September 2008 Archives

September 30th, 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.

STRONGLY RECOMMENDED

We Have an Editor's Choice!

Tallahassee Real Estate Blog: Bailing Out The Banks? Actually Bailing Out America! talks about what is going on, and what will happen if we do not pass a bailout plan. Repulsive as the idea of bailing out Wall Street is, if we do not do so, it's going to hurt Main Street to the tune of a lot more than the $300 billion (roughly 2.5% of GDP) they're now talking about. The country runs on credit, and right now, it is drying up, and not just mortgage credit, but commercial credit and even corporate credit (Caterpillar has some AA rated bonds they're trying to issue - the second highest possible rating, and they're paying prime plus four percent, when I'd expect something less than one. If they can't sell those bonds, they're going to have to contract, which means people will lose jobs, etcetera)

Gregg Swan submits Introduction to "A consumer's guide to the divorced real estate commission" -- the eBook. I disagree with Gregg as to the cure, but the problem does exist because people think they are getting something for "free". His entry is well thought out, and well argued. I was going to give this the Editor's Choice Award until the last minute submission above. Read It.

Your host submits The Return of Portfolio Lending

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RECOMMENDED

Short Sale Blogger sends us Government Intervention to Cause Short Sale Boom. I disagree because if the government passes the bail out package like he stipulates, lenders will be in line for a government payout on bad loans, and therefore less likely to accept short sales. But read his reasoning.

Bigger Pockets: Gambling at the Foreclosure Auction: High Stakes. The man who inspired the story wasted $67,000. If you're going to play the foreclosure game, you have to get it right, and be careful, and have somebody who knows what they are doing.

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MET GUIDELINES

Uncommon Advice suffers a mandatory one category penalty for commercial solicitation. He submits Increase the Chances of your Property Selling by 100%. It's geared towards the UK, not the US, but the first two pieces of advice are good anywhere that there is a market. The third suggestion is 180 degrees wrong in the US, but in the UK it might make sense.

Home For Sale: $1. The catch is that it is in Detroit.

College Student Bought Home Instead of Renting. Unfortunately, this kind of financing won't work many places besides Detroit.

I almost rejected Shopping for a Real Estate Agent because you should not sign any kind of exclusive buyer's representation. The only exception is is an agent is spending serious money on your behalf. A Non-exclusive Buyer's Agency Agreement gives the agent everything they really need - while reserving unto the prospective buyer the right to fire them or start working with other agents if they don't get the job done, or if they don't have the interests of the consumer foremost in their mind. I get hits every day for "breaking exclusive buyer agreement" But other than that one nearly unforgivable mistake, it's a decent article.

The American Dream Becomes a Nightmare

How Looks, Contracts, and Inspections Affect Real Estate Investments. Actually, in most cases neither the seller nor their agent should see the prospective buyer. And most of the sharpest investors I've met "dress down," at least when viewing a property. They're going to get at least a little bit dirty. I always do. But he's right about doing your homework.

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SPAM AND OTHER RIDICULOUS SUBMISSIONS

A Site named Future Nest Egg submitted a post about credit cards that had absolutely nothing to do with real estate. Not only did they submit off topic, but the information they did submit was mostly flat out wrong. Kind of like Jar-Jar Binks: Incompetent, wrong, and annoying.

A site named Word Press Hacker sent in a submission "Auto Create Navigation Tabs for New Pages" What that has do to with real estate is a mystery known but unto him. Just spam hoping for a link. Denied!

A site named Bankaholic submitted an article called "6 Safe Places to Invest Your Money", thus proving they have no clue as to money management. In fact, five of the six suggestions are all in serious trouble right now. Nor did the post so much as mention real estate. Doubly clueless.

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 one month on October 30, 2008, here at Searchlight Crusade, unless someone else wants to host. Deadline for submissions will be Midnight October 28th.


Quote for the day:

"I knew water runs downhill. I didn't dream how terribly soon it would reach bottom."
-Professor Bernardo de la Paz, The Moon Is A Harsh Mistress by Robert A Heinlein.

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Carnival of Personal Finance

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Instapundit

Eight minutes of video record on who did and did not want to repair this in 2004:

more history here

who was involved

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More on Obama's scorched earth policy

For all George W. Bush has been maligned as the constitution's worst enemy in 200 years, he has done precisely zero to censor his critics. If George W. Bush is the constitution's worst enemy ever, what does that make Barack Obama?

more here

Question: How do Barack Obama's tactics compare to those of totalitarian dictators who supplanted more democratic forms of government.

The assignment is to investigate it yourself.

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I am not the only one who thinks we're going to miss President Bush after he's gone: George Bush: The Comeback Kid

Amazing how often the President you have is always the worst one ever. Particularly if he's of the opposite party.

(btw, there really isn't much competition for James Buchanan as the worst president ever, and Jimmy Carter has the bar set pretty high for presidents within my lifetime).

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Canaries in a Coal Mine

HT: Wizbang

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Michael Totten: The War Won't End in Afghanistan

Al Qaedism is the most radical wing of an extreme movement which was born in the Middle East and exists now in many parts of the world. Afghanistan is not the root or the source.

Read the whole thing. From a man who's been all over the region talking to everyone from common folk to heads of state, it would be would be wise to pay attention. I don't think your average CIA chief of station knows his territory as well as Michael Totten.

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I just did a final update to House Kills Best Likely Bill to Save the Markets

It's not a pretty picture. But most voters aren't paying enough attention to keep the rascals from getting away with it.

Scroll down or hit reload for UPDATES

Myth vs Fact on bailout compromise

If John McCain had not used his presidential campaign to shine a media spotlight on the process, the Dodd version would probably have been passed over the objections of House Republicans. Once the spotlight hit, Pelosi knew she needed political cover in the form of large numbers of Republicans voting for it (She claimed she wasn't bringing it to a vote unless a minimum of 100 Republicans agreed to vote for it).

If the House Republicans had not come to the bargaining table, to force anti-pork concessions in return for that political cover, the Dodd version would have passed over their objections.

Wall Street Journal has a history of who tried to fix it and when.

Q and O has a list of differences between the three plans - original Paulson, Democratic Congress, and current, after the House Republicans came to the table. Now, the bill is mostly insurance rather than a direct bail-out.

Ladies and Gentlemen, it looks to me like the House Republicans with assistance from John McCain just saved the taxpayers at least $150 billion dollars just by eliminating the ACORN slush fund. Possibly as much as $500 billion. On a $700 billion allocation.

UPDATE before publishing: Oh, hell: House defeats $700B financial markets bailout

Stocks plummeted on Wall Street even before the 228-205 vote to reject the bill was announced on the House floor.

Unpopular with the voters. Unpopular with a Congress that's facing re-election in five weeks. They really want to delay it until a "lame duck" session, but the markets can't wait.

However unpopular it may be, something is necessary, and necessary now. Three observations:

1) If Congress can't get something through in the next week, it will have done in one week what it took Hoover the rest of his term to do: Cause Widespread Banking Panic. We could see the bank runs of 1933-1935 all over again.

2) By being unwilling to support the bill en masse, the House Republicans shot themselves in the head. They came to the table, and used their minority influence and Nancy Pelosi needing political cover to the utmost. They stripped a lot of pork out of it, and got the main thrust redirected to insurance, rather than a direct buyout, and in stages as necessary. I am pretty sure that this bill was the best bill the taxpayers could have hoped for, and now the only proposal on the table currently is the Dodd monstrosity.

3) The House Democrats also shot themselves in the head. They also needed to support it en masse, in order to keep the House republicans on the hook. Now they're on the horns of a dilemma: Force an unpopular bill through on a party line vote, assuming all political responsibility, or do nothing, and be observed to do nothing, while the markets melt down. It doesn't get any stupider than that.

One minor question: Why is Chris Dodd still leading the Senate Finance Committee, rather than in jail? The answer is because Democrats are in the majority, and he is powerful among them.

One very major question: Is Congress going to act to fix this while the situation is still repairable, or are they going to wait until after the election, permanently driving a stake through the heart of the notion that when the issue is important enough, Congress can act responsibly in the best interests of the country.

There is no doubt. The markets are down five percent in the last hour since it happened. Congress needs to get together and fix this - because the crisis in financial liquidity is hitting us right in the spot that underlies the development and improvement of the entire economy. Every day they delay is going to mean more wealth wiped out - which will make the recovery that much harder. Nor are the bond or even government securities market going to be spared. We don't have five weeks for this. We may not have one.

I have just emailed all three members representing me (Filner, Boxer and Feinstein). I'm giving them an ultimatum, and a chance. If there is not a working, acceptable bailout plan in place before the markets melt down, my vote will go to the opposition - but if there is, and they support it, I will vote for them for the first time ever. I urge literally everyone to do the same.

This is that important that I am willing to vote for three of the worst voting records in Congress if they can get this one thing right.

I don't like this. I hate the thought of bailing out these incompetent, shortsighted assholes on Wall Street. It's just that if we don't, we're looking at hurting everyone a lot more that they will be if we approve this. It may be a "crap sandwich", but I'd rather eat a crap sandwich than what will happen if we don't eat that crap sandwich. At least what we had was about the least putrid crap sandwich we could have hoped for.


UPDATE: Michelle Malkin has been being a complete and unmitigated idiot on this, but she's got the complete roll-call vote. Find what your representative did.

UDATE 2: Hot Air has the update on why it failed: Pelosi couldn't suck it up and not make it a partisan political issue. Despicable, but the Republican response was just as stupid.

Video embed:

Republicans respond

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The good news is Boehner still wants to be part of the solution, if only Ms. Pelosi will stop stabbing him and his caucus in the back for the sake of political posturing.

UPDATE 3: Investors swarm T-bills as House rejects bailout . Not just T-Bills, but bonds of all sorts.

As the Dow Jones industrial average plunged nearly 780 points, the yield on the 3-month Treasury bill fell to 0.46 percent from 0.87 percent late Friday, after dropping as low as 0.32 percent. Low yields show that investors are prepared to get meager returns on an investment as long as it is secure.

However, expect any dip in rates to be short term (If you're in California and are thinking about a refinance, contact me right now:

LIBOR, or London Interbank Offered Rate, for 3-month dollar loans had risen to 3.88 percent from 3.76 percent on Friday, suggesting that banks have grown increasingly unwilling to lend to each other. LIBOR for 3-month euro loans, meanwhile, soared to 5.22 percent, the highest rate ever.

Now let me ask: What happens if the folks putting out those bonds cannot repay them? This is a credit crisis, which means that the standard refinance out of personal, government, or corporate debt is going to be both expensive and problematical if Congress cannot get on the stick about stabilizing the lending markets.

"Right now, banks don't trust one another," said Axel Merk, portfolio manager at Merk Funds. Even if the rescue package does get approved eventually, it "is a tool that the Treasury can use, but it's not the solution to all the problems out there."

If the banks don't trust one another, how the heck are they going to trust anyone else?

UPDATE 4: More on Pelosi's speech at Volokh Conspiracy

Speaker Pelosi's speech before the House today was remarkable, but not in a good way. She was trying to round up votes for a bailout package that shes claims to believe is essential for the stability of the American economy. She can't, and doesn't want to, pass the bill without a substantial number of Republican votes. So what does she do? You would think she would say, "let's pass this emergency measure now, in the best interests of the country, and talk about who is to blame later." Instead, Pelosi began her speech with a highly partisan tirade against "Bush" and "Republican" economic policies, which were allegedly to blame for this situation. She focused on an attack on the growth of federal deficits, which clearly are at best tangential to the current crisis. That, to me, is the sort of irresponsible thing you do when (a) you're not claiming there is a vast emergency; and (b) you are in the minority, and not claiming to exercise leadership. [Commenters point out that Republican Housemember were acting equally irresponsibly to the extent they rose to Pelosi's bait and voted against the bailout out of pique at Pelosi. True. But the Speaker of the House is a leader, not just a random member of the House, and her actions inevitably and justifiably get more scrutiny than those of her colleagues.

In the comments:

I have no idea why any particular member, or group of members, of the House, voted for or against the bill. All I'm saying is that if you are trying to rally the House to pass an emergency bill, you make it seem like there is AN ACTUAL EMERGENCY, which more or less precludes partisan attacks. E.g., after Pearl Harbor, no one was giving speeches in the House talking about how FDR's reckless provocations of the Japanese invited their attack, even if they believed it.

Daniel Drezner:

There have been two problems from the beginning with the proposed rescue plan. First, it was labeled a bailout, which is a really, really bad public opinion frame. (Let me add that neither presidential candidate has helped. McCain's interventions seem to have bolstered the House Republicans who said no; Obama's frame of Wall Street vs. Main Street made it easy for voters to believe that a financial meltdown would not affect them in the slightest.

Second, the idea of the package was to prevent a financial mewltdown. But here's the thing -- no one gets credit for stopping a meltdown if it doesn't happen. To use a security analogy, think about what would have happened if either the Bush or Clinton administrations had killed the leadership of Al Qaeda and the Taliban prior to June of 2001. Even if they had claimed that they were foiling a terrorist plot against the United States, no one would have known about it, and it would have been pretty easy to attack either administration for belligerent unilateralism. In other words, it was only after 9/11 that the American public was ready to take the actions that would have prevented 9/11.

Read the whole thing

UPDATE 5: Without a Bailout Plan, What Will the Cost Be?

But there's a catch: taxpayers are already on the hook for the failures of financial institutions, and it's possible that the bill will actually be larger without bailout legislation than with it. That's because the regulators who mind the financial industry -- the Federal Reserve, Treasury and FDIC -- will keep doing what they've been doing: stepping in to prevent the chaotic failure of banks and other large financial institutions. This means continuing to put hundreds of billions of taxpayer dollars at risk, but in a way that adheres to no clear plan of action and doesn't require members of Congress to explicitly approve their actions.

In other words, the costs will still be there, but the likelihood is that the economy will crash completely.

Where will congress go from here

UPDATE 6: via Hot Air, Rep. Paul Ryan

The Statement of Sen. Coburn, probably the most principled fiscal conservative in Congress:

Taxpayers deserve to know that there is no guarantee this plan will work, but there is a guarantee that we will face a financial catastrophe if we do nothing. If banks continue to fail and stop lending the average American could lose their job, be unable to secure a loan for a car, home or college education, and find their life savings and retirement in jeopardy. Our economy depends on having liquid assets available for credit and lending just as an automobile engine needs oil. If those liquid assets stop flowing, our economy will be seriously damaged and will require far more costly and lengthy repairs."

Karl Rove explains the politics of the failure of the bail out (audio). When the Democrats are promising the persecute the Republicans for approving it, but giving their own members carte blanche to vote against (and he names names), you shouldn't be surprised when the Republicans decide to bail on the agreement.

In other words, the Democrats are asking the Republicans to give them the election by voting for it, while they play partisan political games by allowing their vulnerable members it's okay to vote against this the unpopular bill, and stab those Republicans in the back with the electorate by demogoguing the issue. And they were surprised the Republicans bailed en masse?

Let's put this in more familiar terms. You and your co-worker are facing a review, at which point one of you is going to be let go. The problem is that there's a really big important job both of you have to get done together, or both of you will be let go. You manage to work together to find a way to get it done. Then you find out that your co-worker has enlisted a third party to slander your work with the boss and blame it all on you. Sure, you could be the mature adult, but that's a no-win situation for you, and your company isn't likely to give you a good review for your next prospective employer. So you decide to roll the dice and let your jerk of a co-worker's tactics be seen to have sabotaged the project. The outcome for the company isn't optimal, but the outcome for you can't get any worse, and you're preventing the co-worker from reaping gains for their tactics.

There are limits to how selfless you can expect even the most mature adults to be for your benefit when you're acting like a spoiled child. And the bulk of the blame for the fall-apart goes squarely on the shoulders of the jerk co-worker who played office politics when you both needed to cooperate. In this case, Nancy Pelosi and the Democratic leadership.


Quotes of the day

Diogenes spent a lifetime searching for one honest man. Where are we supposed to find 12? - Megan McArdle

Well, I hate it that we have to start looking in Congress - Glenn Reynolds, in response.

The one I keep remembering, even more than usual, is this one:

"I knew water runs downhill. I didn't dream how terribly soon it would reach bottom."
-Professor Bernardo de la Paz, The Moon Is A Harsh Mistress by Robert A Heinlein.


Looking back, I suddenly discovered I don't have a clear explanation of Home Equity Loans and Home Equity Lines of Credit in any previous article. It's time to remedy that.

A Home Equity Loan, or HEL (pronounced "heel") is a one time loan, much like a car loan. You get the money all at once, pay it back so many dollars per month, and when it's paid, it's over. The most common Home Equity Loan is probably the 30/15, which is like a fully amortized thirty year fixed rate loan except that it's got a balloon payment at the end of fifteen years, when the remaining balance is due. Since very few people do not sell or refinance much sooner than that anyway, the fact that it has a balloon just isn't important to most folks. I do not know why, but the rates for true thirty year fixed rate loans are much higher than for 30/15s. Fifteen and twenty year fixed rate Home Equity Loans are also pretty common, these being truly fixed rate loans without balloon payments, but the payments for those are significantly higher, so many people are not willing to consider them.

A Home Equity Line of Credit, or HELOC (pronounced hee-lock) works more like a credit card than anything else. At one point in time, I actually had a VISA card linked to a HELOC. There is an initial draw, which can be $0, and your monthly payments are based upon your actual balance. If there is no balance, no payments. The main difference is where credit cards are usually indefinite period and you can keep charging on the card as long as you pay your bills and stay within your limit, HELOCs usually only have a five year initial "draw period" when you can actually take more money, followed by what is most commonly a twenty year repayment period where you are making payments, but cannot draw any additional money. Unlike Home Equity Loans, HELOCs are variable interest rate loans based upon the prime rate on a certain day of the month. Also unlike Home Equity Loans, HELOCs are lines of credit, where you can take more money as long as you are within the draw period and under your limit. Also, so long as you are within the "draw" period, the minimum payment is usually based solely upon the interest accruing in any given month. It's only after the draw period ends that most of these loans begin to amortize as far as the minimum payment is concerned, but you can always pay extra.

With both Home Equity Loans and HELOCS, they are assumed to be Second Trust Deeds, with a different kind of mortgage in first position. But because the closing costs can be much lower than for a regular first trust deed, it need not necessarily be so - you don't have to have another mortgage in front of them. Indeed, sometimes with comparatively small mortgages (usually under $100,000) it can save you money by selecting a Home Equity Loan or HELOC instead. Even if the rate for the Home Equity Loan is a quarter of a percent higher than for a fixed rate first mortgage, it can save you money by saving you $2500 in closing costs. Often, you can find competitively priced second mortgages where the closing costs are zero. So if you can save $2500 on a $100,000 balance, it'll take you ten years to recover the difference in closing cost at a quarter of a percent per year, if you buy with a traditional first mortgage, and most people refinance within three years anyway. In such cases, it can make sense to choose a Home Equity Loan or Line of Credit instead.

Home Equity Loans and HELOCs are priced upon the degree of risk that lender is assuming. If you're taking out a $100,000 loan on a half million dollar "free and clear" property, you can expect better rates than someone taking out the same loan when there's a $300,000 loan already in place. One thing to be aware of is that because Private Mortgage Insurance is typically not available, lenders for Home Equity Loans and HELOCs have significantly greater equity requirements, and they are not typically willing to insure any amount over 90% CLTV, or comprehensive loan to value ratio, at least not as of this writing. Given how badly they were burned by piggyback loans, I would not expect this to change any time soon.

Caveat Emptor

Article UPDATED here


When I set the poll last night, I said I'd hold off on my comments until later. Here they are.

I can see why some people are saying Obama won. He sounded good. He seemed to make sense on a certain level. Unfortunately for him, this is the level of the people who pay attention to politics when there's something that twinges their conscience that they don't pay more attention. Because for the people who understand the facts and the history and how it all fits together, he got stomped.

He spent the whole debate running a very convincing bluff, that when you come right down to it, boiled down to his stump speech talking points. Senator Obama, your opponent is named "John McCain," not "George Bush," who is never running for anything else again. Furthermore, while trying to tie your opponent to a president that your party has been demonizing since the election of 2000 may be a winning strategy in certain instances (it did help George Bush in 2000, but not John Kerry in 2004), John McCain has separated himself very well from George Bush, at least to anyone who's been paying attention. Immigration, the surge in Iraq, fiscal policy on all levels, even the role of government (he being more of a conservative than George Bush ever was)

Senator Obama was woefully short not only on facts, but on truth, as well. Dr. Kissinger refuted Mr. Obama's contention about his position on talks with Iran before the talking heads were done. It wasn't George Bush's policies that caused the housing crisis, it was Bill Clinton's. When George Bush tried to reform the problem areas back in 2003, and John McCain in 2005, it was the Democratic party who made it clear they would kill the legislation in the Senate, making the whole thing pointless. The Democrats (including Barack Obama) demogogued the issue, claiming it was racial prejudice and class warfare, that those attempting reform didn't want poor people and minorities to be homeowners, using these as cover issues to prevent the change needed, which was simply to tighten the rules up so that there was some reason to believe that the folks buying and refinancing could really afford the payments. (This is remarkably similar to the way they have demogogued Social Security and Medicare reform). In short, George Bush inherited a system that he tried to change when he saw these problems five years ago, and he was prevented from changing it by the Democrats. Sure, he could have tried harder, but he only had so much political capital to spend, and the War on Terror has to be a higher priority for that. But this was not in any way, shape, or form George Bush's problem. It was Bill Clinton's, and George Bush tried to fix it and was prevented by the party that has been demonizing him for failing to fix it.

For those who pay attention (sadly, not as many as there should be, particularly among the young), John McCain more than held his own in the economic policy debate. He proposed specific ideas and concrete proposals. When Jim Lehrer asked Barack Obama what he would cut because of the bail-out, he segued into new program proposals straight off his stump speech. That's like being told it's a subtraction problem, and adding instead.

Senator McCain blew Senator Obama out of the water on foreign policy. From Georgia to Iran and Iraq and Afghanistan and North Korea, it was obvious who was used to handling this stuff, and who wasn't. Who understands what is still The Great Game, and who does not. The difference in their grasp of international politics should have embarrassed Senator Obama. I'll give him credit for acting ability, though. He kept running a good bluff, and even had the grace to agree with Senator McCain in about half a dozen instances when he knew anything else he said would get him stomped so badly it would destroy his bluff.

Senator McCain did manage to partially call Obama's bluff on energy policy. You can't have nuclear power without storing spent fuel and reprocessing it. But if Yucca Mountain (which Obama has repeatedly opposed), which all of the experts have agreed is the best possible available location for those, is not a good site, then there are no sites available, which reduces to being against nuclear energy.

John McCain does need to work on delivery, and he did let several opportunities to further tear apart Obama. Thinking about it, though, it's probably just as well he let most of the opportunities pass that he did. He was so far ahead that anything more would have been piling on.

The more I know about Barack Obama and his policies, the less impressive his substance becomes. He's got style, he's smooth, and he's got beautiful oration - a lot like Ronald Reagan in those respects. But underneath all that, Ronald Reagan had substance - more substance in a hangnail than Barack Obama has in his whole body. Last night, Barack Obama ran a good, coherent bluff - but John McCain had the winning hand, and didn't fold. It may not be obvious now, especially to committed Obamaphiles (When I visited the conservative websites last night, they were talking specifics, and the comments were jubilant. When I visited progressive ones, they were directing their audience to the polls they had to manipulate, and the comments were bitter), but Obama gave the McCain campaign so much ammunition for campaign commercials that those quotes which are going to come back to haunt him all the way through November 4th. There is material for about fifty ads on a theme of, "What does Barack Obama really stand for?" What he said in the debate, versus what he said in front of partisan audiences. Put about fifty of them out there, and even some of the nutroots will start to wonder.

2008 Presidential Debate 1

| | Comments (0)

Okay, here's the crucial question: How did it influence your vote?

Influencing your vote is, after all, what this whole campaign season is about

What Effect has the first debate had on your vote?
I was neutral, now I'm leaning Obama
I was neutral, now I'm leaning McCain
I was and am neutral
I was an Obama voter, and still am
I was an Obama voter, now I'm neutral
I was an Obama voter, now I'm leaning McCain
I was a McCain voter, and still am
I was a McCain voter, now I'm neutral
I was a McCain voter, now I'm leaning Obama
  
pollcode.com free polls

If you have a comment, keep it civil. The more logical, the better. I'll hold off on my own comments.

PS We're playing enlightened democracy rules here. One person, one vote, period. No stuffing the ballot box.


Neighborhoods of La Mesa: Eastridge

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I have seen several articles today claiming that McCain's suspension of his campaign is behind his gain in the polls. I disagree. I think that Obama's bounce last week happened because when a crisis happens, people tend to blame the party in the White House. Once enough information got out about the fact that John McCain and President Bush both tried to fix this problem (or at least radically reduce the size) several years ago before it got so bad, and that the Democrats (including Barack Obama) blocked those efforts, voters came back to McCain.

Whatever the attribution, McCain is now showing ahead in the polls again. I think the only poll that counts is on November 4th, but this is guardedly a good sign.

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Malfeasance Smackdown: Jim Johnson versus Rick Davis

Via Jawa Report, this three minute video

Pay close attention to the Barney Frank quotes. They're all golden for Republicans, but his "The Sky is falling" quote in particular, reflects upon today. The Democrats have been so intent upon painting President Bush's stewardship of the economy as failing, that they have persuaded a lot of suckers that the overall economy is in rotten shape by sheer repetition of the allegation. Ladies and gentlemen, this made the whole thing much worse than it otherwise would have been. We originally had a liquidity crisis in the financial markets. Due to the Democrats and their minions in the media perpetuating the idea of the sky falling, things have become much worse due to the lack of consumer confidence exacerbating the real problems. If Barack Obama is elected President, it will be poetic justice that he will have to deal with the crisis that was at least fifty or sixty percent a purely political and media creation in order to get him elected President.

Friday morning: Now Barney Frank is whining that some Republicans don't want to save the country from the consequences of Barney Frank and Chris Dodd: Frank blames House GOP for breakdown of deal

Rep. Barney Frank said leading Democrats on Capitol Hill were shocked by the level of divisiveness that surfaced at a White House meeting Thursday, not long after key congressional players of both parties declared they'd achieved the broad outlines of an agreement on a bill implementing the administration's proposed $700 billion bailout plan.

No wonder they were shocked. It has to do with fiscal discipline, and being responsible for the consequences of your actions, two things that are anathema to him and Chris Dodd. Spending public money to rescue firms that didn't want to stop poor lending programs because they were making so much money (at least on paper at the time). Spending public money to firms who didn't do due diligence because they were "too big to fail." For some of them, tt may also have a component of being unwilling to rescue some of the Democratic Party's most reliable political donors.

I understand their reluctance. There's a part of me that wants to flush these criminally irresponsible firms down the toilet of history, where they can join RCA, Enron, and other disasters. Not so long ago they were singing a different tune to regulators in arguing for a lack of intervention, so there is also a good amount of evidence on the side of, "You made this bed. Now lie in it." But the price to the rest of us would be significantly higher even than the $700 Billion price tag (roughly 5% of one year's GDP). So I am, however reluctantly, willing to pass a bailout program. But I want to see the bailout cost those firms something significant, to the benefit of the public purse that's bailing them out. Which is only fair, because those are the terms they loan money on. Something like Convertible Preferred Stock, with a good payout rate (maybe a bit below corporate bond rates today, but not much) and a strike price for conversion something like the value of those firms at their low point before talk of a bailout commenced. They are, after all, asking the taxpayer to bail them out of a mess they should have known better than to get into in the first place. I also want to look for efficient, leveraged ways to perform said rescue, that might benefit the smaller folks like their mortgage clients who, unlike the corporate executives in the company, are not going to be fine personally. These executives may be in danger of having to get a different job, a middle class lifestyle, and being second-homeless. The people they sold these instruments to are in danger of losing everything, as in completely homeless.

Yesterday, I made one such suggestion that would highly leverage the taxpayer's dollars.

I wrote this: The Last Time I'm Going to Write About Blame for the Housing Market Mess over a year ago when bankers were trying to scapegoat brokers politically, and using said scapegoating to push through legislation disadvantaging brokers (which passed). Other than the fact that it has since become apparent exactly how closely tied Senator Dodd, Congressman Frank, and other powerful Democrats (including notably, Barack Obama) were to the causes of the problems, my opinion is unchanged. If these people were Republicans, the mass media would be crying for impeachment.

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The exclusionary rule: You cannot do both this and that.

You cannot both have your cake and eat it too.

You cannot both spend a dollar and still have it.

You cannot both be an admirer of the first amendment and like Barack Obama's campaigning

David Bernstein of Volokh Conspiracy thinks it's our patriotic duty to publicize the commercial. Barack Obama is threatening the licenses of television stations that accept this advertisement:

More here on the first amendment issue.

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Another exclusionary rule:

You can try to prevent a financial meltdown or you can teach Wall Street a lesson, but you can't do both at the same time.

Unfortunately, he's right.

But I want to know why the proposed deal is giving more money to ACORN

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It doesn't get any more surreal than this

"This is a plea to President Bush ... please get your party in line (and ask) Sen. McCain to leave town and not throw fire on these flames, and maybe we can get something done," said Sen. Charles Schumer, the New York Democrat who chairs the congressional Joint Economic Committee.

Said the man who killed IndyMac Bank by publishing a sensationalist letter and started this whole thing snowballing, about a man who tried to fix the problem before it got to anything like this magnitude.

Seriously, he just broke my irony meter.

I think the real translation is, "We Democrats have decided how we are going to rescue our campaign contributors on Wall Street, and we don't want anybody with different motivations proposing any different plans."

The fact that McCain and the Republicans want a different plan may be the reason behind this little item of news: The debate is on; McCain agrees to participate

Republican John McCain agreed to attend the first presidential debate Friday night even though Congress doesn't have a bailout deal, reversing an earlier decision to delay the event until Washington had taken action to address the crisis.

And down towards the bottom, we read:

McCain's campaign said the meeting "devolved into a contentious shouting match" and implied Obama was at fault - on a day when McCain said he was putting politics aside to focus on the nation's financial problems.

Democrats differed, saying the refusal of McCain and other Republicans to support the plan worked out by congressional negotiators was creating a road block.

Question: If McCain has what he sees as a better plan, what's the best platform to get the most exposure for it as quickly as possible, and pitch it to as many voters as possible?

You have until 8:00 Central Time tonight to come up with something better than this

Michael Barone further illuminates the political scene and one alternate plan

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Hot Air notes that "Friends of Angelo" who got special loans from Countrywide at well below market rates have been subpoena'd by a grand jury.

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Biden gets four Pinocchios for lie

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This ten minute video may change your vote

It does let the Republicans off too easy, but it clearly shows the roots of the problem and where the political blockades that prevented fixing it came from.

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The Secret of How the Titanic Sank

Note: solid ice is much harder and more dangerous than steel in the form of other ships.

There's a program that President Bush got Congress to pass in late summer 2007 called FHA Secure. As passed, it was horribly limited by Loan to Value restrictions (97%), when the problem is that most folks are actually upside down on adjustable loans.

(This means that their payments have adjusted to something they cannot afford, and it's very tough to refinance to something reasonable through any kind of traditional lending program when you owe more than the property is worth)

I've been calling for the expansion of FHA Secure - eliminating Loan to Value as a criterion, but retaining Debt to Income and all other qualifications. The cost, a lot cheaper than the bailout, could be paid by levy on the lenders being relieved of their loans to pay for eventual losses.

This would have the effect of blunting the flooding of the housing market with thousands (millions nationwide) of people being forced into short sale and foreclosure. By tamping down on the flood of properties (supply) limited demand would not drop the price nearly so far, blunting the deflation of the market and making it likely far more people could manage to dig out successfully, many of them upon their own efforts. It wouldn't solve the crisis completely, but it would definitely lessen the problem by at least a factor of two, perhaps as high as five - reducing the problem to something the market can handle with very minimal direct assistance to financial megacorporations who should have known better.

Cost to Benefit ratio: Much better than any contemplated bailout. And it even helps the little folks who were mislead into debt they couldn't handle by alleged professionals who failed in their fiduciary duty. The ones who aren't "too big to fail", but who don't have six figure incomes and severance packages to take the sting out of losing one job.

This has been a noticeable phenomenon for at least the last year in San Diego, but I've been loath to talk about it because I didn't want to be giving fraudsters ideas. Most lenders have now put into place safeguards against this measure. As always, they do not distinguish between guilty and innocent, but the lender is the one risking their money. You have to show that you are a good risk.

The basic event is this: People have decided to relinquish their current property to the lender. It's not worth as much as the loan is for, so they see only a gain to be had there with current law declaring the income from forgiven debts non-taxable for the remainder of the year at least. Perhaps they couldn't afford their new payments after the teaser expired. Perhaps they could; they just don't understand what they are doing to their credit and the fact that the market is going to come back - sooner than they probably think. Perhaps it's a non-recourse loan and they see only the fact that they owe more than the property is currently worth.

But these people don't want to be homeless, and they do understand that after they have gone through foreclosure, not only are lenders going to be highly resistant to lending to them, but landlords are going to be reluctant to rent to them. So they hit upon what they think is a brilliant plan: Buy a new house before allowing the old one to go into foreclosure. After all, the degradation to credit hasn't happened yet! However, it is still fraud. These people have an actual plan to allow a property to be foreclosed upon, and a reasonable person would know that lenders would consider that in deciding whether to grant credit.

Unfortunately, there has been enough of this going on that lenders are no longer willing to let it go unchecked and unchallenged, so they are looking for evidence that new buyers of primary residences and second homes do not plan to "buy and bail". These are by no means the only measures they are taking, but they want one of about 3 things to be present.

  • the ability to make both payments without any rental income
  • a verifiable job change to a new commuting area, and the need to relocate (i.e. nothing in the same commuting area)
  • significant equity in the current property, even by the standards of the down market

It should be noted that meeting any one condition is not a "get out of underwriting free" card. There are other checks being made upon the process, checks I am not going to discuss beyond saying that the transaction has to pass a "smell test." Being someone who doesn't like seeing bad real estate loans made, for a plethora of reasons, I welcome the return of the smell test. I've seen the aftermath of too many transactions that smelled worse that week old fish in dumpster on a hot day. You may think you're a "a special case," but every single one of those folks out there facing foreclosure or having gone through it already also thought that they were "a special case" then, and the ones trying this fraud think so again now.

These new restrictions have hurt, and will continue to hurt, legitimate investors by making it more difficult to qualify for the loans. It is nonetheless a fact of life brought upon us by the market. Furthermore, 20% down is pretty much an absolute minimum for buying investment property currently currently. Furthermore, even the lenders that were accepting loans for both a primary residence and a second home in the same commuting area have now stopped that practice. It was silly to start with, and it has only gotten worse of late, but people who want to avoid the constraints and requirements of investment property loans were eager for it. I just don't understand why lenders were willing to accommodate them. Either the charges and higher equity and qualification standards were necessary, or they were not. If they were necessary, why were the lenders bypassing them? If not, why did they exist in the first place?

I can understand people who don't want to be homeless. However, while "Buy and Bail" may not always be obvious before the fact, but it is afterwards, and the lenders are starting to take notice of foreclosures against other companies, and they are even writing in clauses that make their loan callable, by which I mean they can demand you pay that loan off in full, giving you 7 or 30 days to make the actual payment. Once again, this sort of clause is going to disadvantage people who have had the property a while and be intending no harm who do hit hard times: Job loss, disability, etcetera. Nevertheless, "Buy and Bail" is fraud, and the lenders are entitled to take whatever measures they think reasonable to insure that they don't lose their money to a suddenly unacceptable credit risk, as well as to return a reasonable return on that money. It may seem like cruelty to you, but I'd like to see some of the folks pulling it sentenced to an enforced residency in a government institution wearing funny pajamas, because games like this destabilize the mortgage market for everyone, and every time somebody pulls a game like this, someone who should be able to qualify for a loan is now unable to do so, further screwing up the home loan market for 300 million Americans.

Caveat Emptor

UPDATE: I got a question from Realtor Ricki Widlak of flhotproperties.comwho doesn't understand how people pull this, in that they're going to have another home loan on their credit report. The answer is that they claim they are going to be receiving $X in rent per month. They fake up a lease contract, usually between themselves and a family member or close friend. The added number of dollars per month from this entirely fictional contract makes it appear as if they qualify. However, because the lease is not real, they don't. Ergo, the qualify without rental income restriction.

He ends with this question: "How do people "walk away"? Who walks away from anything in this information age anyway? I just don't get it. These people are "leaving behind" their soc numbers, right?".

The answer to all of these questions is that lenders have no difficulty in identifying this phenomenon in retrospect - these people aren't getting away with anything, and some of the lenders are starting to follow the criminal prosecution route. But identifying the perpetrators in retrospect does not assist the lenders in not making bad loans in the first place, which is the situation the lenders want. So they raise the bar for qualification for everybody in order to weed out these bad apples. Yes, people who would otherwise qualify are getting turned down for loans. However, the lenders are not a court of law, where we'd rather a dozen guilty people go free than one innocent one be punished. In fact, the lenders have precisely the opposite view, especially in the current environment: They'd rather turn down a dozen good loans than accept one bad loan, and they are now writing their lending criteria accordingly.

Article UPDATED here


You'd think I'd learn - but every time Movable Type upgrades itself, I have to restore the comments settings. I've just done that yet again and confirmed it. Sorry to anyone who has tried to comment recently via anything other than TypeKey.

As an experiment, I have enabled anonymous comments, providing 1) You leave an email and 2) You can pass the CAPTCHA test. If we have the same issues as we did last time, it won't last long, but I will try it again.

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Professor Bainbridge: A Basic Problem with the Bailout

My thoughts on the matter parallel the Professor's. The system will be gamed, if indeed, it has not already been.

The professor also covers the history and current incentives of the actors

It's not like we weren't warned

Cold Hard Numbers was from my first week writing here, in June 2005. I had already been sending out that marketing piece for several months. The response was just about nil, but I'll bet that at least a quarter of the folks are wishing they had listened to me then.

If you're the sort that needs to see it in media, The Anchoress has a couple of good factual ones here.


Volokh Conspiracy notes that many right and left economists have signed a petition against ratification of the bailout.

I have seen many articles likening the bailout to a new generation Nigerian 419 scam.

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FactCheck.org: misleading the voters

While the NRA expressly based their ad upon Barack Obama's record rather than his campaign rhetoric, FactCheck applied it to his campaign rhetoric. As if campaign rhetoric was not basically infinitely malleable, and Barack Obama's campaign rhetoric has been a particularly illustrative case of this. John McCain has maintained and defended the same campaign positions before non-sympathetic audiences upon at least a dozen occasions in the last year. I'm not going to say that Senator McCain hasn't changed his positions for an audience, because that would be untrue, but he holds to unsympathetic positions for a particular audience remarkably well for a national politician. Since it's likely to cost him votes, that is speaking truth to power and a sign that he will hold to his position in adversity. Barack Obama has managed one such speaking of truth to power in the last year, versus so many flip-flops I've lost count.

If you're looking for an agent of change, you choose the man who holds his positions despite adversity and personal cost. Which of the above candidates does that principle apply more strongly to? You look for the man who is willing to speak out for his principles, even when those he speaks to are unsympathetic to it, not someone who changes the subject, or worse, his position, based upon his own advantage. Which of the two candidates does that more strongly describe? More importantly, you look for the man whose deeds show political courage in the face of popular adversity. Which candidate does that more strongly describe? Most importantly, you look for the man who takes action and gets others to agree with that action, before it is popular, or despite opposition. Which of the two candidates does that more strongly describe?

Hint: run each candidate's name and the phrases "Campaign reform" "Iraq surge" "immigration enforcement" "economic policy" and "oil drilling" through the search engine of your choice. Pick as many other topics as you like, so long as you run both names and compare the results, but go through at least fifty results for each. Evaluate the data in accordance with the previous paragraph. The answers you'll get won't be an a complete and unconditional endorsement of either candidate. But they will be lopsided towards one candidate as the more likely agent of change, and that result will probably surprise some of the younger people who try it.

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Citizens Against Government Waste Scorecard:

John McCain 100 (lifetime 88)
Sarah Palin (not rated - she's not in Congress.)

Barack Obama 10 (lifetime 18)
Joe Biden 0 (lifetime 22)

That tells an unambiguous story right there of the differences between the two tickets.

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Shades of Publius Quinctilius Varus critiquing the fine points of Arminius' Battle Plan: Biden says McCain often wrong on national security

Biden himself gets it wrong when he says Iraq was not the central front in the war on terror. It was, but is no longer. That the front has now shifted north and east to Iran, Afghanistan and Pakistan is a measure of the victory that was won.

For a parallel example, Hitler tried to use Rommel in North Africa to break out of Europe on the offensive. Once Rommel was defeated in North Africa, it was no longer a major front in World War II. Same situation. Once the Navy won the battle of Midway, the Hawaiian Islands were no longer even remotely threatened. Once one site annihilates the forces of the other side in theater, that theater is no longer a front in the war.

I was originally against the Iraq invasion (I didn't think we had the fortitude and endurance of character as a nation to win, a belief I have now changed, but still could be proven to have been originally correct), now I'm for finishing the job and sealing the victory that has been essentially won, instead of deciding to forfeit the game while ahead 27-0 at the end of the eighth inning. Just the opposite of John Kerry.

Yeah, Biden has a point. After 1991, the Iraqi people didn't trust us one Angstrom. If we had deposed Saddam then, it would have been easy. Thanks to President Bush Sr. and his unwillingness to confront allies in order to finish the necessary job, we had a very unfertile field when we decided to go back, and anybody who thought they we greet us with cheers and roses was deluding themselves. Why then, did Biden decline to make that statement back in 2002, when it might have kept us from Invading Iraq? National Security requires making the right call at the right time, not six years later, and cheers and roses is a fine detail compared to "Will We Win? What are the best tactics? What is it going to take?". McCain made his call, and has been proven correct in the main both on the invasion and on the Surge. Furthermore, he's admitted his mistakes. After six years and on the brink of final success, Biden still can't admit he was wrong on the main point.

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We've spent all the bribe money you gave us last time: N.Korea ousts U.N. monitors, to restart atom bomb plant

The reclusive Stalinist state said on Friday it was working to restart the Yongbyon atomic complex it had been dismantling since last November under a disarmament-for-aid agreement with five powers that has derailed in disputes over implementation.
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MCCAIN SUSPENDS CAMPAIGN TO FOCUS ON ECONOMY; WANTS DEBATE DELAY

America this week faces an historic crisis in our financial system. We must pass legislation to address this crisis. If we do not, credit will dry up, with devastating consequences for our economy. People will no longer be able to buy homes and their life savings will be at stake. Businesses will not have enough money to pay their employees. If we do not act, ever corner of our country will be impacted. We cannot allow this to happen.

Last Friday, I laid out my proposal and I have since discussed my priorities and concerns with the bill the Administration has put forward. Senator Obama has expressed his priorities and concerns.This morning, I met with a group of economic advisers to talk about the proposal on the table and the steps that we should take going forward.I have also spoken with members of Congress to hear their perspective.

It has become clear that no consensus has developed to support the Administration' proposal. I do not believe that the plan on the table will pass as it currently stands, and we are running out of time.

Tomorrow morning, I will suspend my campaign and return to Washington after speaking at the Clinton Global Initiative. I have spoken to Senator Obama and informed him of my decision and have asked him to join me.

I am calling on the President to convene a meeting with the leadership from both houses of Congress, including Senator Obama and myself. It is time for both parties to come together to solve this problem.

We must meet as Americans, not as Democrats or Republicans, and we must meet until this crisis is resolved.I am directing my campaign to work with the Obama campaign and the commission on presidential debates to delay Friday night's debate until we have taken action to address this crisis.

I am confident that before the markets open on Monday we can achieve consensus on legislation that will stabilize our financial markets, protect taxpayers and homeowners, and earn the confidence of the American people. All we must do to achieve this is temporarily set politics aside, and I am committed to doing so.

Following September 11th, our national leaders came together at a time of crisis. We must show that kind of patriotism now. Americans across our country lament the fact that partisan divisions in Washington have prevented us from addressing our national challenges. Now is our chance to come together to prove that Washington is once again capable of leading this country.

I suspect what he's doing is stopping personal campaigning. The campaign machinery goes on.

It's true that he is a Senator, and his vote and leadership may make a difference to the outcome, and good for him.

However, there isn't a prayer Senator Obama will follow his lead. If nothing else, Senator Obama didn't accept public fundraising, and so needs to keep raising money to feed the campaign beast. Nor can I find it within me to condemn Senator Obama any further than I already have for absenteeism, a fault Senators McCain and Clinton have also committed. But Senator McCain is saying there are limits to how far he's willing to go to win the presidency.

However: This is the time to demonstrate bipartisanship, not merely talk about it. Let's see who delivers in the next couple weeks.

UPDATE: With all due respect to Senator Obama, a request for a joint statement is a pretty anemic response for someone who wants to be president. I'd respect you more if you went back to work in the Senate to try and help solve this.

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In a sign that there may be hope yet, Armies of Liberation is reporting that the Saleh regime has ordered the release of opposition jounalist Al Khaiwani!

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Protein Wisdom: Media tries to will the US into the age of Obamalot

This is not hyperbole: a free society relies on a free press to inform. That the mainstream press leans demonstrably left is not the problem in and of itself; the problem arises when that demonstrable bias is given cover as "objective," and when those who believe they are basing their support for a candidate or platform on objective reporting are in effect doing no such thing, but are rather being coaxed, prodded, directed, and manipulated -- in everything from what comes to count as newsworthy to, in cases like these, shoddy reporting (which may or may not be intentional), the effect of which is to leave those who rely on the media literally less informed than had the media reported nothing at all.

Read the whole thing

The Return of Portfolio Lending

| | Comments (2)

Fannie and Freddie have long had a policy that they would not fund investment property (non-owner occupied) beyond 10 loans. Although it did impact a certain number of investors, for most folks that rule just never came into play. There has been a formal announcement that they are going to reduce that limit to 4 loans, which is going to put an awful lot more investors in the position of needing a portfolio loan.

Portfolio loans are loans where the lenders originate the loan with the intention of holding it themselves. In recent years, this has been a very limited niche, and even those A paper loans written with the full intention on the part of the lender to hold it themselves were often underwritten to Fannie and Freddie standards, so that they could sell such a loan. Not that there were very many of those.

Portfolio loans largely went away because the tradeoff between rate and costs is much higher than the standard securitizable loans. In plain english, the rates are higher. When the lender originates a loan and sells it on Wall Street, it gets an immediate return of 2.5 to 4 percent on its money. Not as much as holding a six percent loan for the year, but they can turn right around and use the money to sell another loan. Lenders don't have any trouble getting four to six loan sales on the same money per year, some manage eight or better, and twelve is possible, if unlikely. Therefore, they make anywhere from 10% to maybe 25% per year by selling the loan repeatedly, as opposed to about six percent for holding it. Which of those do you think the average lender sees as more attractive, particularly if they also retain servicing rights and make money that way without risking any of their own?

So if the lender is not going to be able to sell the loan, but rather have its money tied up until you decide to sell or refinance the property, then they're going to want something more akin to the 10% or better return they get on their money by originating and selling the loans. Instead of something around six percent, portfolio loans are typically around eight percent or higher. Some people will tell me they don't want their loan sold. I ask why, and they tell me about the hassles and ending up with an unknown company. I explain that the contract is the contract, and the only differences if your loan is sold are the name on the check and the address on the envelope (or, if you pay online, the routing number you use). For those that still come back with "I don't want my loan sold," I then say, "Well, then it sounds like what you want is a portfolio loan. The interest rate will be two percent higher, meaning your payments will be (number) dollars per month higher, and your cost of interest will be (bigger number) instead of (smaller number)." Them's the facts. Some lenders will lie about it to get clients to sign up for their loan, but that doesn't change the facts. They can deliver a portfolio loan, or they can deliver a regular loan where the lender is still going to sell that loan. Which would you rather have, an honest discussion of alternatives or someone who chose one alternative without consulting you? Because the loan they deliver will be one or the other, and whether it's the choice you would have made is mostly a matter of luck.

To be completely honest, even portfolio loans can be sold. However, not being designed with standard loan packages in mind, it's harder. If the lender wants to sell portfolio loans, they have to negotiate each and every one individually, rather than in packages of fifty million dollars worth or so. It is a lot less likely to be worth their while to do so, and selling their portfolio loans can be one indicator that a lender is in trouble - providing that they offer portfolio loans in the first place. Not every lender does.

But for those that do, they allow that lender to make the underwriting decision by whether they are comfortable making such a loan, rather than whether or not it meets standardized criteria for Wall Street. This can enable those lenders who do offer portfolio lending to be able to make a certain specific loan, where a lender with its eyes fixed solely on Wall Street does not have the option of saying "Yes."

There are a fair number of loan niches that have always been portfolio loans. Many commercial loans, and loans for investors with over ten properties, to name two. Traditional "non-conforming" loans are not one of them, however. Just because Fannie and Freddie couldn't buy them doesn't mean nobody would. In fact, because they were underwritten to Fannie and Freddie standards in all matters except loan amount meant they were sought after, especially as opposed to subprime loans. But just because portfolio loans are not underwritten for Wall Street doesn't mean that the lenders can ignore Federal Reserve regulations, for instance the one about "Must be able to repay the loan from a source other than additional borrowing against the property". For that, you have to go hard money.

Final point: Because the interest rate for portfolio loans is higher, and therefore the cost of borrowing the money, there are going to be a lot of properties that would be a good investment for someone able to qualify under Fannie and Freddie's rules, where they would not be a good investment for someone who needs a portfolio loan. This is likely to constrain prices from rising to a small degree, and force rents to rise to a somewhat higher degree. If your landlord can't make it work on the basis of the rent you're paying, they have two real choices: Raise your rent or sell the property. Nor is the second alternative any kind of relief. If that landlord couldn't make it work, why would you think the next one can? That's assuming the purchaser doesn't plan to live in it themselves from day one. I have an inflexible rule with tenants where my clients don't want to keep them: They must be out before close of escrow. I suspect most buyer's agents are the same way. One of the fall-outs from the bursting of the real estate bubble that most people don't realize yet is that the economic factors which have kept rent increases low for the past decade or more are all going away. Furthermore, if someone is looking to buy an investment property, the cash flow is going to have to work from day one. If it won't, they're not going to buy it, and it will never become a rental property in the first place. On a $300,000 loan, a portfolio loan instead of a securitizable one means a difference of over $500 per month in the cash flow requirement, which translates to rent increases, and not just from the big landlords with portfolio loans.

Portfolio lending is set for a comeback. With Wall Street becoming ever pickier about the loans it wants to fund, and mortgage insurers restricting what they will insure, a strong lender with good reserves can make a lot of money in this environment by lending to selected borrowers with good credit and plenty of income, that "originate and sell" lenders cannot touch, because Wall Street isn't interested under current standards.

Caveat Emptor

Article UPDATED here


Carnival of Personal Finance

Carnival of Real Estate

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Trillion Dollar Bailout Will Lead to Future Bubbles

HT: Michelle Malkin

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Barack Obama: hypocrite and liar

I've called anti-Obama folks on their smears of Obama. But this is Obama himself doing the deeds.

If you're a "new breed" of politician, looking for "bipartisanship" and such, you should be giving your opponent credit where credit is due and not telling lies about them. Not to mention that you shouldn't be mobilizing your virtual thugs to intimidate third parties into censoring opponents and not allowing them to speak.

New breed of politician? No. A very old breed indeed, combining the features of despot and demagogue. Neither is someone that, for instance, Julius Caesar would have any difficulty recognizing.

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Last of the Neanderthals

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Jawa Report builds an impressive case against Obama contributors (and Obama's campaign chief) with regards to a video smearing Sarah Palin.

There's no question which I'd rather have.

It has been traditional for a client to write a check to their broker's escrow account. Sometimes the check is actually deposited, but usually it's just held. In the last few months, it's become a game with certain listing agents to ask for a copy of that check with the offer. I don't know why. It's not like it means anything beyond that the clients have a checking account.

Asking for a copy of the check doesn't do my listing clients any good. That check may not be good, and you don't have it anyway. In fact, even if it's written to the appropriate escrow company, sometimes they don't cash it for weeks. Furthermore, since you haven't agreed upon an escrow holder yet, it's kind of ridiculous to be writing a check when you don't know who's going to be holding it. All of which means that asking for a copy of the check doesn't mean a damned thing.

From a broker's viewpoint, the number one way brokers get in trouble is escrow account paperwork. Stupid, minor little piddly crap on the scale of the transactions we handle, whose entire purpose is seeing that client funds are separated completely from broker funds, but problems are caused by the fact that broker funds have to be used to pay the costs of such an account. I'd like to see more unethical agents and brokers get charged with violations on other things, but that's no reason for witch hunts on the escrow account. Nonetheless, since it is a witch hunt mentality, I don't want custody of client funds if it can at all be avoided, and I see no reason to ask other agents do do something I wouldn't want to, and that doesn't benefit my clients anyway.

What I do want is evidence that the buyer does, in fact, have the money for the deposit. That's it's sitting there in a bank account, ready to write the check. That when they do write the check, the escrow holder will be able to cash it and get the funds into the account for this transaction without delay. I can make acceptance of the offer contingent upon the receipt of good funds by escrow, but why would I want to open escrow if the funds might not exist in the first place?

The first step is verification that the money is, in fact, there - and believably there. I cannot require account numbers, but I can require redacted account statements, or verification of deposit. If we're going to obsess about the deposit money, I'm at least going to obsess about things that mean something to my client, like whether the money is there and available, not whether the prospective buyer is willing to write a check that may or may not have the funds to make it good.

Caveat Emptor

Article UPDATED here

Well?

You would be amazed how often I encounter people who are certain they're getting a great deal on this loan that's in process, but they have no idea what that that deal is. All they really know is that their prospective loan provider sure acted like their friend.

Well, excuse me, but have you ever heard of Honest Iago? Any sales person is going to at least pretend to be your friend. The tricks are legion, and they're not evil, in themselves. But it's much easier to betray someone from a position of trust. "Don't worry, I'll take good care of you." Yes, and even better care of your wallet after it's in their pocket. A real friend may ask for your business, but they won't get upset if you can find a better deal somewhere else.

Loans are complex transactions, but there are three main things to know: Type of loan, interest rate, and the total cost to get that loan at that rate. You should be able to remember three things about one of the biggest transactions of your life, right? Beyond that, there's what the costs include, and whether there's a prepayment penalty, both of which are also important. The reason the existence or non-existence of a prepayment penalty is important should be obvious. A very large proportion of people who agree to even two year prepayment penalties end up paying them, and half of seven percent of $400,000 is $14,000 more that loan will cost you down the road. The equivalent of three and a half extra points, for crying out loud!

What a quote includes is equally important. Does it include appraisal, title, and escrow (or legal fees in those states that still require the use of attorneys)? There are all kinds of fees involved in a loan, but these are the three biggest, and because they are paid to third parties, the law allows the actual dollar amounts to be excluded from quotes. What sounds cheaper: $3022 or "$1405 plus third party fees". In this instance, it works out that they are exactly the same. Similarly, you want to find out if the dollar figure you are being quoted includes the dollar amount of any points you will be charged. Each point is one percent of the final loan amount, so if you've got a $400,000 loan when everything is said and done, you've paid $4000 for every point. If that's two discount points and one of origination, that's $12,000 on top of all the usual fees.

Force them to add in all the costs, and quote you in terms of what the loan amount is going to end up being after rolling all those costs into your loan, if that is what you intend to do. Make them quote your payments based upon that final loan amount, not the base loan amount. Those are the costs you are really going to end up paying, whether or not you wrote a check out of your account to pay them. Those are the payments you're really going to end up making. There are two sorts of mortgage consumers out there: The ones who insist upon understanding what they will really be paying, and suckers. Suckers sometimes stumble across someone who actually gives them a good loan at a good price, but it's blind luck, and far more often, they don't. Furthermore, just because you're not writing a check out of your account doesn't mean you're not paying those costs. You are, and the dollars you spend that way are every bit as real as the dollars left in your grocery bill, even if they are in much larger amounts for mortgage loan fees.

Every time I write an article like this, I get emails that say, "What if I'm doing business with a large reputable company?" Those are some of the worst. Those beautiful buildings, that plush carpet, those beautiful furnishings, those attractive salaries? Your fees are going to pay for those, along with the investor payouts that make that company so attractive to investors. They are competing upon the basis of advertising and reputation, not price, but a loan is not a vehicle. As long as it's on the same terms and conditions, it's exactly the same whether it is from National Megabank or the Bank of Nowhere. And terms and conditions are mostly standardized. The only real exception I'm aware of is the Islamic loan programs. So there is no reason not to force lenders to compete on price.

Now it is another misconception to think that the standard forms you get at the beginning of the transaction mean something. They don't. There are too many games lenders are allowed to play with those. The only way to be reasonably certain that they actually intend to deliver that loan on the terms they tell you about is to get them to give you a written loan quote guarantee, detailing:

-loan type (e.g. "thirty year fixed rate loan")
-interest rate (e.g. 6%)
-total maximum costs including third party fees and points (e.g $3022)
-whether there's a prepayment penalty. Yes or no. Not maybe. Not probably not. Yes or no.
-any conditions upon the guarantee. (almost always, "underwriter approval of the loan as submitted")

There should also be a statement that if they do not deliver the loan as described, they will pay any difference so that the net cost to you does not increase. Once you've got a guarantee with all of this, then and only then can you make a real comparison between loans. Companies that will not guarantee their quotes in writing are telling you that they cannot deliver what they talk about, that they are intentionally low-balling you in order to get you to sign up, and that they will add hundreds to thousands of dollars and quite possibly a higher interest rate when you go to sign the papers. I'm sure that makes you feel all warm and tingly and inclined to use them, right? If they could deliver that loan they are talking about, they would guarantee it. But if they won't guarantee their quote, you have no idea what loan they really intend to deliver. It's only if they will guarantee their quote that their loan can really be compared to other loans.

Loan rates and the prices to get them do change over time. They cannot be locked indefinitely, and the longer the lock, the more expensive the loan. Furthermore, all quote guarantees are going to be subject to locking while the rates are still in effect, which for A paper loans and lenders is no longer than the end of the day. But missing a day of work that costs you $300 to $500 in pay in order to intensively shop loans is likely to save you thousands of dollars.

Now, how to compare loans if one has a lower rate and the other has a higher cost. Figure out the difference in monthly interest charges, and divide the difference in closing costs by the difference in monthly interest. This will give you a break even figure in months. Due to time value of money and other factors such as the loan with higher costs will leave you with a higher balance, and therefore cost you additional interest later after you sell or refinance, add fifteen to twenty percent to this figure. Keeping in mind that most people only keep their loans two to three years, that will tell you if you're getting something worthwhile for that extra money. On the other hand, if the break even time is longer than the fixed period of the loan, you know it isn't.

Finally, it is to be admitted that getting a loan guarantee is the second best thing to make certain you get the loan they tell you about. There is a better one: Apply for a back up loan. If you have two loans ready to go, you're not relying upon the good intentions of one provider, and your choices are not limited to sign that one set of loan documents or you don't get a loan.

Caveat Emptor

Original Article here


House approves offshore drilling

Once Ms. Pelosi agreed to schedule the vote, the result was a foregone conclusion. I'm amazed the vote was as close as it was (236-189). However, what was in the bill they agreed to vote on was basically election year posturing so they can say they voted for drilling without actually having any new drilling enabled.

The Democrats' bill would allow drilling in waters 50 miles from shore almost everywhere from New England to Washington state as long as a state agrees to go along with energy development off its coast line. Beyond 100 miles, no state approval would be required. The drilling ban would remain in the eastern Gulf of Mexico.

A difference that makes no difference is no difference.

This was a political trick by the house leadership. I'm sure it'll make a little bit of difference, but if fifty miles offshore the water is three miles deep, how much drilling are they likely to be able to do? The only spot where it is, in general, shallower than that is the Gulf of Mexico, which was specifically omitted from the bill.

The Democratic bill also would:

- Roll back $18 billion in tax breaks for the five largest oil companies and requires energy companies to pay billions of dollars in royalties avoided because of an Interior Department contracting error.

-Require the release of oil from the government's Strategic Petroleum Reserve to try to push down gasoline prices.

(emphasis mine)

This is a stupid election year trick. That is not what the strategic reserve is for. The strategic reserve is for when we lose the ability to access oil we need, not when it simply gets a little expensive. Let another embargo like 1973 hit, and we'd all immediately know how stupid and short-sighted this is.

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16 dead in attack at US Embassy in Yemen

Militants linked to al-Qaida launched a brazen attack against the U.S. Embassy in the Yemeni capital Wednesday, firing automatic weapons and setting off grenades and a car bomb in a furious fusillade that failed to breach the walls but killed 16 people, including a newly wed New York woman.

Armies of Liberation has ongoing updates including Flakey details. Good knowledgeable observers of the situation there are hard to find. Jane Novak is one.

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The Anchoress on the hacking of Sarah Palin's email

Now the Obamaphiles - the angry, crazed, hate-filled part of the left who cannot understand the right and will not play fair - has hacked into Sarah Palin's email account. They've invaded her privacy and that of her family in a way so intrusive it can ONLY be perceived as threatening. People will not like that. WOMEN will not like that. Idiots.

You cannot be held accountable for everything your supporters do. But there is a line that has definitely been crossed. Once you get a certain number of incidents, there is a strong supposition of guilt induced by association. Obama needs to move on this, and move on it now, if he doesn't want to turn everybody off him.

Michelle Malkin has much more.

Question: What would happen if John McCain supporters had done this to Barack Obama?

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Setting The Record Straight Department:

Investor's Business Daily

But it was the Clinton administration, obsessed with multiculturalism, that dictated where mortgage lenders could lend, and originally helped create the market for the high-risk subprime loans now infecting like a retrovirus the balance sheets of many of Wall Street's most revered institutions.

President Bush proposed an oversight agency five years ago but

Significant details must still be worked out before Congress can approve a bill. Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''

Much more on Hot Air

A general primer on the phenomenon here

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Powerline explains the Knik Arm Bridge (as opposed to the bridge to nowhere, which would have been hundreds of miles away).

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John McCain lays out the facts of who has been walking the walk on the economy.

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Facts on who tried to fix Fannie and Freddie, and who took massive amount of money from them.

Hot Air has more.

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The only way to describe this is with a Monty Python Reference: Bravely ran Sir Harry, Ran Sir Nancy, Ran Away

Listings Not Sourced on MLS

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About once a week, I get an email from a client or prospect asking about a property they found on a site not sourced from MLS. These properties are pretty universally non-existent, at least as far as being for sale for the advertised price.

MLS listings have to pass some very important tests. Other agents, and for that matter, regular clients have got to be able to verify that they exist. What is it being offered for, what are the showing instructions. Agents who put properties in MLS without having listing agreements are subject to pretty severe sanctions when it is discovered.

That's not the case with the rest of the websites, the ones that get their listings from somewhere other than MLS. I'm not going to name names, but it's pretty easy to discover whether a site is sourced in MLS or not. I will say that client gateways and emails and IDX sites (such as agent websites that say "search MLS!" and realtor.com) are sourced on MLS. Sites sourced on MLS will still have puffery, but the property exists, is for sale for the listed asking price, and the hard numbers will be as correct as possible.

If the site does not source its listings from MLS, then agents can write up any property they want. In the past month or six weeks, I've had clients ask about

  • properties that were already sold - escrow closed before the ad was written
  • properties that aren't on the market and haven't been for years
  • properties allegedly priced at sale prices from over ten years ago
  • one property that doesn't exist anymore because it was torn down for new development

What is going on is that agents are writing up false listings for the express purpose of trolling for clients. Getting people to call so that they can maybe pick up a new client. This is very subject to the "talking a bigger better deal" phenomenon, because the person that talks the biggest best deals gets the most calls.

But here's the catch: These bigger better deals don't exist. What happens when you find out that deal doesn't exist? When you discover that an agent dishonestly claims to have a property for sale that they don't in order to get your business. Does that sound like the kind of agent you want? Of course, if you've already signed an exclusive agreement by then, you're stuck. Yet another reason to prefer the non-exclusive agency contract, where you can fire that agent by simply not working with them any more.

I have also seen the actual listing agent writing up ads on third party sites for far less than the list price of the property - a violation of fiduciary duty if ever there was one. This isn't a buyer's agent saying "I think I can get it for $X" This is a listing agent essentially repricing the property without consultation with the client. Nor can they have it both ways. If they feel that is a correct pricing of the property, why haven't they persuaded the owner of that, so the listing is priced correctly in MLS?

It is to be admitted that every once in a while - maybe one in a hundred - the property in question is a "For Sale By Owner" that hasn't figured out how to put their property on MLS through some discount service, or is too cheap to spend sixty or a hundred dollars to do so. Neither one of these is a recommendation for the property. If they're too greedy to spend that small an amount of money that will get the property sold better and faster than everything else, that doesn't bode well for their negotiating stance. On a $200,000 loan at six percent, $100 is three days interest, and that's a tiny loan around here. If the property gets sold three days faster by alerting the agents (and all of their clients with automatic feeds) to its existence, that owner is ahead. And if they can't figure this out, or don't care, how likely are they to negotiate in good faith?

On MLS, there are checks. The property is linked to public records. Other agents who know the area can challenge it. Not to mention the fact that the price listed must be the current asking price per the listing agreement. There are penalties for claiming something that is objectively untrue. There is a limit to the puffery due to these facts. Third party sites, not so much.

All of this is quite aside from the fact that Dual Agency is a recipe for disaster, but at least a third of the buyers out there don't know this, because that's about the ratio of buyers that use the listing agent, according to Association of Realtor figures.

But the key feature of the third party sites for these ads is that they are not checked by anyone. The only way to find out if they're BS is by calling - and that's what the agent wants you to do. If they can convert one call in twenty to a client by writing an ad for a nonexistent listing on a third party site, they are way ahead of the game. The other nineteen weren't going to be their clients anyway, and one client with a $150,000 purchase - tiny around here - can put anywhere from $4500 to $9000 in their pocket. But do you really want to work with an agent who got your business by telling a lie?

I wouldn't.

Caveat Emptor

Article UPDATED here

Links and Minifeatures 2008 09 16 Tuesday

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Carnival of Personal Finance

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Timing the Entitlements Crash

Investor's Business Daily ran a story recently, Tax To The Max, on a Congressional Budget Office study of the U.S. finances.What it says is that spending on Social Security, Medicare, Medicaid, and other entitlement programs is unsustainably high. The study projects tax increases of 150%, with the lowest income-tax bracket going from 10% to 25% and top rates going from 35% to 88%.

The IBD correctly notes: "Allowed to grind on without real reform, Social Security, Medicare and Medicaid will do what no invading army or cabal of terrorists has done or will ever do: bring this mighty republic to its knees. Increasing federal taxes by 150% will strangle economic growth."

also

recent broaching of the subject of certain [U.S. Treasury] bond issues being dropped from AAA to AA was one. To paraphrase Alec Guinness, 'I sensed the clenching of a hundred thousand sphincters on K-street, all in unison.'"

K Street in Washington is where the lobbyists - corporate and interest group both - hang out.

Read the whole thing

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How bad has media bias gotten? LGF has details

60% of Washington Post's Biden Tax Story Devoted to Palin

Here's what was left out of the Sarah Palin Interview. HTHugh Hewitt

Debunking a New York Times Hit Piece

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I don't think the Yemeni regime is going to stop digging: Yemen Refuses Visa to IFJ President

A senior Yemeni official said on Sunday Yemen's government had apologized officially to grant an entry visa to President of the International Federation of Journalists (IFJ) Jim Boumelha to visit Yemen.

The IFJ President was planning to hand over Yemeni journalist Abdelkarim al-Khaiwani an award of Amnesty International.

The Yemeni regime has dug so deep that they've already put Project Mohole to shame.

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For all the times the left accuses the right of wanting to disenfranchise people, for some reason every time there is a specific documentable incident it seems to be the left trying to disenfranchise the right. Volokh Conspiracy has another specific citation where Republican registrations have been rejected where a group of Democratic ones with the same flaw were accepted.

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Obama doesn't want anyone questioning his patriotism. But he must believe it's okay for him to question McCain's

Sauce. Goose. Gander.

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FactCheck.org takes on the Palin slime.

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Hot Air covers some obstruction of an investigation in Alaska.

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Spy Agencies Are Learning to Love Google

The officer calls it "the seduction of the 'top-secret' stamp."

That's a common refrain in the intelligence community when the subject of so-called open-source information comes up.

The information itself is not classified, but their interest in it is.

Faster please.

I look forward to the day anybody can use facial matching software to tip the police off to the whereabouts of wanted criminals, and the day when anybody can look and see if they got the right crook or not.

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Feminism, then and now

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Did Obama try to scotch an Iraqi-US agreement on military forces?

If so, it's not only of questionable intelligence but actually illegal.

Wizbang has more


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This isn't good: Pakistan orders troops to open fire if US raids

Pakistan acknowledges the presence of al-Qaida fugitives and its difficulties in preventing militants from seeping through the mountainous border into Afghanistan.

Like the Saudis, Pakistan claims to be an ally, but in practice they're only masquerading as one.

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We're all going to have to learn some new jokes:

Porn passed over as Web users become social

Social networking sites are the hottest attraction on the Internet, dethroning pornography and highlighting a major change in how people communicate, according to a web guru.
We read Searchlight Crusade every day and consider your essays a priceless education in avoiding the major pitfalls in the home-buying process. On behalf of all of us consumers, thank you so much for your hard work!

Please comment on any pitfalls in selecting a property to purchase that is on a community water system. How do we find out how many homes share the resource, how often the water is tested and what the results mean, the GPM rate and whether it's sufficient for usage without any rationing, etc. We've had a long-time driller tell us NEVER to share a well, but this is a community system, not a single well. Unless the system uses only a single well...?

To be honest, there aren't a lot of properties around here still on a well. The water table has gotten too low in the populated areas to make it work. Most of the properties that are on wells are isolated and in rural or quasi-rural settings.

First a little background for folks who may not understand anything about wells. You have to be aware of the well parameters, of which there are three that are most important: "How deep has it been drilled?", "How big is the holding tank?" and "How fast does the pump replenish it?" These aren't the only issues to pay attention to, but they're the ones that are guaranteed to bite you if you don't pay attention. Wells do silt up over time and may need to be re-drilled. Pipes and pumping mechanisms corrode, get old and break down. And water quality is sometimes a very big issue - for instance if the tank at the town filling station springs a leak, and it may even be caused by something nobody knows about. I knew a gas station owner who got fingered by the EPA for a leak and spent 4 years and over $100,000 digging it out, diluting the underground flume he couldn't get to, and everything else anyone could think of before someone discovered an old forgotten military tank left over from WWII that was the real cause of the whole thing. (No, he didn't get any of his expenses back). Not to mention the water may just taste bad. It happens.

Finally, I should also mention that most of the properties I know of that are on wells use septic waste disposal systems. It may be revolting if you think about it, but in some areas you won't have any choice if you're going to live there. People have been doing fine with these systems for quite a while and it's quite safe - but you need to be careful that both systems are completely up to snuff and separated by the appropriate buffers. I'm no expert on what those are, but be certain to check with someone who is an expert before you buy. This can also make it very questionable as to whether you're going to be able to do any expansions you may desire in a legal and safe fashion. Septic systems are only rated for so much, and if you want to add additions, you may need to expand them - if the soil will absorb the extra, and if there's room. Sometimes the soil won't, and there may not be the necessary expansion room even if the soil will take it.

Now, getting to your specific question: Do you know how many wells we're talking about, and what the communal capacities are? Ask yourself how much water you're likely to use, and multiply that by the number of folks on the system. Ask if there are any agricultural or industrial users on the system, and how much water they use. Add in a finagle factor for bumps in demand - for instance, if a main pipe or holding tank springs a leak, one of your neighbors hosts a family reunion with a fleet of RVs, etcetera. If one of the users is agricultural and it's a dry growing season, they're going to put a lot of demand on the system. I haven't encountered it personally, but given that southern California used to be the citrus capital of the world, I've heard older relatives tell me about water wars between citrus growers and between citrus growers and everyone else. It still happens today, even though most agriculture has now left the area.

Now, let me ask what feeds your water supply? What's the source of the water? Is it just rainfall, or is there some permanent stream nearby that feeds it? How is the water table holding up under current and projected demand? Is it holding steady or dropping? Go ask some people that have lived there for a while about dry years and whether they have water worries. Ask about whether there has been more demand placed upon the water available in the past few years. Ladies and gentlemen, my father told me stories about the San Diego River filling Mission Valley from side to side, so there wasn't any way across that didn't involve boats. I remember floods that completely filled the underground garage at Mission Valley Center, right up to the ceiling. In the last thirty years, however, there has been too much demand placed upon the water table for it to flood like that.

My point is this: water tables don't replenish themselves. There has to be water coming in to replace what is used. If there isn't enough coming in to replace what's going out, there's going to be a problem. Eventually, everybody is going to be out of water if this is the case. The only question is when. Do you want to buy into a situation like that? They can drill deeper and all the other stuff; it only delays the day of reckoning and makes it worse. This was one of the root causes of the Dust Bowl back in the 1930s - everyone had kept putting increasing demand upon the aquifer that underlay an area basically several states in size, drilling ever more deeply to be able to water their crops one more year. A tragedy of the commons if ever there was one.

Which segues into another issue: All it takes is a small proportion of nitwits to exhaust the community water source. I've heard that your area is dry - perhaps not as dry as some of southern California, but that it doesn't get a lot of rain due to being in the rain shadow of some high mountains. If a few of your neighbors want to simulate a rain forest, it can leave everyone else without enough water. Exactly how many it takes depends upon the system and how much extra capacity it theoretically has. Even if everything is hunky dory now, all it takes is one water hog buying a property that's served by the system to possibly create problems. So let me ask you what the provisions are for limiting the water of abusers of the system? If you have to get law enforcement involved and go to court for years, where is the community going to get the money? Can you afford your share? Not to mention you would probably like to know where you're going to get water in the meantime. And what happens if the community water authority is run by control freaks? You don't necessarily have to do anything wrong to incur their wrath. Sometimes, all it takes is changing something they're used to, and even though it doesn't impact water use adversely, they'll try and use the water authority as a means of getting back at you (I suppose I should thank Larry Niven for introducing me to the concept of hydraulic despotism at a relatively early age). How big is the community water system? The bigger it is, the more nitwits it takes to drain the system, but the smaller it is, the more likely everybody is to make a good faith effort to get along and the less likely it is that some people see it as a lever for power over others. The issues aren't at all unlike those encountered by common interest developments in the cities, except that it's water rather than parking, recreational access, or loud parties that make it difficult for everyone else to live their lives, and a board that's more interested in its own power than in harmonious administration of common resources for the benefit of all. Unfortunately, these are all depressingly common occurrences.

Caveat Emptor

Article UPDATED here

My article Debunking the Money Merge Account Scam has been getting a lot of attention and a large amount of hate mail lately. The scamsters that sell these things love to send me hate mail for exposing the fact that their particular emperor has no clothes.

Here is the bottom line: The only benefit these programs actually get is about two weeks temporary reduction of principal per month, based upon your take-home pay. On a $200,000 mortgage at 6 percent, that is worth roughly $4.41 per month under ideal conditions. It will pay the mortgage off approximately three and a half months early. On a $400,000 mortgage at 7%, it's worth about $11.41 per month under optimum conditions, and will pay off your mortgage a little over five months early.

They programs do not give you the right to make extra payments, and they don't save you the money that those extra payments saves on your mortgage. Anyone who doesn't have a "first dollar" prepayment penalty can do that, any time they want, for free, and if you do have such a penalty, Mortgage Accelerators and Money Merge accounts will not prevent that penalty for being levied.

What they do is charge you anywhere from $2000 to $6000 as a sign up fee for these programs, and most of them require a Home Equity Line of Credit (HELOC) as well, increasing the cost of interest of whatever money is in them. Quite a few of them also require a monthly fee that varies from $1 up to about $8. I have yet to find one of these where the numbers say that the gain is not more than offset by the fees.

Suppose instead, you spend the sign up fee on a one-time pay-down of your mortgage. Instead of paying $2000 to $6000 for this program that gets you a few bucks per month, you spend that money on a one time pay-down of your mortgage. I have yet to find a scenario where that doesn't pay off your mortgage earlier, and have a lower balance the entire time it is in effect, so that if you do refinance or sell as most people do, you're ahead of the game the whole way.

The people selling these scams love to pull the ad hominem. They accuse me of not liking the program because people on this program won't want to refinance, and there's usually something in their accusation about how I cannot sell the program. Both of these claims are nonsense. I have idiots begging me to sell these things on a regular basis, and I could sign up with any one of them and make money. I have not done so, because these programs will not deliver, and my entire method of doing business is predicated upon doing the right thing for the client, so they are motivated not only to come back to me themselves, but also to send me anyone they care about. Furthermore, people on these programs refinance almost as often as anyone else. The difference in the numbers these programs make is a lot less than saving an eighth of a percent off the actual interest rate, and I can prove it. If I have a refinance that saves them money starting the day it happens, they're going to sign up just the same as anyone else.

The only effective selling tool these con artists have to sell these programs is the appearance of free money. They assume that the money for extra payments comes out of some hyperspatial vortex. They do generate a few dollars per month in interest savings through temporary payment reductions, but as I covered above, you're better off using the sign-up fee to pay the balance of your mortgage down. Any extra payments that do get made don't come out of a hyperspatial vortex - they come out of your checking account, which comes from your paycheck. Such money for extra payments is then not available for other things, whether it's a vacation, a new car, an alternative investment, or just blowing the money down at Joe's Bar. The extra money is the same, and you have the exact same right to use it to pay your mortgage down faster with or without one of these programs. If you have it extra to pay down your mortgage, you can do so regardless of whether or not you have paid the sign-up fee for one of these scams. If you don't have the extra money, then obviously it's not going to get paid to your mortgage, is it?

In fact, one of the things these folks never mention is that the entire question of whether to pay off your mortgage faster is an open one, subject to a lot of variables, and the numbers in most cases argue that you should not. If you can make more with an alternate investment than you save by paying your mortgage down, the default answer is going to be that you should go with that alternate investment. Since average return over time of bonds and stocks and other possible investments is considerably higher than the six percent interest of your average mortgage, with federal and state deductions for mortgage interest paid lowering the effective cost of the mortgage further, it's silly to pay down your mortgage faster unless there are other factors. A mortgage accelerator may actually lock you into that when there are better, smarter, more profitable alternatives available. Finally, even though paying your mortgage down may be the alternative best in line with your current situation and plan for your life, paying any kind of sign up fee or monthly maintenance for such a program is a waste of money when you have the perfect right to make those payments on your own, for free, at any time you choose. Any fee you are thinking about paying for one of these things is a waste of money. You are better off putting that fee towards a one time direct pay-down of your mortgage.

Caveat Emptor

Article UPDATED here

I'll keep hitting this and hitting this until everybody understands this critical point.

From email:


First of all, I love your website. It is just a plethora of information for first time buyers like me who wants to be an educated buyer. Although there will be some things that I won't be able to understand completely, I try my best to learn the things I need to and have to.

I am located in DELETED and a first time buyer. We went with DELETED for our lender after shopping around for quite sometime. Our closing date is (23 days from now). There has been tell tale signs that they might be charging us junk fees. Please tell me if this is just my imagination or if I have the right to feel this way. When we got the first Good Faith Estimate from them they listed their lender's fees and all the other fees. Now when we got the paper work to sign begin the loan approval process new fees showed up on the lender's fees. I know this is an estimate but should their fees be constant on all of the Good Faith Estimates? Second, I was told to believe that the rate they will quote us will be based on the middle credit score between the three credit score bureaus. They used the lowest credit score. I am worried that come closing day that new lender fees will pop up on the loan papers and god knows what else. Is there a reason for me to worry about this lender?

Yes, there are reasons to worry about this lender. There are reasons to worry about most lenders. To be perfectly fair, there are reasons to worry about most brokers, as well.

There is a fact that it is critical to understand in order to be a well-informed loan consumer. If you ever lose sight of this fact as a loan consumer, you are likely to be setting yourself up to get rooked. Conned. Taken. Lied to. That fact is that there are all kinds of incentives for loan providers to tell you about a better loan than they can deliver in order to get you to sign up, and there is a huge upside and no real downside to them for telling you about something better than they can really deliver.

Let me haul out a rate and cost sheet for one of my favorite lenders (This sheet was from when I originally wrote the article, and I kept the quote because it's an example I'm after) and favorite title and escrow companies. If you are buying a $400,000 property with 20% down, then with this lender I can lock and deliver a 30 year fixed rate loan at 6.00% with zero total points to the borrower and total real costs of $3022. That's the grand total in costs. Lender's fees, broker's fees, appraisal, escrow, title, notary, recording, etcetera. For traditional purchases, where everything is like the default ways of doing it, the seller would also pay a $750 escrow fee and a $1253 policy of owner's title insurance. There would be prepaid interest on the loan of $160 for every three days remaining in the month ($53.33 per day), and the costs of an impound account if you wanted that. If you were in my office ready to lock that loan as I write this, that's what I could guarantee in writing to deliver. If you wanted to buy the rate down, I could deliver 5.75% for about 0.8 total points, which translates to about an additional $2600 in dollars. If you wanted to buy it down further, I could deliver 5.50% for 2 points total, or about $6500 in addition to the initial quote above. That's what's real. I can prove it, because I could write a loan quote guarantee that says if the rate is higher or the cost is more, I pay the difference.

Now, let me illustrate how far it's legal to low-ball, keeping that initial real quote always in mind: 30 year fixed at 6% for $3022. First off, all "third party" fees mysteriously disappear, as do the lender imposed fees, and now I'm quoting total costs of $610 plus four things marked "PFC" on the Good Faith Estimate. If I decide to tell you about those lender imposed fees in order to make it "feel" more real, that changes the costs to $1405, plus, of course, those four pesky PFCs. Or three PFC's plus $1530. Sounds like a lot less than $3022, doesn't it? But it's going to be $3022 PLUS any "junk fees" I try to sneak past you. Make no mistake: You are going to pay for that appraisal, that escrow, and that title insurance policy. It's a fact of life, inflexible as gravity. But I don't have to tell you about it initially.

Now, let's start playing games with the rate, and I must emphasize that these are legal. I would face no penalty for any of them. First off, I can have a legitimate belief that rates are headed downwards, and I could use the rates that include a 15 day lock instead of thirty. A fifteen day lock costs less. So I could tell you that you're actually getting a rebate of an eighth of a point to pay your closing costs. Many loan officers will tell people this. However, when the loan takes twenty-five days to fund, now the clients are paying that eighth of a point due to extension fees. I can actually hit fifteen days most of the time from a standing start if the buyer and seller cooperate, but it's not something I can promise because if they don't cooperate in a timely fashion, there's nothing I can do to force either of them to work faster. So I don't use fifteen day locks.

But that's only the first game. Let's say I think rates are going down, so I don't lock, but I do tell you what I think rates will be when I have to lock, and I tell you that I can do 5.75 for zero points. That's also perfectly legal, if completely unethical. Once again, I'm thinking the rates will go down that much, and also thinking about getting to use the fifteen day lock. Lest it be unclear to you, my entire justification for this is raw naked optimism. But it's legal raw naked optimism. Actually, in order to cover myself, I'll say one tenth of a point net cost to you for the rate. That way, I haven't told you it's a no points loan when it may not be, but most consumers only ask about rate, not the cost to get it, being ignorant of the tradeoff between rate and cost. By the way, if I'm an unethical loan officer, I'm going to do my darnedest to keep a dollar figure from being associated with any points quote. Why? Because 5.5% for $1405 plus "two of those points thingies" sounds an awful lot cheaper to the average person than the real fact that 5.5% will cost them roughly $9500 altogether. Same loan for the same set of facts, but one way of putting it certainly sounds cheaper, doesn't it?

But suppose my raw naked optimism does not come true in the real world. Suppose the rates end up staying where they are now. This is actually better than what often happens, because you get 5.75% delivered for about three quarters of a point, because they don't lock the loan until they're ready to print final documents, and so they can use the fifteen day rate. Pretty cool, eh? You saved about five percent of one point, or roughly $160, off what the quote was. But remember, they did not, in fact, lock your loan. Suppose rates are higher in fifteen days, which is what I really do expect. Let's take a WAG and say that 5.75% gets delivered for 1.2 points, and the loan officer says, "Sorry, that's the best I could do." Now, failing to lock cost you four tenths of a point, or about $1300, and I've seen it much worse than this. In fact, since the loan officer didn't guarantee their quote, they then blow it up to 1.5 points, and they've just put an extra $1000 in their company pocket.

Now, type three games: Don't tell you about the pre-payment penalty they're sneaking in so that they can get paid more. Two year pre-payment penalty gets them roughly $1900 more in the company pocket if they're a broker, $6500 if they're a direct lender. These numbers go up for longer penalties. But when you get transferred in a year and a half, it costs you $6500 extra for that penalty when you have to sell your property. I can even give you a small part of that to make it look like my loan is better than the competition. "Sure, I'll pay for the appraisal," or give you tenth of a point back to reduce closing costs, while hiding this $6500 salami in your loan papers or even coming back after the loan has funded and asking you to sign a prepayment rider "for compliance."

There is a type four game: Games with the loan type. Suppose I tell you about a "thirty year loan at 5.5% for 1 point total." Sounds much better than any of the preceding, right? Except that what I'm talking about is a 5/1 ARM, not a thirty year fixed rate loan, and I'm still able to play all of those type one and type two games with this quote. I could be talking about a 3/1, a 1/1, or even a three month LIBOR loan with those words. Point of fact, I actually can lock, guarantee, and deliver a 5/1 at 5.5% for 1.2 points with a thirty day lock while I'm writing this, and a 5/1 is something you should probably consider very strongly, but it's not the same thing as a thirty year fixed rate loan.

Let's take it up a couple more notches. How does a "Forty year loan at 0.5% with a fixed payment of $735.70" sound, especially when the payment for that 6% thirty year fixed rate loan I talked about is actually $1918.57? Pretty good? And the forty years explains why the payments are so low? Well, congratulations! You've just signed yourself up for a negative amortization loan at a real rate of 8.2% right now, and not fixed at all. The payment is fixed, all right, but the interest rate isn't. Oh, and by the way, if you keep making that payment of $735.70 for three years, you'll owe $59,000 more while under threat of a pre-payment penalty that starts at $10,500 and gets bigger until it expires. Refinance then, and your payment goes to $2272.27 if the same thirty year fixed rate loan is available them. May not be too bad for some folks, but if you couldn't afford the $1918.57 in the first place, why would you think you can afford 20% higher payments than that in three years? I'd say it's more likely that you can afford $1918.57 now than $2272.27 then. But everything I actually told you about that loan was not only legal, but also true.

Enough horror stories for now. What can you do about this? Keep it in mind that the prospective lender has every incentive to play these sorts of games, and very little in the way of concrete incentives not to. People sign up for loans based upon who tells them about the best deal, and if that lender can't get you to sign up, there is an absolute ironclad guarantee that they don't make anything. If that loan officer is paid on commission, and the vast majority of all loan officers are, the choice is probably get money in their pocket or definitely no money in their pocket. But the cold hard fact is that without a written guarantee, none of the initial paperwork means a damned thing. Furthermore, most lenders are quite adept at avoiding giving you a guarantee. "We're a large ethical company that's been in business for 100 years and we honor our commitments." Sounds great, right? But neither a Good Faith Estimate nor a Mortgage Loan Disclosure Statement in California is any kind of a commitment. None of the forms you get at the start of the process is. Both forms say right on them that they are estimates. They could be accurate estimates or they may not be. The only thing that's required to be accurate is the HUD -1 form, and you don't get that, even in preliminary form, until you are signing final loan documents.

Now, some facts and industry statistics to illustrate why the incentives are there to tell you anything it takes to get you signed up. First off, the only universal guarantee in this whole situation is that if you don't sign up with them, they make nothing. Zero. Zilch. Nada. They've got bills they need to pay, same as you do. So you sign up, and they work on your loan for three weeks, and now it's time to sign papers, and they're not quite what you were led to expect. But you don't notice the difference. In fact, industry statistics say that over fifty percent of people don't notice at signing, and a substantial fraction of that never figures it out. I understand why; it wasn't easy for me to learn what's important, and I have an accounting degree. These forms are confusing to the uninitiated. Furthermore, the loan officer keeps you busy with a line of patter, and is talking about how much you're going to enjoy your new home, or what you're going to do with the money you're saving from the lower payment, meanwhile putting as many irrelevant and unimportant forms as possible in front of you to bury they important ones. This makes it more difficult to concentrate on those numbers swimming on that unfamiliar form. Some companies actually train their loan officers in how to distract the victims. I worked for one such company for about a month, until my loans started being ready to close and I discovered what they were up to when they showed me how to distract these people who were putting money in my pocket from how badly they were getting gouged.

Now, let's say you do notice. The situation is not the same situation as when you've signed up. If it's a purchase, you no longer have thirty days to get your loan. Indeed, your loan contingency has expired and you'll not only lose the purchase escrow, but your good faith deposit as well, if you don't sign those loan documents. You've been building up your emotions for the last three weeks thinking you're getting ready to move. You've put in your thirty days notice, you've packed up all your stuff, you've got the moving van reserved and the friends lined up, not to mention that you and your spouse are totally ready and emotionally psyched up to be owners!, and to be moving into this property. Darned few people will not sign purchase loan docs, even if they do notice the discrepancies. Industry statistics say less than 5%.

In a refinance, the motives are not as strong to sign loan documents that are less than it was indicated earlier. Most of the time you've got the house and you've got a loan you could keep, you just thought this one was better. But you've been told about this lower payment, or lower rate, or you need that cash out for your vacation that's starting next week or the remodeling contract that you've already signed. Your loan officer quite likely rolled thirty days of interest into the loan and told you that you would be "skipping a payment" (You never skip a payment, as I've explained many times), and so you've gone and spent the cash on a long weekend in Las Vegas. Now you don't have the money, and if you don't sign these documents, you won't have the money for your payment, never mind the kitchen remodel the contractor has already started or the nonrefundable tickets you put on your credit card. Finally, quite often the lender required a deposit that you're going to lose if you don't sign those loan documents. Industry statistics say that about 80% of refinances who notice major discrepancies in their final documents will sign anyway. All they have to do is sign their name, and it will all be over.

Now, whether you noticed and signed anyway, or didn't notice, you have just rewarded that loan provider for lying about that loan in the first place. They lied, you signed up, they got paid. Wow! It's like a license to print money! Not only that, but if they just play the game a little bit carefully, there's no legal liability or responsibility to you. I should note that there are a significant number of loan providers who do go over the top into illegal territory and liability, but it's not difficult to tell what is for all intents and purposes a huge whopping lie and stay legal (it is slightly more difficult if they're acting as your real estate agent for a purchase as well).

Now, what can you do about this? The absolute smartest thing you can do is apply for a back up loan at the same time you apply for the one you think you're going to actually get. This way, you can use the existence of another loan being ready to go to get leverage your bargaining position into a better deal for you. Now loan officers don't want to be back up providers - unless they think there's a real chance they'll end up with the business. In order to persuade them there is a real chance, for the business, you have to give them a real legitimate shot at being the primary provider. As my article on Getting a Loan Provider to Agree to be a Backup Loan says, if you're already signed up with someone else when you approach a loan officer about being a back up, you should expect to hear something that contains the word, "No." Failing that, I want to be paid something for my work, or I don't want to work. I'll want a deposit that I can keep if you don't do my loan.

The second best thing, which is an excellent supplement to the above, is a written Loan Quote Guarantee. Any quote that's backed up by a real guarantee is much stronger than one that's not. I don't care if the difference is three percent on the rate (and it won't be that high). I'd take the guaranteed quote over the one that isn't guaranteed, every time.

Finally, you can always insist upon answers to the same set of Questions for loan providers before you sign up. They can lie, and they can evade, but they are good and necessary questions to ask.

Caveat Emptor

Original Article here

FYI: I am now also writing at Mortgages Unzipped, a Zillow blog. It launched yesterday.

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I specifically decided that I wasn't going to write anything specifically September 11th related. I've said what I have to say. Nothing has changed for me. I believe we should be in this thing to win, and I will decline all invitations to forfeit, "Because like, it's so hard, and there are other things I want to spend money on."

Now that Iraq is standing more and more on its own, we need to get the job finished in Afghanistan.

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The best reaction I've seen to Obama's "Lipstick on a Pig" quote

In short: unintentional, no harm meant. By the standards of gotcha politics, a clarifying non-apology apology is required. He should do that.

Now let's get back to things that might be more important, like who voted for the Bridge to Nowhere, and what your plan is to keep another domestic attack from happening.

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Humor that Bugs Bunny fans will recognize: One Day on an Alaskan Cliffside

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Before you take Obama's latest attack on John McCain too seriously, maybe you should read this: Wondering No More

Well, I guess it depends on what you mean by "extraordinary." The reason he doesn't send email is that he can't use a keyboard because of the relentless beatings he received from the Viet Cong in service to our country.

Let me state in advance that I'll accept Barack Obama's word that he was ignorant of this, rather than intentionally mocking a veteran's injuries. Providing he doesn't dig himself in deeper

HT: Instapundit, who has several other links dealing dispositively with the issue.

Dems sue to shut down talk radio

In the suit, David Birke and attorney Johnny Birke argue that KRLA uses public airwaves to push Republican Party causes, an old lefty chestnut. Named in the suit are Salem, CEO Ed Atsinger and seven talk show hosts, according to the Glendale News-Press:

Haven't they heard of Air America? It's not like there isn't a polar opposite available. Not to mention Oprah, MSNBC, CBS, etcetera. IMHO, even if they win the case the Democrats lose this argument based upon the precedent shutting down their own propaganda factories, which are far more numerous and pervasive..

Still, it's morally abhorrent. You always know who's morally bankrupt and incapable of winning an argument on its own merits when they try to shut down the opposition.

HT: Michelle Malkin

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New Palin scandal: She billed the state for stuff she was allowed to bill

I seem to recall several instances of desperation like this in the last couple of decades - blowing up perfectly normal stuff into scandal, claiming hyperbolic consequences, etcetera. Thing is, every measure and candidate I can remember that resorted to this sort of thing lost badly. Keep it up, and this could be a 49 state landslide where the Republicans regain control of Congress. Keep it real, and you've got a chance.

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It sure looks like the Obama campaign is running scared.

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DISASTER!... Obama Gets Chewed Up & Spit Out On O'Reilly (Video)

How dare Bill O'Reilly not throw softballs underhanded.

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A message from an Iraqi veteran:

Stick with it until the end. The end is worth the time.

HT neo-neocon

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Don Surber points out a certain contradiction.

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I am going to speak in favor of Obama for a moment

Could Clinton have Palin-proofed Dems?

It really depends upon whether Obama wants to be president badly enough to die for it.

The Clintons have a long history of doing whatever it takes for advance their own interests. Not that Bill is in any way shy about self-aggrandizement, but Hillary is even more ruthless. To people who have been watching for the last sixteen years, she has made it clear she will do anything.

Now, imagine that the only thing standing between Vice President Hillary, who has very little official power, and the Presidency of the United States, the most powerful single person in the world, is the life of Barack Obama.

I wouldn't give you odds of one in a hundred thousand he'd last four years. Lloyds of London wouldn't insure his life. He'd check into Bethesda for a routine check up and suffer a fatal freak accident with a blood pressure meter. He'd fall down the stairs. He'd get crushed by a falling object. Air Force One would suck a pigeon through a jet intake and explode. You get the idea.

If I were in Barack Obama's shoes, there is no way in hell I would have chosen Hillary for the bottom half of the ticket. Quite frankly, a sane person would rather lose than take Hillary for Vice President. Nor is Obama going to drop Biden for Hillary. Pelosi, maybe, or any of half a dozen other Democratic women (and he'd lose, assuming an honest election. With Biden he's got a chance). Hillary: No way. There's risk taking, and then there's suicide. Choosing Hillary for Vice President would (at best) be a bet that he could off her and make it look like a Republican dirty trick before she could do it to him (He's a Chicago machine candidate, so his odds are probably better than many people might think - maybe 3:1 against)

So Barack Obama was quite sane and intelligent in my opinion for not choosing Hillary, who is well aware that her own chances of winning the presidency are a lot better in 2012 if Barack Obama loses. Therefore, look for her to do whatever she can to keep Barack Obama from getting 270 electoral votes.

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While I'm at it, a word of caution to the Republicans. Don't build Sarah Palin up too much. She's human, and she's going to fail at something in a human way. The consequences of such a failure are a lot less dire for a respected or even beloved but human figure than they are for a cult's object of admiration. Witness Barack Obama's current implosion.

Don't deceive yourselves about how ruthless Sarah Palin can be, either. She also didn't take on the entrenched Republican establishment of Alaska and win by being Mahatma Gandhi or Martin Luther King. I don't understand the mechanics of how it worked, but the evidence is pretty solid she's capable of playing some vicious politics of her own. Don't get me wrong about this. I like Sarah Palin a lot, and thus far, she's been on the right side of all but a small minority of issues, and she's done a lot that is right and good while causing very little damage. But just because "Sarahcuda" is on the right side of most issues doesn't mean she's not dangerous. So was Teddy Roosevelt.

If Arnold as the Terminator came knocking on doors looking for Sarah Palin, I'd bet on Sarah Palin, even without what's his name to help. That's a compliment, but it's also a warning. Enough said.

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We just had my younger daughter's birthday party. She's four years old today!


I find it fascinating the number of people who will claim that because no college degree is required to become a real estate agent, that agents can't possibly be worth any significant amount of money.

The reason no college degree is required is because no college curriculum can teach what a good agent needs to know.

Oh, there are license preparatory schools in abundance. They'll teach you what you need to know to pass the licensing exam. You do need to know that stuff to practice real estate, but it's a lot harder than answering multiple choice questions on a government exam. You have to understand how it all fits together. No school in the world teaches that. Real estate law and practice is an extremely complex profession, and every situation, every real estate transaction, is different because no two properties are the same, no two sellers are the same and no two buyers are the same. There are common recurring elements, but there is not one line of the standard eight page purchase contract (in California) that there isn't occasional reason to change via negotiation, and there isn't a school going that teaches what those exceptions are.

Popular media loves to gloss over what agents do. People see the media depiction and think they can do it. Ladies and gentlemen, the reason the media glosses over it is because it's boring detail work, and most of the dramatic interactions take place between pieces of paper. When's the last time you saw a legal thriller that spent a proportional amount of time on all the boring background work that goes on? Same principle. I was an air traffic controller for twelve years and I have yet to see a single media program get that right, and it's considerably more interesting to the outsider. People are not on the edge of their seats to see if form WPA or the addendum controls in this instance, the way they are when there's two 747s on a collision course and Jack Bauer (24) has to save the day - but the real estate agent has to know, and if they don't know, they have to find out without anyone giving them the answer. It's not exciting to watch the agent visit the comparables to compare features and condition and figure out what a good offer or a good price is. It might be good drama to watch a good listing agent talk a potential client into listing for the right price as opposed to their fevered dreams of avarice, but few media writers are that good - and even fewer have a clue that this is a good thing to be doing. It's definitely not drama the way a good agent closes with prospective buyers, the best way being to show them they've already convinced themselves that they want it.

Most people also don't have the critical skill necessary for an agent - the skill of betting their paycheck on weeks or months of work that may or may not move to a successful conclusion. If the transaction doesn't close, we get nothing. How many doctors you know work on that basis? Lawyers? Even the ones that work on contingency want their expenses paid, and that includes office staff, and they're not likely to take contingency cases without a very large prospective payoff. Nobody but agents bets weeks to months of their time for such a small payoff. The whole mindset is completely foreign to educational faculty. Grant papers, yes - but they're getting a regular salary while they write those. The fact that you've got to go out and get hired at least a couple times per month in order to survive is also completely outside their frame of reference, as well as most other members of modern society. For academics, even if they're turned down for a grant, they've still got money coming in. Even if they get refused tenure, they only need to get hired again once to have a new regular paycheck rolling in.

Most importantly, real estate markets are both hyperlocal and changeable. I've written a series that's eight or nine articles long about the neighborhoods of La Mesa, a city of about 60,000 people, and I have at least as many more to write. Those markets are different today than they were three months ago, and three months from now, they'll be different again. The only way you can keep track of what's going on in those markets out there is by being out there in those markets and living those changes. You can't do it from the inside of a college classroom, grading papers, and agents can't get this information from a college professor because that college professor doesn't know. That property that sold last week for $487,000 - what condition was it in? What amenities did it have? How big was it, really? Were those floors hardwood or cheap pergo? This property right here that meets these client's criteria - What are the competing properties, and where does this one shine by comparison, and what are the problems with it? What were the recent sales really like? You don't know unless you were there. Old listings on MLS don't give you a good idea. It takes a good agent maybe two weeks to learn not to trust MLS claims, MLS pictures, or MLS video. A bad agent might learn, they just don't act like they've learned. It's a very rare consumer who doesn't take it as gospel.

This segues in to the war of information. Listing reports are, in a very real sense, a battlefield of information. You can only learn by experience what is and is not important, what had damned well better be correct versus what's in there for purposes of puffery, what's important and real, what's useless and unimportant, and what's in between. What, you didn't realize that sellers and listing agents want to present the property in the best possible light? Ladies and Gentlemen, they're practicing informational warfare with the goal of making this house seem like the bargain of the century. Lest you think I'm getting all holier than thou, I do this too, when I list one. It's my contractual fiduciary duty to sell my listings for the highest possible price on the best possible terms in the least amount of time, and it is my job to tell the property's story in such a way as convinces someone to buy it on those terms. And roughly a third of all buyers use the listing agents as their buyer's agent. Scary, when you think about it. Do schools teach how to fight that informational war? Maybe the military educational establishment does, but nobody else, and they don't show how the principles apply to real estate, and even the marketers who've learned a good informational offense are sometimes stumped as to providing any defense whatsoever. Furthermore, an inappropriate or overly aggressive response to the situation can sink you worse than doing nothing at all. Did you learn all that in college? Me neither - and I took marketing. I had to learn how to handle the informational war by doing it. Admittedly, a lot of agents don't know, either, and won't make the effort to learn, which is why I'll back a newbie with the right attitude and a brand new license over someone with thirty years experience and the wrong attitude any day of the week. Nothing says "bozo" like the agent who brags about thirty-seven years of experience and acts like a deer in the headlights when he's presented with facts he'd rather pretend don't exist. But the point is this: the good agent didn't pick it up in school, and the rotten agent thinks they already know everything there is to know because they've got the license and one or two of those stupid NAR designators you sit through 18 hours of class for. I just did six hours calling around and reading today and yesterday on a subject I wrote about two years ago, and learned some things I didn't know. The final answer wasn't what my clients wanted, but I'd rather find out now, before we've made the offer than after we're in the middle of a transaction and my clients are out appraisal and inspection money and their deposit is at risk. I know for a fact that the answers to my research weren't in any NAR class, or anywhere else in any educational curriculum. Real estate is one of those fields where you've got to be prepared to learn as you go, but unless you've got the background of detailed knowledge of the field, quite often you run into a landmine you never knew was there, simply because you weren't looking for it. Someone a little more complacent than I am would never have questioned the obvious answer, which turned out to be wrong (It had to do with a municipal first time buyer program). My client is still questioning it, it's so counter-intuitive to a layperson, and I don't blame her. But there are huge and obvious traps that claim large numbers of victims. For example: the roughly one-third of all buyers who don't have a buyer's agent at all, using the listing agent to facilitate the transaction.

It's very hard to dodge landmines you're not looking for, and once the explosion happens, the damage is done. To be fair, even the best agent hits a landmine sometimes. But I'd rather be avoiding the mines in the first place than doing damage control afterward, and the odds of doing that are better if you've got someone on your side who knows what to look for, and is in the habit of questioning every irregular feature of the landscape they can before you drive over it, and who recognizes what an irregular feature is, because it's the hazard that you don't understand is a hazard that gets you.

Caveat Emptor

Article UPDATED here

With the down payment presenting the largest difficulty for most people want to buy right now, I am covering every base I can think of as a place to get a down payment. I have covered VA Loans (an article I need to completely revise to be more in line with changes since I wrote it) FHA loans which require a relatively small down payment, and Municipal first time buyer programs, some of which can take the place of a down payment. There are also seller carrybacks and lease with option to buy. There's also the traditional "Save it over time", and in some circumstances, you can also borrow from your retirement accounts or even take a withdrawal. You can even Sell Some Stuff. But there is at least one more entry to the pantheon.

Most people don't think of it, but a personal loan is one of the ways to get a down payment quickly. It has some notable drawbacks, but it can be done. Being unsecured, the interest rate is higher than real estate loans, and the repayment period is shorter, meaning higher payments.

A personal loan is a loan not secured by real property. Because it is not secured by real property, all the lender really cares about is the payments and whether you can qualify for the loan by underwriting guidelines including the payments for such a loan. Personal loans include car loans and student loans and just about every other type of installment debt out there, as well as personal lines of credit and even credit cards. Not all of these are a possibility for the subject at hand, which is rapidly acquiring a real estate down payment. CREDIT CARD CASH ADVANCES ARE RIGHT OUT!. But the possibility exists of borrowing enough to get a down payment with a personal loan.

This possibility includes both institutional loans from a bank or credit union, and "good in-law" loans from family members. Negotiate a loan contract, sign it, and be certain to disclose it to your mortgage lender on your mortgage application so that they know you're not trying to pull a fast one. The reason why mortgage lenders are obsessed with sourcing and seasoning of funds is because they don't want an undisclosed loan, which might mean that you cannot really afford the all of payments you're going to be making. But a fully disclosed personal loan is just like any other open credit. It has a repayment schedule, maturity date, etcetera. The mortgage lender looks at the situation, including the loan that got the down payment, according to lending guidelines, and if it appears you have the income to make those payments, they will approve the loan.

The major and irrefutable drawback to getting a personal loan for the down payment is that it impacts debt to income ratio. You have to account for the fact that you owe this money, and you are obligated to make those payments, and therefore, you cannot afford as big a real estate loan as you otherwise could. Since most people try to stretch their budget further than they should anyway, this can be a deal-killer. It can force you to buy a less expensive property than the one you have your heart set upon, or even than the property you could otherwise afford. Of course, if you don't have a down payment, you can't buy the property of your dreams either. But if you buy a property, especially while the market is down, leverage can mean you will be able to buy the property of your dreams much sooner and much easier, or in plain words, buying the less expensive property is smart if that's what you can afford now. Of course, if you've got more than enough income but no down payment, that's the situation where getting a personal loan for a down payment is a serious possibility. Say you're a doctor who just spent the last two years paying off your student loans ahead of schedule. You've got a great income, but you spent everything on getting rid of that debt, and as a consequence, you don't have much for the down payment, right when it will do you the most good.

It is possible, for some people who have a large down payment but are nonetheless getting a loan from somewhere (most likely a close relative), for the loan to be a subordinate real estate loan. This happens mostly when Mom and Dad are rich and doing estate planning. They loan Princess (their daughter) and her darling Husband some money to make it easier to buy. Note that the thing controlling it here is that lenders have guidelines that set maximum comprehensive loan to value ratio (CLTV), or the ratio of all loans secured by the property to the value of the property. Even though they may be in first position, lenders may not be willing to loan when there's another loan behind theirs on the property if the CLTV is higher than underwriting guidelines allow. It is necessary to make certain that the lender you apply with will permit any other contemplated loans. And even though Mom and Dad may be intending to forgive Princess' loan in accordance with gifting schedules, Princess and her husband still need to have an official repayment schedule on the loan and those putative payments must be taken into account on the debt to income ratio.

I must emphasize this again: DO NOT TAKE A CASH ADVANCE ON YOUR CREDIT CARDS!. Unless you have credit limits in the multiple hundreds of thousands, your credit score will plummet, and you will be unable to qualify for the loan no matter how much income you have. I will bet a nickel that someone will email me saying that they "did what you said," and that now they cannot qualify for the loan because their credit score is in the toilet. If you write me with such an accusation, I will drag you down to the zoo, where I will arrange for the elephants to do a line dance on your sorry carcass, and the rhinos to use what is left as a target for both ends. Taking a personal loan for a real estate down payment is playing with fire. If you're going to do it, make certain to follow lender and loan officer instructions exactly and carefully. There are a number of other pitfalls, that may not be as bad as the credit card cash advance but will still sink your loan. Getting a personal loan for a mortgage down payment is the mortgage equivalent of a circus high-wire act - one wrong move and the whole thing is a disaster where people get crippled for life even if they aren't killed outright. But if the numbers are right, and you and your loan officer are careful, it can work.

Caveat Emptor

Article UPDATED here

Carnival of Real Estate

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I am not happy that the federal government is taking over Fannie and Freddie, thereby assuming liability for their debts.

It would have been far more effective and less expensive to create a new GSE without further access to taxpayer wallets.

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Bill Whittle on the McCain/Palin ticket.

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Is Oprah Biased? Host Won't Interview Palin

So what?

Yes, she's biased. She's openly supporting Barack Obama. That's her right, and I'd rather have a forthright endorsement and support of Obama from her (or anyone else) than the thin pretense of fairness from all the other media talking heads who, to quote Bill Maher, himself definitely on the left of the political spectrum: "Act like they're ready to have sex with (Obama)". For Oprah, there is something admirable in standing up and forthrightly letting us know who she supports and not pretending otherwise.

There is no law that says she has to invite Sarah Palin or John McCain or anyone she doesn't want to onto her show. If the Fairness Doctrine is wrong (and it is), then it is wrong when it's absence works against the candidate I favor in one particular. Oprah's supporting Obama. Last I heard, she had the same first amendment rights (i.e. free speech and free association) as everybody else. It'll cost her some audience, I'm sure, as those people exercise their rights of free association. If she's willing to take that hit, and she appears to be, I don't have any complaints coming. I might wish she was capable of seeing things my way, but that's all. If we bumped into one another on the street, I might try to convince her of my viewpoint, just like she would be free to convince me of hers. But if she wants to believe Obama will help this country more than John McCain, she's entitled to that belief.

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Wizbang on waffling about the success of the surge.

John McCain didn't support the surge because he thought it wouldn't work. He pushed for over a year before George Bush signed on because he had every reason to expect that it would work. If Obama were the kind of leader he's claiming to be, he'd acknowledge that John McCain was right and move on, instead of digging himself in deeper with every pronouncement on the subject.

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Fact checking ABC

"You should never use your public office to settle a private score."

Better investigation than ABC at Flopping Aces

Even the Washington Post is giving her credit for a job well done on the new pipeline.


More Palin rumors answered here

Not too long ago, I started negotiating for a property. I did extensive research online, and and I and my clients visited several competing properties. We made an offer that was a little under 90% of the asking price, and I justified it in a cover letter with several direct comparisons. The property has potential - but my clients were going to have to really work at realizing any of that potential - and I don't mean just carpet and paint.

The owner's response? They did come down a little bit - about 2% of the asking price. But all they said was, "We want $X"

That's it. No, "But the kitchen is beautiful, it's 500 square feet more than those, the location prevents it from getting socked in by traffic noise." None of which was true, but there were things they could have said.

Instead, just an ultimatum. I don't believe anyone can legitimately call that "negotiation", unless you want to include the sense that something with feathers that waddles on land, swims on water and goes "quack" can be labeled a Doberman Pinscher. It's still a duck, no matter what you call it, and that's still an ultimatum. If you look at diplomatic ultimatums, what spot do they occupy in the hierarchy? They're the last step before war. Similarly, in real estate, they're the last step before walking away. They should be a sign that negotiations have essentially failed. They're certainly not the way to start successful negotiations.

If you want more for the property, tell me why in the heck you think I should give it to you. What you want (more money) is irrelevant. It's counterbalanced by what I want - which is the exact opposite, to pay less money. Start a conversation for crying out loud - that's what I was trying to do. I didn't expect them to take my first offer, but my clients have the ability and interest to give them what they want - cash - for what they have: a property they don't want. Even if my clients are getting a loan, it still amounts to cash for the sellers. That's what any offer is really saying - "We're interested in buying this property, if we can reach an appropriate agreement." The initial offer is your bona fides as to what sort of agreement you're willing to reach. I don't make first offers I expect to have accepted, but neither do I make hopeless low-balls unless it is just a shot in the dark and I don't care if it "poisons the well" of possible rapport. I do want a reasonable response, and I do everything I can to encourage such a response rather than an ultimatum.

Duelling ultimatums is kind of like throwing matter and anti-matter at each other. Often, there's an explosion, and even when there isn't, nobody is happy because the radiation when they combine poisons everything. If you do end up with a purchase contract, there's still no rapport, so anything that comes along later is likely to cause the whole thing to fall apart. Why in the nine billion names of god would anyone want to do that? You don't get any empathy, you don't get any respect, and you're very likely not get a transaction, which means the buyer is unhappy, the seller is unhappy, and both agents are unhappy. Nobody is happy. It's nearly as certain as gravity. Why would you want to "negotiate" by dueling ultimatums when you know it's going to cause you and your client to end up unhappy?

I know how this happened. During the seller's markets, sellers had all the power. For a couple of years, there were dueling offers on almost every property on the market that was even vaguely reasonable in asking price. Listing agents got used to being able to dictate terms, and buyer's agents went along, in part because they could only hope to extract one or two things and going along with everything else was the only way to make it happen, and in part because the next time they made an offer to that listing agent, they didn't want it rejected out of hand. And it's taken three years of a buyer's market to start to get the message across that buyers are in command right now, buyers have needs of their own, and in the current environment if you don't give one buyer what they need in order to qualify or want in order to prefer your property to another, you may not get another buyer. You want to play hardball with this buyer, they're going to go down the street to the competing property, leaving you as the seller high and dry.

We're moving back to a more normal state of affairs now, but this doesn't mean sellers can play the autarch again. You have equity in a real estate property. You can't spend it at the grocery store, the gas station, or put it into your 401k. It's a real pain to swap it for another property, and if you're not willing to dive in and negotiate, you're not going to do well there either. You need the cash from a buyer - not necessarily this one, but how many do you think you're likely to get? There are almost always more properties for sale than there are people looking to buy them, and more coming onto the market every day. You can compete strongly enough to convince one buyer that they want your property instead of a competing one, or you are wasting your time. Effective negotiations are a large part of that competition.

A negotiation is first and foremost, a conversation. You ever had someone you got off on the wrong foot with, but then you had a conversation and found out they're a pretty swell person? Guess what? When you negotiate in good faith, both sides stop thinking of the other so much as "the enemy" and start to see each other in more human terms. This is good.

Negotiations are also an argument. A civilized refined argument. Many of us have forgotten how to have an argument that doesn't end up with lost tempers. You can find examples of this on both ends of the political spectrum - a sort of take-no-prisoners way of talking past each other - argument by slogan. Argument by putting the worst possible spin upon everything the opposition says or does (and conversely, the best on everything your side says or does) is worse than argument by slogan, as it shows actively bad intent, rather than just closed ears. Sometimes, one side is entirely in the right (or the wrong), but that's not the way it generally happens. Most times, there's evidence on both sides and some darker and lighter shades of gray involved, some justice and points on one side versus some justice and points on the other. In politics, the posturing is showmanship intended to woo third parties, but in real estate negotiations, the transaction is entirely dependent upon the two parties coming to an agreement both sides think makes them better off. Neither one can force the other to sign on the dotted line.

And what happens when you recognize the virtue of something the other side says? Yes, you give away something, but you get something as well. The other side takes a step back and says, "Wait a minute. This person is not just a member of the ravening horde, simply intent upon taking everything they can get." Yes, I'm trying to get everything for my client that I can, but if I try and get it by ultimatum, what happens when the other side is in a stronger position? If I try and get it at sword-point, what happens when the other side is better with sabers than I am? Even the very best lose at violence sometimes. This is why the idea of negotiations started - both sides end up better off and nobody ends up dead. The whole "defeat the vikings/huns/mongols" idea goes out the window when they start seeing you as human. Maybe when you say you see one of their points, maybe they come back and acknowledge some of your points as valid, and they give up something too. Guess what? The more both sides do this, the more likely the negotiation and transaction is to succeed.

Not everybody will negotiate in good faith. You always have the option of walking away from the negotiation table if they don't. I'm walking away less often these days than formerly, but it's still on the table. Knowing when is a matter of judgment and experience, and maybe training if you can find someone good enough, but you're not going to learn it all in one transaction. Sometimes walking away will knock some sense into the other side, most often when you've seen the virtue of some of what they're saying and they suddenly realize that in order to salvage this deal they want, they're going to have to get with the program. Sometimes, it doesn't. But in that case, there are other properties and other buyers out there that will be a better fit and give you a better bargain. If there isn't something better, then you shouldn't have walked away. It's as simple as that (Pssst: You can go back. Really).

So don't just trade ultimatums. Tell the other side why what you're asking for is necessary, reasonable, or both. Listen to what they say in response, acknowledge not only that you heard the response, but that you might even see the justice of some of it, if you can. They'll usually do the same. Give some ground where it is appropriate, and I am confident that your negotiations will come out better, as mine do, because we're not going back to a situation where one side dictates to the other any time soon. But you neither I nor anyone else can hold a conversation with the other side of a transaction if the other side is unwilling to hold it. If you are always willing, and always trying to start such a conversation, the odds of a successful negotiation increase dramatically.

My transaction? I think I've finally persuaded them to actually talk to me, rather than just trading ultimatums, both sides still have the ability to talk it over in private and think about it for a day or two. I'm expecting an answer to my most recent proposal this afternoon. Prognosis: hopeful.

Caveat Emptor

Article UPDATED here

Or, Ways to Minimize Down Payment Requirements

(Continued from Part I which stated the issue)

But with loans so difficult to get right now, that makes it a wonderful time to buy, because the competition for properties is non-existent. In economist terms, demand is low. Many people are too scared to buy, and more people are unable to get the loan that would enable them to buy. But the rule of making a profit is "buy low, sell high." Even if you have no intention of ever selling, wouldn't you really rather buy that property for $300,000 today than $500,000 three years from now? At 6% interest, the difference in the cost of the loan is $12,000 per year. I'm sure you can think of things to do with $12,000 per year, not to mention three years sooner that you pay the loan off and your cost of housing goes down to property taxes plus maintenance - and three years earlier that you have this enormous, appreciating asset that is completely paid for. So what can you do now?

The first, most obvious thing, is an FHA loan. These go up to 97% of the value of the property, and I don't think I've ever seen a situation where the FHA ran out of money. Basically, anyone who hasn't defrauded the government is eligible. This loan, right now, is the broadest solution generally available for cash strapped buyers, essentially equivalent to the adjustable "monkey" wrench of loans. It can be combined with the $10,000 IRA withdrawal feature for buying a first time house or if your retirement plan document enables you to take a loan, it can even be combined with that (consult an accountant for details). Sellers can contribute up to six percent for closing costs, family can gift you up to six percent for down payment and closing costs (consult an accountant for details). The drawback is that you've got to have that three percent down payment from somewhere. The down payment assistance programs that enabled buying FHA without money down are essentially dead, at least for now, and the FHA and lenders do not want them brought back - they've had too large a percentage of defaults from people who don't put any of their own money into a property, and too many unscrupulous agents and loan officers need to go to jail because they've been telling people "You're not risking anything, and you're not putting any money into it, so just walk away if it doesn't work out." It's not for nothing that 100% financing has required a bad reputation in lending circles, but considering that Americans as a group are finding it ever harder to save anything, the requirement to come up with 3% can be a challenge. FHA loans also require an up-front funding fee (which can be rolled into the loan) and an ongoing financing insurance charge that is the equivalent of PMI. This is what pays for the government guarantee that is the reason that lenders will accept these.

The second option, a true magic bullet, is the VA loan. One dollar down moves you in. Closing costs, up to 3% over the cost of the property, can be financed as well. No financing insurance, no mucking about with scraping up the down payment from forty different places, no income limits, and I even know lenders that tell me they'll go up to 1.5 million dollars on a VA loan. The biggest problem with the VA loan is that you have to have earned it from military service, something fewer and are doing these days. I'm just starting to work with a client who'll be my first VA loan in longer than than I like to remember. Still, the VA loan has been much improved in the last couple years, and is a great way to get into a property now.

One sort of "piggyback second" still survives to 100% loan to value, and that is in the form of various municipal first time buyer assistance programs. These are funded by federal grant money but run by individual cities and counties (usually with help from the state). Not all of them take the same form, but the "silent second", where no payments are due, is the most common in my experience, and most of them will lend at 100% of the value of the property. The county of San Diego and most of the suburb cities have this kind of program, as well as several dozen other cities in southern California. Unfortunately, there are several catches: They all either take the form of an equity sharing arrangement, or interest accrues, and they all limit your ability to refinance. On the plus side, some of them are forgivable if you spend enough time in the residence. Back on the minus side - big minuses - there are income limits which vary with the locality, and they run out of money at Warp speed every time they get a new allocation. But if it works for you and you are able to get in on one, they are like the vorpal blade going snicker-snack.

Seller Carryback financing is another option, albeit considerably less attractive to most buyers and sellers. This is where the seller "carries back" a loan for part of the purchase price. Many are the pitfalls for both buyer and seller, and quite often, first trust deed lenders actually refuse to work with these because their underwriting standards include someone having the discipline and income to save the money for a down payment, rather than borrowing still more money.

Finally, there is the lease with option to buy, or "lease option". This is the last gasp alternative for a lot of reasons stemming from the fact that the contract is agreed upon now, but isn't actually consummated for quite some time. This is time and opportunity for things to go wrong, from the buyer deciding they don't want to buy to the seller deciding they don't want to sell, or at least not on those terms. Yes, there's a contract in place giving you legal rights, but the other side can usually contrive to make it more trouble than it's worth if they want to. However dangerous they may be, the lease option still does have the potential to make a sale happen, where without it both the buyer and the seller would be unhappy, unable to trade what they have for what they want.

The loan market will loosen again. Where it might have been too loose a couple of years ago, it's now too tight. Lenders are rejecting applications that are good risks, fully able to repay their loan, or simply telling their loan officer not to bother taking the application. Right now, in paranoid meltdown mode, they don't care, but when then things calm down a bit, they will because they are passing up profit. Unfortunately for those looking to get the best deals, when that happens, lots more people will be able to qualify for a loan and demand will shoot up, followed by price. Right now, things are a lot more affordable in my neck of the woods than an analysis of people's ability to pay suggests that they should be. This is because for the last two to three years, many people who want to buy have been scared of the market, unable to qualify for the loan, or unwilling to actually make their move. When this changes, the prices that people pay will start to rise, most likely pretty rapidly.

Caveat Emptor


Neighborhoods of La Mesa: Normal Avenue

For that matter, Neighborhoods of La Mesa: Summit Hill

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Sarah Palin vs. Barack Obama

via Q and O, this article is humorous, but also pretty much a fair comparison between the two: Palin in Comparison

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Just when I had lost all hope for the left side of the political spectrum, an article like this one comes along and restores it. There are honest, patriotic people on the left. It's just that sometimes they become totally eclipsed by other, louder, more common voices.

I have never seen such a smear campaign in my life as the last few days, based upon "Make stuff up. Don't fact check, just rush it to print. Even after it's debunked, there will be suckers who think it's still true" Here is a partial list three pages long, and it's limited to the stuff that made it into major media.

To be fair, there are also those on the right (Pat Buchanan and Ann Coulter, to name to) who need to have their microphones permanently disconnected and be banished to the Political Wilderness of Shame, where they are free to say what they want, but nobody pays attention to them. Kind of like the way Quakers treat those who have gone beyond the range of acceptable conduct.

The problem is that while the Republican party has these people who should be social pariahs on the fringes, on the Democratic side of the aisle they have taken over the party. I'd really like to see that change. The Democratic party used to be rational and respectable, and will be again if they can find enough like wizardfkap. They might start by inviting Joe Lieberman, a man I disagree with about everything except the war on terror but I have to admit that he's a class act that I respect and admire, back into the party.

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I got to see most of Sarah Palin's speech Wednesday night. My wife, who is rarely interested in politics, was so rapt that she accepted my offer to do the bath and bed for the kids. My impression is that, like most politicians, she needs to work on delivery, but the content was first rate. Yeah, it was written for her. But she lived what it talked about, and it wouldn't have been nearly so effective without being the truth. And if we're going to disallow politicians who employ speechwriters, that leaves us with nobody above the local level. They've still got to communicate what they want the speech to say, most of them write modifications, and they've got to agree with the content.

However, I do not agree that the election is won. In fact, it's too close to call. There are two months left before the only poll that counts, and anything can happen.

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Thursday: Missed the beginning of John McCain's speech, but what I saw was very good. The ending was magnificent. I'm a cynical old fart in my late forties, and it brought a few tears to my eyes, because John McCain has actually lived the life he talks about. He convinced me that he believes every word of that wonderful ending in his speech, and that's something nobody else has done since Ronald Reagan. (I've been a cynical old fart since my mid twenties...) He doesn't have Reagan's beautiful delivery. But for those familiar with his story, he has something Reagan never did: The sense that he has walked some of the darkest paths there are in service to this country himself, and come out still believing in the ideals by which this nation was founded.

Cynical old fart that I am, that is something I will believe in until the day I die.

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Armies of Liberation has a translated article from the Yemen Times, editorializing about Al-Khaiwani spending Ramadan in jail for criticizing the regime and exposing its lies.

This is a good editorial, and not just because it shows that others are willing to stand up for him. It also has what we'd call a "sympathy at Christmas" note to emphasize the humanity of the Yemeni people, something that it's easy to lose track of in a war.

Two years ago, the loan market was easy. It was like being one of those third world countries tapped into the IMF back in the nineties. Of course you could get a loan, and if you didn't make enough to handle the payments, the lenders were still eager to loan you that money.

Anyone who hasn't been hiding in a cave knows that's no longer the case. It's been like watching an ammunition depot self destruct in slow motion, Hollywood style. One load of ammo catches fire and cooks off spectacularly, thereby spreading the fire to the surrounding loads of ammo, which in turn cook off and spreads it to the ones further on down the line. One group of loans that should never have been made destructs, resulting in short sales and foreclosures, lowering the prices of property as more properties needed to sell than new buyers wanted to buy. This, in turn, made it more difficult for people who might have been okay otherwise to finance out of their nonetheless risky loans when the appraisals didn't come in, thereby causing more short sales and foreclosures, a positive feedback loop if ever I've seen one. Not in the terms of being desirable, but in the same sense of falling dominoes, progressive disaster, and nuclear chain reactions: one causes more.

On the other hand, in many areas of the country, those explosions have pretty much reached the edge of the ammunition depot. The people who are left have pretty much all managed to get themselves into stable, sustainable situations. They may not be as well off as they are two years ago, but they can handle what they've got.

The people who have really been burned by all of this is the lenders, and people who invest in lenders and mortgage backed securities. I say this not out of sympathy for them, because I and many others were warning of precisely what was going on while they joined the rush, but rather to help clarify and understand why lenders are so paranoid right now. Subprime lenders are essentially out of business - the customers the few remaining subprime lenders are looking for seem to be people who qualify A paper but don't realize it. It's gotten so bad that even lenders who kept sane and intelligent loan guidelines have been hurt by the meltdown.

Things tend to flow cyclically in the loan business. Two years ago, everything was riding high and loans were easy as the result of about fifteen years of nothing but good experiences with real estate loans. Losses were small by comparison with historical standards and minuscule by comparison with the present simply because prices had been rising that whole entire time. This encouraged lenders to serially relax their standards and their guard. Fifteen years is a long time in the lending business. Because fewer people stay in one job, or with one company, the critical mass of people who had been through the Savings and Loan meltdown in the late eighties and early nineties was now gone. They retired, they went into business for themselves (often as agents and brokers happy to encourage the new excesses), or they moved into another line of work. The low numbers of such people left at the lenders were insufficient to keep their co-workers, supervisors, and subordinates from going off the deep end with constantly loosening lending standards.

Indeed, those loosening lending standards were a major part of what drove the bubble. I have written about this more than once. The Mortgage Loan Market Controls the Real Estate Market. When lenders are loosening standards, more and more people find it easier to qualify for bigger and bigger loans, and what economists refer to as Demand for real estate increases. Drastically. But this was all driven in a vicious circle by rising values which fueled loosening standards which came right back around to fuel rising values. When the bubble stopped expanding, things started going wrong for the lenders. Because values were no longer rising, lenders stopped loosening standards. Because things had gotten way beyond sustainable and affordable levels, this meant values started falling, and lenders tightened standards because they were suddenly experiencing what are euphemistically called, "Adverse results," by which those describing it mean, "Those lenders lost their shirts - and their pants, socks, shoes, underwear, and quite possibly their first born children. What this means in the real world is that people couldn't afford their homes because they couldn't afford the current loan, they couldn't refinance, and they couldn't sell. A complete reverse of the vicious cycle I described a few sentences ago resulted, with tightening loan standards driving lowering values which in turn drove the lenders into further tightening standards. Instead of earning interest on the money they loaned out, the lenders have been losing the money they had in the first place. This is pretty much the state of the cycle right now.

So let's review what's available right now. Second trust deed lenders have been hurt the worst, because the first trust deed gets every penny they are owed before the lender on the second get a cent. Indeed, in quite a few cases, the first mortgage holder has emerged smelling like a rose and looking like a genius, while the lender that signed off on the second mortgage ends up completely broke. Second lenders, whether "piggyback" or "stand alone", HEL or HELOC, were the first to pull back on their lending standards. The rates weren't bad by historical standards last I checked, but they all want full documentation of income and max out just below ninety percent loan to value ratio, while in some cases limiting themselves to as low as sixty-five to seventy five percent loan to value, no matter how well you can afford the payments. Loan to Value Ratio doesn't keep the borrower from defaulting, although it can motivate borrowers to try harder, lest they lose the investment. It protects the lender from losing money in case of default. The problem has been way too many defaults, so second lenders have become completely paranoid about loan to value ratio. If you want to go above 90% loan to value, the only way to do that right now is with a single loan.

First trust deed lenders are, for the most part, perfectly willing to make loans to 100% of the value of the property providing they can get a guarantee, either government or Private Mortgage Insurance (PMI), issued on the loan. There are some exceptions to this. Declining markets subtract 5% off the maximum loan to value ratio. Extreme examples of this subtract ten percent, or even fifteen. Since the value of the property as far as the lender is concerned is the lesser of the purchase price or appraisal, this can mean you can't (or your prospective buyer can't) buy at that price even if you (they) do have 5%, 10%, or whatever is applicable to put down. Ladies, and gentlemen, I am very glad that the San Diego market has had the declining market designation removed. But so far as the loan amount is insured against loss, the lenders are willing to venture their money. Kind of like people who keep seven figures in savings accounts, because they're scared to take a loss, so they earn less than inflation in interest and pay ordinary income taxes on it. (Note: FDIC only insures the first $100,000 at any given institution).

The problem we're having right now is that all of the private mortgage insurers I'm aware of have, in the last month or so, gotten out of not only the 100% business but even the 95% business. So 90% of value is as high as "conventional" loans can go right now, because without that private mortgage insurance, lenders are too frightened. So you need 10% of property value in the form of down payment to buy without the government getting involved, 20% in some situations if you don't want to pay for mortgage insurance.

(Continued in Part II, dealing with solutions)

If you don't know the answer to this, don't be embarrassed. Lots of alleged professionals forgot the answers to these questions for several years, if indeed, they ever knew. It seems like quite a few still don't know the answer

Loan qualification standards measure whether or not you can afford a loan. By adhering to them, the lenders lower the default rates, and borrowers avoid getting into situations where foreclosure is all but certain. Lest you misunderstand, this is a good thing for both the lenders and the borrowers. It isn't like the lenders want to stand there like the Black Knight shouting "None Shall Pass!" They want to loan money - that's how they make profit. But unless you live in a cave, you may have heard of some problems with defaulted home loans of late. You may have heard they're a major problem for both the lenders and the borrowers. Guess what? They are.

From the lender's standpoint, of course, the important thing is that they prevent loaning money to people who can't afford to repay the loan, but the other isn't a trivial concern. Even if they get every penny back when they foreclose, foreclosures are still bad business, with negative impacts on cash available to lend, regulatory scrutiny, and not least important, business reputation.

Going through foreclosure is no fun from a borrower standpoint either. I don't think I have ever seen or even heard of a situation where somebody ended up better off from having gone through foreclosure than they would have been if the lender had just denied the loan in the first place. So whether you like it or not, the lenders are doing you a favor to decline your loan when you're not qualified.

There are many loan qualification standards, but the two most important ones are debt to income ratio, often abbreviated DTI, and loan to value ratio, often abbreviated LTV. The first of these is much more important than the second, but both are part of every single loan.

Debt to Income ratio is a measurement of how well your monthly pay covers your monthly payments. It is measured in the form of a percentage of your gross monthly pay, averaged over about the last two years. The permissible number can change somewhat depending upon credit score in some situations, and with enough in the way of assets in others, but the basic idea is you can afford to be paying out 43 to 45 percent of your monthly income in the form of fixed expenses - housing and consumer debt service. You can cancel cable or broadband internet, you can cancel your movie club or book of the month - but the items debt to income are concerned with are essentially fixed by your situation. You owe $X on student loans, and you're required to repay so many dollars per month. Your mortgage payment is this, your pro-rated property taxes are that, your homeowners insurance and car payments and credit cars are these others. There's no possibility of this money suddenly disappearing - you already owe it, and you are obligated to repay on thus and such a schedule.

Loan to value ratio is not a measure of whether you can afford the loan. It is a measurement of how likely the lender is to get its money back if you do default. With appraisal fraud and similar problems, it's not any kind of a magic bullet - but it is the best they have. When values are rising quickly and holding onto a property for six months generates a 10% profit, it shouldn't surprise anyone that the lenders are willing to take more risks with loan to value ratio than they are in situations like today in most of the country, where properties have been losing value and even if the borrowers had kept up the payments before default, they would still owe more than the property is worth.

Lenders aren't going to refinance on good terms if you're upside down or even close to it. But being upside down is not a big problem so long as you have a sustainable loan situation and can afford your payments. You keep making those payments, eventually you are going to have equity again. You try to get another loan after default and foreclosure, and you'll find out in a hurry that lenders are not forgiving. Kind of like the Wild Bunch in a way - mess with one, you mess with them all. Lots of folks are thinking that the smart thing to do is walk away when you're upside down. Even if they do have a non-recourse loan, they're going to find out soon enough that wasn't so smart. Making the payments on a sustainable loan lowers the balance, and values are going to come back - sooner than a lot of people think. Put the two together, and as long as you can hold out until you have equity again, you're better off making those payments.

These standards do, and always have, arisen out of "cut and try". Experience really is the best teacher - unfortunately getting that experience has a habit of being kind of rough. Experience may also be what you get when you didn't get what you wanted - in this case, a satisfactorily paid loan - but the lenders have regulators after them, and those regulators are sensitive to political pressures, and sometimes regulators won't let lenders do something they really do want to do - like loan money with a level of qualifications regulators look askance at - because if the lender makes enough bad loans, even if they survive financially, the regulators may decide they're doing something they shouldn't, and shut the lender down for predatory lending practices. It takes a long time and a lot of evidence to persuade lenders and regulators to relax standards, while a comparatively few bad experiences will have them toughening standards. Over-tightening lending standards has major bad effects upon everyone, including causing foreclosures that would not otherwise have happened, but it's hard to point to any specific victims and there's always idiots with a political axe to grind who will claim the people hurt by over-tightening standards were themselves victims of predatory practice. Right now, both lenders and regulators have been royally burned, and so they don't want to assume any risks they can avoid. This will likely change within a couple years, but for now, that's the way it is. You can learn what you need in order to qualify and get your loan approved, or you can go without. Right now, most lenders are too paranoid to care that having their standards too tight means they lose profit, because they've been burned too much, and the money they have in their accounts is not at risk from having made bad loans. When they make between six and eight percent per year on a successful loan, out of which they have to pay taxes, employee wages, facilities costs and everything else, a one in 100 chance of losing the entire investment to a bad loan is unacceptable.

Caveat Emptor

Article UPDATED here

Carnival of Personal Finance

Carnival of Real Estate


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Sing it, sister: Barack Obama: please end our dependence on cheap platitudes about foreign oil

She quite fairly hammers John McCain in anticipation for the same sin, because I'll bet you a nickel he'll commit it. I don't have rose-colored glasses for either major party candidate. I favor John McCain because one of these two men is going to be the next president, and Barack Obama will do far more damage than McCain, by at least an order of magnitude, and John McCain might, if we're lucky, do us some actual net good.

The last time I was this certain of the relative merits of and problems with the two major candidates was 1980, when I voted for Ronald Reagan. I'm almost thirty years older now, and I'm rarely that certain about anything in my late forties. But this is an exception.

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"tape 'em all, let YouTube sort it out"

Works for me. For politicians of all philosophies and parties. Anytime they're out in public, a camera can catch them - just like Joe Citizen.

Privacy laws and laws against taping work against the so-called common man, and for the powerful.

In the referenced clip, the two powerful politicians were joking around in public. They may have thought that the citizens around them who could hear were inconsequential. Thanks to webcams and the internet, not so. I would say the exact same thing if it were George W. Bush and Karl Rove and John McCain, and it would force me to re-evaluate my opinion of their character.

And it's more than a little hypocritical of those on the left to condemn this recording when for the past election cycle or two, they've been doing precisely this to the Republicans (Senator Allen's "macaca moment" was the fruit of one such, without which the Republicans would control the senate. Note that I didn't complain then and I'm not complaining now - it was a fair cop, and if I think it got overblown, others don't) Sauce for the goose is sauce for the gander.

Indeed, the left's reaction reminds me once again of what Peter Lorre's character said in "The Raven,": "You coward! You're fighting back!"

There are limits - you shouldn't be recorded without your consent in the privacy of your own home. But rooting out this kind of behavior in any kind of a public setting is a wonderful benefit of modern technology. Kind of a Darwinian "Improve the breed" for politicians - among others.

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Obama's answer on experience: But I'm such a great campaigner!

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A disastrous development that's been coming for a while: Bell Labs Kills Fundamental Physics Research

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I do have one question for the national media "doing their job" by bringing Sarah Palin's family challenges (Which thus far I find to be mostly show her in a good light) of this to our attention: When are you going to "Do your job" and give Barack Obama and Joe Biden the same treatment?

Just off the top of my head, these should be fertile grounds for investigation, most of them criminal investigations, which would disqualify them from office altogether if they should be convicted.

Obama
-Political cronies with William Ayers
-twenty year relationship with Jeremiah Wright
-Ten year realtionship with Tony Rezko
-played along with Chicago's political machine
-secured millions of dollars in earmarks for hospital that hired Michelle Obama

Biden:
-Lobbyist son works for MNBA
-voted yes on bankruptcy reform in accordance with banking industry wishes, rather than recusing himself as would be proper

Is there anyone who does not believe that the national media is openly supporting Obama and the Democratic ticket, while doing everything in their power to undercut McCain, Palin, and the Republicans?

Regarding treatment of Sarah Palin over the weekend, I was going to write something excoriating the Leftist press over this, but Megan McArdle beat me to it. I'm not going to bother with the idiots who accused Sarah Palin of faking her most recent pregnancy to cover for her daughter - that was so mind bogglingly stupid I couldn't believe people were wasting pixels on it.

The dragging through the mud of a 17 year old girl who has not campaigned, not given any speeches, not sought or been pushed into the limelight by her mother is slimy. I said this when it was Chelsea Clinton (before she started campaigning). I believe once they voluntarily step onto the campaign trail (e.g. Laura Bush and Cindy McCain, Michelle Obama) they make themselves fair game, but until that happens, leave them the heck alone. They didn't choose for their famous relative to run for office. They have a life of their own. Let them live it.

I see nothing wrong - and plenty that's praiseworthy - in how Sarah Palin has handled her family. Yeah, it'd be better if her daughter hadn't gotten pregnant, but short of locking her her up 24/7 - something I'd suggest would be evidence of character shortcomings - the girl is going to make her own choices, and 17 year olds are not as level-headed as thirty year olds. But in both the case of her own fifth child (born with Down's Syndrome) and her oldest daughter's pregnancy, she has done exactly the right thing. I've seen the phrase "shotgun wedding" applied more than once to the daughter's upcoming nuptials - but no evidence presented that the young man in question is in any wise being coerced into the marriage. Throughout most of human history, girls of fifteen to eighteen and boys of similar ages have been getting married and starting families. Yeah, it's probably smarter from a standpoint of the young folks not to start quite so early in our modern society, but it's still the right thing to do for the baby. They're accepting a lot of extra problems they don't have to in order to preserve an innocent life and care for it. Isn't that the sort of things those leftists praise working mothers for doing? I agree - it's heroic, not in the military risk your life sense, but in the sense of people who are going to do an awful lot of work they don't have to, over a period of time at least two decades in length, to make certain that child has the family life it deserves. And Sarah Palin, who taught her daughter well enough to take responsibility for the mistake that resulted in the pregnancy, even when they could get out of all of it in several ways? That's the sort of person I want to vote for, a sort of leader who is in far too short a supply in our government at any level.

I've also seen leftists telling Gov. Palin she should become a stay-at-home mom and give up her career, because she's got a special needs child. Say what? NOW may have gone overboard in the last twenty years ago, but that was one thing they accomplished that I agreed with even as young kid whose mother worked. A woman is not a life support system for her ovaries and womb, nor should she be expected to do more in the way of child care than men. Biology already forces her to spend nine months carrying the baby and she's the only parent who can lactate. Sarah Palin is the sort of person the feminist movement was all about in the beginning, the mother who wanted a career as well, and if the leftists who've been criticizing her for having and continuing her career had any conscience whatsoever, they'd appear before her to apologize, metaphorical hat in hand. Or is it that they just can't believe the Republicans have gotten past the 1950s, so they're hoping to peel off some Republican supporters? And for the left to sell out its supposed principles of female economic liberation in order to peel off a few votes in one election should have honest feminsits crossing party lines to vote McCain/Palin, because their own side has certainly demonstrated more than once in the past couple of weeks that when it comes to actually doing the things they say are praiseworthy, the Democrats have not come as far as the Republicans.

As for troopergate, where Gov. Palin tried to get her ex-brother in law fired from his job as a state trooper, that began well before she was elected governor, and if your governor was personally aware of a rogue, out-of-control law enforcement officer, wouldn't you want them to try to do something about it? This clown was guilty of abuse of authority, using it to harass non-police, tasering an 11 year old boy, poaching major game animals, and several other offenses that should cause a law enforcement official to lose his job. I'd prefer the louse was in prison, but having his ability to abuse the law removed might be sufficient for some people.

If this is all the leftist media has on the lady (and it appears to be) than the "revelations" we've seen thus far, then yes, I'd have to agree that the McCain campaign vetted her well, and there's nothing here that should be harmful. It has been reported that McCain himself knew of everything true that's been reported thus far, and chose Governor Palin anyway - something that says quite a bit in favor of his judgment. I'd say that if some people think there was anything wrong in the above actions, that's more a commentary on those particular people than on the Palins. Just because I think abortion should be an available option, and women should have the ability to choose to terminate their pregnancy, does not mean I think that doing so is in any way admirable, nor that doing so should be something anyone should encourage. In fact, if you've got the personal fortitude to deal with an unwanted pregnancy, an unplanned child, or a special needs child by keeping that child and bringing it up in the best way of which you are capable, that is what says something very admirable about you.


Lots of people ask about first time buyer programs, government assistance, and other assistance. Mortgage Credit Certificate, municipal first time buyer programs, FHA, FHA Secure, even the VA loan.

The one thing they all have in common is that they require full documentation of income. You have to prove you make enough income to afford not only the loan, but the other costs of homeownership and your other debt service payments. Even ACORN. I may have a deep and abiding dislike for their politics, the partisan nature of how they use some of the money they get from the federal government, and the fact that they won't do business with small people like me, but they are sane enough that their loan guarantees require full documentation of income. The FHA allows a little irregularity on sourcing and seasoning of borrower funds, but it's hard as nails about documenting borrower income. You don't have to prove every penny you make, but you do have to prove you make enough.

All of these programs, without exception, are in place to encourage long term home ownership. The MCC and municipal programs (funded by federal funds) have an explicit goal of stabilizing neighborhoods. FHA and VA have the goals of expanding home ownership among those who need a little help on down payment. If you can't afford the payments, you're not going to be a homeowner very long. That wouldn't stabilize neighborhoods, and it wouldn't encourage long term home ownership - in fact, it would create problems that would likely follow you long enough to delay or discourage home ownership altogether. Therefore, they want to know that you can at least theoretically afford the loan you are biting off. Hence, full documentation of income.

What is acceptable documentation? Paystubs and W-2s or copies of income tax forms, depending upon exactly which profession you're in. The option of bank statements that exists with subprime loans is not acceptable, as they are too subject to manipulation and padding. Lenders accept paystubs and W-2s because there is a third party attesting to the fact that they paid you this money. They accept income tax forms because it's perjury to lie on tax forms, and more importantly, because declaring this income costs you money, in the form of taxes. $50,000 of income costs you more in taxes than $45,000 of income - and therefore you'd have to be pretty silly to declare more income than you actually make, because you'd be out the taxes without the income.

You also have to have a history of making the income. One paystub won't do. The usual standard is current and previous year, and your income is averaged on a monthly basis over that time frame. In some programs, they require three years of tax returns, even though you may be able to prove your income via paystubs and w-2s.

What does this mean? It means that they have a reasonable assurance that at the time of purchase, you can actually afford the payments on this property and all of your other debt, and be able to continue to afford them. Doesn't mean you won't lose your job tomorrow. Just means that as of the moment you have a documentable history of being able to afford what you're buying - and that even if you do lose your job, chances are good you'll find something comparable.

This frustrates the heck out of tax cheats, but also the self employed and other folks with large legitimate deductions, because it's adjusted gross income that is used, after all of the deductions and expenses and everything else.

It also means that when you're shopping for a property and hoping to use one of these programs, you have a hard ceiling on what you can afford under program guidelines, based upon loan rates, property tax rates, insurance, how much of a down payment you might have, and what your other debts are. Lenders pay a lot more attention to debt to income ratio than anything else when making a lending decision.

Suppose you're trying to plan ahead so you can afford as much property as possible, what's the best way to increase affordability? Usually, existing debt is the biggest obstacle, and paying down debts is usually the best way to increase what you can afford, providing you still have the necessary cash for closing costs and the required down payment. Basic money management advice: live within your means, don't charge anything you don't need to, and pay it off as quickly as possible. In California, $500 per month in existing monthly debt payments reduces the purchase price you can afford by roughly $75,000. By comparison, that's roughly the monthly payment on a $30,000 car or maybe $15-20,000 of credit card debt. This isn't a popular message - people don't want to hear about bad consequences or decisions they've made. It is nonetheless a fact of life.

So if you want to take advantage of any of the various governmental assistance or loan programs, you need to stay within a purchase budget. If you want to increase that budget, earn more money and declare it on your taxes, spend less, save more, and pay off any existing debts you may have.

Caveat Emptor

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