June 2008 Archives

Carnival of Real Estate

Carnival of Personal Finance


Clark: McCain a hero, but lacks command experience

Underscoring during a national television appearance a position he has been expressing for several weeks, Clark said performing heroic military service is not a substitute for gaining command experience.

General Clark? If John McCain hasn't done anything like that, the Barack Obama, who never served, never took the training, never had any reason to gain understanding, is even weaker. John McCain has been serving on the Armed Services Committee. He may not have commanded a squadron in wartime, but he commanded a squadron that was prepared to go to war. And he certainly served. Furthermore, with his unpopular calls for the "surge" long before the Bush administration got on board, he's certainly earned a certain amount of credibility as understanding current military issues.

No, John McCain wasn't a commanding general in time of war. But he's seen combat, and he has commanded, and he has earned credibility on his knowledge of military issues. Barack Obama seems determined not to.

Obama did the right thing: disowned the comments right away. But General Clark can be viewed as taking himself out of consideration for the Vive-Presidency. Obama still needs to get him out of a position of speaking for his campaign, but this is a start. You can only disown what you don't implicitly endorse. Yes, it may have been the politically intelligent thing to do, but it was also the right thing, and Barack Obama got it right. We can all give him the benefit of the doubt as to why, providing he does carry through. If he wants real credibility on his action, Wes Clark cannot be permitted to speak for the Obama campaign in the future

More at Hot Air

Snark via Instapundit:

The Saddest Thing About Barack Obama's Available Military Expertise...

...is that though he has Wes Clark in his corner, the only person he knows with the experience of getting a bomb on target is Bill Ayers.

Not precisely fair, but accurate.


Private Papers

The causes of this paralysis are clear. Action entails risks and consequences. Mere thinking doesn't. In our litigious society, as soon as someone finally does something, someone else can become wealthy by finding some fault in it. Meanwhile a less fussy, more confident world abroad drills, and builds nuclear plants, refineries, dams and canals to feed and fuel millions who want what we take for granted.

Department of the Blazingly Obvious: Hypermiling techniques dangerous, illegal

They include rolling through stop signs to avoid braking, turning off a car's engine or shifting into neutral to coast down hills, over-inflating tires to decrease rolling resistance against pavement, and other techniques.

Can a Man Be Raped by a Woman?

You may be surprised.

Very surprised.


Seven Words You Can't Say in the 2008 Campaign


Amusing Dog story: Took Hilda to her grandparents for the week yesterday. Ever since we got back, Julia (the puppy) has been obsessively guarding little Ramona. She thinks in dog terms. We went away from the house with two kids, came back with one, ergo we had an accident and lost a kid. She didn't even want to come sit on the couch with me when I was reading last night, preferring to watch over sleeping Ramona.

(I'm not certain whether Mellon has just been through it before, or if she's just incapable of doing anything about it)

Powerline notes the difference between Obama's actions and what he's saying about DC vs. Heller

Question: Has anyone ever seen Obama and Two Face at the same time?


Gaateway Pundit notes the airbrushing of another Obama advisor.

I'm getting the urge to write a parody based upon Queen's "Another One Bites the Dust" (with a nod to Weird Al's parody "Another One Rides the Bus"). Call it "Another One Under the Bus"

Queen's original

The Weird Al parody

Original Lyrics

Obama walks warily down the street,

With the brim pulled way down low
Aint no sound but the sound of his feet,
Campaign Bus ready to go
Are you ready, are you ready for this
Are you hanging on the edge of your seat
Under the bus his buddies go
To the fist bump beat

Another one under the bus
Another one under the bus
And another one gone, and another one gone
Another one under the bus
Hey, Im gonna get you too
Another one under the bus

How do you think we're going to get along,
Without Tony now that he's gone
You took him for everything that he gave,
he helped him buy his home

Rev. Wright, are you satisfied?
How long can you stand the heat?
Under the wheels Grandma goes
To the fist bump beat

Another one under the bus
Another one under the bus
Another one under the bus
Another one under the bus
There are plenty of places you can toss a man
And run him to the ground
You can wheel him
You can hit him him
You can toss him out and leave him
At the side of the road
But he's ready, yes he's ready for you
Not standing on his two feet
Down the road his bus does run
Jumping to the fist bump beat

(Gosh - less than ten minutes!)

Confederate Yankee: Obama: The Bus List


Wizbang on the end of the Gaza truce (is it truce number 971 or 972?)


A modern day version of the Screwtape Letters

HT: Hot Air


One final reaction to DC vs. Heller at Q and O, brilliantly dissecting the dissent.

Somehow, we've evolved a system where nine robed lawyers dictate to us what our rights are, and the other 300 million of us are expected to fall, sheeplike, in line.

I'm pretty sure that wasn't the original plan.


I've learned that Holiday weeks are slow anyway, so I'm next week is probably a good time to decompress a little bit. Expect more reprints than usual.

(Scroll down for update)

The Supreme Court Decision in Heller vs DC was handed down this morning, and it was a win for the Constitution and people of the United States!

Supreme Court says Americans have right to guns

It was a lot closer than most court watchers were expecting, 5-4 instead of 6-3 or even 7-2.

Writing for the majority, Justice Antonin Scalia said that an individual right to bear arms is supported by "the historical narrative" both before and after the Second Amendment was adopted.

It's amazing that this had to go all the way to the Supreme Court to get something that obvious written

In a dissent he summarized from the bench, Justice John Paul Stevens wrote that the majority "would have us believe that over 200 years ago, the Framers made a choice to limit the tools available to elected officials wishing to regulate civilian uses of weapons."

He said such evidence "is nowhere to be found."

Justice Stevens? I think it's time to wake up now. Explicitly limiting the power of the government was precisely the point of the entire Bill of Rights, as is documented in many places by the writings of the framers. The only reason to think it's not there is the inability to process the information or the willful disregard for the evidence.

Justice Stephen Breyer wrote a separate dissent in which he said, "In my view, there simply is no untouchable constitutional right guaranteed by the Second Amendment to keep loaded handguns in the house in crime-ridden urban areas."

Justice Breyer? That's precisely where it's most necessary. In case you weren't aware, the Supreme Court (among many others) has ruled that the police are not legally responsible for pre-emptive protection (This is a good thing. The erosion of civil liberties from such a police duty would be unconscionable). There are quite strong laws against robbery, breaking and entering, and murder. If those laws do not stop the criminal, why should one more law (against the possession of weapons) stop them? The old saying "Better to be tried by twelve than carried by six" applies just as strongly to a criminal who can be expected to encounter a large number of dangerous situations.

Scalia said nothing in Thursday's ruling should "cast doubt on long-standing prohibitions on the possession of firearms by felons or the mentally ill, or laws forbidding the carrying of firearms in sensitive places such as schools and government buildings."

The first part is good and necessary. As for the latter? One step at a time.


Examining the words of the Amendment, the Court concluded "we find they guarantee the individual right to possess and carry weaons in case of confrontation" -- in other words, for self-defense. "The inherent right of self-defense has been central to the Second Amendment right," it added.

The individual right interpretation, the Court said, "is strongly confirmed by the historical background of the Second Amendment," going back to 17th Century England, as well as by gun rights laws in the states before and immediately after the Amendment was put into the U.S. Constitution.

What Congress did in drafting the Amendment, the Court said, was "to codify a pre-existing right, rather than to fashion a new one."


The Court took no position on whether the Second Amendment right restricts only federal government powers, or also curbs the power of states to regulate guns. In a footnote, Scalia said that the issue of "incorporating" the Second into the Fourteenth Amendment, thus applying it to the states, was "a question not presented by this case." But the footnote said decisions in 1886 and 1894 had reaffirmed that the Amendment "applies only to the Federal Government." Whether the Court will reopen that issue thus will depend upon future cases.

I'd like to see that revisited. Either most of the most obnoxious laws and decisions in the country get reversed (Roe Vs. Wade, among many others, relies upon this very precedent and line of reasoning, and while I think abortion needs to be legal, Roe vs. Wade was a horrible decision), or the Fourteenth Amendment applies the Second Amendment to the states as well. It's basically a "no-lose" situation. It's just that the issue hasn't been revisited in 110 years that's the reason for the existing precedent as regards whether the Fourteenth Amendment applies thus.

Don Surber wants to make this decision a litmus test for justices and presidential candidates, a la Roe Vs. Wade on the left. I have to disagree. Single issue litmuses are something to avoid, because sooner or later the litmus tests prevent any but the most narrow and twisted ideogogues from serving. You have to look at the whole picture with a candidate - or a justice nominee. Individual issues can be regarded as "points against" or "points for" - the idea being that if a judicial nominee has an overall passing score, they should be confirmed. I can't name anybody I agree with on everything - and I don't think anyone except a victim of mass brain washing can either. This is how opinion evolves, instead of fossilizing.

Big Lizards with some history:

Many circus courts that held the amendment applied only to members of the National Guard hung their robes on an equally stupid misreading of U.S. v. Miller, 307 U.S. 174 (1939). In that bizarre case, Jack Miller and Frank Layton were charged with transporting a short-barreled shotgun across state lines. The trial court found that the National Firearms Act -- the law they were accused of violating -- was unconstitutional because of the Second Amendment; the Supreme Court overturned that verdict.

The Court ruled, at core, that the amendment only protected possession of those weapons normally used in armies or militias. No evidence was presented that short-barreled shotguns were in common use among such bodies (though of course they were): The reason no evidence was presented, I believe, was that Miller's attorneys did not show up at the Supreme Court hearing -- as their client had inconveniently been murdered in prison while awaiting appeal.

Default rulings are as binding as any other. 80% of life is showing up.

Hot Air has lots of good stuff.

Volokh Conspiracy only has a bare bones thus far, but I would expect them to have something more substantive later. Someone said the decision cited Professor Volokh three times.

Glenn Reynolds at Instapundit said he's teaching a class, but expects to have his reaction later. Powerline should also be interesting

Every once in a while, I have to check out the idiocy on the far left, so here we go

Oliver Willis calls it "head spin watch"

It will be interesting to watch those conservatives who yesterday decried the "activist" court for their death penalty decision now affirm that the gun decision today is firm and fair.

Um, Oliver? The Right to Keep and Bear Arms is a right explicitly spelled out in the text of the Constitution. The one yesterday (prohibiting the death penalty in the case of child rape) relies upon the fact that most states today do not permit it to ban it entirely. So what if ten years from now, forty-eight states want such a penalty? Because they change their laws individually, such a decision prevents any state from changing it's mind. Suppose it had been illegal for California to legalize "right turn on red light" back in the thirties? That's the way we make progress - one state or one municipality decides to try an experiment. If it works, others follow. That decision essentially prevents such experimentation. This one affirms a basic constitutional right, one (unlike the decision in Roe vs. Wade) explicitly found in the text of the constitution.

Daily Kos is truly mind-boggling to read. Justice Stevens arguing for judicial restraint? Nobody's certain what the text of the Second Amendment says? FYI:

A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.

I didn't have time or stomach for the comments, but I imagine they'll be amusing if you've got the right mind-set.

Huffington Post is just as rational and logical as ever: Ad-hominem straight from the headline, ""Sport Shooting Ambassador Award" Winner Antonin Scalia's 2nd Amendment Ruling Does His Gun Pals Proud"

Even the first few commenters take the entry to task.

UPDATE: At ScotusBlog

It doesn't take a mathematician to recognize the narrow margin in this case. Replace any one of the five justices in the majority with a more liberal appointment - many of whom will be waiting in line if Barack Obama wins the presidency - and the outcome would have flipped. Americans would have lost the individual right to keep and bear arms. For some, this may be a welcome change, but for many of us, it's the sort of thought that makes the hairs on the back of our necks stand up.

text of the decision is here

Dave Kopel

After analyzing the text of the Second Amendment, the majority opinion then detailed the interpretation of the Second Amendment in the first half of the 19th century, showing that every legal scholar (except for one minor exception), along with state and federal courts, recognized the Second Amendment as an individual right to have guns for various purposes, including self-defense.

As Scalia explained, after the Civil War, Congress passed the Freedmen's Bureau Act of 1866, the Civil Rights Act of 1871, and then the Fourteenth Amendment -- all with the explicit purpose of stopping southern governments from interfering with the Second Amendment rights of former slaves to own firearms to protect their homes and families. All the scholarly commentators of the late 19th century -- including the legal giants Thomas Cooley and Oliver Wendell Holmes, Jr. -- recognized the Second Amendment as an individual right.


The 1939 case of United States v. Miller, which held that a tax and registration requirement for sawed-off shotguns was not facially unconstitutional, is heavily relied on by the dissent. But the majority points out that Miller's analysis of the history of the Second Amendment was cursory; Miller did not even submit a brief, and, as explicated in a law review article cited by Scalia, the Miller case appears to have been a collusive case involving a corrupted defense attorney doing the bidding of the prosecutor. Most importantly, the Miler opinion turned on whether the particular type of gun was protected by the Second Amendment, and did not declare that only militiamen had a right to arms.

and (important!)

Justice Scalia accurately noted that the Breyer approach would negate the very decision to enact the Second Amendment: "We know of no other enumerated constitutional right whose core protection has been subjected to a freestanding 'interest-balancing' approach. The very enumeration of the right takes out of the hands of government -- even the Third Branch of Government -- the power to decide on a case-by-case basis whether the right is really worth insisting upon. A constitutional guarantee subject to future judges' assessments of its usefulness is no constitutional guarantee at all. Constitutional rights are enshrined with the scope they were understood to have when the people adopted them, whether or not future legislatures or (yes) even future judges think that scope too broad."

My general rule of thumb is "Remodel for your own enjoyment. If you're lucky, you'll get some of your money back when you sell." The remodeling industry has made a very large amount of money seducing people into believing they will recoup their investment, or more than their investment. But as you can see here, it's a rare remodeling project that returns more than the cost. Therefore, don't remodel with the idea of making a profit, because you won't. Not a single one of those multipliers is greater than 1.

But there are times when remodeling to sell makes dollars and sense.

Mostly, it's when the existing stuff is so outdated that Ms. Newlywed takes one look and flees in terror from the Uranium Yellow or Art Deco Pink and Blue that's been out of favor since before her mother was born. Maybe it was fine thirty years ago when you bought it, and you've gotten used to it, but now it's fifty years old and you've just never motivated yourself to do anything about it. If the kitchen is straight out of 1955, and the bathrooms look like they were last decorated when Hawaiian kitsch was the hot new fad (memo to the young: Eisenhower was President), it's probably a good idea to do something about that before you try to sell - "Try" being the important word. Because people looking for their dream home aren't interested, and these properties sit on the market. If they eventually sell, they will sell for way below everything else on the market, first because of the visible age, second because it sat on the market and you had to reduce the price further and further while paying carrying costs for months. These are the sorts of homes rehabbers and flippers look for, because they can make a profit on them. If you have the money, why wouldn't you want that profit for yourself?

For buyers, if you're willing to buy something that's solid but older, you can get one heck of a deal as well as being able to remodel at whatever pace you're comfortable with. Truthfully, most folks I talk to have at least some plans for as soon as they buy, anyway. If you're planning to install new kitchen cabinets and granite counters anyway, what does it matter if what's there is ancient or poorly laid out?

The first level of remodeling is to clean, shine, and repair any surfaces that need it. This is a straightforward extension of the "carpet and paint" principle. New paint and carpet are cheap, and have a great return on investment. If the formica is burned or chipped, if the tile is broken, if it's dull and dingy, make it shine. It always amazes me that people with hardwood floors will leave them looking like they haven't been polished since they were laid down in 1932. Strip them, sand them, polish them - before you put the property on the market. It's a lot cheaper than replacing or laying new carpet. They will look beautiful. They will make people want your house. Not everyone, of course, but how many buyers do you need? If you've got something lots of people see as desirable, flaunt it.

Sometimes, there just isn't any choice but to take it to the next level. Stoves built in to the countertop and cooking ovens in the cabinets are so 1958. If there aren't any good matches for marred, gouged, or broken surfaces, you probably want to re-do the whole surface. Keep in mind that labor costs are pretty much a constant, and the largest expense of most jobs. You want to spend $4500 resurfacing the bathroom in plastic and linoleum, or $5800 resurfacing it in Travertine and nice tile? Add a moderately upscale toilet for a couple hundred bucks, and you've got a bathroom that looks like it comes out of Sunset magazine rather than an episode of the Flintstones. Somebody who flees in terror from the latter is likely to be attracted to the former. Even if they don't flee in terror from the Flintstones bathroom, most folks are going to be much more attracted to the Sunset magazine bathroom.

Keep in mind, also, that the new stuff you put in has to go with whatever you're keeping. If you've got a Mediterranean paint scheme, Art Deco counters are not going to work for most prospective buyers, and they're the ones you're trying to please at this point. Just sayin'. The more vanilla you keep it, the fewer prospective buyers you will alienate.

Don't go overboard. It can be a real temptation to spend $25,000 or more on new kitchen appliances, but you're not going to get your money back. Keep in mind that most appliances are personal property, so (in the absence of the contract specifying otherwise) you can take them with you when you go. However, in cases like that it's more common than not that those appliances remaining will be written into any purchase offer, and if you agree to leave them, you have to. If you don't want to leave them, away goes the purchase offer to no beneficial effect. If two-thirds of the gourmet kitchen that attracted a buyer is going away when you move out, it's not likely to do you much good in selling your property. I always ask my buyers why they're willing to pay more for the kitchen when most of it is going away. There are idiots who insist they don't want a buyer's agent, but betting on that is a bet you don't need to make - and quite often lose.

Poor lighting can kill a sale without the buyers ever realizing why. It's dark, it's cavelike, it feels old - they don't want it. Just leaving the drapes open makes a huge difference. Replacing the lighting - particularly if you use CFL so you don't have to necessarily have to rewire for a bigger load - can be very cost effective.

If you're going to remodel anyway, clean up your lines of sight and floor plan if you can. The longer the uninterrupted lines of sight, the bigger the property "feels". The less complex the floor plan, the more open and larger it will feel. If you have to go through three switchbacks to get through the kitchen, that's a bad thing. Separate but connected "areas" are better than room dividers which are in turn better than walls, at least in the public areas of your property. If you're remodeling anyway, fix it.

One of the overlooked and relatively cheap remodels is the closet. Basic closets from fifty years ago are tiny by modern standards. People today have more stuff, and they want places to put it. People who get very interested in modern new kitchens and beautiful new bathrooms can just as easily get turned off by small closets. If they see a standard post-war closet arrangement (a three foot space between walls of two bedrooms, with half going to one bedroom and half to the other), they'll quite likely think that isn't enough closet space. "Next property! These closets are too small." Put a modern closet design in, with shoe holders drawers and cabinets and half size hanging spaces that efficiently use the space, and for most people, that's a horse of a different color. Closets are a bigger concern with more people than most folks give credence to, and they're way cheaper than most other remodels.

In some cases, remodeling may not get your money back, but it may be the difference between selling quickly and not selling for months, if at all. It's very hard to track this sort of information, and harder still to assign a dollar value to it. Keep in mind that a $200,000 mortgage at 6% costs $1000 per month, and property taxes and homeowner's insurance add to that. Not to mention that the longer it's on the market, the more you have to mark the property down in order to sell. At these prices, four months make a difference of about $6000 in carrying costs alone, never mind what you have to mark the property down to interest people in it with over a hundred days on the market!

Remodeling isn't the license to print money it's been portrayed as - except for the remodeling industry. Small budgets are more likely to recover large fractions of what you spend than larger ones. Unless the property is significantly behind the times, remodel for your own enjoyment, because you won't get as much back as you spend.

Caveat Emptor

Article UPDATED here

About a month ago, I wrote Top Ten Reasons Your Home Isn't Selling. It was well received so I thought I'd take it from the buyer's perspective. Once again, I'll try to inject as much humor as I can.

Number 10: The Commute: It never ceases to amaze me the number of people who will commit themselves to living in a neighborhood they've never lived in before without a real evaluation of how to get from there to everywhere else they need to be. Don't just drive from the house to work once when there's no traffic. Try to drive back and forth at the times you'll be driving it every day. Or if you're a public transportation person, figure out what that's going to be like before you're stuck doing it. Take into consideration that the commute is going to get less and less enjoyable as time goes on. Be certain in your own mind that you're going to be okay doing this as often as you have to. If the commute is intolerable, then as certain as gravity you're not going to be living there or not going to be working there. For genius IQ points (or at least subgenius), try the paths you're going to have to take to your other common destinations. Grocery stores, the mall, your Tuesday night class in whatever, the kids' scout meetings. If you have to travel or work in different locations, do those trips also. An good agent should ask about all this, and be aware of the effects. An Evil Agent, will, of course, induce you to buy property where you'll have to sell it - generating more commissions.

Number 9 Beautiful Surfaces: They've just put Travertine and Italian Marble all through the room you want for the nursery! Too bad about that six inch wide crack in the foundation they covered up! Still, it's obviously the house you've got to have! At least until the first time your toddler breaks multiple bones falling on those tiles. Unfortunately, by then it's too late. And just wait until the old cast iron plumbing fully closes up or springs a leak, but at least it puts out the fire caused by plugging too much into eighty year old wiring! Yes, beautiful surfaces are nice - and one of the best ways to get novice buyers to pay too much.

Number 8 Insufficient shopping: You looked at one house and fell in love. Unfortunately, it was the crummiest most overpriced house in the neighborhood. Other people trying to get out before the new needle exchange program opens down the street are going to be praising you for paying so much that their house will appraise for whatever value they need it to! Seriously, if you don't look at ten to fifteen properties, you're definitely short of market information, even with the best agent in the world ;-). I have seen people shop more for $20 toaster ovens than half-million dollar real estate. Scary.

Number 7: Skimping on Services: Trying to do without title insurance or inspection is a recipe for disaster. I've said this before, but title issues really do happen, and it's not always with the person who may appear to be the current owner. Ditto the inspection. I don't think I've ever had a property where the inspection didn't reveal anything I didn't know about the property. I've had the stuff the inspector found be trivial, but never non-existent. Here's one thing that seems to be a rule: if you're getting a good bargain, there will be something you want an inspector's opinion on before the sale is final. People understand cash, and many don't understand the concept of insurable risk. By the time you join the ranks of those folks out half a million dollars worth of property and still on the hook for the loan, you may have a different opinion.

Number 6: Location: Backing out of your driveway onto the high-speed expressway, your spouse's vehicle is flattened by the bus returning this week's escapees to the maximum security prison a quarter mile down the road - past the explosives factory, the toxic waste dump, and the chemical plant. She's taken to the emergency room at the hospital for the violently insane across the street, and neither you nor your lawyer ever do come up with conclusive proof of what happened after that when the airliner landed short of the runway. Seriously, there are many things that can rule out a location, from the above through several milder forms of ambient environmental issues, down to misplaced improvements. You might be able to move a building. Nobody has ever figured out how to move the land it came on.

Number 5 The Loan: The only way to qualify for the dollar amount you need is to take an unsustainable loan or a loan that is guaranteed to self-destruct. I'd like to be humorous here, but this is somewhat less funny than the most politically incorrect joke I've ever heard, let alone what I'm willing to print here. Betting on rising values and falling rates to enable you to refinance more favorably is literally putting your home and your future on a craps table. This leads into-

Number 4 Didn't Adhere To Budget, and not having a known budget in the first place is the ultimate case of this. I've written at least one two three articles directly upon the point of figuring how much you can afford. Figure out your budgetary limit first, and shop by purchase price, not payment. This isn't to say you have to spend the maximum, but the worst ways people shoot themselves in the head (not the foot) is by falling in love with the property that's too expensive for what they can really afford. In How to Effectively Shop for a Buyer's Agent, I tell you to immediately fire any agent who wants you to look at a property that cannot be obtained within the budget you tell them about. The asking price can be a little higher than your limit, with the understanding that if you can't get the price down that far via negotiation, you're not interested.

Number 3 Assuming Something That Isn't True: Josh Billings was correct. It's not what you don't know that gets you - it's what you know that ain't so. I've been the unwitting victim to this, and I've seen enough other transactions to have come to the conclusion that people who deal in real estate without an expert fall into two categories: Those who know they got taken, and those who don't realize it yet. There are so many tricks and traps that get played upon the unwary that there is literally no way to write about all of them because new ones are invented continuously. You have to be someone who deals with these issues every day to have a prayer of realizing the pitfalls of some of them. Consider that if some trick motivates a buyer to pay 10% extra for a $500,000 property, that's $50,000 extra in the seller's pocket and out of yours. I've learned to question everything, and to ask, "What are the possible explanations for this?" Unless you're an agent yourself, you probably wouldn't believe the grief this saves my clients.

Number 2 Failure to Plan: A good agent has contingency planning in effect for everything, and those plans don't include permanent vacations in countries without extradition. If you're seeing all this stuff for the first time, how likely is that to happen? Even the second or the third? The reason I do so well for my clients is that I've got a solid plan from the time they contact me for the first time, and I have plans to deal with everything I don't control. This includes everything from if they get their hearts set on exactly the wrong property to negotiations before and after the contract to what happens if the inspection reveals something major, and how to lay the groundwork in case stubborn negotiating partners don't see it may way, or the universe decides to jump in with an unpleasant surprise . If you don't have this sort of plan, may I suggest you hire someone who does. Because failure to have a plan in place will cost you large amounts of money.

Number 1 Not Having a Strong Buyer's Agent. This is the first thing you need to shop for, before you so much as look at online listings. Have at least one in place before you look at any property, even new development. You want one who's going to go digging for both good and bad. There is no such thing as a perfect property, because if everything else is perfect, the price certainly won't be, and if you're only willing to settle for the perfect deal, you're either wasting your time or asking someone to take advantage of your ignorance. If you use the seller's agent, they have a fiduciary duty to present that property in the most favorable light. Given the choice between an agent pretending problems don't exist until the small print disclosures and an agent who fails to do their legal and contractual duty, which would you choose? If you don't like this choice, then you want to apply the information in How to Effectively Shop for a Buyer's Agent. Having a good buyer's agent will make more difference than anything else in your real estate experience.

Caveat Emptor

Article UPDATED here

Private Papers: Islam's War Doctrines Ignored


More on Obama's PACs and Lobbyists Canard

According to OpenSecrets.org, just 1% of John McCain's contributions -- a whopping $960,990 -- came from PACs. Over $88 million came from individuals. legend Individual contributions $88,221,824 91% legend PAC contributions $960,990 1%

And lobbyists? $655,576.

Read the whole thing


The MoveOn Smear, fact-checked


via Instapundit, The Affirmative Action Matryoshka: Where Does It End?

To wit: being a racial minority or a homosexual or having "ethnic heritage" (don't we all have that?) is worth as many points as having an undergraduate degree in international studies, having a doctorate in international studies, and having authored a book on international studies . . . combined! Being 1/64 Cherokee or being attracted to other human beings with similar genitalia is worth as many points as speaking Mandarin, Swahili and Arabic . . . combined! (I could go on).

Canada: The Stepford Nation


Congrats to Abdulkarim al-Khaiwani, Winner of Amnesty International's Human Rights Media Award

If you've forgotten, he's currently in prison, sentenced to six years hard labor, and there was a real fear he'd get the death penalty.


George Carlin mourned as counterculture hero

When he uttered all seven at a show in Milwaukee in 1972, he was arrested on charges of disturbing the peace, freed on $150 bail and exonerated when a Wisconsin judge dismissed the case, saying it was indecent but citing free speech and the lack of any disturbance.

The words were later played on a New York radio station, resulting in a 1978 Supreme Court ruling upholding the government's authority to sanction stations for broadcasting offensive language during hours when children might be listening.

"So my name is a footnote in American legal history, which I'm perversely kind of proud of," he told The Associated Press earlier this year.

George Carlin was inventive and clever with how he challenged boundaries, and if he uttered more profanity than some would like, he was always worth laughing with. Contrast that with some of his successors, who seem to believe that the seven words themselves should be enough for a laugh.


Obama braces for race-based ads

I'm with Lindsey Graham on this one as far as what the Obama campaign is likely to do:

"Every word will be twisted to make it about race," said Sen. Lindsey Graham, R-S.C., a McCain friend and adviser. When he and others confront Obama on issues such as national security and the economy, Graham said, it will have "nothing to do with him being an African-American."

Thus far, John McCain has played this straight on the issues - which Obama can't handle. The Obama campaign would dearly love to make this about race, which would guarantee a win for them. But the McCain campaign should be smart enough to not go in that direction, and stomp on any who do.

More at Sister Toldjah


This is how the goons win: Making the cost in blood higher than their opponents are willing to pay.

Mugabe's rival pulls out of Zimbabwe vote

Zimbabwean opposition leader Morgan Tsvangirai withdrew Sunday from this week's run-off presidential election in the beleaguered southern African nation, saying he could no longer participate in a race that's been marred by the widespread intimidation, torture, mutilation and murder of his supporters.

Unfortunately, this has two implications. The first is that the bloodshed goes on. The second is that the people who finally overthrow the goons are more likely to be goons themselves.

Mugabe, who has ruled Zimbabwe since independence in 1980 and initially won praise for promoting racial reconciliation, has driven Zimbabwe to economic ruin with a host of failed policies, starting a decade ago with the seizure of white-owned farms. He staved off challenges in previous elections with intimidation and vote-rigging, according to numerous independent analysts and civic groups.

Not to mention the old standby of killing enough of the opposition that the rest won't vote.

Zimbabwe police attack opposition; leader flees to embassy

Heavily armed police arrested dozens of party members at the headquarters in the capital of Harare, said Fortune Gwaze, policy coordinator for Tsvangirai's party, the Movement for Democratic Change. Those arrested were party activists from rural areas who were using the offices as refuge after weeks of politically motivated violence that have left more than 85 opposition supporters dead, Gwaze said.

via Instapundit, American Murder Mystery


BofA-Scripted Bank Bailout Looks Awfully Similar to Dodd-Drafted Housing Bill

Mr. Dodd just happens to be one of those congresscritters who got a sweetheart deal from Countrywide CEO Angelo Mozilo.


Q and O on "inactive" oil leases.

Over five hundred years ago in Europe, there was a con game that was more practiced than any other con game in the history of the world. It was simply the thing to try on the new rube in town. Someone would claim to be selling a suckling pig in a sack ("poche", from which we get "pocket" as the diminutive, as well as "pouch"). You have to understand the situation back then to appreciate what was going on. Suckling pig was tender, delicious meat, the sort that the average person of the time might only eat a few times in their life. Perhaps never, if they were poorer than average. It was highly sought after, and commanded quite a price, in terms of the average person's wages.

In reality, of course, what was in the pouch wasn't a pig at all, but rather a cat. Most modern Americans don't realize this, but "roof rabbit" was eaten back then, because the alternative was often starvation. Before potatoes were brought back from the New World, Europe did not find it easy to feed its population. Nonetheless, I'm given to understand cat meat is nasty disgusting stuff, a food of last resort, because cats are almost 100% carnivores. However, the victim of this scam didn't usually get to eat the cat, either, because they were expecting a pig, which was not nearly so nimble. As a result of this, when they opened the sack, the cat would escape. This con gave us three phrases that are very popular today: "Let the cat out of the bag," and "left holding the sack," as well as "Buy a pig in a poke."

So what if prospective buyers have a hard time viewing a property?

This isn't 500 years ago. People that have the financial resources to buy real estate in the United States today aren't likely to be that trusting. If they were, some alleged Nigerian millionaire would have relieved them of those resources. In fact, in advice given since at least 1530, people have been advised ""When ye proffer the pigge open the poke."

Why? Because if you don't, people are going to presume it's a cat (at best), and they're only going to offer what cat meat would be worth to them, which may not be anything. But if you show them that there really is a delicious suckling pig in the sack, they may be willing to pay the premium prices that suckling pig - or beautiful turnkey property - commands.

I don't know how many times I've gone over this with clients. People aren't looking for reasons to buy your property, they're looking for reasons not to buy your property, and, "They don't want to let me look at it," is more than sufficient reason to lose interest.

Does that have anything in common with the educated pig buyer? You bet it does. They wanted to see the pig, otherwise it was only worth the cat price (i.e. nothing unless they were starving, and then not much).

The entire process of real estate has evolved with inspections, appraisals, etcetera is precisely because the information possessed by the parties at the time of the contract is asymmetrical. That's fancy talk for the seller knows more than the buyer. The entire viewing and inspection idea has evolved from this basic fact, and the need to remedy most of the imbalance of information.

But if prospective buyers have a hard time being allowed to see the property, they are not going to make good offers. The idea is that there's probably a reason that seller won't let them look at the property, and they're most often right in that presumption.

Every time I start looking through MLS for property that might suit my buyer clients, I run across several of the stupidest ideas in real estate. I can handle one and usually two hour notices, but when someone asks for four, they're not likely to get it. I've got someone who wants to go look at property now, or wants me to go look at property now and get back to them on it, and I'm usually trying to shoehorn a few extras in while I'm in the neighborhood. If I can see your property, I might think it's worth my clients attention. If I can't, I definitely won't.

But four hour notices aren't anywhere near the worst: 24 hour notices are at least as common. In a way, I understand. Tenants can legally require 24 hour notice, but it's to my listing clients advantage to come up with some reason to cut that as far as possible. What are the tenants paying, $2000 per month or so? Offer to rent a storage locker for them and rebate some rent money, and your average tenant is going to agree so fast your head will spin. This kills the "I'm worried about them stealing my stuff!" angle as well. Always be ready and willing to show, and since every day the property doesn't sell not only adds carrying costs but means a (statistically) lower sales price, the money you spend generating cooperative tenants is a fantastic short term investment, better than anything short of a jackpot lottery win, and a lot more dependable.

That's not the worst, though. That dishonor goes to "property shown with accepted offer." Here we go with the cat thing again. The question that goes through my mind when one of my buyers asks about one of those is, "How bad could it be?" Why that question? Because the worst case scenario is precisely what the property is worth until the seller opens the "poke" and shows us the "pigge" instead of the cat or worse. Contingencies aren't going to cut it. Contingencies are for when you know a little bit and want to know more. In this instance, the buyer doesn't know anything, because they haven't seen it. The fact is that in the absence of any observational evidence, I figure there's a reason why the seller doesn't want us to know, and negotiate accordingly. Mind you, if you're willing to take a blind risk this can generate a fantastic bargain at the right time, with a seller who's ready to listen to reason about the effects of this upon value. But most aren't.

I can't blame the seller who doesn't understand this. The fact that they're clueless on this point is evidence of agent failure. This is one more way that agents "buy" listings and hurt their clients. Failing to make the client understand that showing restrictions lower perceptions of value as well as sales price is a major agent failure. Because the agent does not make certain the client understands the way that buyers approach properties, that agent is failing in their fiduciary duty, and their client will end up paying more money in carrying costs as well as getting a lower sales price because of it.

A while ago, I wrote an article on Top Ten Reasons Your Home Isn't Selling. It's no coincidence that talking about real estate in this context explicitly hits the three biggest reasons why real estate doesn't sell. Not only is it a direct instance of problem number three ("Showing Restrictions"), but by restricting showings the property becomes less valuable ("Price") and highlights a major shortcoming of the listing agent. And since these folks have won gold, silver and bronze medals in the "shooting yourself in the foot" event, may I suggest that after some appropriate time has passed, this may become a very lucrative desperation mine?

Caveat Emptor

Article UPDATED here

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

The fact is that for mortgage providers, there are strong incentives to lie to consumers. "Everybody else does it, too - how else am I going to compete?" Also, real closing costs seem high. Real closing costs are high enough that many states with so-called "predatory lending laws," limiting the amount in total charges as a percentage of the mortgage, either have already repealed them or are considering repealing them so that their residents can get loans. I can talk to people about closing costs that have been significantly reduced by contracts I have with service providers, and they'll say, "Costs seem high." Well, yes, closing costs are about $3000, but I'm giving you the real numbers, and what I tell people about up front actually covers what my clients will be asked to pay. Would you rather have that, or would you rather you were told, "nothing out of pocket"? Just because it's usually possible to roll them into your mortgage, where you pay interest on them for a very long time, instead of the money coming out of your checking account doesn't mean you somehow didn't pay this money. The state of mortgage cost disclosure in this country is abominable.

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

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

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

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

Apply for a back-up loan.

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

You see:

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

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

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

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

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

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

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

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

Indeed, in my experience, it is more likely that the person who tells you something isn't real may well be telling you the truth. Getting angry at them is about like getting angry at someone who's trying to prevent you from being conned. The constructive response is to make them your back up loan. This doesn't mean that the person who gave you the best quote necessarily doesn't intend to deliver. They could just be comfortable making less per loan than the competition, or the competition could be telling you it isn't deliverable even if it is because they want you to sign up with them. This doesn't mean you shouldn't get back to the guy who gave you the low quote with some pretty pointed questions, including the information that you're signing up for a back-up loan. Make the calls and stick to your guns. Maybe you'll end up signing up with the second guy as a primary and find a different provider for your back up. It'll depend upon factors I can't see from here - the best guide being that someone unwilling to deal with having two lenders working the deal is not likely to be telling you the whole truth. But find the back up loan, if you can. If you can't, it likely means that the guy who quotes you the lowest rate is quoting you something that at least exists, and he could potentially deliver if he actually wants to. But there is no way to prove he wants to. Which is precisely the reason you need the backup.

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

Caveat Emptor

Original here

Cavalcade of Risk


Do The Right Thing (for everybody)


UC Berkeley professor John Yoo on the Boumediene decision


September 10th thinking and how well it's worked for us so far.


Countrywide mortgage and conflicts of interest

Special loan pricing for influential congresscritters (cost: roughly $150,000) = $2.5 Billion of taxpayer bailout money.

1. What does campaign finance law have to say about this?
2. What does racketeering and corruption law say about this?
3. Is there any indication that the underwriters were directed or pressured to approve these loans from above?
4. Did Countrywide hold these loans themselves, or did they sell them off?
5. Were any of these sweetheart deals defaulted on?

I have a pretty fair idea about the answers to 1 and 2, and people do serious time for those sorts of crimes. The answers to 3, 4, and 5 might indicate much worse crimes.


Q and O has a lot to say about how our energy policy came to be such a mess.


After trashing John McCain for hedging on accepting public financing, Obama opts out.

"It's not an easy decision, and especially because I support a robust system of public financing of elections," Obama told supporters in a video message Thursday. "But the public financing of presidential elections as it exists today is broken, and we face opponents who've become masters at gaming this broken system."

That's right, blame your opponent for the 3:1 fundraising advantage you enjoy and decided to take full advantage of. "Oh, my opponent is so evil for raising fully one third of what I have raised."

I find this whole stance more than a little two-faced. Note to Senator Obama: You're not legally required to accept any money.

Barack Obama said Thursday he'll bypass the federal public financing system in the general election, abandoning an earlier commitment to take the money if his Republican rival did as well.

Note to voters: John McCain has not yet committed one way or another. Suppose Senator McCain accepts public financing? Would there be any doubt who would be more beholden to special interests?

And we've already seen that he's not going to stop the smears and attacks from his allies running so-called 527 groups, who will spend millions and millions of dollars in unlimited donations," Obama said.

Says the man benefiting from George Soros' and his sock puppets. From Open Secrets we find that the vast majority of the 527 money is going to the Democrats.

Democracy 21 has a list of press releases concerning illegal campaign activities of those 527s.

So who looks to be playing this election fair, and who looks to be trying to buy it?


While we're on the subject of Obama, can you believe this level of stupidity and/or pandering?

Obama promises "bottom-up" economic growth

The economy is not working the way it should be, and that's going to be the goal of an Obama presidency - to make sure we've got bottom-up economic growth instead of the kind of tired, worn-out, trickle-down ideologies we've been seeing for so many years

There's a reason most growth is trickle down: It takes money to invest in major new business. Actually, the upfront investment right now is smaller than it has ever been in terms of the average person's earning power. Still, you've got to have some reasonably significant assets in order to fund a business.

Government programs aren't going to help this. How is Joe Ditchdigger supposed to bid on an interstate project? He's not. The assets and ability to build a half mile of interstate - or even just one freeway onramp - are so far beyond Joe as to render any attempt pointless. The small, individual stuff is called, "public assistance," and it doesn't help, either. Lowering taxes, lowering barriers to growth, coming up with loan programs that help people start small businesses - that's the way you help small people start. But the number of folks who become well off working for someone else is pretty much fixed by how many people have managed to start a small business and make it into a big business. The best way to become relatively wealthy always has been, is, and always will be owning your own business.

You don't make union members (which is who he was speaking to) wealthy through government action. The only way to help the union members is to help their employers make a bigger profit, which enables them to pay their workers more next contract time.

The whole concept is either mind-bogglingly stupid, promising something he knows he can't deliver, or possibly both.

Neither of these is a reason to vote for him. Quite the opposite, in fact.


FYI, today marks three years that Searchlight Crusade has been going.

Break out the Mongolian Birthday Chant!

(They do have some of the stanzas wrong, but it gets the point across)

I started on Father's Day, but today is the calendar anniversary

For at least the last thirty years, I've been hearing "affordable housing" advocates yammer about the high cost of housing, and how working families can no longer afford "decent" housing, which they apparently consider to be the three or four bedroom, two bathroom detached home. They go on and on about what is necessary to create more of this type of housing and our "moral obligation" to create more of it. Against this, we have their actual actions, politically allying with forces that make housing more expensive by constricting the supply.

Newsflash: Making business difficult for suppliers of a good does not lower the price nor improve the availability of that good.

Who does artificial constriction of the housing supply hurt?

Certainly not developers. The price of the actual permits, last I checked was in the $20,000 per unit range. But the decreases and constrictions and delays in supply add something like $160,000 to the price tag of that same unit. The people who want housing are here. If the demand is there and the supply isn't, what does that do to price? Oh, those poor developers! They're being hurt to the tune of $140,000 additional profit for each unit they build. Please, Brer Fox, don't throw me into that briar patch! To stay within the genre, trying to harm developers in this sort of fashion is a tar baby for those trying to do it.

It sure as heck doesn't hurt the wealthy, either. They can afford housing. Matter of fact, the constriction of supply makes their real estate investments appreciate more rapidly. Increasing demand and regulatory brakes on the ability to furnish supply is pretty much the recipe for rising prices. Furthermore, this encourages speculation, driving bubbles like the ones that we just went through. It wasn't the wealthy that got hurt by that bubble. It was the folks who could just barely qualify and the people who stretched more than they should have or told fibs in order to qualify. Who was that? It certainly wasn't the wealthy. High end housing was the first to start sitting longer, because the wealthy weren't worried about getting priced out.

It certainly doesn't hurt current owners, who ride the price wave in the same manner as the wealthy investors, if not quite to the same level of profit. Anytime the ratio of demand to supply rises, so does price, and anyone who already owns benefits. These are folks well-established in life for the most part, along with high income individuals and those who inherited wealth. Sound like anyone who needs to be getting what is effectively a public subsidy?

So who does keeping the supply of housing low hurt the worst?

The young. People just getting started out. People who won't get started for another fifteen years, by which time current housing prices will seem like the Golden Age. Every time there's a new household but no new housing, the price goes up. We're going to keep gaining new households, and I don't see enough new housing on the horizon. You do the math.

Transplants coming from where housing is cheaper. Even if they own a $100,000 house free and clear, that's only a 20% down payment on $500,000. Lots of San Diegans seem to have an attitude about transplants - but most of them are themselves transplants. The question of "who is a transplant?" is very much a question of where you draw the line. Speaking as a second generation native, my take is let's just trash the whole transplant prejudice thing. People want to live here. Providing they're in the country legally, they have the same rights to do so that my family and I do. We can create the housing for them, or we can create shortages, which lead to higher prices and unaffordable housing for everyone.

The working poor. Yes, the very people the affordable housing folks claim they want to help. But keeping the supply low, delaying the arrival of more units onto the market while keeping others from happening at all, is a recipe for rising prices. A couple making $15 per hour each makes just over $5000 per month, which translates to about $2300 they can afford for housing and all their debts. Assuming they have no other payments, that's a purchase price of a little over $300,000. That might buy a severe fixer detached home or a condo in decent shape. What happens the next time they need to buy a car? Unless they're one of the rare folks who still manage to put money aside every month, they have to consolidate the car loan with their mortgage in order to afford it. Ditto any other sudden expenses. This is the opening movement to a symphony of financial disaster.

I know that the political alliances in this country have gotten completely nonsensical, but it's past time for affordable housing advocates to break away from the same party that houses the anti-development and anti-business activists. Yes, ACORN, I'm looking at you (among many others), with your "retain voter registrations of your favorite party, trash registrations of their opposition" drives (blatantly illegal, by the way, and this isn't the only such story by any means). Never mind what's the matter with Kansas, I want to know what's the matter with affordable housing activists. By any reasonable measure, they're making the problem worse with their political alliances, by supporting the agenda of their natural antithesis. If their game is to actually make housing more affordable, most of them are miserable failures at what they say they're working towards.

Of course, if the game is to make the problem worse, so that people have no choice but to deal with these organizations as supposedly the only hope of the working poor, thereby increasing their own power, these organizations are doing just fine. Trojan horses for empire building are one of the classic recipes for political success.

Caveat Emptor

Article UPDATED here

June 18th, 2008

The guidelines for this carnival.

As always, I arranged the entries that met guidelines into three levels, based upon originality, usefulness to the consumer, and how much thought and effort and research went into an entry.


We have a Host's Choice Award! Yay!

Dothan Home Search sends us Five Ways to Generate a Low Ball Offer. Not only are they funny, I guarantee you these will work every time. Ergo, the Host's Choice Award.

My submission, Agents "Buying" Listings: Promising the Undeliverable and Hurting Their Clients was written independently and is less humorous.



How to Get the Most for Your Home When it is Time to Sell by Making a Good Impression. Or how to sell, period, when other properties aren't. This can't be said too often.

For the humor value: You Know That You're a Real Estate Investor When . . .

My contribution to the list: "You read about a plan to help rescue homeowners in trouble and cry out "NO! THEY CAN'T DO THIS TO ME!"



Renting vs. Owning in Retirement neglects about a dozen obvious questions, such as future value of rents, future value of property, need for the cash flow, etcetera that accompany a reasonably intelligent answer. It's also reporting on what someone said, rather than saying anything of particular importance itself. But it meets guidelines.

Tallahassee Real Estate Blog discusses the expiring temporary loan limits (In the absence of new legislation, they go away December 31st, 2008)



A site named "Goal Setting College" wanted me to advertise free magazines in the carnival. The only way to make that type of magazine useful is to print it upon toilet paper. Well, I suppose paper towels might work, also. And I suppose if you have a dog, even newsprint might be useful. But as far as actually reading this stuff, I have one word of advice: Don't.

For those who might object to the treatment their submission received, the relevant information has been in the guidelines since before submissions were being accepted for this carnival. Having been told to read the guidelines, you willingly submitted these posts. Live with it.

Consumer Focused Carnival of Real Estate will return in two weeks (July 2nd, 2008), here at Searchlight Crusade, unless someone else wants to host. Deadline for submissions will be June 30th.

With a few lenders starting to loosen their requirements slightly in San Diego, it's becoming increasingly obvious that the bottom is behind us. However, the issue has now become, "I don't have much of a down payment. How do I buy now so I can get into something before the market goes crazy again?"

There are several programs that exist that enable buyers to lower their down payment requirements. All of them have their limitations, but if you can jump through their hoops, they remove the need to save for a huge down payment.

The first of these are VA Loans. Right now, VA loans are the magic bullet. No down payment requirement, and you can even finance closing costs up to 3% on top of the purchase price right into the loan. Furthermore, there is not only no PMI, but the VA only charges a half point to fund the loan, and that's waived with 10% or larger disability. Additionally, the conforming limit with VA loans is no longer applicable - I've had wholesalers tell me they would accept VA loans up to (potentially) $1.5 million dollars. There are no income limits, either, but you do have to qualify full documentation. However, because there's no PMI, no need to split loans, and no ongoing charges for the loan, by debt to income ratiopeople with VA loan eligibility can afford almost ten percent larger loans than people applying for FHA loans, and about twenty percent larger loans than high loan to value conventional conforming loans (Below 80% loan to value ratio, conventional loans will most likely have a lower tradeoff between rate and cost). The biggest drawback is that you have to have served in the military or be serving, something comparatively few people do as opposed to former times. San Diego is a military town, and I've only dealt with one VA loan in the last year or so. It was formerly true that FICO credit score was not considered in VA loan qualification, but this has changed in the last year or so. How low a credit score they will work with is up to individual lender policy. Some lenders want a minimum of 580, others won't talk to you unless you've got a 680. The higher their qualification standards, of course, the lower the rate/cost tradeoff they offer will typically be.

Best of all from a longer term standpoint, because there is no seller participation needed in the VA loan program, it doesn't matter whether the seller is willing to do extra things in order to get the property sold. This means you aren't constricted in which property you choose, and it does enable you to end up with a better bargain on the property of your choice.

Many locally based first time buyer programs take the form of loaning you a down payment. If you're buying a $300,000 property and the city you're buying in will loan you $60,000 for the down payment (usually in the form of a silent second), then you only need a $240,000 regular loan, which leaves you with an 80% loan to value ratio, and you are then able to qualify for a classic conforming A paper loan on your property. The drawbacks of these programs are two. First, budgetary constraints. As of a couple weeks ago, all the local municipalities were out of money for these until the new allocation comes in (usually in the fall and spring). If there's no money left in the budget when you want to apply, you're not going to get one. Second, income limits. These all have income limits, which vary with the program and municipality. Since like all other government programs you have to qualify for these via full documentation of income and proving you make enough for the payments via income tax forms, this can disqualify you or severely constrict what you qualify for, and the various municipal governments do put other strings on these programs. Nonetheless, the Cities of San Diego, El Cajon, and Santee have these programs in place, as does the County of San Diego for unincorporated areas, as well as administering the same program for Lemon Grove, Imperial Beach, Poway, and many other cities. Like VA loans, because there's no need for sellers to contribute to these financially, buyers who use these don't end up paying for it in the purchase price of their property, or by a limited selection of sellers with the wherewithal.

FHA Loans are not, in their basic form, a zero down payment program. They will only allow up to 97% of the purchase price. Furthermore, they charge a point and a half upfront and half a percent annualized per year for financing insurance. The good news is that you're still getting a very low down payment loan with comparatively low cost financing insurance. This is a government program, so you have to qualify via full documentation of income, and many properties are not eligible for FHA financing. The FHA also keeps what is functionally a blacklist, so you can find out that because your real estate agent, loan officer, etcetera contributed to fraud some time back, this particular transaction is not going to fly FHA. The FHA does allow seller paid closing costs of up to six percent, but if you think you're not going to pay for this via increased sales price, I've got some beachfront land in Florida. That means higher cost of interest, higher property taxes, and less equity if you sell or refinance. Furthermore, not every seller is going to be willing or able to work with people who want seller contribution for closing costs.

Down payment assistance programs are targeted at FHA loans, providing the 3% down payment via a reciprocal loan paid back by the seller at close of escrow, although FHA is not the only loan type they work with. Once again, not every property owner is going to be willing or able to work with these programs, and if you think the money that sellers furnish for these programs doesn't result in a higher sales price, I own a bridge in Brooklyn I'm willing to sell on very reasonable terms. More than the amount of the loan you get, because they're offering something not everyone can. You have to be careful to disclose everything to everybody in these situations, and the purchase offer and subsequent counters have to be written very carefully.

Seller carrybacks are comparatively rare right now, as few sellers have significant equity. The ones who do and want to sell are likely to be able to wait until things get better, and so most of them are. Asking for a carryback is a major request on a purchase contract, because if that seller loans you $X, those dollars are not available for them to use purchasing their next property, or whatever investment they wanted to put the money into - they're still tied up in this one. Sellers willing and able to offer a carryback can command premium pricing, even in this sort of market, because many buyers will have exactly two choices: buy this property, or don't buy anything. They are also assuming a significant risk of non-payment and ending up in second position on a non-performing debt, which can cause them to lose every dollar they have invested.

Finally, as of a few days ago, some lenders are once again willing to go 95% loan to value ratio for conventional conforming A paper loans, where before that the down payment requirements were ten to fifteen percent. There will be PMI, you are required to qualify full documentation, and the limit is the "regular" conforming limit of $417,000 as opposed to the "jumbo conforming" or "temporary" limits ($697,500 in San Diego). But once again, you can do this with basically any residential property that's not too expensive, and the seller needn't be willing and able to financially contribute to the loan. There are a lot of properties out there that FHA will not touch, no matter how helpful the seller is willing to be. As long as it's an inhabitable residential structure meeting requirements, conforming loans will potentially work - if you've got 5% down. Nor do they require that the seller be willing and able to help out. 5% down is not usually a huge amount. For example, a couple each borrowing $10,000 from retirement accounts (as allowed by the rules) has a downpayment of 5% of $400,000, which buys a pretty decent place nowadays.

As you can see, there are drawbacks to all of these, as well as advantages. You would be well advised to consider an agent who is also a loan officer, because everything from the initial offer onwards has to be carefully written to remain within the limits of what lenders will work with and will fund. More than once I've had people come to me forty-five days into a thirty day escrow where the only way to make it happen was start by renegotiating the contract. Since the sellers were completely frustrated at this point and just wanted out, needless to say it didn't happen. So there is a limit to the ability to repair incorrectly written purchase contracts. Nonetheless, these options are there, are available, and I have funded loans on them in the past. Given the current state of the market and its likely state a year or two from now, making use of them can mean that you're going to end up much better off than waiting to save that down payment. If the market appreciates in value ten to fifteen percent between now and whenever you have enough for a "normal" down payment, you definitely didn't help your cause by waiting.

Caveat Emptor

Article UPDATED here

Carnival of Personal Finance

Carnival of Real Estate


Outraged at the price of gas? You may want to read this before you vote: Democratic vs. Republican plans to deal with the energy issue.

I wrote this in September 2005.


I find this very encouraging: Study: Americans use Net to look beyond sound bite

"They want to see the full-blown campaign event. They want to read the speech from beginning to end," said Lee Rainie, director of the Pew group. "It's a push back from the sound-bite culture."

You know, before I readthis, I would have bet quite a lot (maybe not an arm or leg, but probably fingers and toes) that there was no tape of Michele Obama's alleged racist rant, and that in fact, there had never been such a rant. In fact, I thought it very likely that the whole thing was a Trojan Horse, meant to lure the opposition in and distract the public from investigating who Barack Obama is and what disasters his policies would be.

But when someone starts damage control before the existence of something is confirmed, that tells me that there may be some truth to the rumor. I'm still very much inclined to believe that there is no such tape. Even if there is such a tape, I've already devoted too much attention to it. It's the disaster Barack Obama would be as President on so many fronts that forms the reason to vote for John McCain.

Cults of personality have never been kind to democracies. Especially if they get into office, elected or not.

Do not take my word for it. Go to Barack Obama's own website, and get the information straight from what he's making available to the general public himself as far as his plans. Then research what that stuff really translates into. If you can still vote for him after understanding

Protein Wisdom and neo-neocon's takes are both very worth reading.

Quite a lot of the time when I view a property, I get requests for feedback.

Usually it's an automated email. Other times, it's some office assistant who wants to fax me a form which will "only take a few minutes of your time".

The point of these, and the various other methods that get used, is to shift the burden of the work they should be doing from the listing agent, which is where it needs to be, to other people. Basically, my competition is asking me to do their job for them. The only time I will respond to requests for feedback is if the agent involved will spend at least as much of their own personal time as it takes for me to provide the feedback. In other words, the agent - not their flunky - has got to listen to me talk, and then write it down themselves. If they start arguing with me, it's no longer a request for feedback, it's a sales call. But in any other circumstances, they're telling me this feedback is not important enough to justify their time, so why should it justify mine? I don't have any responsibility to their client; they do.

The point of both of these, and three or four other methods that get used, is to pressure their listing clients to drop the price. Many offices have multiple employees gathering this information, the idea of which is to get the client to lower the price because the agent didn't do it in the first place. They get the listing by promising a price they know they can't get, and then use the feedback information to hammer the client into reducing the price. This is actually two cardinal sins in one action, and I'll be damned if I'm going to help these slimeballs not only hose their clients, but also take listings away from good agents doing their fiduciary duty by failing to do that duty. This should also tell you how good an agent who uses their great feedback system as a major selling point is likely to be. Agents who know the market don't need a feedback system.

This whole rigamarole is easily avoidable by the agent doing the job they agreed to by accepting the listing.

Here's the way it should work: Agent knows the market. Agent persuades listing client to put an appropriate asking price on the property before it hits the market. Listing gathers lots of traffic, who like what they see. Appropriate offers come in, negotiations ensue, a contract is agreed upon, escrow is opened, and the transaction is consummated. Everybody emerges happy. Time elapsed: under thirty days from listing to contract, under sixty to completion. The only hard part is the pricing and staging discussions with the client, at least a week before it hits MLS. By accepting the conflict then and doing their job in the first place, the agent avoids a lot of problems that will happen later if they do not. Furthermore, the client emerges from the successful transaction not only happier, but objectively better off in that they get more money from a quicker transaction.

Here's the way these problems start: Instead of the above situation, an agent doesn't know the market the property sits in. Maybe they work across town in a different suburb. People decide to list with an agent whose office is near their office for convenience. Unfortunately, that's twenty or thirty miles away from the neighborhood they live in, and the agent might be vaguely aware that the area the property is in actually exists. They have no clue what the market in that neighborhood is like. An agent from twenty miles away is one of the best predictors I know of a mis-priced property. They have no idea of the market in the immediate area. I was just in a very nice property today priced $110,000 more than a very comparable property two blocks away. It's got an extra 3/4 bath, the comparable has a nice California room. The comparable has been on the market for months, and it's only $30,000 overpriced. This should give you an idea how badly overpriced the newer listing is. The listing office is way up in Carlsbad. Big Mistake on the part of the homeowner, and it's going to cost them.

More importantly than market knowledge, the agent didn't do the most important part of their job.

Here's what happens: Homeowners are usually quite proud of their property, and they understandably want the highest possible price for it. They see high asking prices, and they think they should be able to get them. Few members of the general public understand the relationship between the market, asking price, and sales price, not to mention how long it takes to sell. So when they interview agents, they're looking for the agent that will promise the highest sales price.

Here's the issue behind that: How does the client know if the price an agent says they can get is real and deliverable? The answer is that they don't. Ladies and gentlemen, I get paid on commission. I'd like to be able to get $2 million for a tiny condo in The 'Hood. The fact is that buyers choose to make offers upon the property that appears to be the best bargain for their needs and desires. The entire idea of listing and marketing the property is to attract the attention of the buyer whose needs and desires that property meets better than any of the available competing properties. Yeah, there's an element of seducing the buyer into liking the property more so they will pay a higher price. But like a lover, an agent can never seduce two people at once, so if they're seducing the seller they're not seducing the buyer. Not successfully, anyway.

So what a bad agent does is promise whatever sales price they think will get the owner to sign that listing contract. As soon as they've got the contract, they start planning ways to get the owner to decrease the asking price.

What's the harm in that, you ask? Those buyers they are trying to appeal to look at the property online. They see that too high price, and decide they're not interested. The buyers who do come by see that they can get something better for the same price so they make offers on the other property. Thirty days out, pretty much everyone on the market has decided they're not interested, and new buyers coming onto the market see that it's been on the market for over a month and their first question is, "What's wrong with it?" They don't want to go look at it. A good buyer's agent like me might be able to talk them into seeing it if the agent sees a bargain, but they don't see a bargain because it's overpriced. In order to lure the buyers back, you've got to cut the asking price to below what you could have gotten if you had priced it correctly in the first place. Otherwise, you're waiting for months until people like me think you might be willing to negotiate to something advantageous for my clients, and that's going to end up even worse for you. Meanwhile, whatever reason you wanted to sell the property is on hold. Being hammered by your agent to lower the price, you get so desperate that you'll take offers you would have trashed when the property first hit the market.

Here's the cute part, if you're one of these agents: Because these properties eventually do sell, and lots of people fall for this trick, that sleazeball looks like a "top producer." They've always got a large number of listings in the pipeline, Waiting for Godot. When one of them finally has the price dropped far enough, it sells. Since in the production metric used by the real estate industry, they are getting their 3% of lots of different properties, they're doing great for themselves and it appears that they're successful - precisely the sort of agent many people look for. In reality, their clients end up hurting. A freshly minted licensee who approaches the listing correctly will reliably achieve results superior to this.

Unless you're basically an agent yourself, the pricing discussion should be difficult. There is a fundamental tension between the desire to get the highest possible price for a property and the need to price it competitively with other properties. If a prospective listing agent does not understand this, ditch them. If this tension is resolved easily, there are two possibilities. Far more common of the two is that the agent isn't doing their job. They could be ignorant of the market, or they could be seducing you into a listing contract by talking a Bigger Better Deal that they cannot deliver upon. There really isn't much difference. The other possibility is very rare around here, although it was more common when prices were going up like crazy: The homeowner doesn't try to overprice the property.

How can a homeowner deal with this issue? The only foolproof way is to really understand your competition - the other comparable properties for sale in your area. You also need to know about the properties that have actually sold, because it's not uncommon that some idea of inflated value creeps into a neighborhood, and all of the properties sit on the market unsold until they figure it out, while the next tract over is selling a little bit better. Since it's unlikely that the new owners are going to allow you to view their recent purchase, you're pretty certain to be at an information disadvantage.

Keep in mind, however, that the pricing discussion should be difficult. If it's not, there's probably something wrong. Furthermore, unless you're Martha Stewart, the "what to do so it shows well" discussion is likely going to be uncomfortable as well. Remember that it's for your advantage. I'm trying to make you more money, faster, by making your property more appealing to buyers. If the agent doesn't tell you how to clean it up and get rid of the clutter and make certain it stays presentable, that tells you that everything is either already perfect (unlikely) or that they're shying away from telling uncomfortable truths you need to hear. This is never a good sign in an agent.

Avoid listing agents who don't work your area consistently. If their office is more than ten miles away from your property, they're not likely to be a good agent for you. I am willing to list properties outside my area, but I am very upfront that it's going to take me a few days to size up the competition and the recent sales before I'm ready for the pricing discussion. An agent from further away who doesn't make a point of telling you this is dangerous to your pocketbook. My website tells people where I make a habit of working, and by extension, where I do not. Theirs should do the same thing. My website also talks about bargain properties in La Mesa and the nearby communities where I work. This is further evidence that I really do work that market.

The pricing discussion is important, and getting it right in the first place will reliably put more money in your pocket sooner than overpricing it. The agents who won't face the uncomfortable task of persuading you to price the property properly in the first place are not agents you will be happy with later. Keep searching until you find an agent who will work your best interests, even if it risks irritating you.

Caveat Emptor

Article UPDATED here

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% or less back end ratio, but I've seen high seventies get accepted in certain 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. It is exceedingly dumb to over-state your income on stated income, because you're still going to have to make the payments on that loan. 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 can't prove they 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. NINA is also called "no ratio", because 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 are 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 lenders have also become a lot more scarce on the ground in the last year, and the ones that still exist are mostly looking for A paper clients that don't realize they qualify A paper. With that said, subprime loans do exist, but it's no longer "warm body" qualification.

Subprime also has another form of accepted income documentation: bank statements for the last six, twelve, or twenty-four months. This is highly useful to the self-employed who may not be entirely forthcoming on their taxes. 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 methods, 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 have cleaned up behind more than one that went bad.

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

Original here

Private Papers on Ayaan Hirsi Ali


Good Idea, Bad Timing

Q: What would happen if President Bush repealed this ban now?

A: Environmental extremists use it as a wedge issue in the election, screaming about how Republicans rape the environment. Mr. Bush isn't on the ballot personally, but they're going to do their damnedest to put him there metaphorically.

Q: Will there be a good time for Mr. Bush to do this?



Mugabe militias burn women and children alive

The reign of terror in Zimbabwe hit a new low for atrocities last week. Militias associated with Robert Mugabe have begun burning family members of the political opposition alive. Armed thugs looking for the head of the MDC in Mhondoro satisfied themselves with mutilating and murdering his wife instead, and it wasn't the first such attack for Mugabe's goons:

When will the world do something about Robert Mugabe?

I'd like for the answer to be "20 years ago", but given that unlike Saddam Hussein he keeps his atrocities inside the borders of the country he runs, there isn't the international pressure.


It's not news, it's Scrappleface, but it's a sad commentary when the satire makes more sense than the Chicken Little articles we call news.


How the Irish saved Civilization, Again

They've rejected the proposed EU Constitution. Proponents are griping that this means 1% of the population killed it for everyone. What they're not saying is that the Irish were the only EU members permitted by their government to vote on the abomination.


Add this one to Dred Scott and Plessy vs. Ferguson: The Boumediene decision. It's a real contender for the championship: all time worst judicial blunder.

Supreme Disgrace

Looks more like Supreme Dictatorship to me. Or Oligarchy, if you want to get technical. I'm with the Chief Justice on this one:

What Boumediene v. Bush is really all about, as Justice Roberts wrote, is control of federal policy regarding enemy combatants. That is another way of saying this case was about power -- and Thursday's decision was a power grab.

Hot Air

The 5-4 decision reverses over 200 years of American war precedent, as well as turn the Geneva Convention on its head. Unlawful combatants now have more rights than POWs, whom the GC forbids access to civilian courts. POWs facing war-crimes charges have to be tried in military tribunals, not civil courts, but terrorists somehow now have better standing than those captured in uniform.

Sanity on energy policy from Newt Gingrich and Hot Air.


via Instapundit, Does the Obama Campaign Foreshadow His Presidency?

I'd say it's certainly likely to be indicative.


Faster, please.


1. Space travel! The resources of the solar system become immediately accessible.
2. Gas prices become irrelevant
3. Pollution control
4. Quantum leap in standard of living
5. Hydrogen, the base fuel, is almost as common as political stupidity.
6. OPEC goes back to the same importance they had 200 years ago
7. No more oil price windfalls funding terrorists
8. No more burning food for fuel
9. Poverty as we currently understand it disappears

How many more reasons do you want?


I'm very proud of my older daughter, who earned an Advanced Level Presidential Award at her school assembly!


Looks like even the professional appeasers in Foggy Bottom are getting tired of the Yemeni regime's antics:

The State Department Notes Distressing Trend


Ancient cave linked to early Christians in Jordan

From the early time when Christians were a persecuted minority (as opposed to now in sharia countries and leftist strongholds, both of which have their own state religion of intolerance).

Hussein said there was evidence that the underground cave was used as a church by 70 disciples of Jesus in the first century after Christ's death, which would make it the oldest Christian site of worship in the world.

A win for the good guys, and property owners everywhere:

Nev. rancher awarded $4.2M for 'taken' water right

It took this case seventeen years to work its way through the courts, but it was resolved correctly in the end

(the judge), based in Washington D.C., said the cancellation of Hage's grazing permit because of overgrazing and trespassing did not violate the Fifth Amendment because a grazing permit is a license, not property.

However, (the judge) said, the taking occurred when the Forest Service made it impossible for Hage to maintain irrigation ditches, which deprived the ranch of water and made it unviable.

And there was much rejoicing!

This has a lot of implications for other government takings. Rent Control ordnances. Development restrictions and zoning downgrades. Anything that restricts the ability of a property owner to enjoy that property. If someone bought it with the restriction in place, I can accept that they're bound, but for the past thirty years, government at various levels has been arbitrarily imposing new restrictions that curtail economic and physical usefulness of property. Unconstitutionally, IMHO.


Thirty years past due and the lede was buried to make it appear a Democratic idea, but I'll take it:

Congress considering entitlement reform

At the centerpiece of that hearing will be a proposal, authored by Cooper and Republican Rep. Frank R. Wolf of Virginia, that would kick entitlement reform to a bipartisan commission like the one that has handled military base closings. The Cooper-Wolf panel would spend a year studying the nation's fiscal concerns before presenting Congress with a legislative package which it would be forced to vote on in its entirety.


The veteran Republican boiled over during a brief discussion about the mounting costs of these programs, scribbling pie charts on the back of a stray bill to demonstrate how the costs of Medicare, Medicaid and Social Security are eating up a greater percentage of the federal budget each year. Wolf and others have grown increasingly frustrated with the partisan politics that have plagued previous reform efforts.

"We're waiting for Godot," Wolf said.


If people think it's a good idea to tax "windfall profits" of oil companies trying their best to keep a supply of oil flowing and stymied by congress, Scott Ott of Scrappleface has an idea you'll love.


America's Stupidest Criminals: This is fraud with malice aforethought, and these people should go to jail, along with the real estate agents and loan officers who help them

Some Buy a New Home to Bail on the Old

In some cases, homeowners are coached through the buy-and-bail process by real-estate agents and brokers who see nothing wrong with it. Some blame the phenomenon in part on lenders' unwillingness to cut deals or restructure loans made when home prices were inflated. "It's just a business decision," says Linda Caoili, a Sacramento real-estate agent who is working with Ms. Augustine and others who are considering walking away from their mortgages. "If you're upside-down $250,000, why would you keep it? It just doesn't make sense."

This isn't a matter of a marginal case. This is someone intentionally telling a falsehood on their mortgage application, and someone who knows different helping them cover it up. It doesn't get any more cut and dried than that. See also perjury, and I find it incredible that these people are admitting to these activities in interviews with national media.

Nor are the lenders sitting idle and waiting for it to happen. This is going to kill the ability to use rental income to justify a loan if we're not all careful. And that's not in anyone's best interest.


Thomas Sowell

Perhaps his greatest achievement has been running as a candidate with an image wholly incompatible with what he has actually been doing for decades. This man who is now supposedly going to "unite" us has for years worked hand in glove, and contributed both his own money and the taxpayers' money, to people who have sought to divide us in the most crude demagogic ways.

HT: Don Surber

There have always been real estate transactions that fall apart. The reasons why they fall apart are as varied as the people who enter into the transaction in the first place. Let's get back to the very basics for a moment. An offer to purchase is a representation that a given prospective buyer would be at least willing to purchase the property on the terms you are offering. Accepting that offer to purchase means that the seller is at least willing to sell it on the same terms that the buyer is offering to buy upon. If one or the other of these parties is not willing to consummate the deal on those terms, why was there both offer and acceptance? There was offer and acceptance, or there isn't anything more than negotiations to fall apart. People fail to reach agreement all the time. That's not what this article is about. It's about what happens to prevent the transaction from being completed after you have a valid contract.

The last credible figure I heard was that 50 percent of all escrows in San Diego County are falling apart. This means that one out of every two contracts don't happen. A few years ago, the proportion was a small fraction of that - I can't find it online, but I seem to remember 11%. This increase is both outrageous and preventable.

The first reason transactions fail is new information. It isn't cost effective or a good negotiations tool for a buyer to spend money on inspection and appraisal before there is an acceptable contract. When this information comes in, you can expect there to be a reassessment of the transaction, because you can expect there to be something about the property that does not conform to reasonable expectations. I certainly can't remember any transactions I've had where the inspections didn't reveal anything new. I've had them where what was revealed was trivial enough to ignore, but never a one where there was nothing. Transfer disclosures from the current owner to the prospective buyer are another of the possibilities for new information to crop up.

All of this new information can indicate a need to subsequent negotiations when it comes to light. If the buyer thinks it's small enough that they are willing to accept the transaction "as is", they can choose to let the transaction continue on the track it's on. If it's big enough that they're unwilling to deal with the situation, they can also choose to walk away. The vast majority of the time, the sanest response is some new negotiations based upon the new information. This isn't normally about things like overall sales price, it's about getting the property into the condition and functionality that the buyer thought they were getting in the first place. Either party can be obstreperous and unreasonable at this point, effectively killing the transaction.

There's also the issue of cold feet, and the related issue of "grass is greener" syndrome. Either one can apply to either party in the transaction. In the first, the buyer decides they don't want to buy or the seller doesn't want to sell after all. In either case, they weren't really "sold" on the benefits of the transaction to them. "Grass is greener" is where they still want a deal, just not this deal. Those happen when markets are asymmetric in power. A few years ago, it was sellers who wanted to bail out of contracts they had duly negotiated because someone offered them a higher price. More recently, it's been buyers trying to pull out because they think they've found a better deal somewhere else. Both are vile. It's not a sin to want the best possible deal, but once you enter into a legal contract you should be prepared to honor your representation that you want that deal. Both of these phenomena are the fault of poor agents, and both are a good way to waste a lot of money in legal expenses when their clients are sued for specific performance. I don't want any part of agents that don't take appropriate steps to prevent either one of these in their clients, and I take note when I hear about them. It's also a reason not to take an attitude of "no quarter!" in negotiations. My client signed that offer or contract because those terms will make them happy. If the other side decides they need to bail out because the terms are odious, my client isn't happy.

Closer to the point is ability to perform. This can be a seller who can't or won't or doesn't meet their obligations in a timely fashion. Delivering good title to the buyer is kind of important to the transaction, and it does occasionally happen that the seller can't do this. Or they don't have the money to make needed repairs, or just won't get off their backside to actually do it.

But far more commonly, it's the ability of the buyer to perform their obligations under the contract that kills the transaction. I have heard about occasional buyers who couldn't or wouldn't or didn't perform on other scores, but the most central of these in the current market, and the reason for at least 90% of the rise in failed transactions, is that the buyer cannot qualify for the necessary loan.

The Era of Make-Believe Loans is over, but judging by the evidence, there's an awful lot of people who haven't figured this out yet. That's the first thing I want to find out when I get a new buyer into my office: What's the evidence of their ability to qualify for the necessary loan? How much do they make, what are their other payments, what is their credit score, how much do they have for a down payment, and is there anything about their situation which might be a cause for concern during the loan process? I don't want to give them the third degree, but I want to be confident I'm not wasting their time or mine, and that I'm not setting them up for a failed transaction. Failed transactions don't make clients happy, they waste the client's money, and they aren't any good for my business, either.

A year or so ago, if somebody came into my office with a 580 to 600 credit score and two years in the same line of work, chances were excellent that a loan could be done - even 100% financing. That is not the case currently, and the time to plan the loan is before the clients fall in love with the property they can't afford.

Lest I be unclear, 100% financing isn't completely gone, but you have to plan more carefully now, and often the purchase contract must be written in certain ways to make it acceptable to everyone who needs to be involved. Write the purchase contract wrong, and you might have killed the deal before it begins because there's something there that's not going to be acceptable to the lender, and sometimes it can prevent other folks from signing off on the deal as well. Furthermore, if the required steps in the contract are going to cause the seller to balk, you're better off finding out before you've got a contract.

The loan environment, especially for loans above 80% loan to value ratio, has changed drastically in the last year, and all of the changes thus far have been in the nature of making qualification more difficult. In my area, appraisal values are arbitrarily reduced by all lenders I'm aware of currently, and if you're not careful, you can find yourself in a situation where 85% loan to value is the maximum that can be done (This just changed - see below). Since the proportion of buyers that have that kind of down payment is rather small, and the proportion of those who want to invest it in the property if they do have it is even smaller, that can be a problem.

Even the government programs like VA and FHA with their low down payment requirements have their stumbling blocks. Not only do they require a buyer to qualify via full documentation of income (as do ALL government-based loan programs), but there are subsidiary requirements as well. Some properties are not eligible, period. Some people (and some companies) can't be involved, period. Investment property and second homes are iffy to doubtful with the VA and practically non-existent for FHA. It's a real good idea to know if you're going to hit one of these roadblocks before you are sixty days into a transaction that's not going to happen, and now we're all going to pay lawyers to fight over the deposit.

When I list a property, I want real information that tells me a loan is doable for this borrower before I advise my client to accept a given offer. Pre-qualification is a joke and even pre-approvals aren't anything to put stock in. The only examples of either that I trust are ones that I wrote, because I know what went into them. However, Steering is illegal. I can't require the buyer to get their loan through me or even to talk to me (or anyone else of my choosing). What I can do is require their loan officer fill out my form and provide documentation that enables me to determine whether a loan is doable or not. If I can't find a lender that can fund that loan, we've got a problem. It's kind of important to know this before we counter.

Unfortunately, we've had ten years where loan money was easy to get, no matter how ridiculous the transaction, and it's left a very strong imprint on many agents. Many have literally know no other environment, and they're finding it hard to make the necessary mental changes. I haven't been in the business ten years, either, but I do understand how the loan environment has tightened up and its effects upon my clients. Even the agents who have been in the business much longer may have no real grasp of the loan environment and often they're just checking off the box that says, "pre-qualification" on the checklist because that shows they did their due diligence. That isn't going to fly anymore. It may or may not help them when they're defending against a lawsuit, but it certainly isn't going to make their future ex-client happy about the thousands of dollars they lost, either because they couldn't qualify or because their prospective buyer couldn't.

When will we see a loosening of lending standards? I don't know but I wouldn't be surprised if it happened today (Okay, I was a little bit surprised when the email that was the first official notice from any lender came in as I was typing this paragraph! This will make it easier for properties that don't qualify FHA or VA to sell). It isn't important, because we're not going back to Make-Believe loans any time soon. Be careful before the contract, and you'll have a lot less chance of getting bitten by the obstacle of a loan that cannot be done.

Caveat Emptor

Article UPDATED here

I have just gotten an email from one of my wholesalers (who shall remain publicly unnamed) removing the "declining market" designation from San Diego loans!

This particular lender is still not willing to do 100% loans, but they will go 95% for conventional conforming and this also removes the requirement to reduce the appraised value for loan purposes.

I do not know how long it will be before everyone, or indeed, anyone else, follows suit, but this is certainly an encouraging sign, and the first official notice that we've had that we've seen bottom.

Believe it or not, I was typing an article with the words, "When will we see a loosening of lending standards? I don't know but I wouldn't be surprised if it happened today." It'll run tomorrow, providing I finish it.

I did predict this several months ago and re-emphasized it a few days ago. You never know market top or market bottom from official statistics until significantly after it has passed.

UPDATE: For those who may not understand, this means that this lender has seen evidence that the market is no longer declining. Other lenders are likely to follow suit. The practical effect is to make it easier to get loans, which means that now people with 5% down payments are now eligible for conventional financing. Since we were in an environment where 10 to 15% down payment was required (outside government guarantee), this means more people are able to be in the market, hence, there will be more people in the market. Therefore, demand increases, raising the price equilibrium point. Because of that, we can expect further rounds of loosening of lender policy to follow, now that this first step has been taken, each of which makes it cumulatively easier to qualify for loans, thereby boosting demand further in the future.

To someone not familiar with financial markets and the way lenders think, it may appear I'm building castles upon a shaky foundation, when in reality these effects are each very likely consequences of the one before it. It will take some more time before lender policy is back where it should be, but each step adds to the forward momentum. We're not going back to "fog a mirror" anytime in the next fifteen years, but I do expect to see 100% conventional financing for full doc conforming borrowers above 680 credit score within a couple years.

In the last couple of years a movement has arisen, led by certain well meaning academics, that says negotiating a loan broker's total revenue is sufficient to get consumers a better loan. As far as they go, they are even correct - it is a better alternative than you find with the vast majority of the loan providers out there, because it removes the ability to arbitrarily boost their own compensation by kickbacks, markups, and just delivering a more expensive loan. This arrangement, which I will call compensation pricing for the purposes of this article, encourages consumer to choose the loan provider who is willing to represent that they make less money than any other. Note that this is not the same thing as actually making less money than any other loan provider.

Most consumers don't understand loan accounting. In the past I have gone over loan accounting as many as three times at and after closing with a given client because they didn't understand what were and were not costs despite me having explained it at loan sign up. I've explained it in person, then again over the phone, then to the guy's accountant, who himself had difficulty understanding the accounting on the HUD-1. For instance Impounds are not a cost, and thankfully, California now has a law that lenders can't charge for not having them. Nonetheless, for those people who do want an impound account after I explain that they are not costs but do require seed money up front, they still often want to count that seed money as a cost. They're not. Impound accounts are that property owner's own money being held to pay that property owner's property tax and homeowner's insurance, bills that that property owner would have even if there was no loan at all on the property. When the loan is paid off, the money in the impound account is promptly returned to the homeowner.

Prepaid interest is another example of money that people do not understand. It is money they would owe in any case. If they choose not to write a check for the month that they refinance, that interest charge has to be paid somehow. It is possible to roll it into the loan balance in most cases, but that is NOT "skipping a payment". You will never EVER skip a monthly payment as long as you have a loan. If you choose not to write a check, you are simply adding it to your mortgage balance.

These two items (assuming the consumer does not pay them out of pocket with a check) can easily add seven or eight thousand dollars to a $400,000 balance, but they are not costs of the loan. They are money that has to be accounted for because they are active and ongoing parts of the loan environment. The new lender is usually perfectly willing to add loaning you this money to your loan balance because they will earn interest on it, but they are in the business of loaning money for interest - they're not going to loan it to you for free. Furthermore, there are immediate cash flows back in your favor in each case. Assuming you currently have an impound account, you'll be getting that money back in the form of a check within a few weeks from the former lender, roughly offsetting the money you borrowed today. Unless your loan has a prepayment penalty, take that check and use it to pay your loan down when you get it, and you'll be roughly even on the impound account money. The same applies to prepaid interest - if you don't want to write that check, but roll it into your loan balance instead, you will then have a month where you don't make a loan payment. You emerge essentially even - except for the fact that you're now owe more money, which you'll be paying paying interest on essentially forever. It's exactly the same as if you had taken "cash out" in a refinance.

But essentially everything else is a cost of the loan itself. Appraisal, title, escrow, notary, processing, underwriting, recording, etcetera. That loan provider should know what they will cost, but most consumers have no real idea. That loan provider also knows what loans are really available, but unless that consumer is a loan broker themselves, they really don't. Various sites publish weekly averages, but that's always what the rates were, not what they are, and are highly misleading in any case. The best loans available, so called "A paper" which a minimum of 75% of all borrowers should qualify for, have their rates change every day at a minimum, and sometimes several times per day, and as of a few months ago, now vary with credit score of the applicant and loan to value ratio as well. Furthermore, all of these services that I'm aware of are based upon a national average, and even for the national lenders there are variations in the rates between the states due to some states making it more expensive to do business than others.

I cannot hit too hard on this point: That loan provider should know what they can deliver, but the consumer does not, because the informational resources available to them are nowhere near real time, and not nearly so concrete as the loan provider's ongoing experience with their lenders and third party service providers.

Compensation pricing leaves the consumer assuming pricing risk on the loan. The first implication of this is that even though you have negotiated their company revenue, they can still lowball their quotes. You've mutually agreed that they're going to make $2500 for doing this loan - but they're still competing with Larry the Loan Low-baller, and they know it. The vast majority of competitive pricers offered what looks like a cheaper loan will switch, regardless of whether it really is better. The incentives for low-balling and pretending that costs they you are going to pay do not exist, but guess what? You're still going to pay them. Quoting a shorter rate lock period than necessary to deliver the loan means that they can pretend you're going to end up with a cheaper loan, but what happens if rates rise between quote and lock?

A subsidiary weakness of compensation pricing is "What does it include?" When negotiating compensation pricing, I have to include processing because sometimes I do my own when I want something handled just so, and even when I don't, I use an in-house processor. Since I'm negotiating total company revenue, I have to include that in my negotiations. Somebody who uses strictly contract processing can exclude processor cost from negotiations in compensation pricing, because that money is going to a third party they can show a receipt for. Were any direct lenders to negotiate compensation pricing, it would have to include all their lender imposed fees such as underwriting and document generation, as well as secondary loan market premium they expect to receive from the loan (a number which would vary with developments in the financial markets as the loan progresses, by the way). Brokers usually are significantly cheaper than direct lenders, but these numbers would appear to amplify that difference far more than warranted, and is a reason you'll fly to the moon by flapping your arms before direct lenders honestly negotiate their total compensation in this manner.

This leads into another weakness of compensation pricing. The FTC did some research a while back which directly highlighted this fact, that choosing the lowest loan provider compensation does not translate into the best loan. Focusing on loan provider compensation takes your eye off the ball of the best bottom line to you, the consumer. If that loan broker is going to make $2500 for your loan, no matter what, do you think the broker is motivated to aggressively price your loan with every possible lender and find you the best possible price on that loan, or are they motivated to go with the loan they can get through underwriting most easily? It really does make a huge difference, if they take the time time to understand the niches a given lender is aiming at. More than once, by shopping the right lender I've come in with quotes that would enable me to tack on two points of compensation to my company revenue and still deliver a better loan than my competition. Not to mention I was willing to assume the pricing risk, and they weren't.

Compensation pricing also assumes that the broker or lender is honest about their revenue. Given the facts in the second through fifth paragraphs of this article, that one is worth more laughs than Robin Williams and Bill Cosby combined have gotten over the course of their entire careers.

What is the alternative to the consumer retaining pricing risk? The lender (or broker) assuming it, of course. It really doesn't take much more information. The lender indicates in writing the loan type or characteristics, the interest rate, the total cost, and whether or not there is a prepayment penalty attached, then guarantees in writing that they will pay anything above that level. Note that all of this information is necessary, and four things really isn't a lot to remember. rate and cost are always a tradeoff for any given loan type, so ignoring one to concentrate upon the other makes your shopping for a loan a complete waste of time. Making certain you're talking about the loan type you want is a real good idea unless you're willing to risk getting stuck with something else, and the presence or absence of a prepayment penalty (and for how long!) can make a huge difference. Two percent on the rate is not at all unusual, so failing to nail them down as to whether there's a prepayment penalty is a real problem. Here's a list of Questions you should ask every provider you shop before you sign up for their loan.

Furthermore, focusing on guaranteed pricing means that you're focusing on what's really important to know: How much money this loan is going to cost you over time. You're zeroing in on the bottom line to you, not extraneous and distracting information about how much someone is going to make providing it. Wal-Mart makes more per item than most of their competition, but people shop there in droves. Why? Because the bottom line is better for them, the customers. If I offer to sell you the exact same television $100 cheaper than my competition, which set are you going to buy? Do you even care if I'm going to make $50 more than the other salesperson? The situation is the same with loans.

Quote guarantees are not a panacea. It can be exceedingly difficult to enforce them right when you need the loan, so I still recommend a back up loan if you are at all unsure of that loan provider's intent to deliver the loan they promise. There are limitations upon the best of quote guarantees, as loan officers are not loan underwriters and cannot write loan commitments. The loan officer cannot promise you the loan; they can promise you the rate and cost provided the underwriter approves it, and they can go over the main guidelines with you to make certain there isn't a known reason for the loan to be rejected.

But by forcing the lender to assume pricing risk, you are far more likely to end up with a better loan out of the process, because they have to tell you about the real costs and the real rate that they have reason to believe you will qualify for. If they don't, the difference comes out of their pocket, not yours, whereas in any other pricing scheme, who do you think is going to get stuck for the difference? For this reason, I'll recommend any guarantee that forces the lender to assume pricing risk over any loan quote that does not. Even if the other quote is lower, without that pricing guarantee what evidence do you have that they intend to deliver that lower quote? There is no sufficient answer to that question. If they intend to deliver, they should be willing and able to guarantee pricing.

I assume pricing risk on every loan I quote.

Caveat Emptor

Congratulations to Jane Novak of Armies of Liberation.

Let our thoughts be with her and her friend Abdulkarim al-Khaiwani for Monday (June 9th) as his sentencing is that day.

Later: it appears that the sentence is Six years hard labor.

This from the same court that finds it legal and even admirable when Yemenis murder Iraqis in Iraq. But writing about the Yemeni civilians suffering during Ali Mohsen's personal jihad in Sa'ada is punishable by six years in jail. Every journalist in Yemen is much less free now. And so is the world.

This is what censorship and repression look like. But it's still a victory of sorts, because it was looking like he was going to be sentenced to death.


Carnival of Personal Finance

Carnival of Real Estate

For at least the last thirty years, I've been hearing "affordable housing" advocates yammer about the high cost of housing, and how working families can no longer afford "decent" housing, which they apparently consider to be the three or four bedroom, two bathroom detached home. They go on and on about what is necessary to create more of this type of housing and our "moral obligation" to create more of it. In light of the current situation, I'm going to make a conscious effort to continue my occasional series on factors that influence the overall market for housing. I'm going to examine the broad macroeconomics involved, the assumptions necessary, whether it is or is not long term sustainable, and the choices we face in sustaining or curtailing it.

Today's topic is how the housing market of today came about and what sustains it. A century ago, roughly eighty five percent of the population did not live in major cities, but rather in small farming communities which more or less blanketed the nation. Suitable land for housing could be anywhere, and so it was much more readily available and much cheaper. When the criteria is "anywhere there's land I can farm," you can choose any arable parcel and build a house on it. Even if you don't live on a farm but in one of the small towns, when you can walk the length of the town in five or ten minutes, it's a lot easier to arrange housing for everyone. If one particular town becomes too crowded, the next one over became attractive. If you need a place for a few more people, one of the farmers whose land immediately surrounded the town could usually be persuaded to sell some land. The cities were dense affairs, much more like european cities than is the case today. Indeed, the few large cities we had built up before the war still retain that urban core with dense multistory housing that is characteristic of the period. The typical pattern of the day was that young women, in particular, would continue to live with their parents until marriage. Young men of marriageable age would most often live in rooming-houses or boarding houses once they became gainfully employed. Apartment dwelling was only somewhat expected for young couples just getting started and urban dwellers who might have been together for many years, yet could not afford anything better in close proximity to their profession. Urban housing was tight-packed because the land was very expensive by standards of the time, and urban transportation was communal to a far greater extent than today. It is much more common today for even people in Manhattan to own and drive cars than it was before World War II. The use of steel as a building material was a big deal for those urban centers because it meant that it was possible for them to build further up. San Diego is very much a post war city, but even we still have areas that were built in those times - packed in tightly, cheek by jowl, extremely dense living. Once upon a time, before reliance upon military work and bad policy ruined it, San Diego was a major west coast port and the base for the largest fishing fleet in the world - two of my aunts married tuna fishermen. Even further out, in what were before WWII the "newly urban" areas of North Park and National City, the housing very much resembled classic "company town" housing - 600 and 800 square foot one and two bedroom cottages sitting on 3500 square foot lots. These were the era's predecessor to the exurban bedroom community of today, usually owned by members of the skilled trades or young professionals. The core suburbs today such as La Mesa were still economically speaking, farming communities. Even Mission Valley was mostly farms until the early sixties. During this time frame, only the comparatively wealthy lived in larger houses within city limits. If you go to Mission Hills above Old Town, or Grant or Banker's Hill (and here and there in other neighborhoods) you can still see a very few of the large houses for the Well-to-do of that era.

Indeed, the three bedroom, two bath detached house in an urban setting for the working class is almost entirely a creation of the post World War II mood in this country. For several years, very little housing had been built, and now these men who had gone off to war and saved the world as seventeen and eighteen year olds who had traditionally remained with their parents or moved on to boarding houses until they got married were now returning as twenty-two and twenty-three year olds who were traditionally married and starting families by that point in their lives. The women to marry them wasn't a problem; the housing to put the new families in was. These folks had several years of savings (war bonds, the wartime sacrifices, etcetera), and the traditional apartments were considered a poor and at best temporary inconvenience until that new modern post-War marvel - tract housing - could be built in sufficient numbers. And if such housing was horribly inefficient in terms of land, utilities, and transportation, nonetheless we were the wealthiest nation in the history of the world, and accommodating their desires for such was the least the nation could do for our valiant warriors. Furthermore, with the aforementioned savings they had accumulated during the war, the young men and their new wives could afford to pay for this new housing. If you're wondering about "It's a Wonderful Life," keep in mind that most of that 1946 movie takes place well before the war, and even by the time of its release, the country hadn't yet shifted very far from the way things were done pre-War.

The land was available and largely vacant then, and certainly could not and can not be covered effieciently by public transportation, but the newly affluent families (through savings during the war and better jobs after) could afford far more automobiles as well. For the first time, women were staying in the work force in significant numbers until motherhood. There was plenty of land available. As a young child in the early sixties, I can still remember when there was space between all of the suburbs, even when we drove to Los Angeles to visit family members or Disneyland. I-5 was brand new thanks to President Eisenhower, and from the point we got out of the Pacific Beach, there weren't any towns visible from the road, just widely separated houses, until we passed Oceanside and Camp Pendleton, at which point there wasn't anything more until San Clemente and San Juan Capistrano, then another good long way past that before there was anything more again. It wasn't until just before Disneyland that we saw more city. The I-5/405 split in the middle of present day Irvine was out in the middle of nowhere back then. My parents almost bought a 320 farm just east of the Del Mar fairgrounds the year I was born. One of my best friend's parents had considered a farm in Mission Valley, despite the fact my friend's father was in the navy. If you clicked on the images, you know none of these are empty land any longer.

Why not? Suburban housing and to a lesser extent, support services have eaten it up. The only open area between the Mexican border and the Tejon Pass is the stuff that's been held aside for other reasons, such as Camp Pendleton, which the Marines badly need. Los Angeles with 3.8 million people has an area of almost 470 square miles, while by comparison cities of similar population elsewhere such as Ahmedabad in India, Alexandria in Egypt are a fraction the physical size. If we're going to keep doing the same thing, we're going to run out of places to put everybody. In fact, in Southern California we have essentially done so. New development is taking place in Hesperia and Victorville, or out past Banning, or out in Hemet or eastern Murrieta, all of which are an hour and a half minimum trip time from the center of the urban areas they service, even if you're driving it at an hour when there's no traffic.

This also creates a lot of logistical problems. Most inhabitants of the cities concerned would have no trouble naming the most salient problem, which is transportation. When you have that many people that spread out, and you need to move them all significant distances at pretty much the same time, it takes a massive amount of transportation infrastructure to do so. US 395, the predecessor to I-15, was one lane each direction from Escondido until just a few miles south of present day I-10. But it isn't just transportation. Utilities are a much larger headache to supply than sixty years ago as well, and the logistics of keeping that many people supplied with groceries and gas and everything else make the transportation and utilities problems seem easy.

Finally, there are legal and political barriers to continuing to build housing in this manner. Environmental concerns are the most obvious of these, but building codes, zoning, and other concerns form significant obstacles to its continuation, as does the consumption of land. Once upon a time Southern California was some of the most productive farm land there was. My wife's uncle was a well-off citrus grower until the developers bought his land for millions of dollars. I can remember (barely) large tracts of citrus in El Cajon and Lemon Grove and Escondido. The only reason the hillsides north of Escondido are still relatively uninhabited avocado farms is because they're steep enough to render development difficult. The same applies to all of the other agricultural land remaining.

All that aside, I would like for housing prices to be affordable, and for everyone who's going to grow up in this country for the next century to be able to afford the type of housing they want, where they want. Absent some major changes in public policy and employment practices, it's not going to happen. The land no longer exists, we can't afford ongoing losses in arable land (look up how few countries in the world are net exporters of food), the transportation networks are saturated, environmental regulations are restricting development as are legal hurdles such as necessary permits (which add roughly $20,000 per unit to the cost of new housing, but over $100,000 to the price due to constricted supply), and lets not forget legal challenges from NIMBYs, BANANAs and environmentalists who already have their 3 bedroom 2 bathroom suburban home, and whose property values just happen to increase in a manner directly dependent upon how far they can constrict the supply of new housing. In short, the current situation does not appear to be sustainable absent major societal changes.

Caveat Emptor

Article UPDATED here

Obama throws another associate under the bus: This isn't the Tony Rezko I knew

Rev. Wright, William Ayers, his grandmother, now Tony Rezko. The gang is all there, under the bus. As Powerline notes, he's used that phrase before.

Is there anyone whom he won't use that phrase on eventually, and can we risk a president who is this naive?

By the way, I searched for that quote on both AP and Reuters, without results. Long time close personal, political and financial associate of major politician found guilty on 16 felonies, and they don't report the politician's reaction?

Ed Morrissey has much more.


Senate committee highlights "untrue" statements later proved correct


Barry Campbell of enrevanche wins the award shares the best reaction to Vladimir Putin making comedy at the expense of his regime illegal.

So if you want to hear some good Putin jokes, hang out in Russian courts. Of course, if any Russian readers I might have want to email them here, I'll do my best to delete anything that might possibly be traced back to you. But use English, written in the Latin alphabet. Cyrillic alphabet text goes straight to the spam filter.

The same goes for China, Zimbabwe, Syria, Iran, and any other paranoid repressive totalitarian government that believes in this sort of nonsense. Or for that matter, organizations such as Hezbollah and Hamas. Not that I could hope to beclown them any worse than they've already beclowned themselves.

Speaking of Zimbabwe, I was wondering when Mugabe would do this Police stop Zimbabwe opposition leader from campaigning, ban his party's rallies. Must be slowing down with age.


One senator is willing to put blame for gas prices where it belongs

Maybe it's because he has nothing to lose, but now that one of them has given a speech to that effect, maybe others will be willing to act.


Lobbyists not funding "my party"? Not quite

Gotta admire Obama in a way. It's not everyone who can spin faster than a turbine and still get good press for it. Only other person I know in that class was our 42nd president.


A publicity stunt, yes. But a good publicity stunt: Winfield's brainchild thrills Negro Leaguers (sorry about the Yahoo link)

Drafting the remaining Negro League players is an apology to them, that their careers ended before the Civil Rights era, and an acknowledgment that these men should have been major leaguers. It may be sixty years or so too late, but it says "We made a mistake" in no uncertain terms.


I'm only surprised they said it: Israel to attack Iran unless enrichment stops: minister

"If Iran continues with its program for developing nuclear weapons, we will attack it. The sanctions are ineffective," Transport Minister Shaul Mofaz told the mass-circulation Yedioth Ahronoth newspaper.

Necessary though it may be, I kind of wonder if Iran is trying to get thrown into that briar patch. Why? Because of what happens next. Israel attacks, world - especially arab world - lines up with Iran.


Sanity from the Christian Science Monitor: Call the bluff on campaign fluff, talking about the economics of campaign speeches from an economics professor.


Figures don't lie, but liars do figure department: The New Direction: Unemployment jumps to 5.5%

The key paragraph from the AP Article:

The government said the number of unemployed people grew by 861,000 in May -- rising to 8.5 million. The over-the-month jump in unemployment reflected more workers losing their jobs as well as an increase in those coming into the job market -- especially younger people -- to look for work, the Bureau of Labor Statistics said.

In other words, businesses aren't hiring summer employees like they normally would, and that's far and away the largest part of the increase.


A well deserved tribute to Vaclav Havel.


Why energy independence won't happen any time soon


Argghhh! on responsibility and the cost of D-Day.

64 years ago today. It wasn't our first battle of the war, but the European Campaign was what decided it.

My father was too young, but his brothers (my uncles) weren't, as did my grandfathers. Too many of them didn't live through it, and the ones that did are leaving us now, hundreds per day. The only WWII veteran left in my family (or my wife's) is in his eighties. They saved the world, and came home and lived their lives as productive citizens, and never asked for any special considerations. To their way of thinking, it was their world, too. This sort of thinking has become considerably less common, to our great detriment. They should not leave us unthanked and unremarked.

My advice to sellers is very simple: Hold off if you can. Things have already improved, but better times are coming once more inventory clears. The prognosis for this is very good. I'm seeing fewer short sales, at least in my area, which means that there are fewer people who need to sell.

For buyers, it's not going to get any better than this. Stop worrying about whether the market has hit absolute bottom. Trying to time the market is worse than useless, and as I said in When You Should Not Buy Real Estate, the math works against buying for less than about three years duration. Look at the likely situation at least three years out in determining whether it's a good time to buy a place to live (if you can't last three years, stay a renter). That likely situation for property owners three years from now by comparison with now is so much better that I'm worried about diabetes every time I consider it. The local economy is doing well - enough people can afford higher prices than current to make this a strictly temporary depression in real estate prices. Growth policy is getting more restrictive all the time, and it's not like there's a whole lot of places left to build anyway. Increasing the density of existing housing doesn't seem likely in the short term, and the one municipal government that had a little bit of sanity on the manner has changed its tune for the worse. Against all these constraints on supply, demand keeps growing. The only thing working against price recovery longer term is the interest rate outlook, and I don't think those are going above the mid sevens, if that high - which would make a difference of about 10% to prices by equivalent payments - and the other factors more than compensate. Increased demand and economic ability to pay each account for more than that. Don't forget the effects of high gas prices, either, raising the value of the older suburbs that are closer in relative to that of the exurbs.

This buyer's market is not going to last three more years. I can't tell you exactly when it's going to become a seller's market again, but it isn't going to be three years. The ratio of sellers to buyers has dropped twenty percent in the last year, from 32.6 to 26.7, and absolute inventory is starting to drop - it's off over 2000 units in the last three months, when you'd expect more new inventory to be coming onto the market given the time of year.

Furthermore, those ratios are misleading because a large proportion of property for sale is still overpriced in terms of asking price when you judge by the prices things actually sell for. In my primary area, it appears that about sixty percent of what's on the market is overpriced given actual sales in the neighborhood. Some of these are Short sales where the lender just isn't going to deal due to mortgage insurance, and buyers would be wasting their time to make an offer. Others are represented by agents "buying" a listing, although that's pretty much a constant of any market. When you get down to sellers willing to allow their agent to market the property correctly and talk a reasonable price, the ratio is probably about ten sellers per buyer. Given that, Sellers don't have to compete nearly so strongly as they did even a few months ago.

Indeed, right now there is a severe constraint upon buyers that's likely to get loosened a bit in the near future: Available loans. The loan market always controls the real estate market. With San Diego designated a declining market by every lender I'm aware of, the buyers with small down payments have been locked out of the market. Currently, the only way to get high loan to value ratio loans is loans with a federal government guarantee attached: either FHA (decent) or VA (better). For conventional loans, the appraisal is automatically reduced 5% and the lenders are capping out at 90 to 95% of the lower of cost or market, which is to say, the lower of purchase price or appraisal. But Fannie Mae and Freddie Mac are still willing to buy 100% loans, at least up to the conforming limit (currently $417,000). It's just that the lenders they're buying the loans from who aren't. I'm not having issues with appraised value constraining the loan, but folks with less careful buyer's agents are, and they're needing a minimum 10 percent, and maybe 15% down payment just to get financing at all. But that "declining market" label came to us relatively recently, long after values had registered the lion's share of the drop we've had. It's going to warrant removal sometime in the not too distant future. Indeed, it seems to me that the numbers probably are there to support removal, but it's going to be a while longer before this fact is apparent, thanks to the boards of realtors who manipulated statistics to make the drop in property values appear as small as possible for as long as possible.

So what happens when the restrictions are loosened a little bit? Instead of ten to fifteen percent down payment, people need just 5% - and maybe none. Right now, people with 5% down payment just aren't a factor in the market for the most part. What happens to the seller to buyer ratio when they are? It drops. What happens when it does? Even more of the power swings from buyers to sellers. What happens to prices then? They shift upwards.

As a special note: The prices of Condos and Townhomes and even PUDs has been hit particularly hard - much harder than that of detached housing. I'm seeing nearly 200 current listings just in La Mesa, El Cajon, Santee, and Lemon Grove where the asking price is less than $150,000, and fifty have already sold. With an FHA loan, you can buy into those for 3% down, or roughly $5000. Payment on $150,000 at 6.5% (including FHA insurance) works out to $948. Add $200 HOA dues and $150 per month in taxes, and in many cases you're coming out about even on the rent - and that's without a significant down payment. Furthermore, less than $3000 per month of income can qualify you, when it might have taken twice that a few years ago and it still takes $5000 per month income for even the cheapest "fixer" detached home. With the Era of Make Believe Loans departed for now, Condos and Townhomes and maybe PUDs are going to be what first time buyers can afford in the future, and the price of gas is going to constrain people as to where they live. I expect those prices to recover more value, more quickly, than detached housing. These might not be what people want, but they are what people are going to be able to afford. Once prices start upwards again (and they will, soon), many people who won't consider them now will stop being in denial about economic reality. The choice for most folks is going to be "buy a condo or rent forever". Expect the demand and the prices to go up significantly.

Caveat Emptor

Carnival of Real Estate (Thank you for choosing me!)

Cavalcade of Risk


I usually vote in the morning, but I forgot until after I was already at the office. When I voted as I got home, the precinct workers told me I was only about the twentieth voter they'd seen all day.

For all of those who gave me portions of your vote, thank you. I figure my wife and I each ended up with about three votes worth of influence.

On the other hand, it doesn't seem to have helped enough. Prop 99 passed (I voted against, as this was a Trojan Horse to keep real eminent domain reform away. Those who stand to benefit from keeping the status quo spent millions vilifying 98 while offering this reform in name only in its stead) and Prop 98 didn't (I voted for it for many reasons). About 3.3 million statewide voted.

On the local front, A, B, and C all passed. I liked B, but A was purely for the benefit of public employee unions and C basically added to the bureaucracy for no good purpose. Total of about 150,000 voted - in a city with between seven and eight times that many people.

It's not for nothing that elections without a major office on top of the ticket are elections where out of the mainstream activists have the best chance of succeeding at the ballot box, and they know this.


It's not news, it's Scrappleface

The senate has evidently found a not-so-new replacement for petroleum.


How much will the candidates cost you in taxes?

FYI, $60 billion is roughly $200 for each and every resident of the United States. $300 billion is roughly $1000 per head. This includes children and those who are nonproductive, either due to retirement or disability. When you consider that there are only roughly 117 million taxpayers according to Wikipedia, that raises the bill to roughly $500 per taxpayer per year for John McCain's policies, $2500 per taxpayer per year for Barack Obama's. You might want to consider the cost when presidential aspirants are talking about new government programs.

June 4th, 2008

The guidelines for this carnival.

As always, I arranged the entries that met guidelines into three levels, based upon originality, usefulness to the consumer, and how much thought and effort and research went into an entry.


There were no strongly recommended submissions this time.


Asheville Mountain Real Estate submits Four Essentials From the Eighth Grade for Buyers & Sellers. I disagree with point four, because the dollars for your loan are numerically constant and not subject to inflation. In other words, the table is factoring out something that should be left in. But it's a solid basic article otherwise.

How To Analyze Real Estate - The Real Estate Stack is a good, if basic, measurement of a property's likely cash flow. If net cash flow is positive, it's very hard to go wrong - it's really more a question of "How long until things go right?" On the other hand, many properties with negative cash flow are nonetheless excellent investments.

Your host presents Why Cost Is As Important As Rate For Mortgage Loans


Restoring Your Finances and Your Faith presents Baby Steps to Buying Real Estate

I'm going to give this one the benefit of the doubt, as it really seems aimed more at agents and professional photographers, but sellers could benefit from it: When Your Wife Stabs You With a Fork You Learn to Pay Attention.

Is it Better to Rent or Buy? That is The Question considers only one variable in determining the recommendation. Regulatory situation? New Housing Supply? Demand trends? Macroeconomic support levels? What's likely to happen with rents in the future? Interest rates? Paying attention only to rent ratio is a good way to get yourself into serious trouble. But it does meet guidelines.


"Building a Strong Financial Foundation" actually managed to mention real estate in passing. On the other hand, elementary mistakes and misunderstandings of financial planning principles indicate that the author of this piece is operating by luck. Not everyone has good luck.

"Are You Really Buying Domestic Goods?" Did not so much as mention real estate, or any problem solving whatsoever. Four paragraphs expanding upon one stupid question which is irrelevant to this carnival. Kind of like the idiots that keep asking "Why?" no matter how good the answer. At a certain point, it becomes justifiable homicide.

American Consumer News has decided to act like all the other spam bots on the internet. Despite the fact I've blacklisted their email, they start sending more irrelevant (and wrong) claptrap from other email addresses. Nice of them to label themselves as purveyors of spam.

To prove you can't keep a bad idea down, the also banned and blacklisted KC Lau also sent an article about from another email address. If he read the guidelines or the carnival, he'd stop the submission spam. Once again his submission was irrelevant to this carnival, once again it was bad information, and once again his email was added to carnival blacklist.

"The Quest for Making Money Online" has nothing to do with real estate whatsoever. They claim it's not easy to make money online, and if you're finding it difficult to read carnival guidelines, I have to agree. By the way, the information contained in the post was a waste of time to read.

For those who might object to the treatment their submission received, the relevant information has been in the guidelines since before submissions were being accepted for this carnival. Having been told to read the guidelines, you willingly submitted these posts. Live with it.

Consumer Focused Carnival of Real Estate will return in two weeks (June 18th, 2008), here at Searchlight Crusade, unless someone else wants to host. Deadline for submissions will be June 16th.

First off, neither the California Mortgage Loan Disclosure Statement nor the Federal Good Faith Estimate are promises, commitments, or anything more than your loan provider wants them to be. Quite often, they're nothing more than a fictional story told to get you to sign up for their loan. It's amazing and disgusting how much it's legal for lenders to lowball their quotes.

That said, there are three explanations as to why your rate is higher. They're not mutually exclusive by any means, but it has to be at least one of the three.

The one that reflects on you is that you somehow misrepresented your situation when you were getting that loan quote. In that case, you are no one's victim except your own. It is pointless to lie to a loan officer, and if you don't know the answer, you should say "I don't know" instead of making one up. This does happen, but it's probably the rarest of the three answers, and you should know if you did it. If you didn't do this, what's left is one or both of two common loan officer sins.

The less abusive of these is that the loan officer failed to lock the loan. This is either rank stupidity or frustrated avarice. Shorter rate locks are cheaper, and there's always the hope that rates will go down, so they can make more money on the same loan they quoted you. Of course, rates can go up, also, and they do so about fifty percent of the time. When that happens, they can either make less money, often to the point where delivering the original loan would cost them thousands of dollars, or they can deliver a loan with a higher rate. Since we're living in the real world here, which of these alternatives do you think is going to happen?

The more abusive alternative is that you were deliberately lowballed. There is always a tradeoff between rate and cost for real estate loans, and the person who gave you that quote told you about a loan that didn't exist. Either it always carried a rate much higher than you were told, or the loan officer ignored potentially many thousands of dollars it was going to cost all along. I see this happening literally every time I check a loan quote forum. I do business with eighty lenders, among which are the lenders who are most keen to compete based upon price. I know what's deliverable and what is not, every other loan officer I respect knows what is and is not deliverable, and I can't imagine anyone in their right mind wanting to do business with anyone who doesn't know whether what they quote is deliverable. It's not exactly confidence inspiring to be told essentially, "I can get you this loan, but I don't know if it really exists." I'm sure you'd line up for that loan like it was free beer, right?

Not really. But loan officers do this because none of the paperwork you get at the beginning of the loan process is in any way binding. Not for price, not for a loan at all. In fact, the only form that's required to give an accurate accounting of the costs is the HUD 1, which you don't get even in preliminary form until you are signing final loan documents. Loan officers do this because once you have signed up for their loan, you are likely to sign the final loan documents no matter how bad they are. Why is that? Because thirty days or so have gone by, you've got a deposit at risk that you're going to lose if you don't sign, and you're not going to get that house that you wanted badly enough to put yourself in debt for thirty years. I assure you that loan officers know that they will have you over a barrel when you go to sign final documents. Many of them are counting upon that from the day you sign up, and they'll tell you anything at loan sign up in order to get you to choose their loan, because it's not like any of this is binding on them.

Let me get one other thing out of the way to clear the air: You didn't get a higher rate because you somehow didn't qualify for the lower rate. The way people qualify for loans is based upon debt to income ratio and loan to value ratio, and of those two ratios, debt to income ratio is much more important. The lower the debt to income ratio, the more qualified you are. Debt to income ratio is a measure of the ratio of how your housing and expenses compare to your overall income. Lower interest rate means lower payments. Lower payments mean lower debt to income ratio, and hence, you become better qualified the lower the interest rate that is available. Counter-intuitive though it may be, it's easier to qualify you for a lower interest rate than a higher one. Any loan officer who offers you an excuse that you didn't qualify for the lower rate has just flat out told you that they are a liar.

What really happens is that while this loan officer was spinning you a tale of how great the rate you were supposedly going to get was (a loan officer's version of, "Yes I'll respect you in the morning"), in amongst all that creative storytelling, they neglected to account for the money you really are going to be paying, or even the money they admitted you were going to be paying.

However, we're dealing in the real world here. That money still needs to be paid.

There are three ways to pay it: Borrower cash, rolling it into your mortgage balance, or by giving you a higher rate. They have to tell you if they want more cash, and you may not have it. There's only so much equity in the property, particularly on a purchase where there is no playing valuation games via a compliant appraiser. But since there is always a tradeoff between rate and costs, they can always create some more cash by sticking you with a higher rate, resulting in more cash available to pay for the things you were going to be paying from the very first. Often it means they'll make more money as well, for providing this "service", because "you were such a hard loan." Sticking you with a higher rate is often the only way they can pay for all the things that need to get paid. Yes, this means that you end up paying more for the low-ball deceiver's loan than for a loan where you were quoted something honest.

All of this is nothing more than practical effects of the common phenomenon of lenders low-balling their quotes to get you to sign up with them, knowing that when the time comes to actually deliver that loan, they will have all of the power and you will have none, which is a 180 degree reversal from the situation at sign up. They have this loan that you need right now, where anyone else will take time you probably don't have. If rates have gone up (once again, this happens about fifty percent of the time), even the lowest cost, most ethical provider in the world might not be able to deliver what this scumbag is offering you by signing his loan right now. If he's got the originals of your documents, you can't take your loan elsewhere. Finally, most people are tired of the whole loan thing by the time it comes to sign documents. Many folks won't examine the final documents carefully - figures I've seen say that over fifty percent of all borrowers literally never figure out that they were hosed by their lender, and on the ones who do figure it out, about eighty five percent will sign anyway because signing means they're done.

The games that lenders play are legion. They can lure you in with talk of low rate that exists, but costs you more than you'll ever recover. Whether they deliver that rate and soak you on the cost end, or switch it off for a higher one to pay the costs and make more money, is up to them. I see lenders quoting full documentation conforming loans for people who are known to be stated income, temporary conforming ("Jumbo conforming") or even non-conforming loans. Even for people who are full documentation and would have qualified if that loan existed at the costs they told you about, this need to raise the rate can move you to over to being a stated income loan because you no longer qualify full documentation at the higher rate. With stated income loans under the constraints they've encountered in the last few months, this not only means higher rates, but quite often means that no loan can be done, something completely alien to the thinking of many agents and loan officers who became accustomed to the Era of Make Believe Loans, and they haven't yet gotten their heads out of that mindset.

How can you avoid this? Ask all these questions of every loan provider, know what the red flags are if you encounter them, and take steps to protect yourself from being lowballed. A written loan quote guarantee is good, but can be hard to enforce immediately. Better yet is to apply for a back-up loan, so you have two loans ready to go. This is leverage to force one or the other of them to actually deliver something better than they are trying to.

You don't need to get victimized by any of the things that go on in the world of mortgage loans. But you have to understand that they do happen, and you have to take specific steps to prevent it from happening to you. Otherwise, you're just trusting to luck, and judging by what people have brought me from other providers, you'd need less luck to win the lottery so you can pay cash for the property.

Caveat Emptor

Article UPDATED here

Carnival of Personal Finance


Twenty years too late: Obama quits Chicago church after long controversy

"I'm not denouncing the church and I'm not interested in people who want me to denounce the church," he said, adding that the new pastor at Trinity and "the church have been suffering from the attention my campaign has focused on them."

Obama said he and his wife have been discussing the issue since Wright's appearance at the National Press Club in Washington last month, which reignited the furor over remarks Wright had made in various sermons at the church.

Translation: he didn't mind Rev. Wright's racist, hate-soaked sermons, or those of his replacement pastor. If he objected to those personally, he would have confronted Rev. Wright or left the church a long time ago instead of calling Rev. Wright his spiritual mentor and asking Rev. Wright to perform his wedding ceremony and defending him as late as two months ago against all comers. What he objects to is the fact that a much broader audience has now heard Rev. Wright preaching the same gospel of hate he's been preaching all along. The political fallout from that is costing Obama votes. More votes than the votes he's gotten from being a member of this racist church for the last twenty years.

Let's hypothesize what would happen if John McCain was in an anologous situation. Let's say he was a member of a church with a preacher who was a member of the KKK. Regardless of whether that preacher ever said the things from the pulpit that Rev. Wright was saying for at least the last twenty years, would you give him the benefit of the doubt? Obama knew a very long time ago the nature of the racists he was associating with. The only reason he's leaving now is that he's unwilling to handle the political heat it generates.

He didn't leave years ago when it would have meant something about integrity and what he really stands for. He's not staying now, as a statement of loyalty to people he believes accomplish more good than harm. He came and he stayed because he agreed and because it made him political hay. Now he's leaving because this association which made him important has become a hindrance. For all the soaring rhetoric of
Hope" and "Change," he's sure acting like he's more of the very worst of what he's preaching against.

On the other hand, FWIW, I believe rumors of a tape showing Michelle Obama ranting against "Whitey" to be just that: rumors. I'm pretty certain that if multiple news organizations had such a tape, and especially if Republicans or the Clinton campaign had such a tape, it would be out where everyone can see it. Okay, maybe not if Republicans had it. Their motivation would be to wait until Senator Obama had the formal nomination. But if the Clintons had such a tape, they'd use it immediately. Maybe if one news organization that's favoring Obama had it, they might make it disappear - if they were certain it was the only copy. Leave the possibility of multiple copies out there, and self preservation kicks in. Bottom line: Bismarck's famous quote about three people can keep a secret if two of them are dead. If such a tape existed, the odds are that it would be in all of our faces by now. Therefore, I don't believe it exists. This viewpoint is subject to revision if facts discovered in the future indicate my belief to be in error.


Are conservatives more honest?

I think it's more complicated than that, but it's food for thought.


John McCain demonstrates his knowledge of the situation


Scott McClellan's lies

As I wrote a few days ago, the buyer's deposit is always at risk. This is just a fact of real estate transactions. I could pretend it's not so, but that wouldn't keep the deposit from being at risk - it would just make me a liar. Nonetheless, because it's cash that the buyer had to forego spending that money in order to painstakingly set it aside a few dollars at a time, they understand that the deposit is real money in no uncertain terms, where most don't have that same understanding about a loan that's probably fifty times bigger and just as real. It may be comparatively rare that the buyer's deposit is actually forfeit (As of yet, I haven't lost one), but by recognizing this fact and planning for it, I can protect a client's deposit far more effectively than anyone who pretends otherwise.

The first rule is to be careful writing the offer. I want to make certain that all offers (and counteroffers) consist of something my client qualifies for and that I can make happen. This is one of the best reasons why real estate agents want to know enough that they could do loans, even if they don't. If I wasn't a loan officer, I'd consult a loan officer before writing an offer. Review client qualifications and necessary loan guidelines before the offer is written. If the issues of whether the client can qualify and what needs to happen so they do qualify have already been solved, you start the transaction with the largest part of the road to successful completion already paved.

Related to this is the issue of a client getting cold feet, which is one of the most common ways to lose a deposit. The best way to solve this is by showing them enough properties that they really understand the value offered by this one. Some agents believe in pressure sales and glossing over problems with the property. I believe in meeting these issues head on. The first thing I tell folks at our first meeting is that there is no such thing as a perfect property. They need to decide what they're willing to live with and what they aren't, and how much they're willing to pay for not doing so. It's my job to make certain they understand what the issues are with a given property, and that they'd be happy paying the necessary price to live there. All of an agent's nightmare scenarios start with talking someone into buying a property they don't like, so I'm not going there ever. This also solves the "cold feet" before we make an offer, where someone who doesn't understand these issues is going to be in danger of cold feet at every bump in the road.

The main issue with all of the buyer contingencies is time. You have a certain number of days to deal with those contingencies. When I get them done well before the time limit, the time limit isn't a problem.

For the loan contingency, I want an automated underwriting decision ASAP. Usually, there are reasons not to do this before we've got that fully executed purchase contract, but once we have that contract, there's no reason whatsoever not to do it that day.

I also want to order inspection and appraisal immediately, to meet those contingencies. I've got seventeen days for those. If I've got the appraiser and inspector out there the next day, I should have their report within two to three business days after that. Any subsequent negotiations needed due to those reports, I can start on right away. If the seller isn't going to be reasonable (or reasonable enough), we can find out about it right away and if the buyer decides to walk away based upon these reports or subsequent negotiations, we're in a much better position to argue that they should retain the deposit than if it were twenty-five days into the transaction and now the deposit is in jeopardy regardless of whether the contingencies have been released in writing or not. All parties agreed the contingencies ran for seventeen days in the purchase contract, and if that period is up, there's an argument to be made that the deposit is forfeit. I'm not a lawyer, so I don't know if it's a good, valid, legal argument, but if the whole issue is moot because we're done on day ten, the argument never gets started.

While this is all going on, I'm getting any final loan stuff together. This includes Preliminary Title Report and Escrow information. That complete loan package should be submitted before I go home on the day I get the appraisal. If it's not done by then, something major is wrong. I can submit loan packages with the appraisal "to follow", but it's better to submit them complete in the first place, even if it does mean I've got to pay for color copies. Every time an underwriter touches a file, they can add conditions. Those conditions can effectively make a loan impossible, and far more loans are approved with impossible conditions than flatly rejected. Also, submitting a loan with minimal information is itself one of the best ways to raise red flags in an underwriter's mind, or would be if raising red flags in the underwriter's mind was a good thing. It isn't. Once red flags get raised, expect them to throw as many roadblocks at you as they can. Better to submit a clean, complete loan package as soon as possible. Doing the extra work right off the bat really does save you a lot of future work.

Even when refinances are running several weeks, purchases are usually no more than two days for underwriting. If you submitted a clean complete file, any prior to documents conditions you do get will minimal and trivial, and the funding conditions should be just the absolutely standard cookie cutter stuff. I don't like getting anything other than the routine funding conditions that happen on every transaction, because it means I have to get those conditions and wait a couple of days for the underwriter to get back to the file. This waste of time is my fault if it happens, but with the best will in the world, it will happen to you a pretty significant percentage of the time. It's not a disgrace, it's just something to avoid if you can get ahead of how underwriters think. You can always mark time if you have to, but you can't get it back once it's gone.

I believe in giving the seller and their agent a reasonable amount of time to hang themselves, but once the loan is submitted, I'm going to be asking about their responsibilities if I haven't gotten evidence they're done yet. Allowing them to hang themselves doesn't mean letting them hang my client. I want to see that termite inspection in particular before the end of seventeen days. The standard contract has the buyer responsible for section 2 work. It's never happened to me, but it's very possible that there's enough section 2 work needed to call the transaction into question. After seventeen days, this becomes more difficult for the buyer.

As soon as possible, I order the closing documents and get them signed. Even if you're not ready and able to close the transaction as a whole, this is a good idea. Something that's already done correctly isn't going to be an issue if my client gets called away on business - particularly out of the country as does happen. Notary work becomes a real issue outside the United States - it must be done at a US Consulate or Embassy. There is no exception for "Buyer had to leave the country" (or even just "go out of town") written into the time frames and contingencies on that purchase contract. I suppose you could ask for one, but it will make most sellers more than a little nervous, for tolerably obvious reasons. Better to know and plan in advance, but life happens. Better not to be bit if it does.

If I can get all the ducks in a row before the contingency period expires, not only does this preserve my buyers rights and give us an advantage in subsequent negotiations, but preserves as much as possible of my client's options to exit the transaction while preserving their right to recover the deposit. If I can close the entire transaction before the end of the contingency period, that makes me very very happy, and not just because I get paid sooner. It means that the issue of my client losing the deposit for walking away never comes up..

By finishing everything before the end of the contingency period, I've also preserved as much as possible of the right of specific performance in case the seller gets cold feet. It happens. Not so much right now, but a few years ago in the crazy seller's market, it happened because sellers thought they could get a higher price. If my buyer client is happy with the state of the contract as it sits, their lawyer can quite likely argue specific performance of the contract, and maybe recover legal costs too. Not my place to say whether or not, as I'm not a lawyer. I only know that lawyers seem to be much happier with agents that keep this information in mind.

If I can't close it before the end of contingency period (and I recently had signed loan documents sitting at escrow for two weeks while we waiting for the sellers to finish termite work), I still want to get together with my clients before the contingency period expires, put the evidence in front of them, and have them make a choice to continue or abort the transaction. Just because the contingencies haven't been released in writing is no reason that a seller's lawyer can't argue that they were released anyway. Much better if the argument never comes up because it's a moot point.

There is nothing I can do that generates an ironclad, foolproof guarantee that my client won't lose their deposit. But doing things the right way, quickly, can certainly make it a lot less likely than pretending that tje deposit isn't at risk. Lawyers and judges are the only ones who can answer the question of whether it has been forfeited, but it the issue is resolved without them getting involved, everybody is going to be happier. Neither party should have signed the purchase offer if they didn't want the transaction to happen on those terms set forth in the contract. Therefore, making it happen quickly, reliably, cleanly, and before the deadlines have passed is the best way to prevent making anyone unhappy.

Caveat Emptor

Article UPDATED here

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