entire, and in still others, they sell them off entire. They do this for many reasons, but mostly to raise cash so they can do more loans. In any case, the only difference it should make to you, the consumer, is where to address the check and who to make it out to. Unlike the other markets, if the lender pays a yield spread in this market it does not automatically mean that there will be a pre-payment penalty. Although they will pay a higher yield spread if the loan officer sticks the client with a pre-payment penalty (and the longer the prepayment penalty is, the more they will pay). WARNING! Many loan officers will not tell you about it unless asked ("Why bring up a reason not to choose your loan?" is a direct quote I've heard any number of times) and some will flat out lie even if you ask. This is not ethical, but they know they can almost certainly get away with it. There really is no reason why an A paper loan should have a prepayment penalty, except that a loan officer wanted to get paid more.



It is not difficult to qualify for an A paper loan. As long as you're not taking equity out of the home, they can go through with credit scores as low as 620 (full documentation) or 660 (stated income), although there are caveats. Despite what you read in Internet pop-ups, according to National Mortgage Reporting a 660 credit score is more than forty points below the national average. So even someone with modestly below average credit can still qualify for an A paper loan. There are minimum equity requirements, however. And it doesn't matter if you are King Midas who has never failed to pay a bill immediately in full or someone who barely staggers over the line into qualification by the computer models put out by Fannie Mae and Freddie Mac. This is it. The top. You all have the exact same rate choices. There is nothing better.



The next niche below A paper is called A minus. The rates are a little bit higher, and there are prepayment penalties anytime the lender pays a yield spread. Then comes the so-called Alt A, which are typically loans for fairly unusual circumstances. The credit scores here go down to about 580, although there is less standardization. The worst, most dangerous, absolutely awful loan in the world comes from the "Alt A" world. There are all kinds of friendly sounding names for it, like "Option ARM", "pick a pay", and such things, but they are all negative amortization loans at their heart - you end up owing more than you borrow. They sound benign: "pick your monthly payment!" But in fact most people choose the minimum monthly payment which capitalizes and then amortizes more money into your loan every month. Every single one I've ever heard about carries a prepayment penalty. I see adds for these abominations every day all over the internet. If anybody quotes you a mortgage rate below 3%, I will bet you millions to milliamps they are trying to sell you one of these (despite the fact that there are other loans out there below 3% right now). There seriously are providers that do nothing but these - they're easy to sell to unsuspecting victims because the minimum payment is so small. There really isn't space here to go over everything that's wrong with them (or where they may be appropriate), but except in certain special circumstances, RUN AWAY! And do not do business with that person! They have just proven themselves unworthy of your business.



(Every so often, a representative from a new lender walks into my office. I'm always glad to talk to them so long as they answer my questions in a straightforward way, but I have one inflexible rule. If the first thing they talk about is a Negative Am loan - no matter the happy sounding name they call it by, I throw them out and do not allow them to return. I think it indicative of the state of things in the Negative Am world that the one time I had a client who would actually benefit from this thing, and I took the time to tell him exactly where all of the traps I knew about were, give him strategies to turn it to maximum benefit, and he agreed that he wanted to do it - not one of the five companies I tried would actually approve the loan.)



The final niche that comes from regular lenders is called sub prime. And in the world of sub prime lending you can do a lot of things that higher rungs on the ladder will not allow you to do. As in A minus, anytime the lender pays a yield spread there will be a pre-payment penalty, and I think I've run across exactly one sub prime loan that didn't have a prepayment penalty in my whole time as a loan officer. However, the people who subsidize sub prime lenders just don't have a whole lot of choice. This is typically the only way they're actually getting a home loan, be it because of low credit, low equity, or what have you. The rates are high, but it's that or nothing. Sub prime loans are very lucrative - the average lender or broker specializing in them usually makes about 5 points - 5 percent of the loan amount - on each and every loan. I've had people thank me so profusely I was almost embarrassed when I got them a loan on something more closely resembling a typical margin from higher niches. The lines between A minus, Alt A, and sub prime are blurring more and more as time goes on. It is to the point now where if someone says they do sub prime, that usually means Alt A and A minus as well - it's just a matter of where on the spectrum a given client sits.



The final niche is Hard Money. These are not typical lenders as all. They are agents for individual investors, sometimes even carrying the loan themselves in their own person. The rates for this start an absolute rock bottom of about 13 percent, and go up from there. Typically there will be a front-end charge of about 5 percent of the loan amount, and a prepayment penalty of about 7%. These are loans for people with sub 500 credit scores, people with homes that have been damaged in some way and must make repairs before a regular lender will touch the property, and so on and so forth. The equity requirements are large - 75 percent of the value of the home based upon a conservative appraisal is about the highest a hard money lender will go, and most are less. Everybody until this point is in the business of making loans, and is likely to cut you as much slack as practical if you have some difficulty making payments, as they are not in the business of foreclosures. A hard money lender has no such constraint. They will foreclose on your home without a second thought. One way or another, they will get their money back and then some. WARNING! It is common practice on the part of hard money lenders to have you sign the Note and Deed of Trust "conditional" upon them finding an investor. The person signing the documents thinks the loan is done, and that their situation (usually a time critical one) is resolved, and everything is all roses now, but it isn't. They may still want you to pay for multiple appraisals, jump through multitudinous hoops, and still not give you the loan in the end. This is just their way of binding you to them so that you don't or can't go elsewhere. Not that this is completely unknown in the higher niches, but it's not common, as it is here.



There are three main types of places to go to get a loan. The first is a regular lender. The second is what I call a "packaging house", although in practical terms it is very similar to a regular lender. The third is a broker. Each has their advantages and disadvantages.



A regular lender is what you think of when you think of a bank. Most of the big names are regular lenders. They typically have their own offices, often mingled with other banking functions. They have their own funds, wherever they've gotten them from, and they have executives and such that put together their own loan programs, complete with criteria for approving or not approving a given loan. These people do loans with at least the possibility of keeping them in mind, and some do keep every loan they do, while others sell almost every loan. The good news is that they'll typically be slightly more willing to make exceptions around the edges (whether or not the loan is a good one for you!). The bad news, from the consumer point of view, is that they consider you a captive from the moment you walk in the door. Even if they know of another lender with better pricing or a program that suits your needs better, they're still going to keep you "in-house". And their loan pricing is such that it's going to pay for all of the salaries and benefits for all of the people in the office, and the beautiful office itself and all of its contents.



A "packaging house" is like a regular lender except that they do their loans with the explicit intention of selling off every single one, either immediately or a few months down the line. Practical difference to consumer: there's a 100% chance you're going to end up making payments to someone else. In other words, no big deal. The original lender recently sold my own home loan. The only difference is that now I write the check to company B instead of company A, and mail it to place X instead of place Y. California has stronger consumer mortgage protection laws than the federal government, but there are laws in place nationwide for the consumer's protection that avoid payments being unjustly marked late because your mortgage was sold.



A broker is not lending their own money, but is being paid instead to put the loan together and get it to the point where it is funded, at which point they are out of the picture. A packaging house could, in theory, decide to keep a particular loan. A broker doesn't have this option - it's not their money being loaned, but instead that of a regular lender or a packaging house. On the down side, a broker has somewhat less leverage to get underwriters to make exceptions to the rules (although the difference is academic for those outside this narrow range). There is also a lot of variation on quality. You'll find the very best loan officers in the country working as loan brokers - and the very worst, as well. On the up side, a broker always has at least the ability to get you a lower price than the other alternatives, although they may not have the willingness. First, a good broker shops many different lenders to find the program that's priced best for you. This is less important but still very noticeable at the A paper level (A paper had pretty standardized rules) then it is for borrowers whose situations (either through credit, or through needing to do something A paper doesn't support) need to go to markets lower down on the totem pole. On the other hand, I (as a broker) get better pricing from the lenders, either regular or packaging house, than their own loan officers. Why? Partially because they're not paying my support expenses - office rent, furnishings, support staff salaries, etcetera. Mostly because it's my customer, and I can and will take my customer elsewhere if they don't give me the best possible deal. Every week when I do the family shopping, I see the banks in the local supermarkets offering their mortgage deals, and I always smile because I'm always getting somebody a better price on the same loan from that same lender.



Caveat Emptor.

UPDATE: This article has been updated here

Military Utility

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From Dean Esmay, who wonders:

Why then did they announce the crash of an obsolete plane?



Likely because the plane that did crash was one of the modern upgraded U-2 variants, which are pretty rugged but are complex machines and are likely used far more often than "Aurora" would likely be.



The military actually does try to conserve money as much as they can, for a variety of reasons. Blackbird was wonderful, but capitally and operationally speaking, expensive to operate - the pilots got maybe one or two hundred hours per year. I imagine Aurora is no less so. The reliable old U2 and more modern variants aren't exactly cheap, from the point of view of a middle class family budget, but they're considerably less expensive than Blackbird, or I imagine, Aurora.

Mortgage Rate and Points

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Everybody knows that you want the lowest rate, and everybody knows that you don't want to pay any money you don't have to, in order to get it. However, not everybody makes the connection that it is always a tradeoff between the two. At any given point in time, each home lender has it's own set of tradeoffs in place.



There are two components to the costs of a loan: Closing costs and points. Points have to do with the cost of the money. Closing costs relate to the work that has to be performed in order to get the loan done. These are not junk fees, although junk fees do happen.



Let us consider for a moment the home loan. You want to buy a home for your family, but don't have enough cash. Without somebody willing to loan you the difference, you cannot buy. You check with your family, your friends, your neighbors and they're all tapped out (or say they are). But there's a bank over there willing to loan it if you meet their terms.



The banks are not being altruists, of course. They're making a good chunk of change for doing so. But you would not believe the amount of complaints I hear out sympathetically about how this evil horrible bank is charging all this money and making people jump through all these hoops to get this money ("They want a pay stub! Actually they want two pay stubs! What is the problem with these nazis?"). Fact is that this bank is doing you a favor, risking hundreds of thousands of dollars on you so that you can own a home for your family. They are doing something for you that all of your friends and family were unwilling or unable to do: loan you the money to buy a home. I'd say that puts them pretty high on my "nifty list", not "Nazis", but it's your life. When you think about it, they're doing you a favor by making certain you can afford the payments on the loan (It's more than many agents and many loan officers will do), as well as insuring that if something goes wrong and you can't afford the loan, they'll get most of their money back. Real Estate is not sold on a whim. Right now, another agent in my office has a listing of an $800,000 home. The family makes about $60,000 a year. Their interest alone is 76% of their gross pay, never mind property taxes and insurance. An unscrupulous agent sold them the house based upon the ability to flip it whenever they wanted, and found them a similar loan agent to get them a negative amortization loan so they've got about fifteen hundred dollars a month being added to their mortgage and they still can't make the payment. But real estate is not like stock; you can't sell it at will. The market cooled just a little bit. They've already lost their entire investment, and they've come to our office to get it sold before worse things happen, and we're doing everything that can be done, and still nobody wants to buy it.



There's a lot of this out there. You would likely be amazed at the loans a competent loan officer can qualify you for (and that if you understood what you were getting into, you'd drag them into the sunlight and run a wooden stake through their hearts before running away, instead of believing them to be your friend). I'd get an extra client a week, at least, if I didn't sit down with the people to find out what they can really afford before I showed them the $800,000 house that's going to get me paid a Huge Pile Of Money, when I really should be telling them about 2 or 3 bedroom condominiums, or even telling them to continue renting. It's hard to get a client enthusiastic about a 2 bedroom condo, particularly when someone else is showing them a 5 bedroom 2800 square foot House With It's Own Yard and No Shared Walls and telling them they know Someone Who Can Get The Loan. But the world will catch up to these agents and loan officers, and I put a certain value on staying in business.



Getting back to the issue of closing costs, there is work that has to be done before you get your loan. The people who do that work are entitled to be paid. You don't work for free. They're not going to work for free. As I have covered elsewhere, realistic closing costs without junk fees are about $3400, and can easily be higher. The bank is not just going to absorb the cost because they're going to make money off the loan.



Each home loan, whether the lender intends to sell it or not, has a value on the secondary market. They also cost the lender a certain amount (they have to pay for all money they lend, whether by borrowing or by opportunity cost). Based upon these two facts, the lender sets a level of discount points or rebate for each rate for each type of loan. When you pay discount points, you are actually paying the lender money in order to buy a rate that you would not otherwise be able to get. When there is a rebate, it means that the lender will pay out money for a loan done on those terms. A rebate can be thought of as a negative discount, and vice versa. Whatever the level it is set at by the lender, there's going to be an additional margin so that the broker or loan officer can get paid, even if the loan officer is an employee of that lender. This margin is not necessarily smaller by going direct to a lender - actually a broker usually has a better margin than that lender's own loan officers. As I say elsewhere, the supermarket banks often have their best rates posted, and I'm usually getting someone a better loan (lower cost/rate tradeoff) with the same lender.



But within a given type of loan, the lender always sets the loan discount higher for the lowest rate. The lower the rate, the higher the discount and the higher the rate the lower the discount. Choose the lowest rate, and pay not only closing costs but the highest discount as well. Whether it's coming out of your checkbook or being added to your mortgage, you are still paying it. Choose a somewhat higher rate, and there will be no discount points, just closing costs. There's a name for this rate where there's no points but no rebate; it's called par. Rates below par involve discount points, rates above par will get you some or all of your closing costs paid by the bank or broker.



Many people will want the lowest rate; after all that has the lowest payment. It is (or should be) your choice. It's actually easier to qualify for lower rates, because the payment is lower. However these lower rates can be costly, because the fact is that the median mortgage in this country is about two years, and fewer than 5% of all loans are less than 5 years old. This means there's a 50% chance you've refinanced (or sold and bought a new home) within two years, and over 95% within 5 years. I see no reason for these consumer habits to change. Furthermore, I'm a consumer, and so are you. There are people who bought a place and paid off their 30 year loan and now own the property free and clear, but they are rare these days. Much more common is the person who bought their house in the 1970s, has refinanced ten or twelve or fourteen times, and now owes ten times the original purchase price. More common yet is the person who's on the third, fourth, or fifth house since then. You might be one of the first group, or you might not be, pretend you are, and be hurting only yourself. It's likely to be a costly illusion.



Let's look at three different 30-year fixed rate loans. All of them start from needing $270,000 in loan money. Loan 1 gets a 5.5% rate, but has to pay two points to get it, so his loan balance starts at $270,000 plus $3400 plus two points, or $278,980. He paid $8980 to get his loan. Loan 2 gets a 6% rate at par, and his loan balance starts at $273,400, because he only had to pay $3400 to get the loan. Finally, Loan 3 chooses a 6.5% loan where all closing costs are paid for him by the bank or broker. His loan balance starts at $270,000.



Your first month interest with Loan 1 is $1278.66, and principal paid is 305.36, on a payment of $1584.02. Loan 2 pays $1367.00 interest and $272.17 principal with a loan payment of $1639.17. Loan 3 is going to pay interest of $1462.50, principal of $244.08, and have a total payment of $1706.58. So far, it's looking like Loan 1 is the best of all possible loans, right? But look two years down the line when 50 percent of these people have refinanced or sold:

Loan Loan 1 Loan 2 Loan 3



Interest pd. $30,288.21 $32,418.26 $34,720.18



Principal pd. $7,728.21 $6,921.84 $6,237.83



Balance $271,251.79 $266,478.16 $263,762.17



interest diff: $-2130.05 $0 $2301.92



balance dif: $+4773.36 $0 $-2715.99



Net $ $-2643.31 $0 $+414.07



Remember, the original balance was $270,000. Loan 1 has paid $2130 less in interest the Loan 2, while Loan 3 has paid $2301.92 more. Furthermore, Loan 1 has paid down $7728 in principal, while Loan 2 has only paid down $6921 and Loan 3 still less at $6237. It's really looking like Loan 1 was the best choice.



But remember, 50% of all loans have refinanced or sold within two years. When you refinance or sell, the benefits you paid money to get stop. But the costs to get those benefits are sunk on the front end, and you're not getting them back. Look at the balance of Loan 1. The person who chose this still owes $271,251 - $1251 than they did before they chose the loan in the first place. Furthermore, his balance is $4773 higher than loan 2, and even though he paid $2130 less in interest, he's still $2643 worse off. Furthermore, whether he refinances or sells and rolls the proceeds over into a new property, the new loan is going to be for $4773 more money than Loan 2's new loan. Assume everybody got a really fantastic new loan at 5%. Loan 1 is going to have to pay $238 more per year to start with in interest expense for his new loan, simply because his remaining balance on the old loan was higher. Loan 3 is in even better shape than Loan 2. He's paid $2301.92 more in interest, but his balance is $2715.99 lower, for a net benefit over loan 2 of $414, not to mention that his interest costs on his new loan will be almost $136 lower simply because his starting balance is lower.



Now let's look 5 years out, when over 95% of the people will have sold or refinanced.



Loan Loan 1 Loan 2 Loan 3



Interest pd. $74,007.65 $79,360.88 $85,144.66



Principal pd. $21,033.41 $18,989.39 $17,250.36



Balance $257,946.59 $254,410.61 $252,749.63



interest diff: $-5353.23 $0 $+5783.78



balance diff: $+3535.98 $0 $-1660.98



Net $ $+1817.25 $0 $-4122.80



At this point, Loan 1 has saved $5353 in interest relative to Loan 2, while Loan 3 has spent $5783 more. Loan 1 has cut his balance difference to $3535 more than Loan 2, so he looks like he's ahead! Furthermore, Loan 3 is really lagging, having paid $5783 more in interest although the difference in balance is only $1660 to his good.



Well, loan 2 is ahead of loan 3 pretty much permanently at this point. Assuming all three refinance or sell and buy a new property with a 5% loan right now, Loan 3 is only going to get back $83 per year of the $4122.80 he's down relative to Loan 2. Especially considered on a time value of money, that's permanent. But despite Loan 1 being ahead of Loan 2 right now, Loan 2 will get back almost $177 per year. Ten years on, assuming a ver low 5% rate, loan 2 is back to even, and most of us are going to be property holders the rest of our lives. Consider also that 95% of the people who chose loan 1 NEVER got this far - they never broke even in the first place.



The point I'm trying to get across is that money you roll into your balance hangs around a very long time. And you're sinking potentially many thousands of dollars into a bet that most people lose. Yes, if you keep the loan long enough, the lower rates (at least for thirty year fixed rate loans) will pretty much always pay for themselves, several times over in many cases. The other point I'm trying to make is that most people don't keep their loan long enough for the benefits to pay for their costs to get those benefits.



As a final consideration, consider what happens if one year later interest rates are one-half percent lower. I can get Loan 3 the same loan that Loan 2 has for zero cost. He's got the same interest rate as Loan 2, whom I can't help right now, but a lower balance - neither one of his loans cost him anything. And it has happened that the rates dropped down to where I could get someone 5.5% on a thirty year fixed rate loan for zero - lender pays me enough to pay all the closing costs. Net to them, zip. Suppose rates do this again. I call Loan 2 and Loan 3, and now they've both got 5.5 %, but this doesn't help Loan 1. Now Loan 2 has the same as Loan 1, while only adding $3400 to his balance to get it, as opposed to Loan 1 adding nearly $9000, and Loan 3 has the same loan without adding a dime to his balance. Who's in the best position?



Caveat Emptor



This article has been updated here

From Evolution



Didn't we send Black Jack Pershing last time this happened?

From Opinion Journal



I knew Arnold was likely to make a heck of a governor when I voted for him.



I didn't know the half of it.



His agenda on the whole has done great benefits for the whole of California (although great harm to interest groups such as the teachers union), benefits that will compound with time. Balanced Budget. Reduced Spending Mechanisms. A Rainy Day Fund. Unprecedented. Unheard of.



He's taking on the Gerrymander monster that let the state get this way. He's trying to hold teachers accountable for the quality of their teaching, so that our children - those who can't afford private schools for those of you who think this is elitist - can reliably get an education worth having. And he doesn't want unions to be able to mandate members pay contributions to support political goals.



All of these are worthy causes. All of these are non-partisan causes. This guy is doing a job that no other politician in the country is even willing to try.





Fellow Raging RINOs: May I nominate Arnold as our patron saint?

Military Spyplanes

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From Dean Esmay



Tried to comment on his site but he's got permissions set higher than I do. Imagine: a big name long time blogger having permissions set higher than a fresh newbie. Go figure. :-)



May I suggest a web search for "Aurora Spy Plane"?



Also, it is my understanding that current U2s are an upgraded version from the early 80's, long after they stopped making the SR-71 Blackbird (Which was officially the RS-71 until Lyndon Johnson mislabelled it during an interview)



UPDATE: The airframe is broadly similar. Otherwise, the U-2 is pretty much a completely different airplane than the one flown by Francis Gary Powers.

Here and Here



They are talking about elected representatives writing a constitution!



Freedom of speech! Freedom of the press!

Women's rights in the heart of the old Caliphate!

People buying into a democratic political process as the way decisions are made!



All in a part of the world that has never had a tradition of any of those things!



I do not understand how people can be blase about this.



It may not be Philadelphia 1787 where there was nothing of the sort - no democracies or republics anywhere in the world, and there had been none for two millenia, but we are seeing a country that has put itself on the path to where we are today.



As much as I love the United States, I am too much of a student of history to believe we will last forever as a country. Given the state of the world, we may change into something else peacefully and of our own free will, but eventually we will no longer be the United States of America.



And that will be a sad day. Perhaps the saddest this world has ever known.



But things like this will give us a legacy to generations hundreds or thousands of years in the future, that will never know the United States except through the history books. People who, I hope, regard a democratic political process as something normal, natural, and universal. "Of course we do it that way." People who will know only through the history books that things were not always thus.



When you look back on the great empires of history, what did they bring? Engineering, Art, Culture, order. All of them worthwhile. Most of them gone when the empire retreated.



We're bringing these people an idea as to how governments should work - about how decisions should be made, and the process for making the decisions, and for who gets to decide, and what limits are placed upon their ability to decide.



All in a part of the world where the tyrant has held unfettered sway, and if you managed to translate and explain "the rights of the people" the best reaction you could hope for would be laughter, as if they took you seriously Steps Would Be Taken to make certain this Dangerous Lunatic's Heresy got no further.



We're going to be with the Iraqis a long time if things go right. But I think that even if a "cut our losses and run" candidate manages to win the presidency in 2008, the Iraqi people will have had enough of a taste of this heady thing called "Managing your own affairs" to decide that they like it and intend to keep it.



Barring outside conquest, they're coming along with us. And setting an entire country on that path is something I believe worth every last iota of the investment we and the members of our armed services have made.

RESPA (Real Estate Settlement Procedures Act) prohibits an agent from requiring you to have other services performed by outside companies. RESPA also prohibits an agent from accepting payment (kickbacks) from third party service providers. Nonetheless, these are major problems in the real estate world.



It is an unfortunate fact that many agents care far more about the little bit of extra they get from third party service providers than they do about their fiduciary responsibility to the client who helps put potentially many thousands of dollars in your pocket.



For instance, never take a real estate agent's unsupported word about a loan officer. It happens on a routine basis that I talk to people in other parts of California where I'm not set up to be their real estate agent (kind of hard for me to show someone a property in Redding when I'm in San Diego), but thanks to the modern age, I am perfectly capable and set up to be their loan officer. Approximately one real estate agent in three completely refuses to cooperate with me as a loan officer, despite the fact that I'm getting their client a better loan than the loan officer this person wants them to use. I can have written authority for the information, and they won't give it to me. Okay, so I go through the escrow company - no big deal in most cases.



I can understand and sympathize with this attitude, if what they were worried about was my ability to do the loan at all. After all, if the loan isn't ready at the end of the escrow period, this transaction they've spent so much effort on falls apart.



So I tell them what I'm going to tell you in another essay: Have your friend do the back up loan, if you're so certain I'm full of it. If they were worried about a client's best interest, they'd sign off on that in a heartbeat. I know that's my attitude in those rare cases where I'm the agent but not the (primary) loan officer. This guy delivers, my client is very happy and has gotten a better loan and I have served my client's interests. This guy doesn't deliver, my loan is ready to go, the client doesn't lose his deposit, and I've still served my clients interest.



There is only one motivation that I can think of for what happens consistently: the agent keeps carping at my client to cancel the loan with me. Let's consider what this means.



No matter how unlikely the agent thinks it is that I'll deliver exactly that loan, with cancellation, the probability I can deliver it goes to zero. So I can now guarantee that this client to whom he has a fiduciary responsibility doesn't get the lower rate loan I was working on. Greatest possible benefit to client: zero. Downside: higher payments, higher costs, worse loan, zero leverage on other loan officer to deliver the loan he said he would.



Furthermore, no matter how good a loan officer, there's always a chance something goes astray, and for whatever reason the loan doesn't get approved. He's now exposing his client to the possibility that his friend, the loan officer, won't have a loan ready to go. If this happens, client loses house, deposit and other time and money invested. Possible benefit to client: $100 retyping fee for the appraisal saved. Possible downsides to client: no house, lose deposit, fees for appraiser, inspectors, etcetera wasted. Furthermore, the agent loses his prospective commission - several thousand dollars.



So what could cause an agent to want his client to cancel my loan? The only thing I can think of that explains the whole shenanigan is that this agent is in line for a payoff. Can I prove it? Absolutely not. Have I tried to think of alternative explanations that make sense? Many times. Maybe I'm missing something here (if so, email it to me), but I sure can't see a benefit to the client or the agent.



Here's another thing. Title and escrow companies. There are a variety of services escrow companies are supposed to provide the transaction - but title companies are actually the ones set up to provide many of these services. So the title company charges a sub escrow fee, messenger fees, etcetera for performing those services. But, they will waive those fees (not charge them) IF the escrow company in the transaction happens to be one they own.



Hey, I think, a pretty nifty way I can save my clients several hundred dollars! Makes me more valuable to them! And since kickbacks from title and escrow are illegal as well as unethical (according to RESPA and the Code of Conduct as well as good business practice, respectively) I certainly can't see a benefit to me for urging them to choose otherwise.



(And I am truly sorry to anyone reading this who works at an independent escrow company. As far as I can determine, you're just as competent as the title company escrows, and no more intrinsically expensive. But it's really hard for your company to compete when choosing your competition saves my client money that's usually about equal to the base escrow cost. Plus the fact is that it's a violation of my fiduciary duty if I don't tell them this)



You wouldn't believe the resistance I get from agents who obviously want their client to choose one particular escrow company, and one particular title company that aren't affiliated. True, it is the sellers who have the right to choose title and escrow companies. But that's the seller's right, not the seller's agents. And a failure to inform them of obvious ways to save money by choosing an escrow company that will save your clients this money is a violation of fiduciary duty.



I just finished fighting one not too long ago where the seller supposedly wanted to choose an escrow company whose name just happened to be the same as the name of the real estate office that the seller's agent worked for (I.e. X Real Estate and X Escrow company). Now it may be possible that they are unaffiliated with that real estate office, and it may be possible that they are set up to handle all of the duties that cause the title company to charge those extra fees. So my client's counter-offer included the following phrase



"Since the seller has chosen title and escrow companies unaffiliated with each other, seller is to be solely responsible for all sub escrow, messenger, and additional fees assessed by the title company above the cost of the title policy."



It even gives them an out - if the escrow company is set up to handle these services that are supposedly their responsibility, and does so that the title company doesn't charge for them, it makes no difference to either client.



This guy didn't want to present the counter to his client. He specifically asked me to drop that wording. I knew exactly what this meant, particularly in the case of the escrow company that just happened to share the name of his real estate brokerage. No evidence admissible in court, of course. But I had to threaten to have my boss call his broker with the clear intimation that my next call would be to Department of Real Estate in order just to get him to present the offer to his client. Do you think it's possible he failed to inform his client about this trivial way to save money? How likely do you think it that there was some kind of payment going on off the books? All of this is illegal.



There are two companies that provide the vast majority of all home warranties, at least in this area. I can't even name another home warranty company off the top of my head. Each of them is affiliated with a particular title company. The policies are the same, as far as I can tell. Somebody wants to know the differences, I tell them to consult an insurance expert (The expert I consulted concurred with my opinion). But one of these insurance carriers is more expensive. If I'm representing the buyer, I don't care - his coverage is going to be pretty much the same. If I'm representing the seller, I'll tell them to please consult a licensed casualty insurance agent, but B is less expensive as far as I can tell. Why then, do I keep seeing sellers who are volunteering A? I can't believe a fully informed client is volunteering to spend more money for the buyer's benefit in order to buy coverage that looks to be the same.



The long and the short of this post is that just because it's illegal under the law doesn't mean it doesn't happen. Just because that agent has a fiduciary responsibility to you under the law doesn't mean they take it seriously.



What can you do?



Well, choose an escrow company that's affiliated with your title company, or an escrow company that's affiliated with a title company, and choose that title company too. On refinances as well, do not allow your loan provider to choose title and escrow who are unaffiliated with one another (to be honest, I haven't helped buy or sell property outside of California, so have no idea how this works in an attorney state). Look for something like "X Land Title" and "X Escrow." This will save you hundreds of dollars.



Ask not just your real estate agent, but also your insurance agent about home warranty policies. Or look in the Yellow pages under Home Warranty Coverage and call around if you're selling a property. Do this BEFORE you have an offer.



And above all, don't just go with your agent's recommendation on a service provider. It's unethical, illegal, and just plain bad business practice, but that doesn't stop a certain number from having their hand out behind your back. And it's just as likely to be the highly accredited agents with years in the industry who are doing this.



Caveat Emptor.


This article updated here

I decided to go through my fellow Raging RINO websites from bottom to top in search of truly worthwhile stuff.



Here's the first refined gold, from State Of Flux

This is disgusting

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From John Hudock over at Common Sense and Wonder



My public school education is twenty-five years behind me, but most teachers back then were interested in teaching the subject matter. Probably the majority of them still are, but when they cannot reliably teach the essentials of the most necessary of all school subjects, to waste time (or want to waste time) conducting political indoctrination is salt in the wound.



I strongly suspect that it's union officials, rather than working teachers, who are primarily responsible for this. Looks like it may be time for a new set of union officials, if that is so.

Concentration of articles

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I realize that I have concentrated upon mortgages in my articles. I have also have two major postings on the buying and selling or real estate set to go in the next week or so. Mortgage and Real Estate have gotten the posting thus far because it is there that I see issues every day. Whereas my licenses are still current on financial planning, it's not where I talk to people every day. I will get to the financial planning issues, and if you have a special request, send it to me at requests at (domain name)

Had a problem with my domain forwarding because my registrar game me the easiest answer for them, rather than the one that would actually accomplish what I needed it to.



I believe I've got it fixed now, but of course it's not going to be reliably there for a day or two until it percolates through the internet.



A public Thank You to Chris at Powerblogs for taking the time to tell me how to get the problem fixed even though it wasn't under his control.

to Glenn and the Axis of Naughty



Frank J. is occasionally amusing. Glenn is essential

A blogging alliance



Their credo is at The Politburo Diktat



Found them on The (New) Truth Laid Bear Well done Bear.

Recent Reading

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Recommended:



The Return of Santiago, by Mike Resnick. I don't know why Resnick isn't bigger. Every story of his that I've ever read since Birthright: The Book of Man has been fresh and worthwhile. This book is admittedly better if you've read Birthright and the original Santiago, but is worthwhile even without.



Advance & Retreat, by Harry Turtledove is a mirror of our own Civil War's western theater (Think Georgia and Tennessee, as opposed to Virginia and Pennsylvania). Third in a series, but stands on its own as worthwhile reading. He makes a very good point with regard to our own Civil War, though.



Cryptonomicon, by Neal Stephenson. If I had ever thought in Math 103B that coding theory and it's history could be the heart of this good a story, set against both WWII and modern day...



Mixed:



1633 by David Weber and Eric Flint is a sequel to 1632, and a pretty decent story in it's own right, but ended up going a little too far in the populist direction for my taste.



The Apocalyse Troll by David Weber is a different take on basically the same story told by SM Stirling in Drakon, but still worthwhile. At least one too many convenient coincidences, though.



The Med Series by Murray Leinster: basically good stories that are just too jingoistic for me. They also haven't aged as well as some of their contemporaries (the original copyrights are 1959 to 1961).



Hell's Faire by John Ringo is the fourth in the series. Don't get me wrong, as a loyal Sluggy Freelance reader I love the idea of an uber-tank named after Bun-Bun. But there have gotten to be too much deus ex machina in the storyline. I get the impression the author's heart isn't in it anymore.



No Phule like an Old Phule by Robert Asprin and Peter J. Heck. Some good moments but overall I just couldn't see the point. I've seen Mr. Asprin do much better - if I didn't already like some of the characters from previous books I'd likely not have finished. This series is offically on probation.



Otherland Volume 4 by Tad Williams: Based upon the recommendation of a friend who likes Williams, I gave him one more try and spend nearly 5000 pages slogging through the four books in the series. Lots of cute thought experiments to fill it up, and much angst, but there's not enough plot for a book a tenth of the size. The fact that I couldn't get myself to actually care about any of the characters didn't help either. I'm sorry Mr. Williams, but I gave you one last, very extended chance and now I don't think I can bring myself to read any more of your stories. Pity, because I see potential there.



More in a few days.

This explains a lot.



Everybody knows guys brains are connected to the eyeballs and various other parts of their anatomy. Nice to know women have some of the same problem

For all the fact that I rant on about problems in out national mortgage market here in the United States, the problems are mostly on a retail level. Almost in their entirety, they have to deal with what happens when one consumer meets one provider, and I believe that they will vanish when the consumers are informed of the facts, and take the time to make rational, informed choices.



The fact is that for mortgage providers, there are strong incentives to lie to consumers. "Everybody else does it, too - how else am I going to compete?" Also, real closing costs seem high. Real closing costs are high enough that many states with so-called "predatory lending laws," limiting the amount in total charges as a percentage of the mortgage, either have already repealed them or are considering repealing them so that their residents can get loans. I can talk to people about closing costs that have been significantly reduced by contracts I have with service providers, and they'll say, "Costs seem high." Well, yes they are expensive, but they're real, and what I tell you about up front actually covers what my clients will be asked to pay. Just because we allow you to roll them into your mortgage, where you pay interest on them for the rest of your life, instead of the money coming out of your checking account doesn't mean you somehow didn't pay this money.



So We can take it as proven that there's an incentive for loan officers to minimize costs of their loan in conversation with you. Many will tell you anything it takes to get you to sign up with them, do anything they can to force you to stay with them (signing fees or lock fees up front are common, and THE BIGGEST RED FLAG I KNOW, and requiring you to give them original documents is almost as common and almost as large). They will penalize you out of spite if you decide you don't want their loan.



From almost the first moment a consumer talks to some mortgage providers, they are lied to. The fact is that as long as the rate that they quote you is available, the providers won't be held responsible if you don't get it. If you ask them what there rate is on a 30 year fixed rate mortgage without points and they reply with a the rate that's available on a 30 year loan that's fixed for one month at a time with five points, that's actually legal. They can sign you up for the former, deliver the latter 30 days later, and with rare exceptions that they are adept at avoiding, not get in legal trouble. They can tell you all about a loan that's based upon completely different qualifications than the ones you possess, in order to get you to sign up. And many loan officers, from the largest, "most reputable" banks on down to the smallest brokers working out of their home, make a habit of it. The examples I give above may be more extreme than usually happens, but it's a matter of degree, not kind. Blatantly unethical is still blatantly unethical, whether they're stealing multiple tens of thousands of dollars from you, or "just a few thousand between friends." If you found out you were victimized by a Nigerian 419 scam, I'm sure you'd feel much better to find out that you were only taken for $3000, where it could have been $30,000, right? This is no different. No, let me take that back - it's worse. If the loan provider were honest, your patronage would still have put a lot of money in their wallets, and they backstab you to get more?



The first thing to keep in mind is that all of the incentives are aligned for them to tell you ANYTHING in order to get you to sign up with them. The fact is, many people, once they sign the initial papers, consider themselves committed to that provider, and won't switch no matter what. At the end of the process, many loan providers are adept at hiding the crucial things you should study carefully in amongst the sometimes dozens of pieces of trivial paper that you have to sign. A large portion of people victimized in this way never notice that the loan delivered had three points more than the loan they signed you up for. A few more only realize it weeks later when they get a statement loan balance is much higher than they thought, and it's too late to do anything about it. And of those people who do notice that something is amiss when they're actually signing the final documents, eight to nine out of ten will cave in and sign. They're tired of the whole process, all they have to do to have it be over is sign right there on the dotted line. And if it's a purchase, the consumers are under a deadline. It's the thirty-ninth day of a thirty day escrow, and if they don't sign the loan documents right now, they not only don't get the house, they also lose their deposit and the extra money they've been paying to keep the escrow open while the loan officer got his (or her) stuff together and decided exactly how much in extra charges to stick them for. The leverage available to the consumer in such a situation is Zero. Zilch. Zip. Nada.



I'm going to make what seems like a heretical suggestion here. This is truly radical. The resistance in some quarters (particularly loan officers) to this suggestion is enormous. I can already hear howls of outrage already from loan officers and their bosses. Furthermore, I can hear millions of consumers griping about the paperwork involved already, and I haven't even said it yet - except to fewer than a dozen clients who took this advice and are forever grateful to me.



Apply for a back-up loan.



It isn't precisely a walk in the park to do the extra paperwork, I'll admit. But it isn't thirty years in purgatory either. There are issues to be aware of (most notable being the appraisal, about which more in another column), and extra charges to put up with from the appraiser, escrow and title companies. $100 to $200 if you handle it right, $500 or a little more if you don't. But this is likely the most cost effective insurance policy a consumer can buy today, and I'm going to harp on it until something changes this fact



You see:



Every so often I encounter a client who I'm certain has been lied to, and believes every word of it. I know what rates really are available, and at what cost. And this person has been quoted something where, if it were true, that loan officer not only isn't going to make money but is actually going to pay hundreds or thousands of dollars of their own money in order to get it for the client. Unless John or Jenny Consumer is a close relative or the loan officer literally owes them their life, it doesn't take a genius to know that's not going to happen. (Some of the worst taking advantage of someone that I've observed on the part of loan officers has been from Uncle Bob, the first cousin they grew up with, or even Sister Sue, but I digress). So every once in a while, I volunteer to act as a back up loan. They cooperate with me for the paperwork, and I will do the work, knowing full well that if their primary loan goes through as advertised, it's all a waste of my time, effort, and money.



Every single time it's been my loan that they ended up getting.



Furthermore, there have been other situations where I wasn't 100 percent sure - the rate existed, and it was possible the loan officer might deliver something similar if they were willing to settle for a lot less compensation than most loan officers, and so I didn't make the offer, and they came back to me weeks later with "Can you still do that loan you talked about?" (The answer to this is ALWAYS no. Rates at every bank vary daily, and often within a day - even the sub prime lenders that publish rate books good for months have adjustments that change daily. This is part of the importance of a lock. But usually I can do something similar, and sometimes better if the rates have gone down).



Most consumers do not realize that there is not necessarily any correlation at all between the loan you sign an application for and the loan that gets delivered with the approved documents ready for a notarized signature. It's completely dependent upon the good will and good faith of that particular loan officer and the company they represent. Some are completely honest. Some are looking for extra bits and pieces of cash to pick up around the edges. And some will take the odd arm and leg from you if they figure they have the opportunity. Even those few companies that do guarantee their rates and closing costs up front are difficult to collect from if they should be stretching the truth. If I had a dollar for every time I told somebody that I didn't believe a rate was real and they responded, "I've got the paperwork on it," as if that settled the question (or made any difference at all), it'd make a real difference in my mortgage balance. Oh, most of the time from most companies, if they sign you up for a thirty year fixed rate mortgage, they will actually deliver a thirty year fixed rate mortgage, and the rate will generally be about comparable, albeit with two points and $2000 in extra closing costs they somehow forgot to mention (Quoth the loan officer: "Clumsy me!"). But until then, they'll be throwing around all kinds of rates on all kinds of loans just to get you to call, to come in, or sit down and talk. Once that happens, they are confident that their A salesmen (see my essay on A salesmen and B salesmen) will get you signed up.



If you have a back up loan, you've got something else waiting to go. Another arrow in your quiver. Plan B. Your fallback position is defended. You're not going to lose the house and the deposit and the extra money to prolong escrow if you don't sign these papers right now. You're not going to have to choose between completely missing the lowest rates available since your grandparents were children and are now unavailable and paying $6000 more than you were told for your refinance. You're not hanging out there all alone at the end of the process after discovering that your trust was completely misplaced Here you have a solid, bona fide alternative. Imagine yourself with the ability to say, "No, I'll just sign the other papers instead." You'd be amazed at the leverage this gives you, with both companies if need be.



If you want to watch someone experience a truly amazing level of discomfort, tell a loan officer you're signing up for a back up loan with someone else. Most of them will say literally anything and do their absolute best to talk you out of it. I'll admit, even I would be momentarily nonplussed. I would hope that I would respond with "Okay. How do you want to handle the appraisal?" (assuming that it hadn't already been done) secure in the knowledge that I actually intend to deliver the loan I said on precisely those terms. You see, given the circumstances, I don't think you're doing anything wrong. If you asked me, I'd have to agree you were simply being prudent. Because until I actually put the final documents in front of you for your signature, there literally is no way for me to prove that I intend to deliver that loan on those terms. (There are a lot of red flags that if a consumer runs across them mean the loan officer isn't going to deliver the loan promised, but a competent loan officer can conceal them. There's also one thing that happens on every loan that looks like a big red flag, but isn't one at all). There's a lot of paper I can put in front of you that makes it look like I intend to deliver the loan I promised. None of it actually means anything in the way of a guarantee. At the present time, the only form or piece of paperwork that a loan officer cannot play games with is a form called the HUD-1 - and that doesn't come until the very end of the process. So until then, what you're really relying upon is the loan officer's good will to deliver the loan they signed you up for, on the terms you signed up for. Some fully intend to deliver the exact terms of every loan, and some will tell you anything to get you to sign up. Guess which the short-term dynamics of the marketplace favor. Here's a hint: If the loan officer can't get you to sign up for a loan, there's an absolute gold-plated guarantee they won't make anything.



If you shop multiple alternatives like you should for a mortgage, it's quite likely somebody is going to tell you that the best rate you've been quoted doesn't really exist, at least not at the level of closing costs indicated. That's your perfect opening. Ask them "So will you volunteer to be my back up loan?" They're going to try to talk you into going with them, of course, and forgetting that other guy, not to mention all this heretical, unheard-of, ridiculous nonsense about back up loans. Disregarding the fact that a back-up loan gives you leverage over them, they want you to put money in their pocket and not the other loan officer's.



Not too long ago, I had one of my clients tell me somebody had told her I wouldn't be making anything if I delivered the loan I promised. "Okay," I thought, "She has a fair enough concern. There's no way for her to know I actually intend to deliver this loan, and certainly no way real way to prove it until the HUD 1 is ready at signing. Just because it's me doesn't mean anything to her until I've actually got the track record of delivering what I quote." Keeping this in mind, I told her something consistent with what I'm telling you right now. Offer to do the loan documents to make the other guy her backup if he was that certain - if he was wrong, the only cost would be that his work would be uncompensated, something loan officers get used to, and if he was right, he'd be right there ready to close his loan and get paid. (The other loan officer declined. She ended up with my loan - on exactly the terms quoted at time of lock).



Indeed, in my experience, it is more likely that the person who tells you something isn't real is likely to be a closer approximation to ethical than average. This doesn't mean that the person who gave you the best quote necessarily doesn't intend to deliver. They could just be comfortable making less per loan than the competition. And this doesn't mean you shouldn't get back to the guy who gave you the low quote with some pretty pointed questions, including the information that you're signing up for a back-up loan. Make the calls and stick to your guns. Maybe you'll end up signing up with the second guy as a primary and find a different provider for your back up. It'll depend upon factors I can't see from here. But find the back up, if you can. If you can't, it likely means that the guy who quotes you the lowest rate is quoting you something that at least exists, and he could potentially deliver if he actually wants to. But there is no way to prove he wants to. Which is precisely the reason you need the backup.



Word to the wise: Do follow up on both loans. Sign the application documents for both loan officers; provide your copies to both of them. And make certain, to the extent you can, that both loan officers are actually doing their work. The backup loan is useless as leverage if it's not actually ready to go at about the same time as the primary. (This is one indicator as to which of the two loan officers knows what they're doing. It has happened that on the last day to sign and still fund within deadline, I had my back-up loan ready to go, and the primary loan officer didn't have theirs ready despite a head start. So I suppose I can't prove the other loan wasn't real - but it sure wasn't ready on time, and that's unreal enough to be another reason why you want to apply for a back up loan!



Caveat Emptor


This article has been updated here

Just gave our elder daughter her first swim lesson while Ramona (who tenses up around water) watched from behind the bush.



Just confidence building exercises - showing her she's tall enough to stand in the shallow end, then how close to floating she is if she relaxes. "If you're not scared of the water" type things. Followed by a few passes at kicking around the pool while holding onto daddy's arm.



We came back in, and she ran up to Mommy and said in a very excited voice, "Daddy showed me how to swim!!"



I think I've had my father's day present.

Impartial Media?

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I don't think so.



Dr. Sanity



via Mad Mikey



UPDATE: My bad. The correct link is here: Dr. Sanity

On Military Recruiting

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From Lt. Smash at Indepundit



I never served.



But that doesn't mean that I don't respect and admire those who do or have, most of whom never mention their heroism, as in the case of my old Scoutmaster whom I found out years later was a survivor of the Bataan Death March.



Sometimes I wish it were possible for me to personally thank every individual veteran in the United States, and follow it with my heartfelt apology for the fact that the people these fine men and women defended include these "Counter Recruiters," among others.



It wouldn't be enough. But it'd be something. And it might be a good use for this website



Just because you're exercising your first amendment rights doesn't mean you're not acting like an idiot.







P.S. And now that I've had my joke, the correct link is here

I believe, and have for many years, that where a rule of law is operative, the most effective weapon to use upon those who are abusers of what sort or another is to shed light upon their doings. Indeed, I have long thought that this is the best indicator of the strength of the rule of law - that once sufficient light (publicity) shines upon a given subject, those whose responsibility it is to perform the relevant governmental tasks will attack the problems, as opposed to those performing the illumination.



Given this, my first thought was actually to use Flashlight Crusade as a working title (and indeed, have registered that domain as well). My wife suggested Diogenes.com, after the well known pauper who spent his life looking for an honest man. However, given the number of cockroaches about, I don't want something the image of something handheld, where the cockroaches go back to doing the same old thing as soon as the holder moves on. I want this stuff to stick around, and continue to illuminate the subjects covered so that said cockroaches have to start acting like responsible human beings if they have any desire to avoid being stomped. If they act like responsible, respectable human beings, they become responsible, respectable human beings. And unlike Diogenes, I happen to believe most humans are basically honest, likable folks. However, many professional fields (including my own) are set up such that people are trained in them by basically being told, "This is the way things are done," and expected to conform because that is what is necessary. Given this as a reality, it is very difficult for an individual practitioner to stand up and say, "No. That is not the way to be treating people who put money in my pocket and food on my family's table," especially given that the mechanisms for changing these behaviors place one at a competitive disadvantage - in other words, if you try to be morally better than the competition, your business is likely to fail. And the motivations for continuing the prevalent (disreputable) practices and even enhancing them are large - these tend to be those who succeed wildly in the given fields. Quite simply, the existing practice is that individual practitioners (and group practitioners) "go along to get along". They do things the way the industry has always done them, so that must be okay, and because if they don't, they are not likely to succeed. Suffice it to say that my plan is to give them, as well as consumers, the ability to improve this situation.



I don't believe my ability to shed light is unique, nor do I believe myself immune to making mistakes and inadvertently committing the errors I go on about. I am intentionally trying to set up the conditions of maximum transparency here, for myself as well as everyone else, so that people can call me on my errors as well. I'll never improve if I don't know I've fallen short. I happen to believe that appropriate accountability for everyone is a good thing. Most people have heard variations upon Oliver Cromwell's famous "I beseech you, in the bowels of Christ, think it possible you may be mistaken." One of my tenets of day-to-day life is to realize that Cromwell himself was failing his own challenge. So I try to conduct error checking on my own, but the point of all this is that if you have your own Searchlight, Flashlight, or even Lamp to wield, please let me know. I can't be a crusade all by myself.

Contents Policy

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Contents Policy



I'm going to spend a lot of effort to keep this site as civil as possible. While the use of profanity is not going to be banned outright, it will be heavily scrutinized and discouraged. In either posts or comments, the challenge will be to speak to the issues of the argument and debate, not to the personalities. Simply because something is not profane does not mean it will not be deleted, either, if a post or comment fails on this point, or on other grounds of merit (faulty logic, abusive, etcetera). Think of the site as not quite family safe, but where it fails to achieve family safeness I hope you will agree that the lapse will be compensated for by the content.



(I'll admit I love a good Cluebatting, and am considering a category for it, where less restrictive policies apply, but am concerned it may sabotage the ability of the site as a whole to keep the debate civil. It is an unfortunate fact that these things do tend to spill over, and while a good Cluebatting is a joy to read, a poor one is pathetic, and they all tend to lower the level of mutual respect. I also am painfully aware certain people cannot be dealt with except by wielding a Plutonium Plated Nuclear Cluebat of Doom. My contention is this should still be the last resort, rather than the first.)



To encourage keeping the debate as issue oriented as possible, anonymity is going to be treated as somewhere in the spectrum from Officially Discouraged to Officially Frowned Upon to Officially Banned, with the emphasis tending towards the more severe end of the spectrum. Being anonymous is not being accountable for what you say and do. If I say something that's mistaken, misleading, or just a flat out lie, my credibility and reputation should suffer appropriately, and if you want to share my stage, you've got to live by my rules. The only beneficial uses of anonymity that I have observed in my time on this planet thus far is the ability to call someone else's attention to a situation, which that entity then investigates and stakes their own public credibility and reputation upon reporting. Even in mathematics or the hard sciences, unless your audience has the individual ability to evaluate the argument on its own merits (Something only a small portion of the populace possesses at the higher ranges), the debate usually comes down to credibility, and credibility proceeds from reputation. Anonymous has none.



To start with, I'm going to limit comments to 2048 characters - 2k. I may adjust this up or down as time does by, but the idea is that if something is longer than that, it probably deserves a post of its own. Send it to me via email. Credit will be given, if used.



I'm going to try to keep individual expert essays to a length most people can read in a break at work. If you want to submit one (or many), keep it to a manageable length, and aimed at a general audience of high school graduates. The point is not to bring the audience up to a professional level of competence, but to bring them to a point where they are educated consumers with a high probabilty of getting the best available bargain. In some cases, even a very narrow topic will require longer treatment, and that is fine, but the ambition is to make it comprehensible, accessible, and memorable, as well as accurate.

About DM

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Dan Melson



I was born in 1961, in San Diego County, California, where I have lived almost all of my life.



Politically, I am a libertarian of sorts. I tend towards small government solutions in most things, but this is subject to change for over-riding concerns. I tend to believe that if it doesn't harm anyone else, you should be allowed to do it. I tend to believe that anybody who wants to be treated as an adult, with the rights and privileges attached to adulthood, should be required to be responsible for themselves. I am a Capitalist. I find nothing inherently wrong in considering your own interest, on the individual or national level, but tend to believe that the interests that should be considered first in political decisions is overall well being of the entity making the decision, or on whose behalf the decision is being made. For example, United States officials should usually consider the interests of the United States as a whole first.



Religiously, I tend to call myself a spiritual humanist. I believe the divine exists, but it's nature is not nearly as important to me as the behavior I think it expects an adult human to manifest. I consider failing to exhibit negative behavior to be as important as exhibiting positive behavior. For those of organized religions reading this, I consider myself a supporter of those that accomplish good in the world, and I do recall both subclauses in the First Amendment that relate to religion, where some seem to forget the part about not restricting the free exercise thereof.



Professionally, I am a Real Estate Loan Officer and Agent, in that order. This is my third career. I also have or have had professional qualifications and experience in financial planning (investments and life and health insurance), and as an Air Traffic Controller.



I have been married to Ramona since 1997. She works at a Credit Union which shall remain unidentified to avoid possible trouble, even though we have a lot of praise for them, both as an employer and a place to do business. We have two daughters, Brynhilde ("Hilda") born St Patricks Day of 2000, and Ramona, born September 10, 2004 (We thought she might end up being a 9/11 baby for a while!). We have two shorthair dachshunds, a black and tan male named House-Thing ("Thing") and a female black and tan with silver/grey dapple named Mellon, as in "Say friend and enter" (But the black ball-dog usually comes first!). They're really my dogs as opposed to the family's, as I acquired them several years before my wife and I met, but they are both good with the girls despite the fact that they're getting on in years. We also have an aquarium full of the technicolor piranha known as "guppies".



My interests are (aside from professional or former professional) science fiction and fantasy, role playing gaming, computers, computer gaming, history (especially military, political, and technological history) and politics. Neat scientific, mathematical, and technological development, as well as worthwhile movies, plays, and music will usually attract my attention. I love to laugh, and to learn. Sports just isn't my thing unless I've got a personal stake. Due to family constraints, I watch very little television and movies often have to wait for the DVD.

Originalism

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From Stuart Buck



Hat tip: Eugene Volokh



Then again, why can't we restrict outselves to original interpretations (what it meant when it was enacted), period? I'm as big a believer in Marbury vs. Madison as anyone, but somehow I acquired this weird idea that it's the job of the legislative branch to create the laws, while the job of the judicial branch is to see that those laws are applied and enforced on a consistent and even-handed basis.



If something in the Constitution is truly odious to society, we have managed to explicitly amend it twenty-seven times. Or am I the only one who feels a distinctly cold draft upon reading "...and the constitution is whatever five members of the Supreme Court say it is", no matter how good a job they've made of it thus far?

By Christopher Hitchens.



At Slate



Hat tip: Ace of Spades via Inoperable Terran



Can we please remember who accusations of barbarism are effective against?



See also Harry Turtledove's "The Last Command" for a fictional illustration that should be sufficient unto the task.


(Continued from part I)



Below the "Estimated Closing Costs" line, there are three more sections. The first is "Items required by lender to be paid in advance." These are not negotiable - they are what they are, and except for mortgage insurance or PMI, correct accounting should be the same no matter who the loan provider is. Of course that doesn't stop many providers from playing games to make it look like their loan is cheaper. Sometimes the items in this segment or the one below it may not be exactly knowable in advance.



"901 Interest for (blank) days at $(blank) per day." This is a good example of a fee that isn't exactly knowable in advance. On a refinance, until the current lender comes back with a payoff demand (which are usually in the form of $X, plus $ABC.DE interest per day after Date 1, invalid after Date 2), all I can do is estimate. It should be a pretty accurate estimate if I have last month's statement. On either a purchase or refinance, when the lender's loan funder sends to the funds for the new loan, they will tell how much prepaid interest the escrow company needs to collect, which is also in a comparable form. The same thing applies to that figure as well. Until the actual quote is in our hands, all we can do is estimate closely.



The reason for line item 901 is simple. Unlike rent, mortgage interest and payments are made in arrears. They can't charge you interest until they earn it. You could win the lottery, get an inheritance, or receive some other large windfall, and decide to pay your loan off (or down). You could also sell your house or refinance it. This would affect the amount of interest the current lender is owed. So you borrow the money at the beginning of the month, it accrues interest all month long, and you make a payment at the end of the month. So when you buy a house on March 15th, the lender is going to require you to pay interest on the loan from March 15th through the 31st in advance. This gives them a chance for their servicing department to set everything up. On April first, the loan will start accruing interest normally, and your first regular payment will be due after the end of April - May first to be precise.



When you refinance on March 15, you must pay the old lender for interest due between March 1st and March 15th, which has accrued since the last time you paid them on March 1st. You must also pay the new lender for the interest due from March 16th through March 31st. Between the old lender and the new lender, this figure can never be anything but the whole entire month worth of interest, and there will always be one or two days of overlap between the time they get the funds from the new lender and the time they are disbursed to the old lender. Around the beginning of the month, it can be two months interest if the old lender hasn't received your payment yet or hasn't credited it yet. You borrowed the money from them for the time in question. They are entitled to be paid. They're not going to let you keep it out of the goodness of their hearts, especially not when you're leaving them.



As you can see from the above, you never actually skip a month (or two) in your payments when you buy or refinance your home. It is not going to happen. What is happening is that your new lender is paying for this interest out of their pocket and adding it to the loan balance where you will be paying interest on it for a very long time. Pretty sneaky, huh? Well, you do have the option of making a payment to cover this line, or any other line on this whole form. Many providers will not tell you this because they can't run up the loan amount (and their compensation) if you make these payments. If you decide to make the payment to cover this line, it will be the interest portion of your normal monthly payment, prorated between the two loans in the case of a refinance, or prorated on that portion of the month you have a loan in the case of a purchase. In most cases, I tell people to think of it as their normal monthly payment paid early, because that is a reasonable approximation.



The most common game played with this line is to decrease the number of days of interest you'll actually be paying. Let's say you're planning this on June 1st, and your loan provider tells you "don't worry about it. We're going to close on July 1st". First off, the chances of this actually happening as planned on any particular day are slim. Second, it's pointless to try. If you do close on July 1st, the lender is going to ask for all the interest for the month of July up front, and your loan starts working normally August first with your first payment being due September first. Third, I've learned the easy way (from watching other people make this mistake, not wanting to lose clients of my own) never delay closing - it always gives something else a chance to pop up, and it's amazing how often something does. It's amazing how often something new pops up at the last minute without this gratuitous opportunity. If you can close it NOW, do so. Once those loan documents are recorded, the bank can't call the money back unless you violate the contract.



As I have said, on a refinance the number of days prepaid interest can never be anything less than the entire month. Period. Somebody writes anything less than 30 days on this line, they're trying to pull the wool over your eyes. On a purchase, look thirty days out or to the last day for close of escrow according to the contract, and estimate the number of days left in that calendar month. There's the number that should be written. If a loan officer can't do it in thirty days, chances are they can't do it at all on the quoted terms or anything similar, and chances are they were playing games with you from the first. The only general exceptions to this are when refinance is booming. For instance, during the summer of 2003 the delay between complete loan package being submitted to the bank and the underwriter actually looking at it for the first time got to be more than thirty days right there, never mind the time it took for everything else. And even then I could usually run purchases through another department in close to a normal time frame. If you're not writing a check to cover prepaid interest, and you have a $270,000 loan at six percent, that's $1350 getting added to your loan when you may not want it to be.



"902 Mortgage Insurance Premium" This is another one of those lines that needs discussion. First off, the odds of it really needing to happen, or being in your best interest if it does, are vanishingly small. In the hundreds of loans I've pushed through I've never actually had a loan that included mortgage insurance. It was never the best thing to do for the client.



Let's take a step back and ask, "What is mortgage insurance?" It's an insurance policy that the lender makes you, their client, buy for their benefit so that if you default they get the full amount of their loan. The usual threshold for this is 80 percent of the appraised value of the house. Mortgage insurance is never tax deductible when it's a separate charge, and is always charged based upon the full amount of the loan, and the amount of the loan expressed as a percentage of the value of the home. The larger the loan, the more you pay, the higher your loan value as a percentage of your home's value, the more you pay. It is commonly assessed as a separate charge, but can be expressed as a rate surcharge on the loan interest you'd pay anyway (in other words, say a 6.625% rate on your loan instead of 6%).



"What good does mortgage insurance do me, the consumer?" you may ask. The short answer is it gets you the loan. It gets you the loan when you would be turned down without it. After that, it's just money out of your pocket every month. Mortgage Insurance, also called Private Mortgage Insurance or PMI, is primarily a thing that happens in the A paper world (sub prime loans are usually incrementally priced to cover the higher risk, as the lenders there are in the business of taking those risks for appropriate compensation), and more importantly, it's usually avoidable.



PMI is only charged if the first mortgage exceeds 80% of the value of the home. But if I split even a 100% loan into two pieces with the first mortgage 80 percent or below, it goes away. Yes, the second mortgage will be at a higher interest rate, and yes, the closer to 100 percent of the home value it gets the higher that rate gets. But this tends to be on significantly smaller amounts of money, and this is an interest expense - deductible in most cases. The difference in total interest expense and total monthly payment tends to be in favor of doing this even without mortgage insurance or tax treatment factored in. So when I'm shopping a given loan around, sometimes I don't always even ask about doing the loan as one loan.



"With all this against mortgage insurance, why does it still happen?" you ask. At last the critical question. Lenders usually pay yield spread (to brokers or their own loan officers) based upon the amount of the first loan. Pay for a second is typically (not always) a flat amount or zero. Your loan provider makes more money by doing it all as one loan. The loan provider wants to make more money and sticks you with the bill.



"903 Hazard Insurance Premium" This is mostly for purchases, the yearly hazard insurance or homeowner's insurance premium. Any sane lender is going to require you to pay your insurance premium through escrow or before closing. They do not want there to be even a fractional second when their investment in the property is not insured. Of course, you don't want this either. I can't imagine paying the current cost of housing around here and not insuring the investment. So they're not asking for anything outrageous on this line. Unless you are one of those people who won't insure their properties, the net cost to you is zero.



"905 VA Funding Fee" I haven't done a VA loan in three years. All I remember is that it's charged by the VA on VA loans, not by the lender. If it's applicable, it's going to be the same no matter what lender is doing it.



The final section is reserves of money held by the lender to be used to pay your expenses. This is your money; they're just holding it for you in order to make sure these items get paid on time. If you sell the property or refinance you should get this money back.



These are once again, not truly costs of the loan, unless you roll them into your mortgage where you're going to pay interest on them basically forever. The lender may (and most do) require that you hold up to two months reserves in this account. Ironically, this section of comparatively small amounts is one of the most tightly regulated aspects of the Good Faith Estimate, and the whole escrow or reserves account thing is optional - although most lenders require a small fee for no reserve account. In my experience, Escrow or Reserve accounts are usually more trouble than they are worth. I'm just going to explain quickly, and not with any dollar figures because 1) they vary too much, and for good reason 2) they are not, properly speaking, costs of the loan. As I said, when you sell the home, refinance it, or pay off the loan, you get the remaining contents of these accounts back.



"1001 Hazard Insurance Premium" in most cases, count the number of payments from the time the refinance is effective to the time that the yearly premium is due (usually on the anniversary of the date you bought the property), subtract it from 14. Multiply this number by your monthly premium. Even for purchases, the lenders will generally want a month or two of reserves.



"1002 Mortgage Insurance Premium Reserves" See my comments for line 902. If an early premium on this is due, compute it the same way as your prorated hazard insurance.



"1003 School Tax" California doesn't have it as a separate line item, or at least I can't recall seeing it broken out. Matter of fact, neither of the other states I've done loans in does either.



"1004 Taxes and Assessment reserves" This is the part to make certain your property taxes are paid on time. Same method of computation as line 1001. The lenders really don't want the city, county, or state repossessing the property out from under them.



"1005 Flood Insurance Reserves" Some homes require flood insurance in order to get a loan. Same method for computing as line 1001. If you live in or near an old riverbed, especially with dams and such on the river, research "riparian rights" sometime when you want another real world horror story.



Then there is a line about Compensation to Broker, which may be disclosed here or above. Some will try not to disclose it at all. Once again, you're looking for honest disclosure here, not the lowest number. This line makes no difference to you unless you're the one paying it. This didn't used to be required, but lenders and packaging houses got it put through in order to make the deal a broker offers you look worse in your eyes, thus handicapping brokers in their ability to compete. The thing that's important to you is what happens to you - the loan you are getting. When comparing offers, scrutinize the terms of your loan carefully, not what the broker is making on the deal. It's not like the packaging houses and many lenders aren't turning around and making even more money off the secondary market, just that that particular amount isn't disclosed anywhere.



The final section runs through three columns really fast. These are just bookkeeping, really, except sometimes you can spot your loan provider playing games if you pay attention. Remember, if this is a purchase I really hope for your sake you know your purchase price. If it is a refinance, I hope you know what your statement says. From this you can get to an approximate payoff by prorating your monthly interest. Once you have this figure, look up above on this form for the total of closing costs and prepaid items. Sometimes in a purchase your seller will give you a certain amount of credit for closing costs, so if this is applicable you can subtract those. This is the Amount You Have to Come Up With. Now subtract off new first mortgage amount, and second mortgage amount (if any), but add any closing costs for the second mortgage. The figure that is left is the Check You Need To Have. This is cold hard cash you have to come up with in order to make this all happen as described.



One of the most common tricks I've seen is for loan officers to tell clients and prospective clients they can roll the costs into the loan so they don't have to come up with cash. Despite being told this is what the client intends to do, they then give you, the client a payment quote in the third column here based upon you paying all of these costs out of your pocket - with the Check You Need To Have. In short, they're acting like all those closing costs have mysteriously vanished somewhere, like they're lurking in the Bermuda Triangle waiting to ambush some poor unsuspecting sap who will never be seen again. This poor sap is you. You're going to pay them somehow. They generally can be rolled into the loan, but make sure the loan provider gives you a payment based upon real numbers.



Loan officers know that most clients shop for loans based upon payment quoted. This is the not the best or smartest thing for you to be doing, but it is nonetheless what most people shop based upon. So many of them will play a lot of games to be able to quote you a low payment. And this is one of the games they play, quoting you a payment based upon the loan without the closing costs of the loan added in. If you have a financial calculator, use it. If you can do the math yourself, better. Otherwise, go out and do a web search for financial calculators or mortgage calculators. Automobile loan sites will probably be programmed incorrectly (different assumptions), but pick a couple of others and punch the numbers in. Make certain that the real loan amount you're going to need jibes with the payment they quote at the rate they quoted. Of course, this all assumes that they're being upfront and otherwise honest and are not going to hit you with three points out of the blue, but you do the best you can with what you have. Oh, and now that you're done applying for your loan I strongly suggest you find someone willing to act as a back-up loan provider so that you can offer the person who just gave you this form a concrete reason not to hit you with those three extra points.



Caveat Emptor



UPDATE: This article has been updated here

I had a great rant about the limitations of the Good Faith Estimate all planned out in my head when I when I was in the very first stages of planning this blog in my head. It was the first idea I had for an essay, as it is the most commonly abused item in the whole mortgage system of ours, and abuse of the GFE (as the industry calls it) sets the stage for a significant amount of everything else that goes on.



Then California pulled the rug out from under the rant. There's a new form called the California Mortgage Loan Disclosure Statement, which we are all required to use in lieu of the Federal GFE



I don't know if it's a character limitation or what, but when some new regulation or disclosure requirement it's just not in my nature to immediately go out and see how much I'm permitted to game the new system. The abuses of the Federal Good Faith Estimate and the fact that pretty much all of them were actually legal had been something that took time to soak in back when I first got into the business, although a short stint with a Company Which Shall Remain Nameless was a real education. On the other hand, interim regulations are notorious for mirroring previous standards. Furthermore, I'm certain that somewhere in Sacramento lobbyists are paying bribes campaign donations so that just this or that little detail can be changed "just a little in a way that doesn't really make a difference," and eventually the cockroaches will have all of their safe harbors back. But for right now, things are a little unsettled. The downside of which is that I don't know about abuses of the new form yet, because I haven't seen any myself.



On the other hand, the federal Good Faith Estimate is still the form in use in the other forty-nine states. On that note:



On the line above where all of this starts, there should be written a total loan amount, an interest rate, and a term (360 months for all 30 year loans, whether it is fixed for the full term or not - numbers less than 360 mean that the loan is due in full in less than 360 months. This can be one clue that they're trying to hit you with a balloon payment loan). As I have said elsewhere on this site and will continue to stress, just because a mortgage provider puts these numbers on a Good Faith Estimate does not mean that they have any intention of actually delivering them. I think bait and switch is the official company game of many providers. The Good Faith Estimate is THE most abused loan document, bar none. It's supposed to be a real estimate of what the loan is going to be like, based upon the loan officers best estimate. In practice, it's become nothing more serious than the loan provider wants it to be. In many cases, it's almost like a joke: "(giggle) and this is what we had to tell him in order to get him to sign up! (loud guffaws)" and this carries through the rest of the document as well. The relationship of the loan described on the Good Faith Estimate to the loan that is actually available and that said provider will actually deliver is completely arbitrary and up to the provider within very broad limits. Because at the end of the process, the client has very little leverage to get the provider to deliver the loan they talked about to get you to sign up. Unless, of course, you signed up for a backup loan like I keep telling you to do.



Now, it is also important to note that with two exceptions, all of the fees below are commonly held in abeyance until the end of the loan process, and you don't owe them if you don't end up refinancing with that company. They can be added to your loan balance instead of being paid out of pocket. It is the biggest red flag I know of for a loan provider to ask you for money up front beyond the credit report.



The first actual line item on the Good Faith Estimate is "801 Loan Origination fee." This is an explicit fee charged by the loan provider who signs you up. It can be expressed in dollars, but it is more commonly expressed in terms of "points". One point is one percent of the final loan amount. Put another way, if you have a loan for $198,000 plus one point, the way to do the computation is $198,000 times 100, divide by 99 (100 minus the total number of points), which equals $200,000. It's probably not intentionally unethical if the loan officer uses $199,980 ($198,000 plus 1%, or $1980) on a quick calculation, just a desire to get an approximate answer quickly. It's still not mathematically correct. Now, if as is common, the loan provider only writes down 1% here rather than converting it to dollars as well, it can appear as if that loan is much cheaper at first glance or to the uninitiated than it actually is. If you've got a loan that's $200,000, leaving the estimate as one point without an explicit dollar figure is a way of making it look like the loan actually costs you about $2000 less than it will. Two points without an explicit dollar figure is twice as much ("The other guy wanted $5000 to do my $300,000 loan, but this guy only wants $3000 and two of these point thingies. What a great deal!" You would be amazed and dismayed how often I have to explain even to people who know what points are that $3000 plus two points on a $300,000 loan is about $9000). Nor is this figure, whether expressed as points, dollars, or both, carved into anything more than silly putty. I worked for a short time at a Company Which Shall Remain Nameless, and one of the things that got me yelled at several times, and one of the many reasons I left, was that I violated company quoting policy by actually adding in all of the little miscellaneous adds for half a point here and a quarter point there that the customer was going to get hit with at the end of the process anyway, and telling the customer about them up front. Finally, there is no reason why this line has to be nonzero in all cases, and indeed I've done more loans without than with.



The next line is "802 Loan Discount". In theory, this is supposed to be used only for actual discount points charged by the lender. In practice, it is used almost interchangeably with "Loan Origination Fee" on the line above (not without some justification in fact, which is beside the point of this essay). Once again, watch out for whether the figure in points is converted into an actual dollar value. Again, there is no reason why this line has to be nonzero, and I've done more loans without than with.



"803 Appraisal Fee" in California is $350 to $450 for the average home, depending upon what that particular appraiser charges for that particular job. It is legitimate and correct to mark this as PFC (prepaid finance charge) so long as the loan officer gives you an approximate figure. Unless they have a contract with a particular appraiser, it's not under the loan officer's control. This is another place where many providers play "hide the closing costs." Quoting from one less than ethical example "Hey, I'm not the one charging it and if it makes my loan look better than the guy stupid enough to tell the client, that's not my problem." I tell people with average homes that it's likely to be about $400. The abuse that happens here is that this is one of those things that's called a "third party charge" - paid to a third party service provider. As such it is not included in total fees when calculating APR on the "Truth In Lending Statement", and will almost certainly not be included in any computation of total fees by your loan provider (Other than me, I know exactly one company that includes it). The vast majority of those billboards advertising "Total fees $X" really mean "Total fees $X plus third party fees," not to mention the fact that they're going to give you a rate which gives them an Earth-Shatteringly Large Rebate (see my essay on rates and points when it's posted for more). It is not unethical for the loan provider to ask you to pay the appraiser at the time the appraisal is performed, provided the person being paid is an external appraiser (see my essay on the appraisal for in depth reasons).



"804 Credit Report" is usually somewhere around $20. Single Individuals buying a house on their own are cheaper than two married people, but unmarried individuals must each be run separately, and so it may be a little more than $20 if you're buying a house with your brother, parents, or whatever. It is neither unusual nor unethical for the loan provider to ask you to pay for this up front. So long as the check is written to the credit reporting service, there's nothing wrong. And there is a rule going into effect that we must have explicit written consent to run credit from every person, so don't get angry with your provider for following it.



"805 Lender's Inspection Fee" is charged by the lender to have one of their inspectors go out and take a look and make certain the house isn't falling down. It is common for the lender's fees to be ignored by a broker, and then you'll get another Good Faith Estimate from the lender that discloses this. On the other hand, this is not necessarily charged on every loan. Many lenders will rely upon the appraiser's work in this, and not do one of their own, particularly on refinances. Since (assuming you're sane) you're going to want a building inspection yourself in the case of a purchase, the lender may make it a condition that they get a copy. And, I will admit as a broker that although I do disclose a total of all lender's fees I know about, I don't always break them out into categories and may amalgamate them all under one category. (I can ask a lender what their fees are, and one will tell me A, B, and C adding to $750. The next one will tell me A, D, and E adding to $780. The third might tell me B, E, and F adding to $995. And so on. The brokerage I work for is approved with well over fifty lenders. I maintain that as long as I disclose the total amount, most clients don't care whether it's going to underwriting or document preparation or spa visits for the CEO. It's just not important to them where it goes. It's a fee they've got to pay to do business with that lender and get that loan. Whereas I will help them consider the total cost in comparison to the cost of other options, this total is not subject to negotiation).



"808 Mortgage Broker Fee" (there is no line 806 or 807 on the form). This is another fee potentially charged by a brokerage. Just because it's not, or listed as zero, here doesn't necessarily mean you're not going to end up paying it. One trick I've seen is leaving it blank at the beginning, then at the end it's "We charged that based on how difficult your loan was. You don't expect us to work for free, do you?" Trust me, they're not working for free. Although I don't think the level of trust you need to have in me in order to believe this should be astronomical.



"809 Tax Related Service Fee" I've never had to include it as a separate line item even if present. It's usually amalgamated and lumped in with something else, if it's applicable.



"810 Processing Fee" This is what they pay to the nice person who processes your loan and coordinates your transaction while the loan officer is off doing loan officer things. This varies, but I'd be very suspicious of anything less than $300. I know brokers that say to charge $600 when they pay the processor $300. My attitude towards that is that at least they're telling you, the consumer, about it up front. Better that than being told $300 and hit for $600 at the end. The processor knows what they make. The broker knows what he pays the processor. Don't worry if the processor gets the whole thing. It's not your concern, and it's not really negotiable, and whereas you have the option of going elsewhere, the elsewhere you go has the option of lying to get you to sign up.



"811 Underwriting fee" is charged by the bank to pay their underwriters. It's also a good category for brokers who hate pointless detail to lump all of a lender's fees together in. Be suspicious of anything less than three to four hundred dollars - typical actual underwriter's fees. But just because he's showing $995 here where everyone else is showing $400 doesn't mean he's overpriced. Just to mention it, if you are doing a first and second simultaneously with the same lender, the lender's fees will go up by about $500 to cover the second. If the second is being done with a different company, they're probably going to charge a whole other set of lenders fees.



"812 Wire transfer fee" is charged by the escrow/title company to wire the money into your account for immediate availability. Otherwise, it's going to be a few days before the check clears. If it isn't something advantageous to you, don't get it. Most of the time it probably isn't necessary, but considering daily interest on typical amounts of real estate transactions, it may be a good investment. Last time I had this done for a client it was a little under $25. The lenders fees I've talked about elsewhere usually include a charge for wire transfer between them and escrow or title, but this doesn't cover you.



Below this are several blank lines. An ethical loan provider will use them to disclose that he's getting a rebate from the bank (assuming he's getting such a rebate) or tell you that the price quoted includes a rebate to you from them reducing the price, if such is the case. (Most of the loans I have done tend to have this feature. You'll find out why in a different essay). Just because provider A is getting a bigger rebate does not mean provider B has a better loan. It happens quite often that one broker shops a better lender or works a little harder. A 5.5 % loan with $3500 in total closing costs is a better loan than the same loan type with the same terms at 6% with $5000 in total closing costs, even if the broker in the first case is getting paid $10,000 (to pick an extreme figure) more by the lender. Now it's unlikely that there's that much of a difference in broker compensation when the one is delivering a better loan, and if there is that much of a difference I'd bet millions to milliamps that the loan terms are different. But the point is for you, the consumer, to look hard at the actual terms of the loan involved - that's what's important to you. There was just a study released a couple months ago about how most people would just choose the loan where the broker made less money, or where a loan provider's compensation wasn't disclosed, rather than the loan that's actually better for them (If anybody finds a link to it, send it to me. I tried and couldn't find it among my search engine results). If we weren't all adults here, I might need to make the point that if the loans are otherwise the same, the broker in the first case earned every penny of his extra pay by finding you a better loan on the same terms and qualifying you for it. But we are all adults here, so you know that.



There also may be other fees listed here. I've only done significant business in three states, but there really is no need for anything else that I've seen. Additional fees in this area usually amount to a "Loan Officer's Latte Fee", or a "This is going to make me miss my surfing!" fee. If they actually list them, at least they're telling you up front instead of keeping it a deep dark secret that the consumer has no way of knowing about. Every once in a while, I'll see somebody write something like "Amalgamation of lenders fees" rather than using line 805, 811, or 1105 to cover it.



Finally, some states require a survey if none has been done for a certain period of time, usually ten years. This will cost $300 to $400 if required. These requirements are the same in each given state no matter who the lender is. It's rarely the case that one lender will require it where the state will not. As a disclaimer, I haven't worked in any of these states.



So when we look at this section, we are left with midpoint fees of $400 for the appraisal, $20 for the credit report, about $800 between line 805 and 811 and miscellaneous other lender imposed fees, and $500 for processing. Believable total, thus far, $1720, plus the amount for any points you pay, less any rebate to you. $2220 or so if you're doing a simultaneous first and second, $2500 or more if you are getting a first and second from different lenders.



The next section is title fees. These are the fees you are charged by the title company for doing the work necessary and writing appropriate policies of title insurance upon the transaction. Title insurance is a part of every real estate transaction in California, although I am given to understand there are still states where it isn't necessarily so. And even in California, if you're silly enough to buy the property for cash and insist that you don't want any kind of coverage in case it turns out later that the seller didn't really own it, or that what you think you see is not necessarily what you got, it is possible to do a transaction without title insurance. Otherwise, when you buy the property, the seller should, as a condition of the sale, buy you an owner's policy of title insurance. When you get a loan on the property or refinance that loan, the lender will require you to buy them a lender's policy of title insurance. In California, average transactions may be a little larger than many other states, so I'm going to use a property with a purchase price of $300,000 and a loan of $270,000 for examples. It's large for many other states, but smallish for California, and here in San Diego right now it's a decent to middling two bedroom condo of about 900 square feet where the prospective buyer actually has a 10% down payment, which is unusual. Good agents and loan officers do these in their sleep. (And I'm well aware that in the vast majority of cases, I can save my clients a lot of money by splitting these into a first and a second. Work with me here for the sake of simplification. And I'm also aware that the same thing can be over $1,000,000 in certain areas of Manhattan).



"1101 Closing or Escrow Fee" depends upon the company and type of escrow. Many loan officers will write PFC, but ethical ones should tell you what it costs. Middle of the road is $450 for a refinance, the same plus $1 per thousand dollars of purchase price, divided by two for a purchase, because it is split two ways between buyer and seller. Like the appraiser's fee, attorneys fees, and title insurance, this is a third party fee that is excluded from the calculation of APR, and it's not under the lender's control unless there's a contract. Still they should let you know how much it's going to be, as it's not like there's any possibility of you not having to pay either an attorney or an escrow company, and many will pretend it doesn't exist or try not to give you a dollar value, as $X plus unknown escrow charges sounds cheaper than $X plus 450 for refinances or $X plus $375 for a purchase



"1105 Document Preparation Fee" somewhere between $100 and $200 in most cases, this covers the cost of generating the mortgage documents. Will be covered in total lender's fees if that's accounted for elsewhere. Grant Deeds, etcetera usually prepared by the title company for the process will be extra, usually about $50 per document.



"1106 Notary Fees" $100 to $150 is reasonable, and about the range of what the various mobile notary services charge. Even if your loan officer agrees to act as notary, this is likely to be charged. You may or may not be able to save yourself money by taking it somewhere yourself as state laws are different, but if you do, you're going to have to cover it out of pocket, and you're going to have to deal with the issue of the notary's business hours, taking time off work, everybody who's party to the loan being there to sign, etcetera.



"1107 Attorney Fees" Some states require the use of actual attorneys to do the escrow function. Lenders should not charge you both this and escrow. On the other hand, attorneys are more expensive. I haven't done any actual work in these states but from what I can tell $800 is about average. Disclaimer: the company I was working for at the time may have had a contract for reduced rates to which I wasn't privy. Like appraiser fees, escrow fees and title fees, this is a third party fee excluded from APR calculation, and can be marked PFC, but the loan officer should give an known dollar value, as the company should have a contract with the attorney's office. Once again, unethical providers will try to keep a dollar value from finding its way onto the paper because it looks cheaper that way.



"1108 Title Insurance: Like Appraisal, Escrow, and Attorney's Fees, this is a third party charge, and as such is excludable from the calculation of APR. A dishonest loan officer will mark it PFC without telling you how much, as once again, $X plus unknown title fees sounds cheaper than actually adding the title charges from the rate book to the paper. In the case of a purchase, the seller should purchase an owner's policy for the buyer, and the buyer's lender will require the buyer to purchase a lender's policy of title insurance, which should be heavily discounted because it's the same title search under slightly different rules of relevance. In the case of a refinance, the lender will require the borrower to purchase this. I took an average of the costs to the nearest dollar between several rate books, but they companies are really pretty comparable in most cases. If the property had a policy of title insurance issued on it within five years (the vast majority of properties qualify, as only about three percent of all mortgages are older than that), the owner's policy will cost the seller about $1004 base rate, and the concurrent lender's policy will cost the purchaser $453 (remember, this is a $270,000 loan on a $300,000 property). In the case of a refinance, the lender's policy would cost $823.



So adding this section up at the mid points, in the case of a refinance you have $450 or $800 (depending upon your state), plus $150 plus $125 plus $823, totaling $1548 or $1898, depending upon your state. In the case of a purchase, you're talking about $375 or $800 (again depending upon your state) plus $200 (somebody is going to have to do a Grant Deed) plus $125 plus $453 (remember, the seller usually pays for owner's policy of title insurance, and we're talking about a Good Faith Estimate for a loan, which the seller doesn't need unless he's buying another property) totaling $1153 or $1578, depending upon your state.



I'm going to lump two sections into one here.



"1200 Recording Fees" charged by the county recorder. Should be the same for every lender. In San Diego County it's currently $63.



"1202 City /County Tax Stamps" Some city and county governments have an intangibles tax on mortgages.



"1203 State Tax/Stamps" Some states have an intangibles tax on mortgages, computed based upon the dollar amount of the loan. Usually it's the states without state income tax. If your state charges this (California doesn't), it will be the same no matter your lender. If one company gives you an estimate that's different from everybody else, that's a matter for investigation.



"1302 Pest Inspection" If something raises a red flag with the lender, they will require a pest inspection. There may also be areas of the country where it is required of every loan, but I've never heard of one. On a purchase, you're going to want a pest inspection anyway. There is potential for abuse (somebody charges you $200 and orders a $100 inspection), but it's relatively small potatoes, and most just won't bother when it's so much easier to hide big ticket scams elsewhere. Order it yourself from an approved vendor if you're concerned.



So the section total is $63.



Below these sections is a line "Estimated Closing Costs". This really is the total of all the closing costs associated with the loan. I keep telling you that the numbers which go onto this sheet may be fictional or incomplete, but if they are actually complete and correct then the number here on this line is the most important one on the whole sheet. This is the total of the costs you're really paying to get your loan. Some call it the "total of non-recurring closing costs." If you pay attention to nothing else on this sheet, (begin Groucho Marx accent) chances are that you're being taken for a ride (end Groucho accent). But this is the most important single number. Adding the midpoint estimates from the sections we come up with $1720 if you're getting one loan on a refinance so $1548 or $1898 (depending upon your state) plus $63 plus any charges for points. Using consistent assumptions, this makes for a total for a refinance $3331 if you live in an escrow state, $3681 if you live in a state where they require lawyers to get involved. The totals for a purchase under these assumptions is $2936 or $3361. None of these numbers account for points you're paying or rebate you're getting, of course.



Just to make an important point again, this sounds like a lot more than $1658 plus third party fees, doesn't it? If offered the choice between buying one item for $3331 and buying the same item for $1658 plus third party fees, most people think the second choice sounds cheaper. However, as I've just demonstrated these are exactly the same given comparable assumptions. And there's a lot of leeway in those third party fees for junk fees if your loan provider wants to make use of them to pad their own pocket, not to mention they could trivially be much higher if your loan provider doesn't choose third party providers wisely. Insist upon actual numbers.



(continued in Part II)


UPDATE: This article has been updated here

A mortgage is basically pledging an asset that you own as collateral for a debt. If you default on the debt, the lender takes your property. When you're talking about real estate in the state of California (and many others), this is generally accomplished by use of a Deed of Trust. There are three parties to a Deed of Trust: the trustor, trustee, and beneficiary.



The Trustor is the entity getting the loan.



The Beneficiary is the entity making the loan.



The Trustee is the entity which has the legal responsibility of standing in the middle and making sure the rules are followed. When the loan is paid off, they should make certain a Reconveyance is completed and sent to the trustor so they can prove it was paid off. If the beneficiary is not being paid, they are the ones who actually perform the work of the foreclosure.



One thing to keep in mind during all discussions of real estate and real estate loans is that the amounts of money involved are usually large - the equivalent of somebody's salary for several years on every transaction. The temptation to fudge the numbers or even outright lie to get a better deal, or to get a deal at all, is strong. Many people don't think they're really doing anything wrong by fudging things a bit, but this is FRAUD. Serious felony level FRAUD. Fraud, and attempted fraud are widespread. There are low-lifes out there who make a very high-class living at it (for a while). Every lender has to devote a large amount of resources to determining that each individual transaction is not being conducted fraudulently. To fail to do so would be to fail in their jobs to protect their stockholders and investors. I can, and probably will, tell stories about the most common sorts. But the reason everything in every real estate transaction is gone over with such a fine-toothed comb that adds thousands of dollars to the cost of the transaction is that people lie. Every hoop that anybody is asked to jump through has a reason why it exists, and often that is because somebody, usually MANY somebodies, have committed FRAUD based upon that particular point.



One of the conditions I must attach, implicitly or explicitly, to every quote for services, is that this is based upon the condition that you are telling me the truth, the whole truth, nothing but the truth, and are being honest and forthright in your presentation of the facts without trying to hide anything and are specifically calling my attention to anything that you suspect may be a problem. And because the list of what is relevant information is long, complex, and conditional upon factors that are often opaque to non-professionals, sometimes, people quite honestly don't realize that something is a fly in the ointment so they don't mention it. I, or any other professional practitioner, have no way of knowing that said fly exists unless you, the client, tell me about it. Therefore what I tell you initially does not account for said fly. This is not unethical, it is just a due to the fact that I don't have all of the relevant information..



When you're talking about residential real estate loans there are basically two absolute requirements as to the nature of the collateral. The first is land - land as in real estate. A partial, fractional, or partial ownership of a common interest in land (as in a condominium) are each sufficient unto the task. A rented space to park your mobile home is not.



To that real estate, there must be permanently attached in a way so as to prohibit removal, or at least make it an extended project, a residence in which people can live. We're all familiar with you basic site-built house. Personally, I'm a big believer in the virtues of manufactured housing. To paraphrase Robert A. Heinlein in precisely this context, imagine a car for which all the parts are brought individually to your home and assembled on site with ordinary portable tools in an environment which was not specifically designed to facilitate said assembly. How much would you expect to pay, and how would you expect it to perform? The correct answers are "A LOT more than for your house", and "not very well, in terms of either reliability, speed, or economy."



Nonetheless, when a lender looks at a house that's been moved TO the site, they see one that can be moved AWAY from the site as well, and they are skeptical because so many people have done precisely this. Furthermore, the way that residential real estate is valued is arcane. The lot itself may be worth $400,000 here in California because it has $150,000 of improvements on it in the form of a three-bedroom house on it, but take away that three-bedroom home, and the lot may be only worth a fraction of the amount. So they loan you money based upon a $550,000 value of the combination as it sits. Some time later, you back your truck up to the house and cart it off, and then default on the loan, leaving the bank a lot may only have a value at sale of $80,000. Now imagine yourself as the bank employee who made the loan. How do you explain this to your boss? Over the years, many bank employees have had to explain this to their bosses, all the way up the chain of command to CEOs explaining to investors and stockholders. Lenders know that most people are honest - but they've got a duty to make sure you are among the honest ones. And if you subsequently lose your job and can't pay your mortgage, might you not be tempted to back the truck up and haul the house off somewhere if you could so the bank can't take it? There are good substantial reasons why many lenders won't approach manufactured housing as residential real estate, and the ones who do treat it as such charge higher than standard rates, and place further limitations on lending.



I've been personally eyeing a beautiful manufactured home that more than meets my family's needs, is in the middle of the area I want to live in, and is priced more than $100,000 lower than comparable sized and lower quality site built homes on smaller lots. Yet there is a reason for that lower price. It's not like that owner just decided to list it for $150,000 less than he could get. The home carries many higher costs. If I buy that home, I am going to be paying for it in the form of higher loan costs every month, and higher loan fees every time I refinance until I sell it, and fewer people able to buy the home when and if I do sell it as a result of loan constraints, and a I can expect lower eventual sales price as a consequence - which is the situation that owner is in right now. I have reluctantly decided that those costs outweigh the benefits. My decision is regretful, but until somebody comes up with a procedure that banks agree makes manufactured housing equal in every way to site built in their eyes, it is also firm.



Caveat Emptor.



(And I must say that if somebody comes up with such a procedure, you will be a gazillionaire, and deserve every last penny and then some. I hereby publicly forswear all claims of compensation for the idea of such a procedure. If you can make it work and it makes you rich, I won't ask for a penny, although any contribution you care to make voluntarily will be happily accepted. I just want to be able to say you got the idea from me, as part of my contribution to a better world)


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