April 2006 Archives

The easy, general rule is that legitimate expenses all have easily understood explanations in plain english, they are all for specific services, and if they are performed by third parties, there are associated invoices or receipts that you can see.



Let's haul out the Mortgage Loan Disclosure Statement (California) or Good Faith Estimate (elsewhere), and go right down them line by line. Now, to be certain, it's the HUD 1 form that's really definitive, but if it's not on the earlier form it shouldn't be on the HUD 1.



Origination is not a junk fee. It can be excessive, but it is a real fee to pay a real service. Relating to this is Yield Spread on the HUD 1, which is what the lender will pay the broker for a loan on given terms. Origination plus yield spread plus line 808 (Mortgage Broker Commission) is what the loan provider makes if they are a broker. If they're a lender, they make a lot more, and they can hide it more easily. Yield Spread and Origination and Broker's Commission are disclosed on the HUD 1, while the price on the secondary market is not disclosed anywhere, and if you're talking to a direct lender, they don't have to disclose Origination or Yield Spread because there (usually) isn't any; they are paid directly off the premium the loan sells for in the secondary market. This is why I keep telling people to shop for loans based upon the terms to you. If you evaluate it on the basis of loan provider's compensation, a broker who has to disclose compensation of $4000 is going to look like a worse bargain that the direct lender who does not apparently make anything but turns around and sells your loan for a $25,000 premium. In this example, the broker's loan is likely to be about a point and a half to two points cheaper to you, but if you evaluate it on the basis of who has to tell you how much they make, you lose.



Loan Discount Fee is the fee you pay in order to get an interest rate lower than you would otherwise be offered. It is not junk, but you probably don't want to pay it, as most folks never recover the money they pay to get the lower rate via the lower payments and interest rate charges. I never pay discount points for anything except a 30 year fixed rate loan that I'm going to keep at least ten years.



Appraisal Fee is not junk. There is an appraiser who needs to get paid for doing the appraisal. Many times this gets marked PFC on the MLDS/GFE, to make it look like a given loan provider is cheaper than they are. Make no mistake, there's going to be a figure in the range of $400 associated with it eventually, but because it's performed by a third party, the loan provider can (and often does) pretend it doesn't exist as part of the charges until you have to pay it.



Credit Report is not junk. It's not free to run credit, you know.



Lender's Inspection Fee is usually (not always) junk. You're paying the appraiser. If you're smart, you're paying a building inspector before you buy, and the lender usually makes you do it even if you don't want to. Every once in a while, there's a home with a documented pest or structural problem that the owner wants to refinance, and that's where this comes in as non-junk.



Mortgage Broker Commission/Fee: Is all a part of how the broker gets paid. Around here it's origination and yield spread, but this could be part of what a broker gets paid. Origination plus Yield Spread plus this line is the total of what they get paid. If these are larger at closing than when you signed up, that's par for the course most places, unless they guaranteed their fees up front in writing. I do it. I know one other company that does it. Those who are members of Upfront Mortgage Brokers guarantee the total of the items that are their fees, but not the rest of the form. For anyone else, they can and most will change the numbers on these forms within very broad limits (and to illustrate with an example someone recently brought into my office, the difference between one quarter of a point and three points on a $450,000 loan is over $12,000).



Tax Service Fee is not junk, unfortunately.



Processing fee is not junk but it may be negotiable. When it's imposed by the lender, it's not. When it's imposed by the broker, it's to pay the loan processor, which may be negotiated sometimes. It is a real fee, however.



Underwriting fee is real. Lenders charge it to cover paying the underwriters.



Wire Transfer Fee is real, because it costs money to wire money. If you don't need it, don't get it.



Prepaid Interest (line 901) is definitely not junk. This is interest, exactly the same as you're going to pay every month of your loan.



Mortgage Insurance Premium is not junk but is avoidable.



Hazard Insurance premiums are not junk, either. This money is to put a policy of homeowner's insurance (or renew an existing policy) on the property.



County property taxes are not junk, either. Rats. If you buy during certain periods of the year (e.g. April through June in California), you'll need to reimburse your seller for property taxes they already paid.



VA Funding fee is charged by the VA on VA loans only. Not junk, but if it's not VA, it doesn't have this. As I remember, if you're 10% or more disabled this can get waived.



Reserves deposited with lender are not junk, either. They will be used to pay your fees as they become due.



Title charges: Settlement or Closing Escrow Fee is a real charge to pay the escrow company. Like Appraisal fee, this is often marked PFC, but something like $500 plus $1 per thousand dollars is common.



Document Preparation Fee is mostly real, and actually the lenders do most of it these days. When the title or escrow company need to do it, they will charge fairly steep rates (I've seen $200 for a single sheet document), but you are kind of a captive audience unless you discuss it beforehand.



Notary Fee is to pay the Notary. It's real. It often falls into the PFC trap, previously discussed for Appraisals and Escrow, but you really do need this stuff notarized. Sometimes you can save some money by finding a less expensive notary, but this can bring up other issues, like getting everyone to the same place at the same time.



Title Insurance is real. If it's a purchase, there will actually be two policies of title insurance purchased, one for the new owner and one for the lender. This insures against unknown defects in the title of your property, and yes, title claims happen every day. Lenders won't lend without one. Title insurance is another one of those third party fees that gets marked PFC so that less scrupulous loan officers can appear to be less expensive than their competition.



I'm going to mention subescrow fees here, even though they aren't preset onto the form, and are not only junk but also avoidable if your agent did their job. The title company charges them because they are usually asked to do work that is, properly speaking, the realm of the escrow company. But if you choose a title company and escrow firm with common ownership, they will likely be waived.



Government Recording and Transfer Charges are not junk. They are charged by the county, and they are not avoidable, nor should you want to. Recording fees and tax stamps (if applicable) are just part of the cost of doing business. Beware of one provider pretending it doesn't exist while another honestly discloses it.



Additional Settlement Charges. Pest Inspection is the only one on the form, and it is not junk. You want a pest inspection.



Now, you'll notice that of the permanently etched items on the form, there's not a lot of junk, but everybody keeps talking about high junk fees. What are these, and where are they?



Well, some of the things that people talk about as junk fees aren't junk fees. These are fees like Appraisal fee, escrow, credit report, notary, etcetera. These are, incidentally, half or more of the closing costs for most loans. They may have been hidden from you on the initial form, but they're not junk. They are essential parts of the process, and if you don't see explicit dollar values associated with them, somebody is trying to lie about their fees by not telling you about all of them.



Nonetheless things that really are junk fees are a real problem, but the reason they're not among those listed on the form is that the items listed on the form are mostly real. It's the extra stuff that gets written into the extra lines that you've got to watch out for. It is fine and legitimate for a loan officer to write "Total of lenders fees $995" or whatever it is. On the HUD 1, these should be broken out into separate charges, but this way the loan officer only has to remember one number. As long as they add up correctly, no harm and no foul, and it doesn't make any difference to you whether it's underwriting or spa visits for the CEO, it's part of doing business with that lender. What is probably not legitimate is to start writing all kinds of other fees. Miscellaneous fees. Packaging fees. Marketing fees. Legitimate Messenger fees should be something you know about because you need them at the time they happen. But the majority of messenger fees are the title/escrow company trying to get you to pay for daily courier runs that happen anyway. If you choose the right title/escrow combination, you should be able to avoid them in most cases.



It is also a common misconception that all junk fees are lenders junk fees. I don't impose junk fees on my clients, but even coming into situations other loan officers have left behind, title companies and escrow companies, in general, appear to impose about an equal amount in junk fees with most loan providers.



Caveat Emptor.

UPDATED here

Carnival of Liberty Recommended: New World Man (with an offensive topic warning!)



Carnival of The Vanities Recommended: Liberal Wrong



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Iran ready to transfer nuclear know how



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Mine blast survivor says some men's air packs didn't work. This is potentially big, and this is potentially bad. Like some folks should be going to jail big. They were "found to be operative" by the governor's advisor, but if the folks who were supposed to be able to use them to save their lives couldn't use them, I see the following possibilities:



1) Survivor misremembers, or has his own reasons for saying some of them didn't work. For instance, if he establishes that they didn't work, the mine operator and government have a larger liability towards him.



2) Mine management failed to train workers to use them properly. In other words, deadly failure to comply with OSHA.



3) They appeared not to work even though they were functioning properly. In other words, poor equipment design. When your life depends on something, it should be plainly operating or not operating. This is also an OSHA issue, albeit engineering rather than criminal.



4) They did not work properly, despite claim that they did. It could be that they didn't test every one of them, or it could be that they said they were working for liability and/or political reasons, not expecting the only survivor to be able to make hash of their statement. If this is the case, heads need to roll from among those who claimed they did, as well as from those who were responsible for keeping them working.



My belief is that 1 or 4 are the most likely by Occam's Razor. The fact is that both sets of folks may have reasons to want the world to believe what may not be the real facts of the situation. But 2 and 3 also need to be checked out.



Here's more: Feds Try to Reassure Miners on Air Packs



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Don Surber did have a nice little article about the etiquette of blogging and journalism.



I agree, but want to add one more rule: Give folks the maximum reasonable benefit of the doubt. I'm not talking thirty thousand unimpeachable witnesses and ten clear photographic records. But if the facts leave wiggle room, most folks are pretty decent people. Automatically assuming the worst, about anyone, does nobody any good. I can tell you good things, sometimes a surprisingly large number of good things, about most of the worst excuses for a human being who have ever walked the planet, including most current politicians of the party I dislike most. Furthermore, inflating trivial offenses leaves us proportionally less concerned about real atrocities.



While I'm at it, since Mr. Surber prompted me, I'll link to EFF's legal guide for bloggers.



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It was only a matter of time department: Ransom Trojan horse demands money with menaces



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Who says it's the capitalists who will sell the hangman the rope to hang them with? Chinese envoy opposes resorting to Chapter 7 resolution on Iran



Meanwhile: Nuclear Agency Says Iran Has Defied U.N. Security Council Deadline to Freeze Uranium Enrichment



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Debunking the Race card on social security reform



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Lot of this going around: CT settles suit against 'predatory' home brokers. Going to get worse, too. Look at how long that one took to get through the courts.



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Eidelblog thoroughly debunks a socialist's agenda driven representations.



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Oh, that liberal media bias, part infinity plus one: Carol Platt Liebau has the deconstruction.



(Yes, I'm well aware of the mathmatics of infinity. I'm making a couple of points)



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Every so often, I go over to the big leftist echo chambers to see if they have anything that changes my mind. Usually I find stuff like this: Dems sue Bush to enforce Constitution



Doing a little bit of research, I find out that despite the howls of outrage on how horrible it is, the actual thing they were intending to pass is more favorable to the claimant, and the medicare industry is trying to get it changed. In short, the left is decrying the Elephants caving to lobbyists, when in fact the correct version of the bill passed by congress is less favorable to the industry because it gives them less rental income!



The bills were certified by the leadership, and passed in correct, non-typo form to the President for signature, and the error was certified to be a typo, like any number of other such typos that creep into bills from time to time, and have historically been dealt with in precisely this fashion. But the Donkeys are seizing it as another opportunity to drag their feet.



I'm all in favor of the government dragging their feet, of course, but if we're going to drag our feet, let's drag

our feet. Stop all non-essential functions until this gets resolved! No more government checks to anyone!





While I'm over at left wing sites, Democratic Underground re-emphasizes why I often call Donkeys "Dumbocrats" just like I'll call Elephants "Repugnantcans". They're all over it with quotes like "What kind of a reality disconnect is this? Dude pleads GUILTY, HIMSELF, to FELONY charges, and the House committee finds NO wrongdoing?"



Except that if you carefully read the source article, here, you find it's an audit of how ex-congresscritter Cunningham might have improperly influenced the work of the committee due to his bribery. Their conclusion? One program got into their markup, but wasn't a part of the final budget. So although Cunningham admitted taking bribes, the net effect on the government (at least through this committee) was zero.



In other words, if they were trying to be red-blooded americans watch-dogging their government, rather than partisan attack dogs, this would be the sort of news to cheer about. "Millions of dollars in bribes paid to no discernable effect" would be the essentially accurate summation. Furthermore, Congresscritter Hunter (also a local San Diego Elephant) was entirely willing to expand the proble from three years to fifteen.



And if you don't like reading that scum bribing our public officials got nothing for their money, you are likely suffering, like Ford Prefect, from a deficiency in moral fiber and can thereforebe excused from saving universes (or anything else).





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via Different River, Cafe Hayek has the goods on the real way to cut down on the high price of energy.



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HT to Decision '08, the tomatometer on United 93 is at 92% right now. Considering all the good buzz it's gotten, I may see if the wife and I can't get away to see it.



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Iraq the Model says the time to dissolve the militias is now, and I strongly agree. Not just due to their armaments, but also due to the fact that it's a bad thing. Can you imagine if there was a Democratic Underground militia and a Free Republic Militia?



(Actually, I can. The DU'ers would forget who spends time taking target practice, get frustrated, and open fire on the Freepers. Fifteen minutes later, the DU is extinct while the Freepers are down a couple of percent, mostly casualties of friendly fire).



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Read this and ask yourself his critical question: Day-By-Day, Hour-by-Hour, and Minute-By-Minute The Murdering Goes On



If not now, when? If not me, who? Once upon a time it was every person of conscience who asked these questions, whether or not they were political supporters of the current president.



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Armies of Liberation has more on the targeting of journalists in Yemen by the Saleh regime.



RINO Sightings Recommended: Politburo Diktat, Mind of Mog, Techography,



Carnival of Personal Finance Recommended: All Financial Matters (Monte Carlo hypotheticals are better than planning based upon average returns!)



Carnival of The Capitalists is in an unusual place this week.



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Gas prices continue to be a big topic of conversation. The real supply bottleneck is in refineries. The other cause is price speculation due to Iranian saber rattling.



When demand exceeds supply, prices go up. So simple my six year old can usually remember it. I'm not happy to be paying $3 per gallon for gas, but I'm doing what I can. I drive a small sedan that gets good mileage. I'm in favor of building new refineries and increasing production, and I'm willing to be pretty flexible where this stuff is built. I'm in favor of national fuel standards, so the companies involved can refine 3 or 5 kinds of gasoline, instead of about 45. I'm in favor of increasing nuclear power as well as wind generation and geothermal, so that things which can easily be driven by alternate power generation will be.



If you are in favor of all of the above, it's okay to be angry at the boneheadedness of your fellow citizens causing gas prices to rise. Otherwise, if you want to know what's causing the price of gas to rise, go look in a mirror.



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Q and O has a good article on the Federal Government aiding and abetting identity thieves, aka illegal aliens and the employers who employ them.



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Strata-Sphere has all kinds of interesting revelations on Mary McCarthy, the CIA employee who was fired for leaking.



Big Lizards thinks the CIA prisons story was one large canary trap.



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Captain's Quarters covers some fundraising shenanigans.



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I think I need an enforced layoff for a few days. Don't be surprised if it goes to the rest of the week.

I realized that I hadn't covered timeshares, and decided it was time.



I suppose I should define what a timeshare is, just in case. A timeshare is a property where you buy the rights to use it for a certain amount of time every year. The most typical time share is a two week period.



Timeshares are attractive to developers because they can get more money for building the same property. You might have a high-rise full of condos where the market price might be $200,000 each. But they can sell each of twenty-six timeshares for maybe $20,000 each. Because it's not such a big bite, their potential market is far wider, and they can sell to way more people. People are willing to pay more for vacation lodging that regular housing.



Developers also make money off of the financing, and off of the monthly dues for management expenses, which are analogous to association dues in a condominium association, paid to keep the complex maintenance up (and usually maid service, etcetera). Furthermore, since very few lenders want to finance timeshares, the interest rate can be (and usually is) outrageous, not to mention that you should be prepared for severe interest rate sticker shock if you're financing one somewhere outside the United States. The developer can gouge because most lenders won't touch timeshares, and it's not like the buyers are going to do any better elsewhere. Title insurance companies don't like timeshares either.



Developers love to tell potential buyers that timeshares are an investment, because they are real estate. The fact is that timeshares are like cars - there's a large initial hit on value, the instant the transaction is final. Nor do they tend to recover. There are at least two websites that specialize in helping you sell your timeshare, because most people figure out within a year or two that they've been taken. I don't deal with them any more than I can avoid, but I have never even heard of someone recovering their investment in a timeshare (except the developer).



Sometimes the time you buy is always the same two weeks in the same unit, but this can very. Quite a few have a yearly drawing among owners of a given unit for the most desirable time frames, and a few even put all units and all owners into the pool. Read the individual sales contract carefully for how this is accomplished. If you have or draw a time that's unusable to you, most of the same places that will help you sell the timeshare in its entirety will also help you sell or trade your time slot for the year. Nor do folks generally get back their annual cost of the unit by selling their time slot, but it can be a good way to buy a vacation time slot cheap if you are prudent and plan ahead.



Furthermore, of course the timeshare is always in the same place. This is great if you want to return to Honolulu every single year, but not so great if you want to go a different place every year. Many developers tout swap programs, often to swap your slot in such desirable locales as Ultima Thule for one in Tahiti. Not likely to happen, or if it does, likely to require a good deal of cash outlay in the direction of the people who bought in Tahiti.



Additional issues are that maintenance can be problematical. Since no single owner is responsible for the complete upkeep of any given unit, let alone the entire complex, the management is often lax about repairs and preventative maintenance. After all, if they put that new roof off for a year they can just pocket the money. Where even condominium owners have to deal with any problems pretty much every day, timeshare owners are there for a couple of weeks per year.



All of this is not to say that there are no happy timeshare owners. If you are going to go to Las Vegas for two weeks every year and your schedule is flexible enough that you can go no matter what time slot you end up with, more power to you, and a timeshare might be the way to go. If you need to go during the summer months because that's when the kids are out of school, or if you don't necessarily want to go there every year, not so much. I've never owned one myself, but I understand some nasty fights break out among co-owners for time slots, as well. Most people think the idea of a timeshare in Phoenix is to go there in the winter and play golf while the rest of the country is freezing, not go from perfectly acceptable weather elsewhere on July 4th to a modern day version of the La Brea Tar Pits because the temperature is 125 degrees Farentheit where the asphalt melts and people sink in and get trapped.



Caveat Emptor.

UPDATED here

Carnival of Vanities is finally up very late.



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PT Barnum's Estimate Was Way Too Low Department: Phony doctor gives free breast exams. Let me get this straight: 76 year old man going door to door posing as a doctor offering free breast exams, and at least two women in their 30s believe him? Nor, after reading the article, do I hold out much hope that they knew better but were looking for some action.



The Yahoo story has a picture of the guy, although Yahoo links are notoriously impermanent.



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Brings a whole new meaning to "money laundering": Retiree flushes fortune down the toilet. Plumbers ended up retrieving an unknown portion of it for him, and told him he could still exchange the deutshmarks for euros.



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Today, Allawi admitted to what has been obvious for a couple weeks: Iraqi PM Abandons Claim on Another Term. He was Sadr's creature, and the Kurds and Sunni weren't having any. Now we'll see if the Shiites can pick someone without too much baggage.



Later: Looks like the Sunnis have signed off on the new pick: Iraqi PM pick may end impasse One of Allawi's allies, and Reuters describes him as sectarian.



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Business Groups Lament No China Trade Deal. Well, duh. President Hu Jintao's bread is buttered on the side of not giving up anything. China's got political unrest, and the government there is hoping to distract the public with how well the economy is doing. Maybe if President Bush was in a stronger situation, politically, he'd be in shape to make the Chinese give up part of what's going on, but as dedicated as President Bush's domestic opposition is, and with the war on terrorism going on, he just doesn't have manouevering room.



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Ninth Circuit Court goes loony yet again: Court: Schools can ban hurtful T-shirt slogans. If you read the article, the quote from the dissent says it all. The "heckler's veto" is precisely what it is used for in debates concerning such things as affirmative action, whether such groups have special rights, etcetera. If anytime someone disagrees you can shut them out of the debate by claiming "hate speech", you win by default. Yeah, this particular t-shirt wearer was a human sized unitary rectal aperture. But the cure is worse than the disease.



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Looks like Nepal is no closer to a resolution of its problems: Nepal's embattled king promises democracy Unfortunately, the opposition is rejectng it, evidently saying something along the lines of "Democracy is Okay, as long as your side isn't elected."



So taking dictatorial power in response to Maoist rebels (i.e. dedicated to the establishment of a dictatorship) and corruption in elected officials isn't exactly an optimal solution to the problem. Giving in to the rebels is worse.



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About Time! CIA Fires Employee for Alleged Leak. What's the difference between this employee and the president, you ask? All the critical factors. The CIA is supposed to support, not undercut, the policies of the current administration. CIA Employees are not elected representatives of the people for the purpose of making policy. They are appointed subordinates of the president for purposes of carrying out the policies decided upon at a higher level. If the employee had the authority to declassify, why did they not do so rather than leaking to the media? The president has this authority. The CIA employee signed an agreement not to do these things as a condition of employment before they even received any classified information. If they couldn't carry through, why did they sign? Why did they accept appointment?

The Perfect War

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Dr. Sanity has a wonderful article about the demand for an antiseptically perfect war, with no collateral damage, no casualties (certainly no bystanders), and everything wrapped up in a nice little package before the attention span of the american public, attuned to half-hour television programs, begins to wane.



Voctor Davis Hanson discusses some of the alternatives to decisions and where they might have led.



The first thing I want to ask the people who expect this is: When is the last time you saw a casualty-free game of chess? I used to be fairly good, not a master but good enough to win two class championships. I have never seen a game that didn't have casualties in the form of pieces taken from the board. For all the chess stuff I used to read, I've never heard of one. A so-called Fool's Mate (The fastest possible end to the game) takes a pawn, in addition to the king. Furthermore, it's ridiculously easy to guard against, and even attempting it between players above the level of rank novice is considered insulting. Furthermore, stronger players have in their repertoire the ability to take advantage of the fact that their opponent even makes the attempt.



This translates over to real war, as well. Yet there are those that would have us act as if our opponents were rank novices, and act as if not doing so is obviously stupid and unreasonable. Karl von Clausewitz, whose 1832 manuscript "On War" has one of the defining quotes of warfare in general: "War is very simple, but in War the simplest things become very difficult."



War is not a chessboard. Real War, particularly the war we find ourselves in at the moment, is nothing like a chessboard, and yet there are principles that translate. There are at least two participants who are doing their absolute best to inflict defeat on the other. The board does not stand still; you need to figure out what your opponent is going to do while you're doing what you intend to them. You need to frustrate your opponent's designs at the same time carrying out your own. Opportunity is where it happens or where you make it. And there is no such thing as the Perfect Game or the Perfect War outside of the realm of fantasy.



When you assume your opponent is incompetent, you lay yourself open to serious losses when they prove you wrong. Indeed, this itself is a strong indicator of incompetence, and Arminius is one of the earliest recorded leaders to take such advantage of a lazy, incompetent opponent who thought he could never be seriously challenged, although he's hardly the only one.



Our opponents the Islamists are not incompetent. Militarily, they cannot match our soldiers, but the evidence is overwhelming that at least their upper echelons are well aware of this. Economically, they cannot hope to match us in the logistical support we give our soldiers. Wars are fought with money and supply lines as much as with bullets and men; indeed history records examples from Pyrrhus of Epirus and Hannibal Barca forward where the men of one side outfought the other, but that side lost the war anyway.



But the most important leg upon which a war effort is founded is the will to resist, as we rediscovered in Vietnam. Our soldiers outfought the communists, our economy out-supplied the communists, but our people lacked the will to carry through to victory, and so we suffered an ignominious defeat whose consequences we are still suffering today. I've mentioned this before, but Sun Tzu's words from 2500 years ago never stop being true: "Supreme excellence consists in breaking the enemy's resistance without fighting." Will to fight is the all-important consideration in war. You can have the best soldiers, the best equipment, the most ammunition, the best leadership, the best strategy, and everything else.



But if you haven't got the will to use them, you shouldn't have bothered. You've wasted your time, your money, and your effort to procure them.



Now, there will be those reading this who will say, "That's precisely my point!" because they want the money it took to produce and use these things spent elsewhere. They don't want us to ever use our military, many do not even want us to have one. They want the resources used elsewhere, so they fight their use in military applications. This is a political self-fulfilling prophecy, and their will not to fight is the closest thing to an insurmountable barrier we face in this war. They have, from the beginning of this war, been doing their best to wear down our will to fight from within. Going back to the first principles from The Art of War, they are doing everything they can to break our resistance from the inside. "Showing the 9/11 images is upsetting," and so they don't get played in the media or emphasized as needed by our government. Do you think Roosevelt, George Marshall, or our media of the 1940s allowed our grandparents to forget about Pearl Harbor? Not on your life. The reminders were all over the place until well after VJ day.



The argument the anti-war crowd is making most consistently is "Our leaders have made mistakes!" Now, if you've studied military, political, or mercantile trade history in any depth, you know this is about the same as saying "water is wet". Mistakes are going to happen in any war. It is endemic to any situation where you have an active intelligence planning against you, and war is certainly that. It's like saying "fire is hot," because the inevitable consequence is some people are going to get burned. It is one of the strongest reasons to avoid war; war is nonetheless sometimes, as now, the least harmful course - provided you have the will and make the effort necessary to win. But there is no such thing as a Perfect War. We often hear cheerleading about World War II, but the fact is that FDR and George Marshall didn't have to deal with a hostile media and anti-war organizations doing their best to tear down the plans the whole war, not to mention opportunistic political opponents willing to do anything for power or the hope of power. Indeed, the Republican candidate for president in 1944 pointedly refused to criticize the war effort despite such spectacular mistakes as putting off the invasion of France in favor of the Italian campaign that wasted a year and tens of thousands of lives. Churchill's "soft underbelly of Europe" was anything but. Whereas it may have looked to the politicians an easier target, the generals knew better but obeyed their political masters (Our troops were still fighting in Italy when Germany surrendered). Indeed, although our domestic oppostion to the war is horrified by the idea of slavery, their intellectual tradition dates back to the Copperheads of 1864, who would have made peace with the Confederacy on generous terms, allowing slavery to continue with no definite end in sight.



More Sun Tzu: "The best warfare strategy is to attack the enemy's plans, next is to attack alliances, next is to attack the army, and the worst is to attack a walled city." Well, walled cities are different than they were in Sun Tzu's day, but that does not effect the validity of his point. The most elementary, bottom level plan of any war has to be to stay in in and keep fighting until the enemy gives up. If you cannot do that, you might as well not start, and indeed, you shouldn't start. It doesn't matter if you're leading the marathon, ten miles ahead of the next runner. If you give up and walk off the course with five meters to go, you didn't win and you didn't finish. Everyone who simply didn't give up will beat you. You are a loser.



"But you're missing the point!" some of you will say, "We shouldn't have been in this war at all!"



To which I respond: No, you have missed the point. The time to make that argument was before the war began. Even if you said so then, the decision has been made, and it went against you. The decision you have to make now is whether it is more important that the United States and its allies prevail, or that the other side do so. There is no "We didn't mean it!" in war. The notion of our leaders being out of control warmongers is pure wishful thinking on behalf of their political opponents. Nor will we be able to escape the consequences of losing if we quit. This is realpolitik. There is an idea that the United States has not got the willpower for a sustained war effort, and never will. There is significant evidence that it is true, and every time we quit the battlefield we have won while our opponents have not yet given up, we bolster every future would-be opponent. If you're playing a baseball team that walks off the field in the fourth inning of every game, you know you'll win every game by forfeit. The idea carries over into realpolitick. If our opponents know we will quit before the end, they will know that anyone can beat us. Given that knowledge, there is no reason for the dictators of the world, religious or otherwise, not to do so. They don't care how bad things might get for their people for a while, they don't care about how many of their people die, they only need to know that they'll win in the end, and they will fight. Unlike a liberal democracy with all of our rights, they can make their domestic opposition disappear.



The time to discuss whether we will fight has now passed. Like it or not (and I don't), we are at war, and the options are whether we win or the Islamists do. Nor is this a war of aggression on our part, as so many have attempted to paint it. The Islamists have told us exactly what they intend doing to us, and acted in a manner entirely consistent with their stated intentions. Every so often they or some of their apologists mouth some words to the effect of "nice doggie!" because diplomacy is the art of saying "nice doggie!" until you find a big enough stick and they seem to be fresh out of sticks at the moment. But those words are for the accommodationists and appeasers within our own ranks; among themselves, when they think the West is not listening, they are brutally frank about their intentions and plans, and you can find the reports on the internet pretty easily if you look. And they will find more, bigger sticks if we only let them.



Once you begin a war, you are in it until the end. You can realize this and attempt to make it a happy ending for civilization, or you can look for the nearest exit and face consequences orders of magnitude worse than sticking it through. Korea, although a draw on the battlefield, was a strategic victory in that it taught the communists that they could fight the west with peasant soldiers on a modern battlefield, and planted the first seeds that we were not mentally capable of a long war. Vietnam, where we won on the battlefields but left the job unfinished and our allies unsupported, gave communism a boost where it would otherwise have fallen apart years earlier than it did. Without the morale boost from Vietnam that gave them the successes in Africa, Central America, and elsewhere, communism would have rotted from within significantly earlier.



The Islamists cannot match our troops, our training, our economy that supports those troops. But they have other weapons at their disposal, weapons that we deny ourselves. They are willing to brutally murder non-combatants. They are willing to abuse the civilized covenants of sanctuary. Most importantly, they have learned from the successes of the communists in fighting us. They know there is an element within our society that "refuses in any circumstances to fight for King and Country" (as this article shows, they haven't changed), and indeed, will do their best to break our will to resist from within. The Islamists are doing their best to encourage this group, by the way, as for instance Saddam Hussein's cultivation of "Red Ken" Livingstone, among many other activities, illustrates. They know that every time there are casualties, of whatever number or nature, this segment of our society will seize upon it anew as proof that we shouldn't have gone to war, misinterpreting as evidence of faulty planning.



This claim is nonsense. In fact, it's not only blind stupidity, it's suicidal blind stupidity. Yes, people die in war. They get hurt, crippled, maimed for life. I'm trying to keep the language here civil, so I cannot begin to adequately convey how bad this is. The alternative is far worse. If our opponents know we have no stomach for any casualties, they will inflict them upon us at every opportunity to force us to retreat lest we have more casualties. This is simple application of the principle of breaking the will to resist. If any would-be opponent knows how to break our will to resist, we will become a nation that can win no wars. If we can win no wars, potential opponents will make certain we fight, or actually, don't fight, more and more of them. History has not been kind to nations that could not fight or could not win wars. They don't last very long.



Those members of our military who have volunteered to stand in the front lines of our defense know that a certain number of them are not going to come back. They are willing to undertake those risks in order to guard us all. But that it does guard us all is necessary to the equation. If the equation becomes "As soon as a few of you get knocked off, we'll quit!" they won't volunteer in the first place. It defeats the entire purpose of their volunteering. Instead, those so inclined will go find some other civilization to guard, as ours will be doomed.

Just got a search on "state of california fsbo questions to work directly with loan officers without a agent"



This isn't a problem. Whereas it is the same license, it is two entirely separate job functions. The fact that you are or are not working with an agent has absolutely nothing to do with whether you can get a loan.



This is not to say that some folks who do both might not attempt to trick or pressure you into signing an agency agreement. The way to deal with that is to contact these folks (the link is for California, but the principle applies elsewhere).



This is not to say you should be looking for real estate agent responsibilities from someone acting solely as your loan officer. This happens quite a bit; If they're not getting an agent's commission, you should not ask them to do an agent's work or assume an agent's responsibility. Asking you to sign a form that says they are acting purely as a loan officer and are not responsible for anything except the loan is reasonable. Loan officer legal responsibility is minimal to non-existent anyway; it's one of the reasons the loan business is so messed up and out of control. But asking a loan officer to do both jobs for the pay of the lesser is unacceptable. You don't do extra work for free, you don't assume extra responsibility for free. Why should you expect someone else to do so?



Now in California, we changed the law a couple of years ago so that in certain circumstances where the firm is licensed with the Department of Corporations, the loan officers do not have to be individually licensed. I've seen a lot of abuses out of such situations; the loan officer who isn't individually licensed isn't risking their individual ability to work in the profession, no matter how egregious the violation. Indeed, many firms licensed with the Department of Corporations instead of the Department of Real Estate have made a point of recruiting people new to the profession who don't know any better, and no one will tell them until they go work for a company with better practices, which most of them never do. These folks also don't know how much the company makes per loan, so they don't have to pay them as much. Best of all possible worlds from the company's view!



But so long as you only ask a loan officer to do the loan officer's job, there should be no problem with doing a loan on a For Sale By Owner property. After all, you don't need a real estate agent to refinance, do you?



Caveat Emptor.

UPDATED here

Asymmetrical Information has a good article about the political and budget problems faced by pensions everywhere. It touches upon the treatment of annuities, one of the most popular investment vehicles there is. Most defined contribution pensions (e.g. 401k, among others) in the United States are actually funded by variable annuities.



Annuities currently have in interesting tax status, and there are several kinds. They are certainly popular instruments and their tax deferred status gives them appeal to many investors. For this purpose however, I am going to restrict myself to the question of whether or not they have been annuitized, which is the actual process of exchanging a pool of dollars that you control for a stream of income.



If the annuity has not been annuitized, it is taxed on a "Last In First Out" or LIFO basis. What this means is that the dollars that come out are presumed to be from the most recent that went in. In other words, insofar as possible, it is the original principal that is untouched and the earned income you are using. So if you put $100,000 in (assuming the money is "after tax" as many people have annuities with "before tax" money involved), as long as the balance remains over $100,000 you are assumed to be withdrawing earnings and every penny is taxable. Only after you have depleted the annuity account below $100,000 are you presumed to be using your contributed money. Note that every dollar of contributed money you use lowers this threshold, or "basis" in the account. If you take $20,000 of the original money, your basis is now $80,000, and this is the new threshold value. Note that basis can also be increased by subsequent contributions.



If you annuitize the pool of dollars by exchanging it for a stream of income, there are implications brought on by the fact that you no longer own the pool. The first of these is that the exchange is irrevocable. It doesn't go backwards. You can certainly exchange the stream of income for another pool of dollars now, but expect the pool to be smaller than it was as both exchanges have made the insurance company offering them a profit.



But because the exchange is irrevocable, the IRS will treat it somewhat more favorably. What they will do is take an actuarial treatment of how long you are expected to live, and then make a determination based upon that of how much of each month's payment is interest and therefore taxable, and how much is a return of principal, and therefore not taxable in most cases. If you outlive your actuarial expectation the whole thing becomes taxable. If you annuitized a before tax account like a traditional IRA or 401k, the whole computation is moot, of course.



The implications are fairly obvious. In general, an annuity is not an account you should "protect" by drawing down other accounts instead. Indeed, annuities should probably be near the head of the list of accounts that you should should draw down and/or use to exchange value for something else that is largely tax free, like cash value life insurance or Roth accounts, lest there be a large tax liability upon your death. It also takes about fifteen years, plus or minus, for a variable annuity's tax deferred status to pay for itself as opposed to other investments which are not inherently tax deferred, such as mutual funds. There are very strong arguments for placing even tax deferred accounts in variable annuities, but this article is not the place for them, and you should understand both sides before making a decision.



Nonetheless, thanks to Asymmetrical Information for giving me the idea for an article.



Caveat Emptor


My heart goes out to Iraq the Model, whose brother-in-law was killed by a team of assassins. He has written a defiant, emotional post on the topic

Kill us, but you won't enslave us.



I believe Patrick Henry would recognize a kindred spirit.



LATER: Big Lizards has a take worth reading.



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Welcome Development Department: Say Anything notes that the tenured professor who led her students in destroying an approved exhibit whose viewpoint she did not agree with has been given retirement a few days early. Not exactly a resounding victory over the worst excesses of the tenure system, but we'll take what we can get. Here was somebody who owes their tenure to the idea that researchers need to be able to examine all aspects of a question, going out and censoring the other side through destruction of their property.



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Via Wizbang, American Thinker notes that contrary to the pravda of the abortionists, fetuses do feel pain.



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Denying the Holocaust is going to get harder: Germany agrees to open Nazi archive. The so-called Bad Arolsen archive covers at least 17 million people sent to concentration camps.



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A remembrance of the Bay of Pigs, and what really happened. What you think you know is likely wrong. A moving tribute to those patriots who fought there.



(Later: Corrected typo)

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Mudville Gazette, whom I probably don't link to enough given how far ranging their coverage on military matters is, has an excellent article on the retired flag officers criticism of Rumsfeld.



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Jihad Watch debunks a soft-peddling of Islamic apostasy law.



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A few days ago, I referenced an excellent essay by Dr. Sanity intended to be Part I of a 3 part essay on dealing with denial. Part II and Part III are now up.



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Armies of Liberation has another article about freedom of the press (or rather lack thereof) in Yemen.



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Big Lizards makes a good case that what voters face is, as always, not a referendum, but a choice, and the Elephants really shouldn't be too worried on that score.



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As he notes, You Can't Make This Stuff Up: Michael Barone notes that the new deputy for nuclear disarmament in Asia is Iran.



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Are you a BANANA? Anne Applebaum in the Washington Post discusses the political opposition to any new energy source.



Captain's Quarters adds his quite worthwhile thoughts.



I stand by what I wrote here. It may take a while, but the worst damage I talk about is not anything like a worst case scenario. I see failure to provide for enough power generation as a problem. If you don't, there's really not much to discuss.



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Victor Davis Hanson covers certain parties trying to hijack the illegal immigration debate.


One of the most important things for the buyer in any transaction is confidence that the seller has disclosed all known problems. One of the things most people don't realize, or act like they don't realize, is that it's at least as important to the seller.



The California Association of Realtors (CAR) has a program called Winforms that lets me ask all of the little niggling questions about the home. Very convenient, very nice, and I've done my duty when I fill it out with a listing client.



This does not mean that I or the seller can ignore any metaphorical elephant in the room not covered by the form. If there's something that's obvious, I have a duty to ask about it and record the answer, even if it isn't on the form. The seller has a legal duty to disclose anything they are aware of that might cause a reasonable buyer to change their minds or their offering price. A cracked light switch protector plate is not a big problem and you're going to either fix it or agree with the seller that you won't. But past termite damage, whether someone has died in the home recently, soil subsidence (even on the far side of the property), and any number of other factors can be reasons why prudent buyers may no longer be interested, or may wish to re-evaluate their offer. The rule for smart people is "disclose everything and let the buyer decide if it's important." A certain percentage of sellers, however, just want to get through the transaction without the buyer changing their mind. For Sale By Owner (FSBO) sellers seem to be significantly worse about it, by the way, which is one of several major reasons I'm always leery of FSBO properties with my clients. These sellers either don't realize how strongly omissions can come back to bite them, or are hoping they will be gone by the time it comes to light.



First off, unless you're planning on dying, you can be found. I know a lawyer that makes a good living at it. Furthermore, failure to disclose frequently makes your liability worse, in that you had a duty to disclose and you did not. It is possible that failure to disclose means a judgment for punitive damages in addition to increased economic damages is in your future, whether you are seller or agent or even buyer's agent if it was bad enough. Furthermore, you can count on the damages being larger because the problem has had time to get worse, paying the costs incurred in order to find you, and so on, when if you had simply disclosed in the first place you would have been off the hook.



Now, your real estate agent is not (generally) a building inspector, tax records expert, or any of those kinds of specialist. I recommend an inspector for every purchase, because I'm certainly not qualified to do that job. But if I spot something that may not be right, I have a duty to disclose it to my principal, and find out if it really means anything from a real expert. Sometimes there's a tax assessment that has passed or pending that doesn't have numbers associated with it yet. If it's passed, the title report should have the information, but they've been known to miss one occasionally. If it's pending (e.g. bond measure on the next ballot), it's a good idea to tell the buyer, or at least tell the buyer about where to find out.



For an agent, failure to disclose may mean that your professional insurance won't cover it. The professional insurance is for errors (honest mistakes) and omissions (errors of ignorance), not intentionally hiding something. This liability can easily run to several times any commission you made, so it's a really bad idea to hide anything. Agent or seller, if they buyer can prove you knew, or that you should have known, you're basically up the creek.



Caveat Emptor (and Vendor).


UPDATED here

Signing Off Loan Conditions

| | Comments (0)

what is a underwriter final "sign off" on the conditions

First off, it needs to be mentioned that a good loan officer gathers information and puts a full package, with all of the information an underwriter should need, before submitting the package to the underwriter. That's how you get loans through quick and clean. Give the underwriters all of the information you know they're going to need right up front.

Some clients don't understand this. They want to hang back and see if the basic loan will be approved before they do "all of this work." This is a good way to have to work much harder on the loan. Give it all to them in one shot, and they only look at your file once. You get a nice clean approval. The issue is that every time that underwriter looks at your file, there is a chance they will find something else that they want documented, some little piece of the picture they are uncomfortable with. The underwriter can always add more conditions. The cleaner the package, however, the less likely it is that they will.

There are some matters it's okay and routine to bring in later. Appraisal is probably the most universal of these. Title commitment (aka Preliminary Report) is probably second most common. These are completely independent of borrower qualification, and when they come in later, will generally not cause the underwriter to re-examine the whole file. But you want to submit the borrower's package as complete as possible, right up front. If the borrowers pay stubs show up later, the underwriter will look at the file, and if the income they document is even one penny less than the initial survey of the file, they will underwrite the whole thing again. A good loan officer submits complete packages, so the file only gets looked at once.

But every loan officer gets asked for additional conditions from time to time. With the best will in the world, sometimes they are going to miss something that the underwriter is going to want to see in this particular instance.

Loan conditions fall into two kinds: "Prior to documents" and "prior to funding". "Prior to docs" conditions are related to "Do you qualify for the loan" type stuff. Income documentation, property taxes, existing insurance for refinances, verification of mortgage, rents, employment, deposits, all of that good sort of stuff. Also appraisal, title commitment, etcetera. If there's something missing in the loan package, it should be a "prior to docs" condition. These conditions should be taken care of between the loan officer and the underwriter. The underwriter tells the loan officer what needs to be produced in order to approve the loan, and the loan officer goes and gets it. If the loan officer can't produce it, there is no loan.

This is not to say that a good loan officer can't necessarily think of another way to get the loan approved. Indeed, that's a significant part of being a good loan officer, almost as big as knowing what loans won't be approved, and not submitting a loan that won't be approved. This is a big game with many loan providers, by the way. They get you to sign up with quotes they know you won't qualify for, but when the loan is turned down (or, more commonly, the conditional commitment asks for something that the situation can't qualify for), they then tell you about the loan they should have told you about in the first place. Pretty sneaky, huh?

Getting back to the underwriter's conditions, a good loan officer knows how to work with alternatives. But at the bottom line, the loan officer has to come up with something that the underwriter will approve. It is the underwriter who has final authority. They write the loan commitment, which is the only thing that commits the money. In fact, most loan commitments are conditional upon additional requirements. The only universal to getting these conditions signed off is that the underwriter has to agree they have been met. As the underwriter agrees that the conditions have been met, one by one, the loan gets closer to final approval.

When the last prior to docs condition is satisfied, the loan officer orders loan documents. This is also when many of the less ethical of them actually lock the loan quote in with the lender. An ironclad rule is that if it isn't locked with the lender, it's not real, but that doesn't stop many loan officers from letting the rate float in hopes of the rates going down so they make more money for the same loan. Of course, if the rates go up, guess who gets stuck with the increase? It's not likely to be the loan provider.

When the loan documents arrive, the borrowers sign them with a notary and that's when the rescission clock begins. There is no federal right of rescission on investment property, and none on purchases, but on owner occupied refinancing, there is (Some states may expand on the federal minimums).

Now there will be "prior to funding" conditions to deal with. "Prior to funding" should be reserved almost exclusively for procedural matters, and should be taken care of primarily between the escrow officer and loan funder. There are always going to be procedural conditions here, but many lenders are now moving more and more conditions to "prior to funding" as opposed to "prior to docs". Why? Because once you sign documents, you're more heavily committed. Psychologically, once most people sign loan documents they think they're all done. This is not, in fact, the case. Legally, once the right of rescission, if any, expires, you are locked in with that lender unless/until they decide your loan cannot be funded. Once rescission expires, you no longer have the ability to call the whole thing off. You are stuck.

This is not to say that an occasional condition can't be moved to "prior to funding." Especially on subordinations. I've saved my clients a lot of money by getting subordination conditions moved to prior to funding so the rescission clock will expire in a timely fashion to fund the loan within the lock period.

This is all well and good if the lender told you about everything and actually deliver the loan they said they would, without snags. On the other hand, I have stories. One guy I used to work with had the capper, and the reason he got into the business was he was certain he could do better. He signed documents on a purchase, and a week later they called and told him he had to come up with $10,000 additional money within twenty-four hours, or lose the loan, the property, and the deposit, and be liable for all of the fees. His father had to overnight him cash, which he then took into the bank for a cashier's check.

He is only the most extreme example. The loan is not done until the documents are recorded with the county. Until that happens, the money does not have to come, and even if it does, the lender can pull it back. One procedural thing that happens with literally every loan is a last minute credit check and last minute call to the employer to be certain you still work there. If the borrower has been fired, quit, or has retired, no loan. If the borrower's credit score dropped below underwriting standards, no loan. If the borrower has taken out more credit, the lender will then send the file back to the underwriter to see if they still qualify for the loan with the increased payments. So like I tell folks, until those documents are recorded, don't change anything about your life.

The many less than ethical loan officers don't help matters any. I was selling a property a while back, and the buyer signed documents on Tuesday. If I had been doing the loan, the loan would have funded and the documents recorded the next day. Unfortunately, I wasn't doing the loan. This guy's loan officer had quoted him a loan he couldn't qualify for, and ten days after he signed documents, I got a call saying he could only qualify if I knocked $20,000 off the purchase price. I kept the deposit and went looking for another buyer. This guy learned an expensive lesson. When you sign loan documents, require your loan officer to produce a copy of all outstanding loan conditions. Don't sign until and unless you get it. This guy had signed, and was now locked in with a lender who couldn't fund the loan on conditions he could meet. I had even warned his agent (I accepted the offer because I was willing to sell at that price, so I wanted the transaction to go through), but hadn't been believed. So both of us ended up unhappy.

If they give you a copy of all outstanding loan conditions, you should know if you can meet them. If you can't meet them or aren't certain, don't sign. Don't hesitate to ask for explanations. Some of this stuff gets pretty technical, but a good explanation should be easily understandable in plain english. It may be complicated, but there just isn't anything that can't be explained in plain english. If the explanation you get is gobbledegook, you've probably been lied to all along, and I hope you have a good back up loan ready.

Caveat Emptor.

UPDATED here


What's negotiable on a purchase?


The short answer is everything.

There may be standards and traditions in your area, the same as there are in mine. That doesn't mean they are not subject to amendment by specific negotiation. Once you get outside legal requirements, anything is subject to negotiation. As long as both (or all) parties concerned agree to it, that's the way it's going to be.

This is not to say that some things aren't better left alone. For example, if I was buying a property and the seller didn't want to pay for the policy of title insurance, as is traditional, I'd certainly think long and hard before continuing with the transaction. Furthermore, such behavior would certainly cause the price I'd be willing to pay to drop dramatically. If I'm helping clients, the same applies even more strongly. I'm going to tell them that this may mean the seller may not be able to deliver clear title.

This is also not to say that there may not be consequences as the result. For example, if I or my client is selling the property, and someone asks for a $10,000 credit towards closing costs, the lowest offer I'd accept would be at least $10,000 higher, probably $11,000, maybe more. Why? Because commissions and transaction costs are based upon the official sales price, not the sales price less that rebate to the buyer. The bottom line is that it costs at least $10,000 to rebate $10,000 thusly. A $400,000 offer that requires $10,000 in rebates isn't a $400,000 offer. It's a $390,000 offer at best.

In order for it to be a valid contract, the two parties have to agree in every particular. If there is not complete, total, 100 percent written agreement as to what is going to happen, there is no contract. Two parties haggling over whether one light bulb gets replaced do not have a valid contract any more than two parties haggling over whether the price will be $200,000 or $500,000.

Nonetheless, except for those very few things mandated in law, it's all negotiable. Specific negotiation can change anything that's not legally mandated, and most things with defaults specified in law. If you've got a gold bathroom faucet that you want to keep, a normal sales contract says that it stays by implication (it's a furnishing attached to the property and required for the property to function normally). But you can change this by specifying that you have the right to remove it in the contract. Now if they buyer is only buying the home because of that gold faucet, they can walk away or counter offer that it stays. Let's say you eventually agree that it will be replaced by another gold faucet. That's specific negotiation. The replacement will be required to be installed, equal in functionality and free of defects - unless you change this by more specific negotiation.

I've seen negotiation for personal property to remain, furnishings to leave, the disposition of existing tenants, allowing leasebacks to the prior owners, and just about everything else under the sun. If there's something about the standard contract you don't like, or something specific to this situation or this property, specific negotiation is how you deal with the issue. Furthermore, even if you don't want to change anything, the other side might. Indeed, probably more properties have further negotiations due to problems or issues raised by inspections than don't. Something is revealed to be not quite right, and the seller either has to make it right or negotiate with the buyer for acceptance in the current state.

This is not to say that as long as the transaction records the seller is golden, by the way. If the buyer can show reasonable evidence that the seller knew of the issue but failed to disclose it, that's a bone for the lawyers to fight over when it's discovered. Some sellers fight a losing battle over issues like this for years - and it ends up costing them far more money in the longer term. The buyer finds out something you should have told them after the transaction, that's a bad situation for a seller to be in. Better to disclose right away and be done with it. When the seller can prove the buyer knew the full extent of the issue and bought anyway, that's much better protection.

So make sure that if there's some issue you want resolved, the purchase contract resolves it completely and unambiguously. That contract is how the transaction is going to happen. If it's not there, you're at the mercy of the other party. They might see it your way. Then again, they might not.

Caveat Emptor

UPDATED here

Carnival of The Clueless



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Michael Yon has gone to Afghanistan. This article covers background and arrival.



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Wizbang has an article entitled "Mayday for America" about the proposed one day strike against the american economy by illegal immigrants. He suggests they stop accepting the benefits as well, and supposed ANSWER will cancel it before May 1.



I agree with Wizbang's assessment, but not the result they predict. I don't think ANSWER is that smart. Of course the impact will be minimal (Even if there is good participation of behalf of the illegals, how important is it that your grass be mowed on May 1 instead of April 30 or May 2? How important is it that concrete was poured May 1, instead of the day before or after?) My prediction is that on May 2nd, you will hear crickets chirp from the direction of ANSWER as they hope hope everybody quickly forgets all about the effects that never materialized.



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I cannot believe this nit: Fetus Cannot Feel Pain, Expert says. How does one get certified as an expert? I've seen a five and a half month preemie that obviously felt pain, and I have two normal girls who could both feel pain within seconds of being born. Does the circuitry for feeling pain suddenly go active as the kid exits the womb? I suppose it's possible, but I really doubt it.



Once upon a time, the first people to be able to count human chromosomes thought there were 48: 24 pairs. There were two or three other researchers who confirmed this number before someone had the guts to say, "Wait a minute, I can only find 23 pairs!" Today, the accepted numbers are 46 chromosomes in 23 pairs. The first set of researchers almost certainly made an honest mistake. The initial follow-up studies should have caught it, but instead found what they wanted or expected to see. Thus, the "Rule of 48", which can be summarized as "scientists may see what they want or expect to see."



This appears to me to be an instance of the Rule of 48.



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Iran Leader: Israel Will Be Annihilated



Now anyone who doesn't believe Iran is building nuclear weapons, please raise your hand.



Anyone who doesn't believe this is a really extreme problem, also raise your hand.



Now those of you with your hands raised kindly explain your reasoning?



I want a confrontation with Iran about as much as I want multiple bullets to the head, but it's looking more and more like not confronting them is suicide.



I was really hoping the Iranian people would be able to deal with their government in time. I no longer believe that's a reasonable hope. Israel does not have the resources to do the job. Everyone else except the United States can be expected to bury their heads in the sand and pretend there is no problem.



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Cheeta turns 74. No, that's not a typo. This is the chimpanzee from the Johnny Weismuller Tarzan movies! Recognized as the oldest chimp in the world.



HT Vodkapundit



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Big Lizards has an excellent article deconstructing both the politics and the tactics of the generals criticising the Rumsfeld Doctrine. Warfare and the nature of effective tactics has changed many times over history. The Greeks changed it with their phalanx, and the Romans tweaked it with their legions. It changed again with the introduction of the stirrup, the crossbow, the longbow, gunpowder, massed artillery, rapid fire weapons, aircraft, armor, etcetera, etcetera. It has changed again, and it will change yet again in the future. Frederick the Great changed warfare forever with only tactical innovations, Napoleon did it again, and it's happened several times since then. Most generals are always prepared to fight the last war, while Rumsfeld was preparing to fight the next war.



If you don't understand this fundamental tension, you might run "Billy Mitchell" through a search engine. Wikipedia has a decent overview of his life, but glosses over the Ostfriesland incident in which the navy accused him of "cheating" because he sunk it with bigger bombs than the was told to use.



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Armies of Liberation has a laundry list of what's wrong with the elections in Yemen.



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Apropos of April 15th, I do understand and support the need for taxes. They are necessary. They are way too high, and way too byzantine, but they are necessary for the operation of a government, which does perform essential functions. Furthermore, I believe we should abolish withholding, so everybody understands exactly how much they really are paying. I use it as a "forced" savings program to force myself to live on less money - the leftover in my tax account for 2005 plus the refund we're getting will fund both daughters 529 plan contributions for this year, plus a major chunk of our Roth accounts (If you're self-employed, always overestimate by a bit). A refund is, nonetheless, not a gift from the government. It is your own money being returned to you. Stop looking at the momentary cash flow and consider how much you paid! This is easier for the self-employed, of course, who have to write that check four times a year.



Abolish witholding, and watch the tax climate in the country change!



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Had my carpet cleaned yesterday. The guy was twenty minutes earlier than his time slot, which meant I was caught not quite prepared, but he did a fantastic job. It looks practically like new carpet. Plus they actually kept very close to their estimate (the only difference was the estimate had forgotten the hall, which cost $9). He even helped me move the furniture around (at least the stuff that's semi-portable - I don't mean bookcases!). I was so happy that I tipped the guy $10 extra. Major difference from the usual routine, which is they get here half an hour after the quoted time expires, quote you low and gouge you for as much extra as they can, plus I've never seen a job done this well. Since I have two kids and two dogs on light colored carpet, it gets ugly quick. I have been looking for carpet cleaners that work like this. I am going to use them again, and recommend them to clients.

"How do I remove PMI?"



First off, a definition. Private Mortgage Insurance, often abbreviated PMI, is an insurance policy that the bank may make you buy in order to get the loan. It is a monthly surcharge based upon a percentage of your entire principal balance. You pay for it, but the bank is the beneficiary. It doesn't make your mortgage payments if you can't, it doesn't keep your credit from being screwed up, and it doesn't even keep you from getting a 1099 for income from loan forgiveness. Net benefit to you: it gets you the loan, and nothing more, ever again.



You can trivially avoid PMI by splitting your loan into two pieces, a first loan for 80% of the value and a second for any remainder. Yes, the rate on the second will be higher, but it will likely save you money starting immediately, not to mention that it's likely to be deductible, whereas PMI is not, in general, deductible. I do not believe that with all the loans I've ever done, I've ever seen one where PMI was preferable to splitting the loan in two, from the client's point of view.



"With all this against mortgage insurance, why does it still happen?" you ask. This is the critical question. Lenders usually pay yield spread to brokers or commission to their own loan officers based upon the amount of the first loan. Pay for a second is typically (not always) a small 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. Doesn't that make your heart glow with gratitude? Didn't think so.



There are two ways PMI is collected. One is as a separate charge, supplemental to your loan. The second is as an addition to the rate.



The separate charge is never deductible, but is easier to remove. Most states, including California, have laws requiring the bank to remove it when a Price Opinion or appraisal say that the Loan to Value Ratio goes below 78 percent (or something similar). Depending upon your state, you may or may not be required to pay for an appraisal, a cost of approximately $400, in order to have it removed. Some states require only a price opinion, others, like California, permit the bank to require an appraisal.



Just because the law says that that the bank can require an appraisal doesn't mean that the bank will require an appraisal. If the loan to value is obviously there, they might just have someone drive by to make certain the house is still basically sound. On the other hand, if loan to value ratio is close to the line, the bank has a responsibility to its owners not to increase their exposure to loss unreasonably. So if you just wake up one morning with doubled property values, the bank will likely waive the appraisal. If your market is gradually increasing in value and you're watching it like a hawk and make your request the instant you think the value is there, be prepared to pay for the appraisal. Around here, with PMI on a 90 percent loan being a surcharge of about one and a quarter percent per year on a $500,000 loan, you pay for your appraisal by not having PMI in one month - if you're right. If you're wrong and the appraisal comes in lower, you're just out the money.



Suppose, instead that instead of choosing the surcharge option, you choose to have PMI built into the rate. So instead of a 6.25 percent loan rate, you have a 7.00 percent loan rate. Advantage: it's usually deductible, because it's actual interest on a home loan. Disadvantage: You have to refinance (or sell!) to get out of PMI, because the pricing is built into the loan itself as part of the contract you signed. It is to be noted that by itself, this method is usually cheaper than the monthly surcharge for precisely this reason, because in order to get rid of it you have to pay to refinance, and if there's a prepayment penalty in effect you're likely going to pay that also, and so on and so forth.



So if your loan is more than eighty percent of the value of your property, you can expect to pay PMI, although it is easily avoidable by splitting the loan into an 80 percent first and a second for the remainder, and you're likely much better off for doing so. If you're already stuck with it, contact your lender for steps to remove it providing you think the value has increased enough. If you suspect the lender is not abiding by the law, contact your state's Department of Real Estate, although lenders not abiding by the law in this case is both stupid and, in my experience, rare. It's usually the consumer that doesn't understand the law.



Caveat Emptor.



UPDATED here

Carnival of Debt Reduction Recommended: Mighty Bargain Hunter



Carnival of the Capitalists Recommended: Business of America is Business



Carnival of Investing Recommended: It's Just Money



RINO Sightings Recommended: Decision '08



Carnival of Liberty Recommended: Pubcrawler, Combs SPouts Off



Carnival of Vanities Recommended: Random Yak



**********




Michael Barone has a point worth making in the latest edition of US News. His column, aptly named "Slouching Towards France" deals with the march of the welfare state, despite its failure everywhere it has been tried. Indeed, it discusses examples such as General Motors, which are symptomatic of a welfare state and yet are not what one thinks of when one says the words, "welfare state." And yet GM started out as a protected entity - protected by the high cost of entry into its market domestically, and by the shield of protectionism that our domestic companies had for many years. The problems with our domestic auto industry have been obvious for at least twenty-five years, and yet the mindset of the union, and to a lesser extent, the management have yet to adjust to the realities of the current market, as if there is hope that tomorrow the government will set the clock of protectionism back forty years by banning all of the foreign competition.



The welfare mentality is easy and seductive. It says that everyone will be taken care of, that no one will be left behind. Everyone will have a comfortable standard of living, no one will be forced to beg. Unfortunately, in order to deliver this, it means that everyone is left behind of where they need to be. Those government programs aren't free; in addition to the money it collects to help these people with problems, it also has to pay the people to do it. Furthermore, the fact that the government is there for everyone who asks means that there is less incentive not to allow the things that would cause you to be left behind were the government not there, and therefore, more people slip into the net, increasing the drag on everyone else. The bureaucrats themselves, wanting to become more important, will do what they can to expand, not reduce, their scope of mission.



Given the realities of the global economy, this is a recipe for disaster.



**********




I liked this Q and O article on what is wrong with the system. He puts his finger on the greater half of the problem, rent-seeking behavior on behalf of our elected officials. The lesser half: Gerrymandering. The adversarial political climate in this country can be put squarely at the foot of "safe" districts.



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From the online version of my local treekiller. Why immigration reform failed. I'm normally not interested in "blame pieces," but this time the buy/sell got much too blatant.



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Via Mudville Gazette, a front-line reporters take on why the media are determined for Iraq to be reported as a failure (Warning: They have an NSFW advertisement on the page, although it's Hollywood Interrupted, not one of "those sites")



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Indepundit observed the protest against immigration refrom here in San Diego.



Neil Boortz has more on the nature of the problem. As I have said before, we need immigrants. We don't need colonists.



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Dr. Sanity has a good piece about the clinical symptoms of Denial. It's supposed to be a three part series. I look forward to parts II and III. Especially III. Describing the symptoms is useful, but the problem is usually doing away with the problem, not identifying it.



**********




Speaking of dealing with denial: Mark Steyn. NOW!



Also, Big Lizards debunks "Magical Israel" syndrome.



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Ace of Spades on how to appear neutral even though you're not.



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Thought for the day: If the multiculturalists really meant that all cultures are equally valuable and equally worthy, would they want to ban foxhunting?



Sure it's okay for some cultures to hold women as chattel, and kill them if they try to break out of their narrowly prescribed roles via such means as (gasp) wearing comfortable clothing. It's okay for those same cultures to kill those who wish to leave their dominant religion. Why is it acceptable? They're not Americans/Westerners!



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I know I haven't been writing much, except for my four articles per week on real estate or personal finance. That's probably going to continue for a while, because of stuff taking place off of the internet. Nothing horrible, but it all takes time away from the 24 hours I get per day. I'm hoping that by the end of next week, I'll be able to write a little bit more here, although I did manage to read every entry in the carnivals above.

From an email:





I've been enjoying your blog posts on mortgages. I've learned more from you about what to expect than I have from any other source, and I've gotten 10 mortgages in my life.



I was reading Larry William's website this week, and on there I saw one of his newsletters from last summer:

http://www.ireallytrade.com/

http://www.ireallytrade.com/freestuff.htm

the May 2005 Right Stock.



Larry Williams you may be familiar with, he's written many books on trading.



Anyways, the newsletter talks about buying 2nd mortgage notes as an investment. And that's something I haven't seen you write about.



With the softening of the housing market in many areas, and overextended borrowers, I suspect that the market for 2nd notes will be heating up over the next few months and years.



I'd appreciate hearing your views on the opportunities and pitfalls in this area.





Let us consider the efficiencies of the market. The Institutional lenders have economies of scale, underwriting guidelines, and a set checklist of procedures as to how to approve (or decline) loans. They have a system that makes them effective. They can do this because they have enough loans to make it cost-effective, and because of their experience, they know how to price their loans. From advertising to wholesaling to pricing to packaging and servicing, they are set up for efficient service. Lest people think I'm saying lenders are a better place to get loans than brokers, I am not. Quite the reverse is true. But the the vast majority of broker originated loans are with regulated institutional lenders.



What happens if you're not set up like that? The answer is you're either more highly priced than they are, or you're not as profitable. I've said more than once that without regulated institutional lenders, every loan would be a hard money loan. So in trying to originate loans, an individual is competing at a disadvantage. Where then, can they make a profit?



The answer is in the loans that the regulated lenders won't or can't touch. Now we need to ask ourselves why they can't or won't touch them. There are three common reasons. First is there is something wrong with the borrower. Second is that there's not enough equity. Third is that there is something wrong with the property.



Something wrong with the borrower has several subtypes. Credit Score too low, in bankruptcy, too many mortgage lates, no source of income to pay back the loan. Most of these can be gotten around in one degree or another unless they take place in combination with insufficient equity. Most single problems are surmountable by a good loan officer, providing you've got the equity required to convince the bank they won't lose their investment. You'll pay a higher rate or higher fees than you would without, but better that than no loan. It's when they take place in combination that problems arise which break the loan beyond the ability to rescue. And of course, if the property is not marketable in its current condition, no regulated lender will touch it.



What the first category reduces to is increased chance of default. The second category reduces to increased risk of losing money in case of default. The third category, something wrong with the property, reduces to you're going to get stuck fixing the property if they do default, which means sinking thousands to tens of thousands of dollars into it, above and beyond the amount of the trust deed. Furthermore, both the second and third categories are also at increased risk for default, even if the borrower has the wealth of Midas and the credit score to match.



So let's consider what happens when something goes wrong. The borrower doesn't make their payments, and it becomes a non-performing loan. You're not getting your money. If you need it every month, that's a problem. Do you know the proper procedure to foreclose without missing any i-dots or t-crossings? If you don't, your borrower can spin it out a long time. Well, that's what a servicer is for, but a servicer cuts into your margin, and they get their money every month regardless of whether or not you get paid. This means they're a monthly liability if the loan isn't performing. Furthermore, over half the time, some low-life attorney talks the people into filing bankruptcy to delay the inevitable. It's stupid, and it almost always ends up costing them still more money and making their final situation much worse, but they do it anyway - and now you have to start paying an attorney to have any hope of getting your money.



Suppose the property does go all the way to auction? You are second in line behind the holder of the first trust deed. They get every penny they are due before you get one penny. And if the first trust deed holder forecloses (or the government for property taxes), your trust deed is wiped out. The only way to defent against this is go to the auction with cash to defend your interest. And if the borrower isn't paying you, may I ask why you think they'll pay their property taxes or first trust deed? The answer is "they're probably not." They are going to lose the property anyway, so why make payments that don't prevent that?



(There are a lot of details in the foreclosure process. The stuff in the above paragraph should not be taken for anything more than a broad brush child's watercolor type painting of the process, as including those details would digress too far)



Now, suppose you're not originating the loan, you're just buying the right to receive payments, either on an individual loan or a package of loans, after the fact?



Well, can I ask you which loans you think the lenders are selling? If you answered "The ones in greatest danger of default" you get a star for the day! The lenders will either sell them off individually, if there are people inclined to buy, or actually repackage them thusly. The ones that are still performing, and still going according to the original guidelines will go to other regulated institutional lenders in mass packages, but those lenders won't take these, or if they will, it'll bring the price of the entire package down by more than it's worth. So they seperate out the dogs before they sell the package. So unless you're buying them as part of the original loan package, this is what's happening. Now mind you, there are always those who want the non-performing loans because they know how to deal with them, but they know to only buy the ones with enough equity to cover the loans in case they need to foreclose. Those who specialize also know what these loans are really worth, and they don't pay full value - usually not even close.



So the aftermarket loans that are available tend to be in danger of default and without sufficient equity to cover if it goes to auction. If you're looking to lose your money, you've just found a very good way. You can also spend thousands of extra dollars trivially trying to defend your interests.



The equity issue is going to assume increased importance as prices in some overheated areas subside. If the loan was underwritten and approved on the basis of a $500,000 appraisal, but now similar properties are only selling for $420,000 and the loans total $450,000, it doesn't need a genius to understand you're not in the best of positions. Even if it sells at auction for as much as comparables are going for, you're still down at least $30,000 plus the expenses of the sale.



Now, with that said, second trust deeds can, if the equity is there, put you in the catbird seat. Suppose there's an IRS lien junior to you? Our office dealt with a $700,000 property with a $1.6 million lien against it - junior to the $28,000 second we bought. Nobody else could touch that property. The owner just wanted out - he wasn't getting any money regardless of what happened. He stopped making payments, and we had to step in with thousands of dollars to keep the holder of the first happy. There ended up being a fair amount of money made, although it took some serious cash for a while, because we had to make the payments on the first loan as well as everything else. This is not for the weak of wallet. If buying the Note had taken all of our ready money, we would have been SOL.



There are also all of the standard diversification of investment concerns. If ninety percent of your money is tied up in this deed, that's a pretty serious risk to your overall financial health. No matter how many precautions you take, some do go sour.



In short, while there is a lot of potential for gain, it's some serious work to evaluate the situation, and usually some serious work and serious cash to make it work for you when it is right.



Caveat Emptor.





UPDATE: something I'm running into a lot right now: Lenders that sell the note but retain servicing rights. So when the note goes south, and my client wants to buy into a distressed situation, the servicers are rejecting offers without checking with the actual investor, because they could get sued (for misrepresentation and bad underwriting) if they accept less than they loaned. On the other hand, if the property sits on the market (thereby costing the investors even more money), they don't get sued because, hey, the asking price is enough to cover the note. Now there is a legal deadline involved with lender owned properties, and nobody is going to offer enough to bail them out. But it's kind of like the old joke: "A lot can happen in a year. I may die. The King may die. And perhaps the horse will sing." Corporations don't die. Even if it were an individual investor, someone's going to inherit the right to payments. I do not think this horse will sing - it probably won't even whinny. In other words, nobody is going to offer enough to bail the lender out of their fix. Near as I can figure, those controlling the corporations holding servicing rights are evidently hoping that by that time, they will have moved on to other jobs and can't be held liable as individuals.



One more reason to be very careful investing in trust deeds.

One of the things the place I work does to attract clients is advertise foreclosure lists to our clients. Several times a week, people call and ask for the lists, and we say, "Great! Just come on down, fill out a loan package and an agency agreement, and we'll get them to you fresh every morning, and when you see one you might be interested in, we'll help you get it!"



Before the end, over 95% of the people have stopped us, saying they are already working with someone. "I just want the foreclosure list. Can't I get it?" Well, we pay money for that. Why should we give it to someone who is not our client and has the ability to pay for it on their own? Why didn't their agent get it for them? (Everyone can get a weekly list for free from the county - but that list is worthless except as a timewaster, because that list is three to ten days out of date and they've already been swarmed.) If they want to work the foreclosure market, they should have signed up with an agent who has daily foreclosure lists. They haven't even found a property they are interested in yet, and already they know their agent isn't cutting the mustard for their purposes. But they are still stuck with them.



Another trick high margin ("expensive") people use is social groups. Nothing wrong with social groups and using people you know there, but make certain you're not paying three or five times the going rate for a loan, and that your agent really knows what they are doing before you sign on the dotted line. Church groups, soccer coaches, scoutmasters - I can't tell you all of the social acquaintances I've rescued people who became my clients from. These predators look at other members of the group as a captive audience. It isn't so, of course, those people have the option of going elsewhere - it's just difficult socially, and many of them are unwilling to make the effort.



One of the worst of these is family. Your brother, sister, aunt, or nephew is in the business, and your family makes it difficult not to choose them. "You simply must use your sister Margaret!" Well, if subsidizing Margaret to the tune of two points more than anyone else would get is your cup of tea. Around here, that's $8000 or so for the average transaction. You are not writing the check for the extra to Margaret directly, but you're paying her just the same.



Lest I be misunderstood here, there is nothing wrong with using friends, family, members of your social group. Please do check with them. The mistake is not in giving them a shot; it lies in giving them the only chance. That's what you call a monopoly situation, and the chances of you getting the best possible treatment are horrid. But if Aunt Marge or Uncle Bob know you're shopping around, they have more incentive to do their best work. If they know you're not, well I hate to break it to you, but the average person is looking for a bigger paycheck for the same work, and this includes friends, family, and social acquaintances, particularly because you are not the one writing the check, but you will pay for it, guaranteed. The worst mess I've ever had to clean up was caused by my client's uncle, who had been in the business twenty years, and was trying to extort just a little too much money for the deal to work.



On the other hand, when my cousin calls me out of the blue, I can cut him a deal because here is a transaction that I didn't have to spend time and money on wrestling it in the door; it walked in of its own volition. This is far and away the toughest part of any transaction, and one of the most expensive to any real estate practitioner - getting a potential client into your office. It's why the "big names" spend so much on advertising nationally, and give their folks half (or less) of the cut a smaller place will give them. (Hint: just like in financial planning or any other service, what's important is always the capabilities and conscientiousness of the individual performing the service, not the company).



So here's how you live up to the social expectations. Give them a shot, but not the only shot. If you are looking to buy and they are an agent, sign a non-exclusive buyer's agreement with them. This gives you free rein to work with other folks as well; just don't sign any exclusive agreements. Most agents, unfortunately, want to lock up the commission that your business represents and so they will present you with an exclusive agreement. The harder they argue for an exclusive agreement, the more you should avoid them. All an exclusive agreement does is lock you in with one agent. If they are a lazy twit, you either have to wait until the agreement expires, use them for your transaction anyway, or hope you can get them to voluntarily release you. There is no way for you to force them to let you go. I get search phrases like "breaking an exclusive buyer's agreement" hitting the site every day. The only two ways to break an exclusive agreement are 1) wait for it to expire, or 2) get them to voluntarily let you go. I've never heard of the latter happening. So don't sign an exclusive agreement in the first place. Sign a non-exclusive agreement. This puts all of the motivations for work on your side, where they belong. The one who finds the property you are interested in will get the commission, but they have to work for it, as your business isn't locked up.



This also gives you an out if Aunt Marge or Uncle Bob doesn't cut the mustard. You can tell anybody who gets their nose out of joint, including them, that you gave them the opportunity to earn your business, and somebody else did a better job. The other guy saved you money, the other guy found you the property you wanted, the other guy got you a better loan. You wanted to do business with them, but they didn't measure up. Case closed, and Aunt Marge or Uncle Bob will drop it if they are smart, because the more stink they raise, the more likely it is that another family member, friend, or social acquaintance will pass them by in favor of "Could you give me the name of that guy who helped you?"



The only exception to the non-exclusive buyer's agreement is if they are giving you a service that you would otherwise have to pay money for. I am not talking about Multiple Listing Service - those are free and plentiful. I'm talking about real time information not available to the general public - like daily foreclosure listings. Our office pays hundreds of dollars per month for that as a way to bring in business. It is reasonable for someone working the foreclosure market thusly to be asked to sign an exclusive agreement, because otherwise there may be no way to determine who introduced you to the property (Lawyer's Full Employment Act strikes again!)



For sellers, unfortunately, you've got to make a commitment to list with one agent. It's just the way it has to be, economically, in order to get them to commit to spending the kind of money it takes to get a good result. But you can interview more than one agent. What are they going to do to sell your property for the highest possible price? Put it in the contract when you do sign. Everybody can put it in the MLS, and during the bull housing market we had for years, where unless the property was obviously overpriced you'd get multiple offers within a week, a lot of monkeys masquerading as agents made a good living doing that and only that. That doesn't cut the mustard any more. I work more with buyers than sellers, but there are venues that sell the property, venues that bring people to open houses, venues that generate people looking for the cheap bargain (which you don't want) and venues that generate people looking for property like yours in your neighborhood (who is your ideal buyer). Especially in a major city, these are all different venues, and the agent who knows which one is which is worth more than you will pay them, and the cheap agent who doesn't is likely to cost you a lot more money than their cheap asking price saves you.



For loans, I've written about this before, but shop around, ask questions of every loan provider you interview, beware of red flags, and stick to your guns. Try and find someone to act as a backup loan provider if you can, and do the work so both loans are ready to go when you need them. If you get multiple volunteers for backup provider, that would tend to indicate that they know that the loan you're telling them about isn't real. That's the question I ask before I volunteer to put in the work of a backup provider. "Could the loan they are telling me about be real?" If the answer is no, I volunteer to act as backup. Every single time, it's been my loan the person ended up getting. Your prospective loan providers should know the market if they are competent. Make use of that knowledge. And lest you be tempted to quote something at those loan officers that is not real, it's a self-defeating strategy. Honest loan officers will tell you point blank they can't do that, while the scamsters are going to get into the spirit of the situation, by which I mean saying anything it takes, no matter how fanciful, to get you to sign up. And those who are knowledgable about the state of the market always know what is likely real and deliverable, and what likely is not.



Caveat Emptor.

UPDATED here


I am hoping to buy in the (city) area and am reviewing the possibilities. While I fear that the local market may be peaking, I intend to live in the home for at least ten years, so I am not trying to time the market.

My questions have to do with the down payment. I expect to shop for a property in the $450,000 range, and currently have $60,000 available for a down payment. I make a decent salary and receive an annual bonus of $35,000 - $40,000 each February. The bonus, while not guaranteed, is very dependable. After taxes and deductions, I should realize about $20,000 - $25,000 from it.

Do you think I would be wise to wait until February, by which time I will be able to make a down payment of $90,000 and perhaps avoid PMI and pay less interest over the life of the loan, or seek to buy now and lessen the taxes on the bonus? (I itemize, am single and am in the 28% bracket). Will the greater down payment help me to capture a better interest rate on the loan? (My credit scores are right around 800). Also, if I buy now, is it possible that I will be able to negotiate a mortgage in such a way that I can pay my realized bonus in February as a lump sum towards the remaining principal without incurring penalties? Ideally, i would like to use my bonus each year to pay down principal, as I can afford to balance my budget, including regular mortgage payments, without touching the bonus.

While on the subject of credit scores, I am reminded of another question - does an 800 score do me any good as contrasted with, a 740 or 750? Thank you again for your consideration. Your writings have been invaluable to my education.

I needed some more information, so got a subsequent email

I would expect the property taxes to run about $5,000 annually and association dues to be another $350 monthly. As I don't have a car, parking fees will be inapplicable. My closing costs should be somewhat reduced as I work for a bank (parent company) and they offer employees favorable mortgage rates with no points and no origination fees. Of course if I go elsewhere for the loan that would not apply, but I would only expect to do so if I received even more favorable terms.

As for an equivalent property, the market would price the rent at about $2,200 a month, although I am only paying $1,520 now (for a less desirable place than what I am shopping for).


First things first. You are easily A paper. Some lenders might have a small incentive (no more than 1/4 of a discount point) for folks with credit scores over 760, but most don't, and even if you go looking for one that does, it's no guarantee that their overall rate will be better than what you could get elsewhere. Remember, it's not important that they give you a quarter point incentive if their trade-offs were more than that above the competition. Look for a loan based upon the bottom line to you, not a little tweak that says you get treated a little better than the next guy.

Second, split your loan into two pieces to avoid PMI. One first loan for 80% of the value, and a second for the remainder, whatever that is. The second will be at a higher rate, but better that than paying PMI on the whole balance. It's likely to save you a lot of money this way. If you intend to pay it down, be very certain that there will be no prepayment penalty.

Now, let's look at now versus basically a year from now (Since February is ten months away). One thing I'm going to look at is whether your location may be above sustainable levels. My rule of thumb is that if a 20% down payment won't break even on rental cashflow, your area is likely to be overpriced. With current rates (6.25% for a thirty year fixed rate loan at par for the first, something like 9% for a 10% second), payment on $360,000 runs about $2215, plus taxes of $420 per month plus association dues of $350 plus an allowance of $50 per month for insurance. Total $3035 per month. As opposed to $2200 rent. An investor would be down $835 per month even if the place was never vacant and never needed repairs. Prices would need to drop $100,000 at least to cover that. I'm also going to assume you need $10,000 for closing costs out of your own pocket, reducing your down payment to $50,000. Now, I'm going to look 10 years out based upon this situation.



Year
1
2
3
4
5
6
7
8
9
10
11
Value
$450,000.00
$374,500.00
$400,715.00
$428,765.05
$458,778.60
$490,893.11
$525,255.62
$562,023.52
$601,365.16
$643,460.72
$688,502.98
Monthly Rent
$2,200.00
$2,288.00
$2,379.52
$2,474.70
$2,573.69
$2,676.64
$2,783.70
$2,895.05
$3,010.85
$3,131.29
$3,256.54
Equity
50,000.00
21,008.26
9,995.46
43,151.06
78,608.20
116,526.98
157,078.65
200,446.41
246,826.23
296,427.77
349,475.31
Net Benefit
31,500.00
-108,625.29
-91,384.89
-72,677.63
-52,395.49
-30,423.16
-6,637.55
19,092.60
46,907.31
76,955.83
109,397.24


Now, let's look at suppose prices have come down that same $100,000 in a year, but rents have gone up by inflation - roughly 4%. However, rates are a bit higher - let's say 7 percent. Furthermore, you have $90,000 less $10,000 for closing costs leaves $80,000 down payment. I'm assuming property taxes are based upon purchase price, as they are here in California, but if they don't go down when prices go down, that's going to make a difference of about $100 per month to start and more later on. Let's look 9 years out for an equivalent time frame.


Year
1
2
3
4
5
6
7
8
9
10
Value
$350,000.00
$374,500.00
$400,715.00
$428,765.05
$458,778.60
$490,893.11
$525,255.62
$562,023.52
$601,365.16
$643,460.72
Monthly Rent
$2,288.00
$2,379.52
$2,474.70
$2,573.69
$2,676.64
$2,783.70
$2,895.05
$3,010.85
$3,131.29
$3,256.54
Equity
80,000.00
107,242.69
136,398.64
167,602.25
200,997.33
236,737.81
274,988.43
315,925.50
359,737.71
406,627.01
Net Benefit
24,500.00
4,200.10
18,090.11
42,543.32
69,346.64
98,702.88
130,831.85
165,971.77
204,380.83
246,338.88

The picture looks much better by waiting a year for the market to get rational - assuming it does. If it doesn't, all you've done is taken that last year of benefits off the first chart, or worse, as perhaps the prices continue to rise for another year. Nor have I assumed that you paid extra on the loan. Quite frankly, once you've killed off that second trust deed, leverage is your friend, and you are better off investing the difference.

The question is "When is Wile E. Coyote going to look down?" Okay, not all that funny, but it has applicability to the situation. As long as everyone is in denial, and there is a market of folks willing to pay those prices, the market is going to stay afloat. What's caused our local sputter is the fact that everyone has "looked down", and they don't like what they see. There is no convincing reason why highly paid jobs have to be even more highly paid so that they can afford local housing here, whereas a large proportion of the jobs in certain cities like Washington DC or New York don't really have the option of leaving, as they are where they have to be. The government isn't leaving Washington DC unless it gets nuked, and the big guns of the financial industry aren't leaving New York unless every other big gun does so. You know better than I to where your city lies on that spectrum. My impression is that where you are is closer to the inelastic employment point. Nonetheless, if the rest of the country "looks down," so will those places that are relatively insulated.

If a 20 percent down payment doesn't pencil out as an investment property, as it doesn't in your case, the question is not "if?" the market is going to adjust, but "when?" and "how?" Here locally, you can almost hear the "pop!" If things are relatively inelastic, employer- and jobs-wise, a long slow deflation may be what occurs. You may even keep current prices while inflation makes things catch up. It's hard to say when I'm not as familiar with your city's economic engine as I am with my own, but here's what happens if prices stay stable for ten years:


Year
1
2
3
4
5
6
7
8
9
10
11
Value
$450,000.00
$450,000.00
$450,000.00
$450,000.00
$450,000.00
$450,000.00
$450,000.00
$450,000.00
$450,000.00
$450,000.00
$450,000.00
Monthly Rent
$2,288.00
$2,379.52
$2,474.70
$2,573.69
$2,676.64
$2,783.70
$2,895.05
$3,010.85
$3,131.29
$3,256.54
$3,386.80
Equity
50,000.00
53,930.19
58,150.38
62,682.08
67,548.41
72,774.22
78,386.23
84,413.13
90,885.78
97,837.36
105,303.52
Net Benefit
-31,500.00
-39,318.42
-47,361.14
-55,634.47
-64,145.15
-72,900.45
-81,908.24
-91,177.08
-100,716.30
-110,536.19
-120,648.06


As you can see, you build up a fair amount of equity, but would have been better off renting and investing the difference.

Which of these scenarios is most likely? Here it's the one attached to the first two tables, except that we're a good portion of the way towards table two right now. Where you are, I'd make an educated guess that you're still looking at table one right now. There's money to be made even there if you buy and hold long enough, but you could be upside down for quite a while.

Thank You for asking, and please let me know if this doesn't answer all of your questions.

Caveat Emptor.

UPDATED here

There are a fair number of specific helpful suggestions to make in helping you purchase a home. All of them revolve around the loan. Let's face it, the loan is far and away the most hypothetical and uncertain part about most real estate transactions. If there is a non-loan related problem, chances are that you really didn't want to buy that particular property anyway. Most of the time, these problems mean that you would be buying into trouble, and nothing but. Unless you have specialized knowledge in sorting out that particular problem, it's likely to be more expensive than any money you saved through reduced purchase price.



A poor loan officer can always botch a loan, of course, and even the best may not be able to push it through if you are a marginal enough case. So how do you improve your case standing?



The first thing is to get a credit score above 720. If you're there already, keep doing what you're doing. Even if you're not there yet, it's easier to improve than most people think, although it takes time. Make all of your credit payments on time, especially any mortgages and rental payments. These are the most important things to mortgage lenders. Note that you make a payment a few days later than it is due, and you may even pay a penalty, but the lender will not report it as late until 30 days later, and that's when it counts as late to everyone else. In order to qualify for the A paper loan, at the top of the market, the general rule is no more than two 30 day late payments on revolving debts within two years, or one 30 day late on mortgages or rent.



Most lenders want you to have three lines of credit, and a twenty-four month credit history. Not all of them need to be still open, but if you don't have at least two open lines of credit, a given reporting bureau may not report a score, and if you don't have two different scores from the three big bureaus, only a few sub-prime lenders will give you a loan. The longer your particular lines of credit are open, the higher your score will be. So if you keep opening new lines of credit, expect your score to be low.



Revolving credit balances should be kept low, less than half of their limit. There is a significant hit if your credit line is more than half its limit, and the higher you go, the worse it is. If you have two $5000 limit credit cards, it is much better to have $1500 on each than $3000 on one and nothing on the other. It make even more difference if you have $2000 balance on each as opposed to $4000 on one. And if you're one of those people who keeps doing the "transfer your balance to a new card and get zero interest for six months" thing, it will really impact your credit in a negative way, because if your credit balances sum to $8000, that's usually what the limit on the new card will be, and so you've got a brand new credit card that's maxed out, which is a major hit on your credit.



One of the best ways to improve your credit score relatively quickly is to use your credit regularly but pay it off every time you get a bill. Once per month, charge something small that you know you will be able to pay off when the bill arrives. This may still take some months to improve your score, but better months than years.



The next way to improve your ability to afford a house is not to have any large monthly payments. The best rates are for full documentation loans, where you prove to the lender that you make enough money to be able to afford all of your payments. "A paper" lenders will allow you to have total monthly payments of 38 to 45 percent of your gross monthly income. Some sub-prime lenders will go to 55 percent. If your family makes $6000 per month, this means that total payments can be up to $2700 for certain A paper loans, up to $3300 for sub-prime and still qualify full documentation. This also means that the more income you can document, the more house you can afford.



This number includes not only the amount of the mortgage, but also the property taxes, homeowners insurance, association dues (if applicable), and anything else you may need to pay in order to keep the home, as well as car payments, credit card payments, and any other debts you may have. This means that somebody with other payments of $80 per month can afford a lot more house than somebody with other payments of $900 per month. This should be intuitive, but you'd be surprised how often people don't realize it.



The final thing that is helpful is a down payment. The larger your down payment, the less you have to borrow. Lending money is a risk-based business. Up to a point, the lower the ratio of loan balance to value of the property will help you get a lower interest rate and more favorable terms, because the bank will be more certain of getting all of their money back. A 5% down payment is better than none. 10% is better than 5%. The first 5% makes the most difference, but every bit helps. Of course the larger your down payment, the less you have left over for other purposes. It seems to be a phenomenon today that people don't want to risk any more of their own money than they have to, and 100% loans can be done right now, although how much longer that will be the case is anyone's guess. Still, people who make a habit of saving money are always in a stronger position that those who do not.



Caveat Emptor

UPDATED here

Carnival of the Vanities has been scammed so badly that Harshly Mellow (no links for people who are acting like weenies) has decided to kill it. There will be two more, then the oldest of all Carnivals is going to die unless someone convinces him otherwise.



I disagree with this, and yet since I have not the time to take it over, there's not much I can do. If you do have the capability to take over the carnival, type the site name (Harshly Mellow) into a search engine and contact him.



Lawrence Simon has done an Avignon edition (People who fix problems caused by other folks without compensation deserve recognition. Thank you Lawrence) Recommended: The Essayist.



I do have a plea, and that is for folks who submit to Carnivals to please remember it's supposed to be a showcase for your best work. Remember, you're trying to get me (among others) to check out the rest of your site. I actually do check out every post (almost - see next sentence) at every Carnival I submit to, and have found several sites I check out regularly because of it. But if you keep submitting garbage that a five year old could have done, you eventually get onto my mental list of sites not to waste my time with. If the post you submit is a link and a one liner, that's not likely to catch my return interest. Ditto thoughtless drivel. If you want my attention, particularly if you want my reader's attention, prove you are worthy of it by putting some effort into it and telling me something other folks aren't. Information, analysis, implications, context, what happens next, something so that folks won't say "that was a waste of my time to read.". I don't always succeed, but I try to make every post say something worth reading. Sad to say that many carnival submitters do not understand this. It isn't a crime, but it is a waste if you submit it to a carnival as your best work.



It's all about signal to noise ratio. If you keep showing me white noise, it's not going to take very long to figure that out.



(And if you have suggestions to improve the s/n ratio here, I am eager to hear them!)



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Here's some good news via Pacesetter Mortgage. FHA is looking to standardize and fix some of what's been wrong with their programs basically forever. I am still not happy with the FHA's requirement for Mortgage insurance on every property, as FHA might have slightly lower rates, but with Mortgage Insurance they usually end up higher, although with tiers it might go lower. This is what loan pricing s all about - risk level. FHA says you're at one risk level, then boosts the quote with mortgage insurance. The subprime loans they say they are competing with don't have mortgage insurance, because the lender priced the loan for the situation. Finally, bonding is a pain and an expense and nobody else requires it, but better bonding than an annual FHA audit, which is a much bigger pain and a much bigger expense. Still, you'd think if they really wanted to serve the public, they'd adopt the same standards that the lenders have adopted in order to better serve the public, rather than simply diminishing the problems (How well do you think "We're not as bad as we used to be!" would go over as a marketing slogan?)



The one thing that reforming the FHA thusly might accomplish is further commoditize the loan market. I regard this as a good thing, as I deliver my loans on the terms I put on the MLDS. Ethical folks win and unethical folks lose, consumers gain and scamsters lose, but it's a small shift for the better, not anything like a magic bullet. Not nearly.



Lest anyone think I'm denigrating it, this is how real improvements are made - many small shifts for the better. Magic bullets are both rare and dangerous, often running afowl of the Law of Unintended Consequences.



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Holy Tear The Cover Off The Anti-War Left's Pravda, Batman! Captain's Quarters covers the translation of an Iraqi document that, if it holds up, should once and for all put to rest the absurd claim that Iraq was not co-operating with Al-Qaeda, as well as the even more absurd one that "Iraq was not our enemy." They were soliciting for a suicide mission against American Interests within their military.



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Would anyone like to tell me why anything less than the death penalty is even under consideration? NYPD detectives convicted of mob murders. They took an official position, and abused it for murder. But no, the maximum penalty they face is life in prison.



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Judas a scapegoat? Ancient 'Gospel of Judas' Translation Sheds New Light on Disciple Actually reading the article though, started me thinking it was a third century equivalent of the JFK assassination conspiracy theorists. Looking in from outside, "secret prayers" does not appear to be consistent with the sort of things that the Christian messiah said and did otherwise.



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Ancient Pyramid Discovered in Mexico Cool, if perhaps not of the same order of importance as the previous article. Also, does it seem as if the AP writer obsessed just a little too much about the Christian thing that's been happening on the site more recently?



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Proving she's got a sense of political self-preservation, McKinney apologizes . Prediction: the whole incident is dropped. Does anybody think that if Joe Average slapped a cop, the case would be dropped after he apologized?



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Students lack basic financial knowledge. There was no real need to study this fact, but the study reveals the depth of the average high school senior's ignorance. A one semester overview of the economic facts should be a requirement to graduate. At least that way young folks will have something to separate out fact from fancy. Reading the financial press without the tools to evaluate whether what they tell you has any basis in reality is an excellent way to get in trouble.



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So Bush ordered Libby to leak the information?



Some folks are going to make a big deal about whether he had the authority to do so. I direct them to this document. If Clinton could delegate that authority, it certainly stands to reason that the President has it in his own right.



Here's another document about declassifying classified information. All along it is a series of Executive Orders setting the policy. Executive Orders come from the President. The President cannot set policy on anything unless he has the authority to do it himself.



Furthermore, if you'll recall, Carter revealed the existence of the Stealth program, and Johnson of the SR-71 (prior to his getting it backwards, it was the RS-71). So does the president have the authority? Yes.



With that said, however, it wasn't the swiftest of moves, politically or ethically. If he was attempting to strike a blow at his critics, it was a cure worse than the disease. Rebutting your critics is not a crime, but there are those who will say it was an abuse of position.



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Cancer Vaccine Works Long Term. Well, not quite. It's really against a cancer causing virus, HPV. But it's still excellent news.



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(singing) Give me two more last chances before you say goodbye! (/singing) U.S.: Iran may face sanctions after two UN warnings And ooh, sanctions! Nuke a few million people, they might up it to a strongly worded communique.



Is there anybody left that thinks the UN actually helps make the world a safer or a better place?



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Politburo Diktat corrects some misapprehensions about Iraq - civilan body count was way up for March. Considering they're in the midst of trying to form their first elected government ever among factions with no history of compromise between them, I may be disappointed but not surprised. Still makes a slow month by the standards of Saddam Hussien's reign.



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Worth Reading: a thousand words or so over at Dan Simmons website



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Armies of Liberation covers the Saleh government trying to hide the budget breakdown from parliament. Excuse me, but aren't they supposed to be the ones appropriating the money?



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Michael Barone has a dose of sanity about the K Street Project.



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The other day, I wrote a piece on the state of our educational system. Captain's Quarters has a piece on the easy, obvious solution of ending the monopoly, which the Democrats can never tolerate, as they get too much of their support from those with stakes in the current educational monopoly.



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"All the News That's Fit to Stage": Michelle Malkin has a round up.



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In case you haven't heard it yet, I like the gag about a hundred or so ordinary citizens showing up in the capitol as "undocumented senators". By the Senate's own logic, they'd have to put them on a "guaranteed path to membership"!

On of the biggest time and money wasters in real estate is people that apply for the wrong loans - loans that they can never qualify for because they can't meet the guidelines, or can't prove they meet the guidelines, which amounts to the same thing. Often, loan officers are the worst offenders, judging by the people who come into my office with messes for me to clean up. They don't know how to submit a loan, or they know full well it won't be approved, but they get you to sign up by dangling this carrot, and then snatching it away, but now they've got you working with them and they end up with your business because they told you a fairy tale that sounded better than what the other guy talked about because he restricted himself to talking about loans he could actually deliver.



How do you know what mortgage market is best for you?



There isn't a cut and dried answer unless you're one of those folks who can qualify "A paper" full documentation. If you can do it, and a lot more folks can qualify this way than think they can, A paper full doc is the way to go. Because it's the least risky loan, the banks give you the best pricing. What if you can't make it, however?



The reasons why people fall away from A paper full doc is long. The two largest ones, however, are people who cannot prove they make enough money and people whose credit score isn't high enough. At a distance from that, the third reason why folks don't qualify, is late payments. A paper permits one thirty day late on the mortgage, or two on other credit. If you fall off the pace due to late payments, you have to go subprime.



A paper accepts only two ways of proving your income: Income tax forms and, for some employees not in construction or on commission, w-2s and year to date pay stubs. If, with the income taken from these forms does not qualify you according to A paper debt to income ratio considering your known debts (typically 45% back end ratio, but I've seen high seventies get accepted in some circumstances), you do not qualify full documentation. Think of full doc as being where you prove you're got enough income to make your payments. If you can't do full documentation, you have to go to stated income.



A paper also requires an absolute minimum credit score of 620. 619 is an automatic rejection from any A paper program out there. Some A paper may require higher credit scores (640 jumbo, 660 stated income, 680 for both), and if you haven't got it, you don't have the loan, either. If you don't have the relevant credit score, you're going to subprime.



A paper stated income is where you've got a good credit score and can prove that you've got a job (or a source of income) and you've had it for two years. You just can't prove you make enough money to justify the loan. You could be making it, though, and the lender agrees not to verify, although they will look at it to see if the income you claim is consistent with your profession. You're paying your bills on time, though, so lenders are willing to believe that you're living within your means, and therefore qualify for the loan. They are not agreeing to close their eyes if something indicates you cannot afford it or what your real income is; they're just not going to go out of their way to verify your income. They are going to have you sign an IRS form 4506, releasing your taxes to them. Don't worry too much about it. The IRS takes a minimum of 60 days to respond, and the loan will be done in thirty, if your provider is competent, and it's not fraud to overstate your income on a stated income loan. Dumb, maybe; fraud, no. The major reasons why "A paper" stated income falls out are low credit score, insufficient time with your source of income, and incompetent loan officers who allow the underwriters to find out that the client doesn't make that much. Low credit score goes to subprime, insufficient time in line of work goes to NINA, and loans with incompetent loan officers start over with another lender.



A paper NINA is a loan driven by the credit score and the situation you find yourself in. There is no debt to income ratio, and the personal qualification consists of a good credit report. Of course, you still have to have the appraisal and the rest of the documentation relating to the property. Furthermore, the rates are higher than stated income (which is in turn higher than full documentation), and the maximum Loan to Value Ratio is lower. Common fallouts are credit score too low (go to subprime), loan to value ratio too high (go to subprime) and something wrong with the property (go to hard money)



Subprime is an entirely different world than A paper. The standards are different, the qualifications are different, everything is different. Just because you can't go full documentation A paper doesn't mean you can't do it subprime. For one thing, typical subprime goes up to fifty percent debt to income ratio, and a few lenders will go higher - some as high as sixty percent! So even though the rates are higher, it may be easier to qualify.



Subprime also has another form of accepted income documentation: bank statements for the last six, twelve, or twenty-four months. When I started, this was always discounted, but of late personal bank statements have been accepted on the strength of 100 percent of the income they show. This rate will be higher than a borrower who can prove their income via one of the A paper methids, but is lower than stated income. Number one reason for falling out of subprime full documentation: Not enough income. Number two: sub-500 credit score. Number three: the underwriter believes that you manipulated your income on your bank statements. Not enough income goes to stated income subprime (with another lender, as if it was submitted full doc it cannot go stated income with that lender). Sub 500 credit score goes to hard money, which is where you might as well start when you find out, because regulated lenders can't touch you if you don't have at least one of your three credit scores above 500. If the underwriter thinks you manipulated your income, you or your loan officer have either got to convince them you didn't, which usually requires w2s at least, or you are going to another lender.



Subprime stated income is fairly wide open, with the proviso that a given credit score will have a higher rate and a lower maximum permitted loan to value ratio. Number one reason for falling you here is that you don't meet loan to value guidelines. Number two is you didn't state enough income in the first place, and you don't qualify by debt to income ratio guidelines. Number three is you stated too much income, and the underwriter doesn't believe you make that much money. They can always require income documentation - they don't have to let you state it without verification. At best, anyone suffering from any of these three problems can expect to have to go to another lender, because this lender will not now approve their loan. Maybe lose a little time if you're working with a broker who then submits the package elsewhere. Back to square one if you were working with a direct lender.



Subprime NINA is even more wide open. A loan officer has got to be a serious bozo to blow this one, but I clean up behind ones that went bad on a distressingly frequent basis.



Hard money is the last hope of the unfortunate. These folks don't care about your income, your credit score, or anything else. What they care about is that they can sell the house for enough to cover the loan if you default, and unlike regulated lenders, they will record that Notice of Default on the day you become eligible. Sometimes they are the only choice, but if you find yourself dealing with them you should really ask yourself if this loan is something you absolutely have to have, or if you just want it. If the answer is the latter, my advice is to reconsider getting the loan.



There you have it, something like a flowchart of what kind of loan you should apply for. These are far from the only reasons loans fall apart, of course, but they are the most common. A good loan officer knows enough of the tricks and traps to tell you the truth straight off, and apply to the appropriate loan first, without wasting your time and money. Bad ones don't.



Caveat Emptor.



UPDATED here

What is Real Estate Worth?

| | Comments (0)

One of the most common questions in real estate is "What is this property really worth?"



The easy answer is the same as the deepest, most profound one I can come up with, "Whatever you can get someone to pay for it." It's the answers in between that you've got to watch out for. The appraised value is simply a guesstimate based upon the sales of similar properties. But there is no such thing as an identical property. A Price Opinion is just a guesstimate based upon what an expert thinks might be an appropriate asking price. Even an accepted offer means nothing if the offerer backs out, changes their mind, or can't qualify.



Now it's no secret that some people can get folks to pay more for real estate than others, and others can bargain the price down better. But the bottom line is that if it's not worth what you paid, why did you buy it? If it's worth more than you sold it for, why did you sell it? There isn't a good answer to either one of these questions. It's worth what it sold for. Period. The only exceptions are when there's a distress sale, and even then, the answer reads, "Under the circumstances, that's what the property was worth," which is remarkably similar (like identical) to what the answer is in all other situations.



This goes for the other side of the coin, failed transactions, as well. Why didn't you sell to a good offer? Why didn't you offer more? Because it wasn't a good offer, or because it wasn't worth more, to that person.



If you walked up to the average person on the street and offered to sell them a parcel of land on which there's a home, anywhere in the US, for $5 or $10 or $100 or even $1000, most people would take you up on it sight unseen so long as you could deliver clear title. I can safely say that the average residential property in this country is worth at least $1000 to every legal adult in the country. Why then all of these elaborate rituals of listing contracts and MLS and inspections and offers and escrow and title insurance for the transfer of property?



The answer lies in the fact that sellers want to get the highest price possible. Ideally, they want to find the one buyer who will bid more than anyone else on that particular property, because the property is worth more to them than anyone else.



To find that one perfect buyer is actually fairly rare, in my experience. But you can certainly find buyers willing to pay more than $1000, in most cases. How much more? Well, that depends upon the property and the buyer, how widely and effectively your net is cast and how long you are willing and able to wait. As with all investments, it's a trade off and sometimes the money you'll get from a better buyer isn't worth the money you spend finding them. Knowing stuff like that is part of what I get paid for.



It does you no good to accept the offer of someone who can't qualify for the loan they need in order to purchase the property. It does no good to make such an offer. How do you tell, as a seller? Make it a part of your counteroffer that the deposit revert to you the day after contingencies expire. That's not friendly, and it may lose you some potential buyers, particularly in a buyer's market, but it's the only way to be sure. Prequalification letters are basically used paper, for all they really mean.



There is nothing wrong with saying, "My property is worth $X" as long as you understand that it's shorthand for "Similar properties in my area are selling for about $X". Because your property is never worth $X. Nor are any of mine, Donald Trump's, or anyone else's. It's not worth that unless you sold it for that, and if you sold it, it's not yours anymore, is it?



People get caught up in the damnedest ego blocks on comparatively few dollars. You put the property up for sale because you wanted something other than that property, right? You're out there offering money for the property because you think you can make more money with the property than with the money, right? Trying to squeeze too many dollars out of the other side of the transaction can and often does leave you with no transaction. There is a thin line between hard bargaining that gets you a good bargain, and overplaying your hand that gets you left out in the cold.



Don't get left out in the cold.



Caveat Emptor.

UPDATED here

Carnival of Liberty Recommended: Liberty Papers, State of Flux



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Signifying Nothing has an excellent point about trial by politics.



Speaking of Trial by Politics, here's a good (as in beneficial) example. Dignan's 75 Year Plan is going to file to oppose her.



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As an wholehearted believer in the Church of Get The Facts, I have nothing to say but Amen Brother!



And Hallelujah Sister!



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Speaking of facts, Mr. Minority has a few more to add to the immigration debate.



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Via Hugh Hewitt, an article on that Supercavitating torpedo that was in the news today.



Dean's World has a great article about the Ignored Iron Triangle of Power. The money quote:





To sum all this up by a political equation:





Power = capabilities X interest X will



If any of the elements on the right are zero, power is zero, no matter how strong the other elements. If interest and capabilities to defeat an enemy are great, but will appears weak, then so is power.





He also deals with the differences between actual will and perceived will. If your will is perceived to be weak, you will be forced to fight battles that never would have happened if your will had been perceived to be stronger. Every time something happens to weaken the ability, or the perceived ability, of the United States to respond in an appropriate manner, our enemies are encouraged to launch attacks and fight battles that they otherwise would not.



Is it treason to advocate "cut and run from Iraq"? Not unless you're being paid to do so. But every time somebody does so, they become a part of the cause why american servicemembers are killed in subsequent attacks, and Iraqis also. This places a very high bar on what I consider - what is - worthwhile criticism of the Iraq war. Of course, those making the criticisms of the war knows that the ones harmed by it will overwhelmingly vote for the other side, anyway.



And just because it's not treason doesn't mean scoring cheap political points that get our defenders and Iraqi innocents killed is in any way admirable. Quite the opposite, and I hope that those who say they support the troops will suit actions to words in the voting booth this year, as well as eveyone with a friend or relative in the military. It is incorrect to claim that there can be no valid criticism of the war or its handling. But it is also very possible to criticize the war and its conduct without encouraging our foreign enemies, and those who are unable to see the distinction or make the distinction need to be voted out. Such actions will not only improve the quality of the debate, but send a clear message to our enemies that we have the will to carry this through, and therefore save lives because of attacks the enemy is not emboldened to make, and battles that remain unfought.



In short, if you support the troops, don't get them killed needlessly.

US News has an interesting editorial by Mortimer Zuckerman in their latest issue, having to do with the departure of Lawrence Summers and the downside for Harvard's students.



It seems that Summer's celebrated episode of Hoof in Mouth Disease was only a public reason for the faculty turning on them. It seems he wanted the professors to teach, and not just the courses they thought up to coincide with the most recent research, but more basic stuff as well. Furthermore, he was fighting grade inflation. When 91 percent of your graduating class gets honors, honors are meaningless. Particularly when a large portion of the student body was emerging from the undergraduate program ignorant of core subjects.



Does the vast majority of this fight sound familiar? It should. Parents of schoolchildren from kindergarten through twelfth grade are fighting it, and into college for those who continue in public colleges. I've got a kindergartner who, I'm convinced, learns more in the hour or so per night my wife and I can devote before bedtime than the seven hours she's in class. They play around with sight words all day, and we come home and teach her phonics. The math they're doing is pathetic. They're still working on counting, and we come home and teach her about how adding is really just about fast counting. In fact, they seem to concentrate on feel good subjects. She comes home with songs about Rosa Parks and Martin Luther King that she sings ad nauseum, but she can't tell us anything about what they did, nor did she know who George Washington and Abraham Lincoln were and what they did until we took the time to teach her. MLK and Rosa Parks deserve admiration and respect, but let's get the basics first (I have yet to hear of a high school or lower civics class mentioning General George Catlett Marshall, who in my opinion was probably more important to history than any of the presidents he served. He ran World War II, strategically, then took someone else's idea of rebuilding our former enemies and sold it to the american public, which was arguably the best investment we've ever made as a country. Wikipedia has a good overview, if your school failed you.



My point is this: The schools don't teach what the students need to know. They teach what the teachers want to teach, what is easy for the teachers to teach. I have heard, secondhand, tales of their children dealing with teachers who are mathematically incompetent - who literally could not do arithmetic without a calculator. This is unacceptable, even in an english teacher. The schools don't teach rational thought, or methods of evaluation. How can they, when the teachers cannot handle mathematics themselves?



What they have is not an easy job. Those that actually do their job are underpaid. But there are too many that shouldn't be in the teaching profession at all, and their organizations are doing their best to keep us from improving the situation. And, it appears, the phenomenon touches even the most prestigious of private universities. If the professors will not teach, how are they supposed to be in touch with what the students need to learn? How are they, and not grad students who do the actual teaching, supposed to be better equipped to set academic policy? Why are they not, instead, in a purely research position in private industry? Tell me again why they are receiving a salary from a college? Here's a hint: It's not to shelter them from inability to get a grant.



They are paid to teach, and they are paid to teach what the students need to learn. If they won't do it, that's called refusal to work, and is grounds for terminating anyone. If they can't do it, that's called incompetentce, and also grounds for terminating anyone.



If you are getting the idea that the tenure system is out of control, you're on the right track.

Buying Below Market

| | Comments (0)

This question:



What real estate office can I trust to help buy below market house in (location) California in the year 2006?


brought someone to the site and I have not previously written a real answer to the question.



The short answer is "nobody."



This doesn't have to do with trust. It has to do with the facts of life and bad assumptions.



What is the definition of market price? It is the price at which a willing buyer and a willing seller exchange a property. In other words, what you buy it for is by definition the market price.



Everybody wants to buy real estate for less than it's really worth, just like everyone wants to sell it for more than it's really worth. Mathematically speaking, at least fifty percent of each have to fail, and the fact that you're even asking the question indicates that you have made incorrect assumptions.



Real Estate is not like stocks or bonds. No matter how big or how small your transaction, it's always a one on one transaction. If you are selling, you need to find one buyer willing and able to buy that property for a price you are willing to sell. If you are buying, you need to find one property where the owner is willing to sell at a price you are willing and able to buy it at.



This is not to say that the general market is irrelevant. If someone is pricing a more desirable home lower than you, you've overpriced your property. If the identical condo next door to the one you bought sold for ten percent less, you probably overpaid. But it's not for nothing that the mantra about the three most important things in real estate being "location, location, and location." No two properties are ever identical. Think condos, even. Which would you rather have: The one right next to the parking lot, the mailboxes, and the swimming pool, or the one way in the back where you have to walk a quarter mile from your car, and further from everything else? I assure you that a goodly portion of the population would choose the one you think of as less attractive. It's the choice of the individual buyer, and a real estate agent has to learn how to get the attention of the person who's most likely to be interested in that property.



I keep telling people that getting a good price at sale time is nice for both the buyer and the seller, but the really important thing is your amount of time in the investment. Let's go back a very few years. Homes in my neighborhood were worth maybe $180,000 at the time, and condos were worth maybe $65,000. Had people going around making low ball offers on everything. Offered maybe $55,000 for the condos, $150,000 for the homes. Nobody who wasn't desperate wanted to sell, of course, and that's just what they were checking for - desperation. Had they offered something vaguely reasonable, say $60,000 for the condos or $170,000 for the home, they likely would have gotten a property. At least one group of these people ended up not buying anything. Fast forward five years. Those same condos are worth $275,000, and those same homes are selling for $500,000. If the thought of missing out on $210,000 profit for the condos because you couldn't make $217,000 bothers you, then you seem pretty rational to me. If, on the other hand, the thought of missing out on an extra $20,000 you're not going to get for the single family residence makes you want to just throw $330,000 base profit (tripling your money!) out the window, please go waste someone else's time.



There is nothing wrong with desperation sales and offers that are desperation checks, so long as you are willing and able to then proceed to something more reasonable. Nobody wants to sell to somebody looking to flip a property, but they do want to sell for a reasonable price. That's why the property is on the market. Somebody offers me (or my client) fifteen percent less than the property is worth, I usually write something like "offer rejected. Why would I (my client) want to give you fifteen percent of my investment's value?" and append a list of comparables. Counteroffering just wastes time when the offer isn't even in the right ballpark. The ones who can come back with a reasonable offer want the property, or they wouldn't have made the offer. The ones just looking for the desperation sale aren't going to bother.



Now some potential buyers are only interested in desperation scenarios. That's fine, but you're going to work awfully hard and put in a lot of offers before you get one, and the ones with the most potential for quick profit are going to be the ones where there is a lot of work to be done. Additionally, right now the market just won't support CondoFlippers Inc.



Yes, I believe in hard bargaining. Judging from evidence I see around me, I'm one of a small percentage who does. But I'm willing to come from a reasonable starting position, although I do love it when my clients decide they want to put an offer in on a discount agent's listing, because the client I'm acting as buyer's agent for is going to think I walk on water when the transaction is over, while the sellers are going to find out first hand the truth of the adage "You get what you pay for".



Lest you think that your negotiation discount equals your profit, it isn't. It's a small part of your profit. Let's say you get the condo for $250,000 or you won't buy it at all, even though comparables are selling for $275,000. Let's say you intend to flip for $290,000, not that that's going to happen in this market, but let's say you succeed anyway. Your net is something like $268,000, after spending $253,000 or so to buy, and you spent about $5000 making the payments on the mortgage even if it did sell right away (more likely, given the realities, that you spend the entire "profit" on the mortgage payment!)



Now let's say, instead, that the market collapses twenty percent the day after you buy, down to $220,000. If you have a sustainable mortgage and bring in a tenant, your cash flow should be even or positive. Hold on to the darned thing for five years, and at historical seven percent average per year, the property is worth $308,000. Hold it ten years and it's worth $432,000 under the same assumptions. The first number gives you as much profit as the flipper even has a theoretical chance for, while the latter blows the flipper out of the water. Even after a price collapse, and because you've been in a sustainable situation this whole time, it really isn't critical how long the prices take to come back, because you're not under the gun of a deadline. So long as you have a sustainable cash flow, the risk is essentially nonexistent. It's when you have an unsustainable cash flow that you've got to worry. Say like, an empty unit where you've got to make the mortgage payment without rent because you're trying to flip it.



In fact, given a sustainable cash flow, unless property values collapse and stay down forever, the question is closer to when you're going to cash out and how much, rather than if. Southern California Real Estate has always moved in cycles. What's down today is up forty percent five years from now. The trick is being able to bridge the gap between now and then.



If some of the above seems like I'm attacking the "bigger fool" theory of real estate, consider this: Somebody's always the last, biggest, fool in line, and until you find a buyer, that person is you. It should be an agent's responsibility to see to it that their clients aren't the only ones without a chair when the music stops. For all too many of them, their thinking stops at the receipt of the commission check.



Caveat Emptor.

Carnival of Investing Recommended: Frugal Wisdom from Wenchypoo's Warehouse, Ask Uncle Bill



Carnival of the Capitalists Recommended: Entrepreneur's Journey



RINO Sightings Recommended: World According to Nick, Armies of Liberation



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If you're a regular here, this is about as surprising as falling rocks: Some homeowners struggle to keep up with adjustable rates If you read the article carefully, all of the loans they are talking about are short term adjustable. Although right now 30 year fixed rate loan rates are very comparable to things like a 5/1 ARM, that is not generally or even usually the case. And I got a real laugh out of the last line: "But within 24 hours of a call from a reporter, Saxon agreed to give the couple a fixed-rate loan at 7%." Some favor. If they're A paper borrowers, that's a three points to the originator loan today, not counting what they'll earn selling it on the secondary market. In other words, assuming they don't stick the poor borrowers with a brand new prepayment penalty, the bank just earned at least $5000 for their "generosity", assuming a $100,000 loan. If they put a prepayment penalty on it, you're looking at maybe $9000. Multiply accordingly for larger mortgages.



One of these days, reporters may learn. But don't hold your breath.



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Obama Strikes Out at Bush's Energy Policy



I'll concede that this is a reasonable idea, at least by government standards. Don't support it, but that's the topic for a whole essay, if Perry doesn't beat me to it. I definitely don't see the need or the advantage in attacking the President.



Reading the article, it appears as if he's calling for the government to shoulder the costs of the automakers retirees provided the automakers then turn around and use the savings for alternative energy research.



Okay, bad idea economically. Very bad idea economically. Good idea politically. Why not just propose it as an "improvement"?



Last I checked, psychologists called this phenomenon "obsession" It's not a sign of a healthy mind, I'm afraid.



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Wizbang makes a point that cannot be made too often.



Ditto Vodkapundit



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Iraq the Model has two posts about the formation of a government in Iraq. The first deals with the hard line attitude of the leader of the party that got the largest number of votes, and the second deals with how power is slipping away from him due his his inability or unwillingness to compromise.



Strategy Page has more on the situation.



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Dean's World details some scary stuff with regards to voting machines and fraud, and how easy it was to buffalo Gimme Carter and his election rubberstamping "monitoring" cohorts.



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Argghhh! visited the Korean War Memorial in Seoul, and I think it's worth taking a gander at his pictures.

One of the concepts I keep seeing without a decent treatment is the concept of leveraging an investment. Real Estate has this like no other investment. You go talk to a bank about leveraging eighty to ninety or even one hundred percent of your investment in the stock market, or the same percentage of a speculative venture, and see what happens. Be prepared for laughter, and they're not laughing with you. But real estate they will do it. Why? Because it's land. It's not going anywhere, and they're not making any more.



The fact is that real estate has the potential for leverage like no other. This is due to the interplay of two factors. One is the fact that you can rent the property out to pay for the expenses of owning it, and even if you use it yourself, you're able to save the money you would be paying in rent. Everyone's got to live somewhere, and every business needs a place to put it. The other, more important factor is leverage, the fact that you're able to use the bank's money for such a large portion of your investment. The bank will loan you anywhere from fifty to one hundred per cent of the value of the property. Yes, you've got to pay interest on it, but you're paying that through the rent - either the rent you'd save or the rent you're getting - and there are tax deductions that make such costs less than they might appear.



Now here are some computations based upon the situation local to me. Suppose you have a choice as to whether to buy a three bedroom single family residence for $450,000 (to pick the figure for a starter home) or rent it for $1900. Let's even allow for the fact that the home may be overpriced by $100,000. You have $22500 - a five percent down payment. More than most folks, and you would invest that and the difference in monthly housing cost, and earn ten percent tax deferred if you didn't buy the house. Let's crank the numbers and see what they say.







Year

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

Value

$450,000.00

$374,500.00

$400,715.00

$428,765.05

$458,778.60

$490,893.11

$525,255.62

$562,023.52

$601,365.16

$643,460.72

$688,502.98

$736,698.18

$788,267.06

$843,445.75

$902,486.95

$965,661.04

$1,033,257.31

$1,105,585.32

$1,182,976.30

$1,265,784.64

$1,354,389.56

$1,449,196.83

$1,550,640.61

$1,659,185.45

$1,775,328.43

$1,899,601.42

$2,032,573.52

$2,174,853.67

$2,327,093.43

$2,489,989.97

Monthly Rent

$1,900.00

$1,976.00

$2,055.04

$2,137.24

$2,222.73

$2,311.64

$2,404.11

$2,500.27

$2,600.28

$2,704.29

$2,812.46

$2,924.96

$3,041.96

$3,163.64

$3,290.19

$3,421.79

$3,558.66

$3,701.01

$3,849.05

$4,003.01

$4,163.13

$4,329.66

$4,502.85

$4,682.96

$4,870.28

$5,065.09

$5,267.69

$5,478.40

$5,697.54

$5,925.44

Equity

22,500.00

-48,406.32

-17,287.01

15,999.55

51,604.93

89,691.37

130,432.52

174,014.27

220,635.59

270,509.51

323,864.05

380,943.34

442,008.77

507,340.18

577,237.20

652,020.69

732,034.20

817,645.65

909,249.05

1,007,266.37

1,112,149.54

1,224,382.64

1,344,484.16

1,473,009.54

1,610,553.79

1,757,754.34

1,915,294.15

2,083,904.97

2,264,370.91

2,457,532.19

Net Benefit

-31,500.00

-110,236.00

-94,761.88

-77,990.23

-59,828.07

-40,176.54

-18,930.59

-4,021.36

28,797.71

55,524.07

84,333.56

115,367.22

148,774.35

184,712.85

223,349.64

264,861.00

309,432.96

357,261.61

408,553.54

463,526.08

522,407.72

585,438.30

652,869.38

724,964.38

802,381.90

885,736.68

975,442.55

1,071,939.93

1,175,697.38

1,287,213.19



The Net Benefit Column is net of taxes, net of the value of the investment account. The cost of selling the property is also built in. Now most people won't really do this, invest every penny they'd save. I have intentionally created a scenario that contrasts a real world real estate investment where you bought in at a temporary top, with a hopelessly idealized other investment.



There is a potential downside, and it could be big. This is a real risk, and anyone who tells you otherwise is not your friend. Look at the beginning of years numbered 2 through 5 in the equity column. You haven't gotten your initial investment back until sometime in the fourth year. Look at years 1 through 7 in the net benefits column. You're immediately down $31,500, due to me assuming it would cost you seven percent to turn around and sell the property. A year later, due to me assuming the bubble has popped, you're down by over one hundred ten thousand dollars, as opposed to where you'd be in you put it in the idealized ten percent per year investment. There is no such thing, but for the purposes of this essay I'm assuming there is. This is the illustration of why you need to look ahead when you're playing with real estate - a long way ahead. A loan payment that makes you feel comfortable for a couple of years isn't going to cut it. You need something viable for a longer term. If you'll look at projected equity at the beginning of years five and six, it goes between fifty odd thousand and eighty some thousand, assuming you've been making a principal and interest payment. You have plenty of equity to refinance there if you need to. If you need to do something in year three, however, you're hosed. If you've been negatively amortizing, you're hosed. You owe more than the property is worth. The payment adjusts, you can't afford it, you can't refinance, and you have to sell at a loss, as well as getting that 1099 love note from the lender that says "You Owe Taxes!"



But now look ten years out. At the beginning of year 11, you have $323,000 in equity, and if you sell at that point, you are $84,000 ahead of where you would have been if you invested that money in the idealized investment I've posited. That's four times your original investment, and I only assumed real estate went up seven percent per year, whereas the alternative investment went up by ten percent per year. How could that possibly be right?



The answer is leverage. That $450,000 was almost entirely the bank's money. The appreciation applied to this entire amount. But you only invested $22,500. The bank isn't on the hook for the value; their upside is only the repayment of the loan. If the property goes to a value of $481,500 and then $515,205 (normal seven percent appreciation in two years), then that extra money is yours. Think Daffy Duck shouting "Mine! Mine! All Mine!". Daffy's got to pay some money to get the property sold, as real estate is not liquid. The bank gets all of it's money. The bank always gets all of its money first. After that, however, then the extra belongs only to the owner, not the lender.



The lender gets none of the appreciation. This is all fine and well with them, by the way. They've been well paid whether the property increased in value or not. This money from increased value is all yours. This applies even, as in our example, if the property lost value for a while. Yes, if you had had to sell in year two, you'd have been up the creek. But you didn't; you kept your head and waited until the property increased again. Given that you didn't, the only numbers that are important are the numbers when you bought it, and when you sold it. The rest of the time is completely irrelevant to the equation, a fact that is true for any investment, by the way. Doesn't matter if the value is ten times what it was when you bought on paper, it only matters that when you actually sold, it was for a loss. Doesn't matter if the value goes to zero the day after you buy, and stays there for thirty years. If in the thirty-first year it rebounds to fifty or a hundred times the original purchase price and that's when you sell, then you really were a genius. Get it? Got it? Good.



So when the property appreciated back to $688,000 and change at the beginning of year eleven, and you only owe $364,000 and change, that's $323,000 in equity. You're almost fifty percent owner. Even after you pay seven percent to sell the property, you come away with $275,000, as opposed to a little over $191,000 that you'd have in the idealized but unleveraged investment.



Keep in mind this whole scenario is a hypothetical. Every Real Estate transaction is different. Every property is different, every market is different, and the timing makes a critical difference. That's why you can't just call your broker to sell it and get a check within seven days, like you can with stocks and bonds. That's why a decent agent is worth every penny, and a good one is worth more than you will ever pay us. But properly executed, a leveraged investment pays off like nothing else can, and real estate is the easiest way to make a highly leveraged investment that is stable until such time as it is favorable to sell.



Caveat Emptor.

UPDATED here

Appraisers Petition Against "Make The Deal"



I've spoken about these issues before in this post.



I've certainly heard of plenty of abuse on both sides of this equation, and there is plenty of motivation for lenders to abuse the situation by requiring a higher than "real" appraisal value. Still, I think that by reading only the comments from various appraisers one would get a skewed vision of what is going on.



It is the appraiser's job to do their best to get a value that is useful. Theirs is a service occupation, just as mine is. I don't expect to be paid if I can't help the people with their situation. Sometimes I put in hundreds of dollars and dozens of hours of work and it all falls apart because of something beyond my control. Situations like this are part of being in business for yourself. I don't expect to get paid when I can't help the people. Why does the appraiser?



These houses are selling for these prices. If the last three similar houses in the neighborhood sold for $600,000, then this one is likely worth $600,000 also. When the appraiser tries to tell me a house that I've seen and is immaculate and further upgraded than than any of the last three is worth $150,000 less than those sold for, something is wrong, and it isn't with the house.



Basically, what's wrong is they don't want to work. They want to be able to drive over and pop the customer for the bill and let the chips fall where they may. And if the house is really only worth $450,000, the house is only really only worth $450,000. But most of the time, if they worked a little bit, and maybe chose a different sale to compare to, they could justify the higher appraisal, but they don't want to be bothered.



Let me ask you: Somebody bills you $400 or so for work that doesn't help you and in fact makes all of the work you put in worthless, it makes you feel all happy, right? They knew before they went over and asked for the check that they weren't going to be able to get the necessary value. You know something? I'd be more forgiving of him charging me $400 in those circumstances than charging my client $400. If the appraiser called first, and told me he couldn't get value, that gives me a chance to re-work the loan and save everyody's investment in this by talking to the client before the client has written a check for $400. If I can't get the client to accept the new loan, at least they're not telling people I screwed them out of $400 on the appraisal. That's right, it's the loan provider that gets the blame for this in the customer's mind. If I tell them about a change before they spent $400, they're not going to be as angry, and even if this loan falls apart they're likely to tell people I was honest and saved them from being out $400 rather than that I took their $400 and didn't deliver. As I think you might have gathered by now, I didn't get that $400 - the appraiser who screwed the loan up did. If I can't turn it into a new different loan, the appraiser is out a little bit of work. I've put ten times as much into making this happen. It's much easier to tell the client their house is only worth $450,000 before they've written that check for $400. The check gets written, and the whole thing is gone up in smoke.



The appraiser, understandably, wants to get paid for their work. So do I. All I ever ask is that they don't intentionally waste my client's money. If they can't get value, give me a chance to re-work the loan or find someone who can get value. In some situations on a sale, this allows me a chance to re-negotiate the price down so my client gets a better price on the house they want. If they just make the call that gives me a chance to fix it first, I will use them again. That's the kind of appraiser I want to work with. But do a "hop pop and drop" ("hop on over, pop the customer for the bill, and drop a useless appraisal on the bank") so that they get paid once while I'm stuck with a pissed off customer who is now going to tell all their friends and family what an awful person I am, and I think they've earned a spot on my personal blacklist of appraisers I will never do business with again. I'll forgive it once, maybe even twice, if this appraiser has a history of calling me first and this time it just happened that they couldn't get value when they thought they could. Treating your customers right is part of the requirements of being in business for yourself, and sometimes this means you did some work and didn't get paid. You want a job with a steady income where you don't take any risks, go find something with a w-2 involved, and the only risk you take is being fired. You won't make as much money, but you will get paid for all the work that you do. For as long as they put up with you.



UPDATE: Home values here locally have deflated siginificantly. Right now, the value the appraiser comes back with is not usually an issue unless there have been a lot of distress sales in the neighborhood. The appraisal is rarely a major issue when prices are deflating, because it works by historical sales. Yes, there could be five identical homes sitting on the market and not selling for $10,000 less; but the last one that actually did sell sold for $20,000 more, and the appraiser works off of actual sales.

Caveat Emptor

UPDATED here

Bullet dodged, for now. Mellon was doing okay for a few days, then lost the use of her back legs again. Vet gave her a shot, and me some medicine for her for later. Less than $100, and she's feeling good enough to walk, and she's not in pain. As long as this continues, I'm happy to keep my sweet little dog.



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I ran across the idea of the infinite monkeys on infinite typewriters evenutally producing the works of Shakespeare again the other day. Actually, since there are only a finite number of possibilities, an infinite number of monkeys would produce the works of Shakespeare practically instantaneously.



On the other hand, some finite number of monkeys (say 100) at a finite number of coding consoles would take some real time - eons - on the universal scale in order to come out with a perfect product.



Methinks Windows is the result of such a product being rushed to market.



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Dean's World has posted Rudy Rummel's Democratic Peace. If you haven't done so in the past, I suggest you go check it out. As far as I can tell, this theory is completely compatible with observed outcomes from observed situations - in other words, as close to experimental verification as we're likely to get.



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Looks like Right Wing News has the FAQs on illegal immigrants.



Glenn Reynolds has more thoughts worth reading. "The debate stinks." Indeed.



Q and O has more. I've long been aware of the racists of MEChA. At one point I tried getting them banned from a campus by simply changing the names of the races involved in their constitution and informing people that this organization was already accredited on campus. Alas, 'twas the late seventies, and everyone knew that only white people could be racists.



Victor Davis Hanson has an essay worth reading.



Some of my thoughts are here, but I must always observe that it is by your actions that your intentions are truly known. The actions of the protest organizers and protestors this week has done them more damage in the court of public opinon than all of the above people could in a hundred years.





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For those who have complete faith in the power of confessions of guilt, read aTypical Joe's Innocent people confess to crimes they did not do



This is part of what we call the need for transparency. If everyone is scrutinized in everything they do, then the wrongdoers will be found. The more authority, the more potential for abuse, and therefore the more detailed the scrutiny.



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Willisms has a regular feature on Social Security Reform. Every week the counter gets larger as to what saying no to social security reform has cost. This week, he's talking about the socialist who dreamed up social security. Ya know, I don't give a rat's @$$ about that. It guilt by association. What I do care about is fixing a system that cannot endure through the lifetimes of today's workers.



Here's a clue to the Donkeys who think "Just say no!" to reform is a rational strategy: What happens when it becomes obvious to ninety percent of the voters that you were not only wrong, but knew you were wrong for decades and still obstructed reform, thereby making the damage orders of magnitude worse?



The base you've been living on will disappear faster than pancakes in an IHOP on Sunday morning, and unlike the IHOP, they won't make any more. Overnight you're going to go from "the Party of Compassion" to "The Party of False Promises."



The day of reckoning is coming before my younger daughter gets to college. When that happens, there won't be a Donkey (or former Donkey, or Donkey apologist) elected to office ever again. I've been seeing actuarial workups since the late 1970s that told us how bad this problem was going to get, and all along the entire federal government has been playing Peter Pan, as if a failure to believe in the problem would solve it. Now we have one nationally elected politician who's willing to do something about it, and instead of gratefully taking cover behind his shield, the Donkeys have joined in the crowd slinging darts, trying to derail a movement that makes social security sustainable. Without that, everyone is going to get hurt - especially those who need it the most.



Those Donkeys derailing Social Security reform must have retainers to shave them - because I don't know how they can look themselves in the mirror.



On a related note, HT to enrevanche for the link to this OpinionJournal piece called A Plan to Replace the Welfare State. Not sure I agree, but it's worth reading for the way it challenges assumptions.



Here's another piece you should take note of from Social Security Choice. Seems the Donkeys don't take the lockbox very seriously.



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Target Centermass has a long sad article about the amalgamation of the Highland Regiments in the British Army. It's been a long time coming; the population of the Highlands has been decreasing for centuries and with the British fielding a smaller army overall, it was inevitable. Still a sad day when there is no more Black Watch, no more Argyll and Sutherland (themselves the merger of two former regiments), no more of any of the storied regiments of Highland Troops, just battalions of one amalgamated regiment.



On the other hand, HT to Mudville Gazette for this story of an Islamic nation moving further into the modern era: First women earn wings in an Islamic air force



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Via Roger Simon comes this gem of a tale of statist creep.



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via Respectful Insolence comes a link to the Pigasus Awards. No, that's not a typo.



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Shocks Seen in New Math for Pensions. It's About Time!



Now how about doing the same thing for governmental obligations?



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Big Lizards has the kind of post on the real government that makes you go "Hmmm." It makes a lot of sense. Do I endorse it completely? No. Is it a useful model for experimental predictions? Yes.



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Looks like Captain's Quarters has seen the light of transparency, at least as it relates to campaign finance. Even if you grant the benefits (which I do not) trying to keep the money out of campaign finance is futile. Instead focus on keeping it transparent enough to see who is supporting who (or what) and you have solved the problem.



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No good ideas for an April Fools Joke, and it's dangerous at a site like this, anyway. Could well undermine any credibility I may have. But Eidelblog and La Shawn Barber have good oes.





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