May 2009 Archives

May 30th, 2009

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

There were no strongly recommended articles this time.

**********

RECOMMENDED

Closing on Our First Rental Property is a decent overview of issues regarding rental properties.

8 Common Selling Mistakes Basic but some things cannot be repeated too often.

Help! My Home is going to tax sale This is far from universal. California's rules are completely different (for example it can take up to 5 years to condemn a property for unpaid taxes, but interest and penalties start accruing from the first day you're late).

Your host presents You Want an Agency That Can Pay ENOUGH Attention to YOU

**********

MET GUIDELINES

Oswego Townhouse Nightmare about a developer folding midway through a project

Is Now The Time To Buy A House?

I usually don't include posts of this nature, but I'm making an exception for Killearn Lakes Unit 1 Home Prices Holding for one very worthwhile nugget of information: "The previous two real estate graphs are a classic example why most real estate reports are flawed. They lead you to believe that prices are going up or prices are going down, solely based upon the movement of the average sales price. As we saw in these graphs of home sales in Killearn Lakes Unit 1, it is possible for the average price to go up, while values are dropping."

**********

SPAM AND OTHER RIDICULOUS SUBMISSIONS

A clown named Jacques Groenewald submitted a post "Make Easy Money On Ebay" which did not so much as mention real estate. This joker cannot even handle easy to understand instructions on submitting to this carnival - and they're giving advice on Arbitrage between auction houses?

The same website submitted a second article called "Thinking Like a Millionare - 5 Steps To Understanding a Millionare's Mindset" All of the millionaires I know of have no trouble with easy things like submitting appropriate articles. Maybe he doesn't understand Millionaires as well as he thinks.

Finally, they submitted another article which just plain pimped a scam alleged to make money from twitter posts. After three strikes, anyone is out, let alone a multiple spammer. Back in with the rest of the slime. 'Tis the Blacklist for you, ya scurvy dog! Except that I think I just insulted scurvy dogs.

"Cheap ways to make your own online beats" was another spam article that was submitted. Well, spamster, you lost.

The same Clown, Ruoall Chapman, submitted more spam "Everything you need to know about how to Make Online Beats", beclowing himself in ignominy. I blacklisted him. You should probably do the same.

Someone named Raag Vamdatt couldn't afford a clue and so submitted "How to use a credit card the financially prudent way" which does not so much as mention real estate. If he can't follow directions - or even wonder if perhaps Consumer Focused Carnival of Real Estate is not the place to be submitting a credit card post, then perhaps there is a fundamental disconnect in his thinking on other subjects?

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 June 30, 2009, here at Searchlight Crusade, unless someone else wants to host. Deadline for submissions will be Midnight June 28th.


The first thing to consider is that maybe you shouldn't. You never want to get involved in a bidding war. There's a classic riddle I ask every single one of my buyer clients at least once.

"How often does the Deal of the Century happen in real estate?"

The preferred answer is "About once a week." I'll give full credit for anything under two months. Yeah, you might not get this one. But another bargain just as good will be along soon. My point is this: There just aren't any properties worth getting into a bidding war over, and part of a good buyer's agent's job is keeping you from going overboard because you've got tunnel vision for this one property.

The second thing to consider is that just because the listing agent tells you it's a multiple offer situation doesn't mean that it actually is one. Quite often, agents don't understand that lying about this is a good way to scare desirable potential buyers off, and they say they've got four (or fourteen, or four hundred) offers hoping to shake a better offer out of prospective buyers. Ladies and gentlemen, if these offers were any better than the one you just sent over, they'd be in hot and heavy negotiation with the other offer, if not in escrow. I've been told this on December 24th when the property had been on the market for six months. Neither Santa Claus nor the Real Estate Fairy are real. Yes, sometimes it may be the truth. See the answer to "How often does the Deal of the Century happen?" above. The rest of the time, it hurts the seller more than the buyer, scaring off good offers and puncturing credibility. Credibility is like a balloon - if there's one path for the air to escape, what you've got is nothing. I don't understand agents who do this to themselves, especially as it hurts their clients also.

The third thing to consider is that you're always subject to how the the seller and their agent want to handle the transaction. You can't force them to do anything, even act in their own best interests. I'm coming up against an awful lot of horrible listing agents who respond as effectively to offers made as any other black hole. Put in a good offer and you get all the response of someone dropping it into a black hole. If you're not familiar with black holes, there's only three pieces of information it's possible to get on a black hole: Mass, charge, and spin. The real estate impact is similar; We can see it's still listed "active" on MLS, but no matter how many phone calls, emails, and faxes we send over to the listing office, we never get a response to our offer. And some of these listing agents have the gall to complain when they do respond six or eight weeks later that all of the prospective buyers have moved on. So be aware that you can't force the listing agent to respond at all. Fiduciary duty is supposed to accomplish that, but real world experience tells us that it often fails. I can point to many agents and brokerages that are completely incompetent at anything other than getting signatures on listing agreements.

In neither case am I saying that you want to walk away from all multiple offer situations. What I am saying is that the situation is rife with potential for disappointment and other morale busters. But if you can keep a healthy attitude and not let the idiocy and failings of those you cannot control bring you down, it's still an attractive property that you obviously want. If you put in an offer, you might get it. If you don't, I can guarantee you won't.

The next thing to consider is trying to find something other than money that the sellers want, and offering that in lieu of a certain amount of cash. There are as many possibilities as there are scenarios. Short sales often want certain specific things, lender owned properties usually want different things, and regular sales still others. There is always the possibility that something other than money will win the day, and the smarter the seller and the better their agent is, the more likely this will be the case. Something like forty percent of all escrows have been falling apart locally, and with the new appraisal standards, anecdotal evidence already has that proportion climbing.

Some sellers and their agents just stupidly choose the apparent highest offering price, and nothing I nor anyone else can say is going to dissuade them. The most probable explanation is that listing agent's commission check - since commission is paid upon official sales price, they will advise their client, the seller, to take whatever the highest offer is. Some of these agents may have ten or twenty years in the business and just consider it "bad luck" that all of their listings have the same exact problems after they have a contract. Problems are always with us, as well as the potential for problems. If it were easy, anyone could do it and there would be no need for real estate agents. But an agent where the vast majority of their accepted offers have these problems isn't luck - and the one common factor all of their problems have looks them in the mirror every time they walk by one.

There are strategies available to buyers that take advantage of this stupidity. Most of the common ones are variants upon the classic sales trick of the sales "take away". Get the seller wanting your offer, then make them work for it, doing things they would never have done for what they end up getting. Once the seller has chosen one offer and everyone else wanders off feeling demoralized and let down, that chosen buyer has a lot more power than they had previously, at least if they use that power carefully. The property goes back on the market two or three weeks later, and everyone looking at it in MLS is going to wonder what's wrong with it. I don't like using these strategies and definitely prefer not to, but some listing agents practically beg me to do so.

Another thing that can help quite a lot is your Buyer's Agent Presenting The Offer In Person. Theoretically, listing agents are required to honor this request or show written instructions to the contrary signed by their client, the seller (Clue to a certain nameless agent who knows who I'm talking about: A forwarded email is not acceptable for this). All too often, however, listing agents throw roadblocks in the way. It's actually in everybody's best interest for buyer's agents to present their client's offer in person, but many listing agents obsessed with control (or with getting both halves of the commission) throw so many roadblocks and so many delaying tactics that it's not worth fighting over. This is yet another excellent reason for sellers to write into the listing contract that the listing agent will not get the buyer's agent half of the commission! Maybe an extra half percent as a concession for doing the other agent's job as well as their own, but not the entire thing. I never accept dual agency, and every agent I respect agrees with this position. If someone insists upon me writing an offer on one of my own listings, Winforms has a very simple one page form called a Buyer Non-Agency Agreement that spells out that I am acting solely on behalf of the seller, and I'm just doing whatever it is because that seller's interests require me to, not because I'm accepting agency on their behalf. Nor is the buyer's agent presenting the offer something you can do on every property - the chances of it happening on lender or corporate owned property are pretty small. But if your buyer's agent presents your offer in person, that's an opportunity for humanization - making you into a human being that the seller can empathize with, not just a faceless pile of paper with markings on it. It's also an opportunity to stress the desirable parts of your offer.

As far as money itself goes, every client I have in a multiple offer situation gets asked two important questions:

1) If you got the property for this price, would you be happy or not?

2) If someone else got the property for $1000 more, would you care?

The proper answer to the first is "ecstatically happy!" If the happy part isn't in there, they're offering too much and need to reduce their offer. It doesn't matter if similar properties are selling like hotcakes for twice as much. If the client isn't happy, it may mean they need more discussion of the market, or alternatives to that property, but they shouldn't be offering that much money. The answer to the second should be "no", an indication that they really are offering what the property is worth to them. Not that they have to offer that much, just that they might. If they want to offer some lesser amount, I'll still do everything I can to get the offer accepted, but in that circumstance my clients are accepting the increased likelihood that someone else gets the property for a price less than they would have been willing to pay.

A question that's never misplaced is "Are we wasting our time with this offer?" It communicates quite plainly to the listing agent that under the current circumstances, this is the best they're going to get from you. You just have to be willing to walk away without hesitation if they say "Yes." It's not necessarily the end of the line for you and this property, it's just the end of the line for now. If the property is still on the market weeks later, a renewal or even a lesser offer can often move it Pending in your favor. It has to do with credibility, and steadily worsening circumstances for would-be sellers of real estate. Quite often the agent or seller who isn't willing to talk rationally in April is desperate in July. It's their own fault, if they had negotiated in good faith in April the problem would have been solved on terms more favorable to them.

Caveat Emptor

Article UPDATED here

Disneyland Trip

| | Comments (2)


Just so you know why I haven't written new articles over this weekend, here is my trip report. Didn't take a huge number of pictures - mostly we were busy having fun.

100_9514

The World's Only Perfect Woman and our kids in front of the Matterhorn. Ramona loved it last time. This time, not so much. Brynhilde liked it.

100_9518

The Teacups - before the ride.

100_9521

Main Street Station from the train. If you don't understand how important the train is to a successful day there, have someone explain it to you

100_9527

Ramona loved King Arthur's Carousel. It's the World's Only Perfect Woman's favorite ride

100_9528

Our little engineer. She's got disassembly down pat. Be very afraid.

100_9532

I just think King Arthur's Carousel looks cool at night.

100_9533

My driver on Mr. Toad's Wild Ride. Brynhilde's first drive. Mr. Toad never had it so good!

100_9535

The other half of the family party - Ramona was starting to fade, nap or no

100_9543

Just after riding Grizzly Rapids the next day. The water was cold, but it was nice after the immediate shock wore off.

100_9544

My kids with some random unimportant stranger on the Zephyr ride

100_9565

Ramona, fresh out of crawling over the water faucet in Bug's Life, in line for the Ferris Wheel. She really wanted to ride bad - "They won't let us in!"

100_9566

Brynhilde, suitably bored in line for the Ferris Wheel.

I've spent the time since recuperating. It's what you need to do when you're an old fat guy who takes young kids to an amusement park for two consecutive days.

I hope to have time and energy to finish an article for Wednesday publication tomorrow. But tomorrow It's going to be a reprint. I would rather it weren't so, but sometimes a guy's gotta do what a guy's gotta do.


Carnival of Personal Finance # 206

**********

Democrats Discover Gitmo's Virtues

If so, Guantanamo will join the growing list of security tools that President Obama once criticized as out of keeping with American values but has since discovered are very in keeping with protecting the nation. Wiretapping, renditions, military tribunals, Gitmo -- it turns out the Bush people weren't a bunch of yahoos but often thoughtful defenders against terrorism. This is all progress, though America might wonder if it could have been spared the intervening drama.
**********

Michael Barone: Obama Changes Course on Antiterrorism

But that didn't end political debate, as Obama apparently hoped, but heated it up. Dick Cheney demanded the release of memoranda showing whether the interrogations had produced intelligence that saved American lives. Left Democrats protested Obama's decision to rule out prosecution of CIA interrogators, while conservatives decried his refusal to rule out prosecutions of Bush administration lawyers (a matter for Attorney General Eric Holder, he said, as if he couldn't issue a direct order). Word was given out that Holder would decide against prosecutions. Then, last week, Obama reversed himself and said the government would appeal the court order and not release the photographs.

I'd say Dick Cheney is decisively winning the debate on what the Bush Administration did and whether they were justified in their actions. By his actions, Obama has conceded every point to date, deciding to stay basically in lock-step with Bush era policies.

Victor Davis Hanson: Ministers of Truth

Perhaps the media doesn't get it that the American people can more easily take the bias of an attack-dog, go-for-the jugular media that claims it is the watchdog of the public trust and therefore must skin the president, far more than such carnivores suddenly becoming sheepish and obsequious, as ministers of truth, rephrasing and repackaging the party line. How odd that just six months ago we had screaming reporters and columnists talking about the near-end-of-days with Bush -- and now doing contortions to assure us that things suddenly aren't that bad after all, or that we must give Obama flexibility and time to sort out the prior mess. Quite scary, all this chest-thumping about tough journalistic integrity of 2001-8 suddenly devolving into, "Hey everyone, we can reassure you that the Emperor really does have clothes on."

Our president isn't quite as advertised.

In both cases, though, we have learned something about Mr. Obama. What animated him during the campaign is what historian Forrest McDonald once called "the projection of appealing images." All politicians want to project an appealing image. What Mr. McDonald warned against is focusing on this so much that an appealing image "becomes a self-sustaining end unto itself." Such an approach can work in a campaign, as Mr. Obama discovered. But it can also complicate life once elected, as he is finding out.
**********

Obama's dangerous debt

The wonder is that these issues have been so ignored. Imagine hypothetically that a President McCain had submitted a budget plan identical to Obama's. There would almost certainly have been a loud outcry: "McCain's Mortgaging Our Future." Obama should be held to no less exacting a standard.

The question actually is a fair one. If McCain had done what Obama did, the reaction would have been swift, cacophonous, and entirely negative. The difference is that McCain wouldn't have done this. Look at the man's long record of public service - he's devoted a lot more energy to eliminating waste than funding it. But Obama (predictably) did otherwise.

**********

Wow! Republican Chairman Michael Steele channels Martin Luther King

**********

Peace isn't Arab goal

International consensus or no, the two-state solution is a chimera. Peace will not be achieved by granting sovereignty to the Palestinians, because Palestinian sovereignty has never been the Arabs' goal. Time and time again, a two-state solution has been proposed. Time and time again, the Arabs have turned it down.

When one side wants war, the alternatives for the other are war or baring their throat for the knife. It takes both sides to achieve peace. The central truth is that the Arabs want the Jews eradicated more than they want peace.

**********

I may not agree with everything Greg Swann says here, but he's certainly more right than wrong. NAR exists for the purpose of pulling the wool over the eyes of legislators and consumers so the big chain brokerages which control it can continue pocketing absurd amounts of money.

**********

Don Surber: There are two Americas. People who work for a living, and public employees.

**********

Turns out when you win elections, you'd better not free the terrorists you promised to free while demonizing your predecessor unjustly, lest the voters hold you responsible for the results: Senate votes 90-6 not to close Guantanamo prison

By their votes, congressional Democrats unveil the hypocrisy of pretending the unlawful combatants at Guantanamo Bay are innocent until proven guilty in a court of law.

So, now we get the truth.

The big ugly snarling truth.

The facts that we knew all along: The terrorists at Gitmo belong at Gitmo.

All these nations that protested? Not a one of them will take these critters off our hands.

Congressmen who railed against Gitmo are showing their true colors.

The Gitmo Myth and the Torture Canard

What this account and others like it fail to take into consideration are the aggressive and unending efforts of a cadre of lawyers, activists, left-leaning Democrats in Congress, and civil libertarians against the facility, its purpose, its goal, and its existence. These efforts began even before it was opened, in November 2001, and continue to this day. The anti-Gitmo forces worked tirelessly to shape the public perception that Gitmo was the red-hot center of an aggressive policy approach that led the leftist financier George Soros to declare: "The biggest terrorist in the world is George W. Bush."

The enemies of Bush and Gitmo have succeeded brilliantly. But in so doing, they have done grave violence to the truth about the Guantánamo Bay facility, have aided in the release of prisoners who have since committed acts of terrorism outside the United States, and may yet succeed in having Barack Obama's government release young men with terrifying ambitions for murder and mass destruction onto the soil of the United States.

**********

Federal government: we've run the 46% of the health care segment we have into $38 trillion of unfunded debt. The way to fix that is to give us the rest

If this seems like a "What the...?" moment to you, you're not alone. I doubt comedians could get laughs with this material. It's too far out there; the audience would be unable to follow them. But it's the line Obama and company are trying to sell.

**********

Far and away my most searched article the last couple weeks has been When The Appraisal Is Below The Purchase Price for Real Estate

Everything I predicted in The Home Valuation Code of Conduct (New Appraisal Standards) is coming true. I've had appraisers choose trashed lender owned properties as appropriate comps for well cared for family properties. I'm doing a refinance for a client right now where the appraisal somehow came in forty thousand dollars below any close comparable sale - and it isn't the condition of the property. It's HVCC and the incentives it gives the appraisers to come in too low. Luckily in my client's case, I can still get it done (at least the guidelines say I can), but it's just sheer luck of circumstance that he didn't just waste his appraisal money, and there is nothing I can do to prevent situations where that happens. Nor can I so much as discuss the situation with the appraiser (for instance by furnishing the appraiser alternate, better comparables) when it does happen due to . People are paying these prices for these properties. If the appraisals we're getting don't reflect that, that is a problem at least as big as the inflated appraisals they're claiming were the reason they mandated HVCC.

Furthermore, given the state of my local market, we're seeing bidding wars on just about anything that's close to correctly priced and reasonably attractive. I strongly suspect the appraisal contingency is going to be on its way out, especially given the number of offers being thrown around where the buyer is putting way more than the minimum down.

Who does this hurt? Not the big investors. They've got the cash. It's the little guy trying to scrape together the money for his first property, for his family to live in.

I'll bet you the working people of this country are going to be so grateful to Andrew Cuomo that they do something appropriate to express their gratitude to him (and those behind him). I'd be saving up for bodyguards were I in their position. They're going to need them when people figure it out. Of course, they've got the money. Guess where it came from?

**********

Identity Politics And Sotomayor

Indeed, unless Sotomayor believes that Latina women also make better judges than Latino men, and also better than African-American men and women, her basic proposition seems to be that white males (with some exceptions, she noted) are inferior to all other groups in the qualities that make for a good jurist.

Any prominent white male would be instantly and properly banished from polite society as a racist and a sexist for making an analogous claim of ethnic and gender superiority or inferiority.

So why isn't Sotomayor a racist? Quite simply, because minorities are still in Denial over what the mirror shows them.

In other words, she is a racist; it's just that our identity politics industry refuses to see in a Latina female what it would demand everyone see in a white male guilty of a fraction of the same offense.

**********

How Joe Biden Wrecked the Judicial Confirmation Process

**********

This isn't just a three day holiday. Take a moment to remember what it's about. Memorial Day specifically arose as a tribute to those who fought in the Civil War, but it now honors everyone who made the sacrifice from the Revolutionary War until today. Nor is it just for the troops who died - there's plenty of them who survive with life altering injuries. There are also families missing a dad or mom or brother or sister or son or daughter.

For all of those this day was meant to honor: Thank you isn't enough. We have a collective debt to you. I will always do what I can to see that we honor it as much as mortal humans can.

Hi Dan wondering if you could help me out I'm getting a lot of different answers from a lot of people and I'm really searching for help I bought my house brand new (three years ago) for 550,000, and (the next year) I refinanced into a mta loan. which at that time was around 4.25% and now is 7.125%. I have a hard prepay of $12,000.00 which expires in (fifteen months) house just appraised for $775,00 balance on 1st loan 440,000 balance on 2nd 148,000. should I ride the next 15 months out to avoid pre pay or refinance now into a fixed. The rate on the second is prime plus zero.
First off, a disclaimer. A precise infallible answer depends upon the rates when your prepayment penalty expires, something that is not currently known. I have my opinions, as does everyone else. But I don't know; nobody does. It also depends upon what comparable homes are selling for then, which determine your appraisal, and how long you keep the new loan.

Your rate moving like that is one of the many reasons I recommend so strongly against negative amortization loans. The person who did your loan at the time had to know that, due to the nature of the MTA (Moving Treasury Average) yours is based upon, the rates were already set to rise into the sixes for certain, and likely further, as older months were dropped from the average in favor of newer (and they're even higher now). Were it fully explained, would anyone rational agree to take a loan where you get a lower rate for six months, but then the rate rises inexorably, as the treasury rates the loan is based upon had already been rising, to a level that is well above what is available on A paper three or five year fixed? And with a three year prepayment penalty, so you're in precisely this sort of situation?

"No points" thirty year fixed rate loans were sitting right around 6.375 when I originally wrote this, and you're at 75% Loan to Value. The bad news is you're definitely a jumbo loan (although that has now changed with the "temporary conforming" or "jumbo conforming" loans that carry a charge of about 3/4 of a discount point, but are otherwise conforming loans), as the conforming limit is $417,000. This boosts your rate more than a tad, depending upon the lender, to 7.25 percent right now if you're going to do it without points (usually this spread is much less). I prefer to discuss loans without prepayment penalties or points, but it might be in your best interest to pay a little to buy the rate down if you refinance. I'm going to use seven, as it makes the math slightly easier.

The good news is your loan to value ratio. According to the numbers you gave me, you're below 80 percent, even with the prepayment penalty. You owe $588,000 (If you bought for $550,000, the turkey who did this negative amortization loan scammed you out of a lot of money), and the prepayment penalty boosts this to $600,000. Assuming you have enough liquid reserves to put up the money for interest and impounds, this means the costs of doing your loan are going to put you at about at $605,000 new balance (perhaps a bit below, but let's keep the math as friendly as possible).

Basically, it cost you $17,000 to save yourself an eighth of a percent on the interest rate. Under more normal circumstances, I wouldn't even put that one through the calculator. No way that's in your best interest. But your real rate on that MTA is going to keep rising - by at least another quarter percent due to increases already on the books, more likely half. I'll use 7.5 as your mean rate. Furthermore, the second is at 8 percent, likely to soon be 8.25. Monthly interest under the current loan at that rate: $2750 for the first, $987 for the second as it is. Monthly interest on the new loan, $3530. It saves you $200 per month in interest, albeit with a higher payment, $4025 as opposed to what you've got now. I am assuming you have documentation that you make enough money to justify the loan in the underwriter's eyes, and that your credit score is about average. On the other hand, divide $17,000 by $200 per month, and you get 85 months to break even on the cost of doing it.

However, this decision does not take place in a vacuum. You can't let that negative amortization loan go forever. In fifteen months, I think equivalent rates will be higher (as lenders fail and there's less competition for consumers), which translates to to adding an unknown cost to waiting. When I wrote the original, I believed prices would slide further, something I no longer believe. In fact, I think we're likely to see a recovery of at least a quarter of what we've lost in the next fifteen months. Any of these prognostications is an educated market guess, no more, and I could be way off. The appraisal would come in just under $700,000, but let's say $700,000. Your first, for $560,000, would be at 7.5%, and for your second, I'll presume you get a new HELOC on the same terms, on which the balance would be about $33,000. Interest on first and second, at 7.5% and 8.25% respectively, comes to $3500 plus $227. The payment on the first would be $3915, plus $227 (assuming interest only HELOC) for a total of $4142. So $12,000 saved if you wait, versus about $200 per month less in interest charges per month if you dive in. Divide that out and it comes out to 60 months. Five years. If you keep the new loan five years, approximately, or more, you'll be better off refinancing now. If you keep it less than five years, you're better off waiting is what the calculations say. Plus chop off the $200 per month you save starting right now for the next fifteen months, and the answer turns into forty five months or a little less being your time until break-even.

Actually, at this update, the HELOC isn't available. Nobody is doing them above 90% of appraised value. Even first mortgages are problematical and iffy above 90% of value right now. Between the tightening of loan standards and values fallingAs much as prices slid, lots of people who would otherwise be able to refinance cannot. There are the new programs from Fannie and Freddie that allow refinancing up to 105% current value, but your loan has to be with Fannie or Freddie or underwritten to their standards in order to qualify. Yours isn't. This inability to refinance despite otherwise being able to afford it because prices have fallen is one of the killer aspects of the whole bubble pop we had, and I'd like to see real estate brokerages and mortgage lenders who talked people into horrible loans on the basis of "You'll have more equity and we'll refinance you in two years" sued out of business. There's no changing the fact that you owe $588,000. If you don't make the money to afford payments on a $588,000 loan, and didn't in the first place, that's a real problem. You don't give me enough data to be certain, but if you made the money to make the payments on a sustainable loan, why didn't they put you into one?

I'm a reasonable risk taker. Were I plopped down in your situation, I have to tell you I would probably hang tight until the prepayment penalty expires. Roll the dice and bet on my personal ability to come up with a good loan. On the other hand, you may not be as much of a risk-taker as I am. The stuff I quoted you for refinancing now is available now, no suppositions about it. The rates could well be higher in fifteen months than I have estimated, perhaps much higher, or they could be lower (although I don't think so with increased federal borrowing). You need to decide what your level of comfort is. If you're the sort that is averse to risk, refinancing now could pay for itself just in peace of mind, because you're not worrying about it. That's why I always offer a 30 year fixed rate loan, no matter how wide the interest rate spread is between that and my favorite hybrid ARM, which is usually a better buy, although not now. There are folks who just won't sleep nights. In real terms of cost of money, the difference comes out to about $7 per night, and my sleep is worth more than that, so I presume yours is, as well.

Also at this update, rates are below 5% for people with reasonable credit and sufficient documentable income. Right now, if you could refinance (I don't think the person who wrote the original email could), it's a no-brainer if you can refinance. Lock in the best interest rates of my lifetime on a thirty year fixed rate loan and break even in about eight months, even with paying that prepayment penalty? Sign me up! Anybody who can't pull themselves out of trouble given the current rates really needs to talk to a lawyer, as it points to a situation where a mortgage originator and likely your real estate agent as well actively circumvented their fiduciary responsibility to you.

Caveat Emptor

Original here

I have been asked by more than one person how to measure desirability of real estate objectively. Fortunately, the Phoenicians did all the hard work for me three thousand years ago when they invented money. Precisely what that measurement unit is varies from country to country, but here in the United States that measurement unit is dollars.

A more desirable property will sell for a higher number of dollars. It's as simple as that.

Consider: The same property, moved to a more desirable neighborhood, will sell for more. This difference is nothing more or less than the premium for living in the more desirable neighborhood than the less desirable one.

A four bedroom property with X square feet will sell for more than a three bedroom property with the exact same number of square feet right next door. This difference is the premium for that fourth bedroom, so that one or two more people in that family now have a private place to retreat to - a private place they don't have to share.

A newer property will sell for a higher price than an older one, a well-maintained property for more than one with significant deferred maintenance, a well laid out property will sell for more than a poorly laid out one. I can go on and on, but the difference in all of these cases is precisely the desirability premium for the good thing as opposed to the not so good one. This difference is - you got it - measured in dollars. If it's worth more money to have the laundry room upstairs, the selling price between two otherwise equivalent properties will reflect that difference. If it's not, then the selling price won't be any different.

(In this case, you can figure the difference is a couple thousand bucks in the case of most two story properties around here.)

The obvious question that occurs to most people right about now is, "Do I get a package deal by holding out for a property with everything I like?" The answer is "not usually." Every desirability factor you add on pulls that much more interest to the property. Large lot? Downstairs bedroom? Great view? One of these or many other factors seen as desirable pulls in a decent amount of interest. Put two together, the interest level more than adds, because you're dealing with people who have to have both as well as those who would be happy with one or the other. Put three or more common desirability factors like "gourmet kitchen" and now everybody who even has a chance at affording it is making a bid, especially in a hot market. This is how Flippers and Fixers make lots of money. A good agent with enough time and who knows how to negotiate can and will play them off against each other. They're going to get a hefty premium for that property, leaving the seller very happy indeed. The usual fight in my mind when I'm listing such a property is "how much over appraised value is this person willing and able to pay?", because the appraisal can only go, at the very most, 25% higher than recent sales in the area. Especially given the conservative nature of appraisals done under the new HVCC appraisal standards, the offer I'm going to recommend my client accept probably be from the buyer with the most room on the loan to value ratio and a willingness to do without an appraisal contingency. Sure those people over there may have a higher offer, but with just enough cash for the down payment if the appraisal comes in are not going to be able to consummate it. Because the appraisal is not going to come in for the full purchase price in such circumstances - bet on it. You might be pleasantly surprised, but if you plan for it, you won't be scrambling to contact people who made other offers four weeks out when the buyer comes back and says "We can't qualify unless you cut the price." The buyer's ability to add to the down payment (or finance a larger loan if their loan to value ratio is still good enough) is what gets the transaction done in such instances.

How do you use this as a buyer? It's very simple actually - keep your "must have" list firmly in your mind; don't get distracted by beautiful presentation or bells and whistles you don't have to have. Such properties are ripe for bidding wars. If you must get involved in such a bidding war, keep you maximum purchase price in mind and don't offer a penny more. If you haven't got a maximum purchase price engraved upon your soul before you go looking at property, check yourself into an insane asylum immediately.

You can always make the property better once you own it. There won't be a bidding war then - except maybe between contractors who want the job (the low bid isn't necessarily the best there, anymore than the highest offer is necessarily to one to take for sellers). You own the property, and it's difficult to force you to sell against your will. Doesn't matter how much they like it, they can't have it unless you decide the offer is worth taking even though you weren't planning to move again. But if sellers have twenty, forty, eighty offers there has to be a reason to pick your offer - and the reason is that they figure they'll net the most cash out of it. Your offer really has to stand out. If sellers only have one offer, though, there's a lot more room for meaningful negotiation. If there are even two offers, you can expect to get played against the other offer, at least to some degree.

Look for solid instead of beautiful. Look for improvable over perfect. Look for clear and reasonable upgrade paths rather than properties that are already highly upgraded. Your pocketbook will thank you. Yes, it's a bit of hassle to upgrade, but the dense, highly desirable areas like San Diego are headed for another period very soon like the one a few years ago, where it didn't matter what faults the property had, the buyers were glad to get into anything. Only unlike before, without unsustainable loans over-heating the market and setting things up for a crash when there's a subsequent reality check, the prices are going to stay that high this time. We're still going to have cycles, but the low point of this one is not something I would expect to ever see again. It took an awful lot of loans that were complete garbage to make this happen. The loan type that was the chief culprit has been regulated out of existence, most of the companies that provided other garbage loans are gone as well, and Wall Street and the global capital markets have learned a lesson about real estate loans that it'll take them a generation to forget. It wasn't that long ago I heard with my own ears buyers express gratitude that they had an accepted purchase contract on crummy little places where their family would be shoehorned into a fraction of the room they needed to be comfortable. Those days are coming back, and they're going to get worse over time.

Things that you're willing to put up with that bother most other folks are good wedges for a deal. Popcorn ceilings, power lines, and too many others to enumerate. You may think popcorn looks tacky, but it's pretty easy to remove in most cases. Many utility companies are in the process of burying their lines. If you bought before and it happens while you own, that's a price boost. Don't take the listing agent's word - do your own research, especially if someone tells you, "That airport's going to close." (there's an Act of Congress that makes it extremely costly to close down most airports. The city or county has to pay the federal government back every dime in revenue they've ever gotten through that land, plus interest). But if it's likely to improve, or if it's something you can live with regardless of whether it improves, that may be the property for you. Let the other buyers fight to outbid each other over one "absolutely perfect!" property. While they're distracted fighting over that "absolutely perfect" property over there, bidding the price up to something unjustifiable, it's time to grab a real bargain somewhere else.

Caveat Emptor

Article UPDATED here


Carnival of Personal Finance #205

Carnival of Real Estate

**********

Tomorrow (likely today by the time I get this published), California has a special election. Six propositions, five of which have to do with bond issues that will allow the legislature to continue spending too much money a little bit longer. I strongly recommend a "No" vote on 1A through 1E. Allowing them to put off the need to stop spending so much money won't do the state any favors - in fact, it will make things worse in at least three different ways.

For the final proposition, 1F (no pay increases for legislators in deficit years), I'm leaning "Yes" but am prepared to entertain arguments the other way.

The economic future of our state will be determined by how many of Propositions 1A through 1E go down in flaming, ignominious defeat.

**********

Tax The Rich? Watch The Inevitable Happen

Notice that the exodus from the high-tax states to low-tax states with more opportunity has been significant since 1998. But now with the plan to increase taxes again on the "richer", high-tax states are providing even more of a financial incentive for those in higher income brackets to leave them and move to low or no-income tax states. While such a relocation might have had marginally positive financial results for those leaving in the past, high-tax states are about to make relocation for financial reasons a no-brainer. And states like California and New York can hardly afford to run off the class of tax payer that presently pays the largest percentage of state taxes. But, with alternatives available, that's precisely what they're getting ready to do.

The rich needn't stop at moving from a high tax state to a low tax one. They can also move to places like Hong Kong and Kolkata. After all, they've got the money to protect their interests.

ARTHUR LAFFER and STEPHEN MOORE lay it all out.Soak the Rich, Lose the Rich

Did the greater prosperity in low-tax states happen by chance? Is it coincidence that the two highest tax-rate states in the nation, California and New York, have the biggest fiscal holes to repair? No. Dozens of academic studies -- old and new -- have found clear and irrefutable statistical evidence that high state and local taxes repel jobs and businesses.

and

We believe there are three unintended consequences from states raising tax rates on the rich. First, some rich residents sell their homes and leave the state; second, those who stay in the state report less taxable income on their tax returns; and third, some rich people choose not to locate in a high-tax state. Since many rich people also tend to be successful business owners, jobs leave with them or they never arrive in the first place. This is why high income-tax states have such a tough time creating net new jobs for low-income residents and college graduates.
**********

If you think that the national media weren't doing everything they could to elect Obama, read this: How the NYT buried an Obama/ACORN expose just before the election

**********

Hilarious! President Palin's First 100 Days

**********

How the Mighty Fall: A Primer on the Warning Signs

Our comparative and historical analysis yielded a descriptive model of how the mighty fall that consists of five stages that proceed in sequence. And here's the really scary part: You do not visibly fall until Stage 4! Companies can be well into Stage 3 decline and still look and feel great, yet be right on the cusp of a huge fall. Decline can sneak up on you, and--seemingly all of a sudden--you're in big trouble.

Articles like this one:

Foreclosures: 'April was a shocker'

have gotten an awful lot of play in the media these last couple weeks.

Here's what they're not telling you - or not explaining why it's important: This particular article actually mentions it in passing "That's due, according to Saccacio, to the many legislative and company moratoriums that have prevented the foreclosure process from starting on delinquent loans." However, they don't really explain what it means. Yes, Virginia, there was a moratorium on foreclosures in effect. Actually, there were several, some voluntary, most not. Most were related to what happened when Fannie Mae and Freddie Mac were taken over by the federal government last year, and one of the conditions was a moratorium on foreclosures for six months. These days, Fannie and Freddie hold just about every sort of mortgage paper there is except "hard money." Everything from the bluest chip mortgage given to people with immaculate credit, a huge down payment, and three times the income they needed down to the iffiest subprime loans ever. So when the moratorium on foreclosures hit, it cut a broad swath through the market, slowing down the process and delaying it by months for absolutely no improvements from the borrower. Didn't matter how many payments they missed; there was a moratorium on foreclosures in effect. Many of these borrowers took full advantage of this and several miles beyond; they didn't send a single dollar in for those months. This didn't help their situation any.

(How Fannie and Freddie got so deep into subprime, which was never their mandate and in fact was supposedly forbidden them by their charters, is a story guaranteed to make you hate Congress, and particularly, certain members of Congress, if you research it. After all, it's your taxpayer dollars that are going to make good the bad debts those clowns got them into, short-circuiting, obstructing and frustrating the regulatory oversight that was in place.)

So when that moratorium expired during March, Fannie and Freddie started moving forward on foreclosures that had been delayed six months or more, it took them a while to get up to speed. March was way up, but April was even more up. Shouldn't be a surprise. When a logjam breaks, there's going to be an abnormally high amount of water (and logs) going downstream for a while until the backlog gets dealt with. Those borrowers that just skated on what they thought was good fortune were the first ones in for a rude awakening.

Look at what they're telling you: "filings inched up 1% from March and rose 32% compared to April 2008." April 2008 wasn't just after a months-long foreclosure moratorium was lifted. It's a rotten, intentionally misleading comparison without that datum. They weren't going gaga over the drop in foreclosures in other months. I remember reports - buried deep in the "who cares" middle of the financial pages. Average out the numbers over the months the moratorium was in effect, and we're actually seeing a statistically significant decline in average foreclosure activity.

There is good news in the background. First, in the past six months, lenders have finally gotten serious about mortgage loan modification. No, they're not writing off grievous amounts of principal for everyone who asks. That's actually quite rare, and correctly so. But for borrowers making a serious effort and who can maybe kind of afford the properties they bought, the lenders are modifying interest rates downward for long periods of time - more than enough to permit the markets to recover, and long enough to prevent a future huge wave of foreclosures from hitting all at once.

Second, there's a minor but still helpful group of programs now being used to refinance people who formerly couldn't refinance: Both Fannie and Freddie now have programs offering up to 105% refinancing (maybe) without PMI in effect. For those who were otherwise able to finance, but prevented by deflating values, this is all they need to make it good and be able to keep their property. Particularly with sub-5% loans available right now.

Neither of these covers everybody, nor do both of them together. Nor do they help those who went the most overboard in terms of seeking out new and innovative financing forms, to paraphrase Star Trek. But they don't have to cover everyone. All they have to do is make enough of a dent in the future foreclosure market to keep the markets from being foreclosure saturated. Both of them are taking huge chunks out of the short sale market already. People don't (or shouldn't) do a short sale if they have another option, and these alternatives give a large number of people those other options.

We're not out of the woods yet; particularly not if the federal government persists in the sort of undesirable meddling in the markets they've been doing way too much of for the last year. But absent that interference, the trees are definitely thinning out, especially in the markets that took off early, crashed early, and have economic reasons to drive their housing demand back to where it was a few years ago. San Diego is one such. I am certain there are others.

Caveat Emptor


This is one of those things that trips up people to buy a house or refinance it: student loans.

First off, Form 1003, the Federal Uniform Residential Loan Application has the following relevant questions on page 4, among the "deadly thirteen"

a. Are there any outstanding judgments against you?

f. Are you presently delinquent or in default on any Federal debt or any other loan, mortgage, financial obligation, bond, or loan guarantee?

One of the things they don't generally tell people about student loans is that a default of a federally guaranteed student loan stays with you for life, or at least until it is paid off in full. Unlike most defaulted debts, which are a black mark on your credit for 7 to 10 years, this one never goes away. With interest and penalties, the amount owed can be much larger than it was, even at the default point. Bankruptcy doesn't cure this debt. It is basically there forever. So don't default on your student loans. A yes answer on any of these questions turns a slam-dunk loan into a very questionable one. In this case, you can kiss any possibility of actually getting a VA loan or FHA loan funded, and first time buyer programs, which are provided via federal funds, are off limits as well. This includes both the Mortgage Credit Certificate as well as local first time buyer programs. Sometimes a conventional conforming or subprime lender will do a purchase money loan - but refinancing is right out unless you're going to pay the debt as part of escrow. With the federal government now owning Fannie and Freddie, I would anticipate the conventional conforming becoming even more difficult in the future, leaving subprime lending as your only option. Truthfully, it's been quite a while since I had someone in this position, so it might already have happened.

But most folks pretty much figure that if they're in default on student loans, they're not going to get much help from the feds or anyone associated with the feds. They might try to get around it, but they're not really surprised or bitter when they can't.

The thing that jumps out and surprises people is student loans not currently in "payment" status. You're not making payments on them now, so you don't tell the loan officer about them, and he doesn't take them into account in determining your debt to income ratio. Since the loan officer doesn't know about the student loans, they don't take them into account, and they say you qualify for a loan amount that you're not going to qualify for. Actually, this is pretty common even without student loans, but with them, it's practically ubiquitous.

Whether the loan is in payment status or not, it's a known debt. You're going to have to start making payments on it at some point. Sure, you might have a much larger income then, but that's not something you, I, or anyone else can guarantee. So what you're going to be paying in the future, when the loan enters payment status, is something that needs to be taken into account. You need to be able to afford the loan payment as well as all of your other debts, which most pointedly includes student loans.

So it doesn't matter that you're still in school, or the loan is in deferral or forbearance. The real estate lender is going to want to see documentation from the student loan lender as to exactly what that payment is anticipated to be. You might as well ask for it ahead of time, so you have it ready when it's needed. You should want to take it into account in figuring what you're able to afford, as well.

The last of the most common questions has to do with student loan consolidation. Since student loan consolidation usually extends the repayment period, consolidating student loans has the effect of boosting what you can afford a portion of the way back up to what you could afford without them. The catch is that consolidation has got to be complete to get this benefit, a process that takes about six weeks. It's not something to try when you're in escrow; it's something you need to have done ahead of time if you want it to make the difference in getting your loan approved.

Most folks want to stretch to the limit to get the most house they possibly can. In fact, quite a few ask if there's any way they can extend what they qualify for. The general answer to that is "Only if interest rates drop or you start making more money that we can document." But in order to know how much you can really afford, you have to know not only the income, but what you're already obligated to pay via student loans as well as other credit payments.

Caveat Emptor

Article UPDATED here


Something is rotten in Obama's America

But what happened to the non-TARP bondholders was even worse. When they squawked, the administration tried to muscle them. Lawyers for the bondholders contend that senior representatives of the Obama administration threatened them. Michael Barone, the ultra-knowledgeable (and normally unflappable) editor of the Almanac of American Politics called it "gangster government."

and

The state of California faces a desperate fiscal situation. California now has the worst credit rating of any American state. Governor Arnold Schwarzenegger and the Democratic majority legislature have struggled to balance the books, as they are constitutionally obliged to do. They have raised taxes dramatically, but they have also cut some programs. Among the cuts: a $2-an-hour cut in the wages of home health-care workers.

Those workers were unionized, and their union -- the Service Employees International Union - carries clout in Obama's Washington. On Thursday, California state officials told the Los Angeles Times that they had received a warning: The federal government would deny California $6.8-billion in stimulus funds unless the wage cut was rescinded. Since the wage cut will save only about $74-million, the state will have little choice but to surrender.

If this doesn't disturb you, it's time to cut your soma intake.

**********

The weakness and strength of Wikipedia. The weakness of the world media: Irish student hoaxes world's media with fake quote

He said it took him less than 15 minutes to fabricate and place a quote calculated to appeal to obituary writers without distorting Jarre's actual life experiences.

If anything, Fitzgerald said, he expected newspapers to avoid his quote because it had no link to a source - and even might trigger alarms as "too good to be true." But many blogs and several newspapers used the quotes at the start or finish of their obituaries.

Wikipedia did catch the error fairly quickly. But the major media did not, because it appealed to their prejudices.

Never trust Wikipedia without independent confirmation. It's not intended as a primary source. It's not trustworthy as a primary source - and to its credit, admits it. But that doesn't stop lazy idiots from using it as one.

**********

Remember how the Obama administration frightened the public into spending at least $1.2 Trillion (looking more like $3 trillion) on Democratic interest groups while using scare language of what would happen if it wasn't passed?

Well compared to what actually happened after we did pass it, the scary unemployment scenario for if we hadn't is starting to look downright good.

**********

The Worsening Social Security Outlook: A Guide to the 2009 Trustees' Report

The public has been ill-served by those who have groundlessly minimized the Social Security shortfall. The current wake-up call is coming too late to allow for a Social Security fix as benign as the one that could have been enacted years ago. It is still the case, however, that we will get a better solution and a more effective Social Security program if we act sooner rather than later.

Hot Air reemphasizes:

There is no trust fund. Social Security surpluses have always been used by the federal government for general-fund allotments, replaced essentially by IOUs. This became an issue in the 2000 presidential election, when Al Gore talked about a "lockbox" to keep Congress out of the surpluses. The "trust fund" consists of bonds, not cash, and they have to be redeemed by the US government, which already runs massive deficits.
**********

Video: Are the elderly cost-effective?

What happens when the state controls all the resources? New resources do not develop, and the government winds up rationing care based on its own priorities, and not the priorities of the patients or caregivers. Professor Altman's suggestion that the elderly get hospice treatment to save scarce care resources is exactly the kind of decisions the state will make for its citizens, and it won't be limited to the elderly, either. Anyone whose value does not show a positive "cost-benefit" ratio to the state will also likely wind up without the kind of care necessary to stay alive and healthy.
**********

The coming tax regime that will kill American productivity

This is a recurring theme with Obama and tax policy. He and his advisors use static analysis to predict results from tax increase, ignoring the effect that tax changes have on revenue. He assumes that a 7% increase in the capital-gains tax, to use one example, will result in a 7% increase in revenue from the previous year, but that's simply not the case. The tax hike will cause people to change behaviors to avoid paying higher taxes, either by cashing out this year (resulting in a loss of capital to the marketplace) or not selling off stakes in companies and investing the profit elsewhere. The effect of the change will itself limit revenues, probably more than the increased percentage will capture, making the policy a net loss to the government.

They know better, but using intentionally wrong figures makes it easier to sell to the public.

**********

Very interesting. Unprecedented even FHA Ok with Up Front Tax Credit or, in other words, using the tax credit money at closing.

We all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a downpayment. So FHA will permit trusted FHA-approved lenders and HUD-approved nonprofits, as well as state and local governmental entities to "monetize" the tax credit through short-term bridge loans. We think the policy is a real win for everyone, ensuring that borrowers can tap into the numerous organizations that are already part of the FHA network to receive this additional benefit. FHA will be publishing the details shortly.

This isn't necessarily to say the lenders themselves will permit it - but it's fine with the FHA. I suspect the lenders are going to run with it, myself. The stumbling block in the past has always been that people with a tax credit coming don't necessarily get the money. Sometimes they have other debts, sometimes they have an unexpected tax liability. When that happens, there's a short that has to be repaid, creating a debt and usually payments, impacting debt to income ratio among other things. But if the financial guarantor of FHA loans is saying they'll write the loan guarantee with such a bridge loan in place, who are the lenders (whose profit making loans are being guaranteed) to argue? The real question will be "on what terms will these short term bridge loans be written?"

**********

Chrysler and the Rule of Law

Fleecing lenders to pay off politically powerful interests, or governmental threats to reputation and business from a failure to toe a political line? We might expect this behavior from a Hugo Chávez. But it would never happen here, right?

Until Chrysler.

and

The Obama administration's behavior in the Chrysler bankruptcy is a profound challenge to the rule of law. Secured creditors -- entitled to first priority payment under the "absolute priority rule" -- have been browbeaten by an American president into accepting only 30 cents on the dollar of their claims. Meanwhile, the United Auto Workers union, holding junior creditor claims, will get about 50 cents on the dollar.

Lots of people don't understand what a big deal this is. As Prof. Zywicki makes clear, it's an actual constitutional violation Actually, it's at least two different constitutional violations, as well as an entire phalanx of lesser laws.

It the laws don't protect everyone, they don't protect anyone. For all of the accusations of highhandedness leveled at Obama's predecessor, that predecessor was diligent in following the rule of law. Complaints about his predecessor were essentially "he didn't give us everything we wanted! Waah!" Obama himself, however, has sponsored several actual legal violations, where those he treated roughly have been shorted upon what they were entitled to under the law.

Why is there not a fraction of the hue and cry his predecessor faced over much lesser accusations?

**********

A budget with no shortage of lies

It's nothing new for presidents to give us bloated budgets with phony promises of belt-tightening at the end of the day. But never, ever, in the history of the republic has there been so irresponsibly gargantuan a budget defended by rhetoric so duplicitous as we are now seeing from President Barack Obama. "We cannot settle for a future of rising deficits and debts that our children cannot pay," he said last month, and he has talked as well about fiscal discipline, eliminating waste, increased efficiency, more focused policies and how dishonest President Bush was in leaving the wars in Iraq and Afghanistan "off the books." Well, yes, Bush did that thing and he shouldn't have, but everyone knew that money was being spent and the dishonesty, such as it was, is nothing - zero, zip, nada - next to Obama dressing up as a miser as he promotes a $3.59 trillion budget with a $1.2 trillion deficit on its back.

Read the whole thing.

Obama pretends to be frugal as we sink deeper in debt.

Actually, he doesn't even pretend to be frugal. He just says he's frugal

Remember President Obama's New Era of Responsibility? It got off to an inauspicious start, with a $787 billion economic stimulus package, a $410 billion appropriations bill, and a record $1.8 trillion budget deficit.

But now Obama wants to signal that he's getting serious about cutting the federal budget. Unfortunately, his plan hinges on the assumption that Americans do not know how to calculate percentages.

Last week the Obama administration, after going through the budget "line by line," unveiled $17 billion in budget cuts. That amounts to less than 0.5 percent of the president's proposed $3.6 trillion budget for the next fiscal year and less than 2 percent of the projected $1.3 trillion deficit.

**********

'Thought Crimes' Bill Advances

Why is the press remaining mostly silent about the so-called "hate crimes law" that passed in the House on April 29? The Local Law Enforcement Hate Crimes Prevention Act passed in a 249-175 vote (17 Republicans joined with 231 Democrats). These Democrats should have been tested on their knowledge of the First Amendment, equal protection of the laws (14th Amendment), and the prohibition of double jeopardy (no American can be prosecuted twice for the same crime or offense). If they had been, they would have known that this proposal, now headed for a Senate vote, violates all these constitutional provisions.

Why is it suddenly acceptable for some people to be more equal than others?

The extra punishment applies only to these "protected classes." As Denver criminal defense lawyer Robert J Corry Jr. asked (Denver Post April 28): "Isn't every criminal act that harms another person a 'hate crime'?" Then, regarding a Colorado "hate crime" law, one of 45 such state laws, Corry wrote: "When a Colorado gang engaged in an initiation ritual of specifically seeking out a "white woman" to rape, the Boulder prosecutor declined to pursue 'hate crime' charges." She was not enough of one of its protected classes.

If this was a group of white men looking for a minority woman to rape, I doubt the same logic would have prevailed.

Rape is rape. Murder is murder. The racial, sexual, or religious identity of the victim being grounds for additional punishment contends that some people are more value than others, that it is somehow worse to commit these crimes with a certain specially protected class as the victim.

It also violates equal protection under the law.

This is a huge problem, and a guaranteed cause of additional violence in the future. Civil wars have been fought over this. Nations have shattered.

Not to mention that it's a constitutional violation.

It doesn't matter the angle, practical or theoretical, that you want to pursue. This creates special protected classes, and is no different in its roots than the century old (and now discontinued) practices of the Old South where a black person who killed a White Person got the death penalty while a White person who killed a Black person got a short jail sentence, if anything. Only the identities of who is protected and valued has changed.

Same old racist nonsense for a different era. Just because the identities of who is valued and who is not have been switched doesn't mean it's not still racism.

**********

Obama Offers Security at the Expense of Liberty

Our would-be soft despots are offering Americans money and the promise of security against economic distress. The vastly increased cost of government will nonetheless nearly leave half of households free from the burden of paying federal income tax and eligible for occasional rebates. As CNN reporter Susan Roesgen said to a tea party protester, "Don't you realize that you're eligible for a $400 tax cut?"

In other words, take the money and shut up. Which brings to mind Tocqueville's warning: "Every measure which establishes legal charity on a permanent basis and gives to it an administrative form creates thereby a class unproductive and idle, living at the expense of the class which is industrious and given to work."

They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety.

Not to mention that they won't have the safety for long - and the next time the bill comes do, will have nothing to trade for more security. And that they've already given up the means of getting more.

**********

Unions vs. Taxpayers

But then there is the U.S. public sector, where the mood seems very European these days. In New Jersey, which faces a $3.3 billion budget deficit, angry state workers have demonstrated in Trenton and taken Gov. Jon Corzine to court over his plan to require unpaid furloughs for public employees. In New York, public-sector unions have hit the airwaves with caustic ads denouncing Gov. David Paterson's promise to lay off state workers if they continue refusing to forgo wage hikes as part of an effort to close a $17.7 billion deficit. In Los Angeles County, where the schools face a budget deficit of nearly $600 million, school employees have balked at a salary freeze and vowed to oppose any layoffs that the board of education says it will have to pursue if workers don't agree to concessions.


And I don't know why people expect it to be.

Cancel that. I do know why. Popular media. It's not all that common in popular media, but on the rare occasions I see someone buying a house in the movies or on TV, it's glossed over in terms that amount to the Fairy Godmother waving her magic wand. Partly, this is because the writers don't understand it, but mostly, it's because that if it's not your house, there isn't the necessary degree of emotional involvement to make it interesting. In short, it's boring, something studio and programming executives understand very well. Even on the real estate channels and shows, it's glossed over in ways as to render it basically into a simple magic spell (to the detriment of those agents who pay attention to those shows, and their clients). To an audience, all this stuff is boring, the cardinal sin in the entertainment industry. They can handle repetitive, they can handle stupid, they can handle insanely dangerous - they can handle pretty much anything except boring. To expect an accurate depiction of something so fundamentally boring to an audience is asking the impossible. When you add in how long it really takes (weeks if you're lucky, sometimes months), how are they going to possibly depict that in a 30 or 60 minute TV program or 90 minute movie? Not to mention the fact they have no desire to because it's boring, and boring programs don't keep the audiences the advertisers pay for. There's no money in showing it accurately - the money for the media is in somehow being able to make it interesting. Even if they have to make up stuff that isn't there - and leave 99.99% of what is there out - to do it. Of course, by then what they show bears little or no relation to the actual process.

There is nothing simple about an intelligent, informed decision as to which piece of real estate to buy, or securing any necessary financing. You can choose to do it the easy way, hoping that in your "ignorance is bliss" state of mind nobody takes excessive advantage of you. How many millions of people are in foreclosure right now who had that attitude? I have documented pretty extensively on this site exactly how easy the basic research that allows you to avoid the traps these people fell into is. Unsustainable loans aren't the only problem, though, only the biggest problem we're dealing with en masse right now. All of the individual con games that get played with real estate itself are still there, and nobody's proposing to pass any laws that will have any kind of real effect upon the problem.

Here is the situation: Here is a major asset, worth several years of your family's total income. Comparatively minor differences in perceived value make a major real world difference to how much money the seller walks away with. If that seller can net $10,000 more, that's roughly two months of free income from any regular employment they may have, and around here, a $10,000 difference is pretty trivial - the usual bar for quick turn fixing is at least $50,000, more like $80,000 to $100,000. Just because it's money borrowed from the lender doesn't make it any less real - in fact, it's all the more dangerous for that.

Given the high payoff for extremely minor games, people will play those games. People will lick the bugs off a car for $20. People will cheat on their taxes and risk nasty fines, penalties, and jail time for small amounts of money. 419 scams continue to make millions of dollars off their victims daily. People will bear professional false witness for dirt cheap amounts. 7% of the people surveyed said they'd murder a stranger for $10,000. On that scale, how likely do you think it is that they'll make things appear a little better than they are to net $50,000 extra out of a real estate transaction? With several times the amount at stake that takes 7% of the population to murder you, do you really want to take that risk?

There are friendly, amicable real estate transactions where everything goes easy, everything required is disclosed, the people concerned negotiate like reasonable adults, everybody keeps what is reasonable foremost in their minds and deals with the other people involved on that basis. I wouldn't bet on it. Nor are many transactions something like the picture painted by Churchill's most famous speech, "I have nothing to offer but blood, toil, tears, and sweat. We have before us an ordeal of the most grievous kind. We have before us many, many months of struggle and suffering." But if you're mentally prepared for trouble and it doesn't happen, you're going to be pleasantly surprised. All too often, people think they're in for the media "magic wand" version, and freak out when they're confronted with reality. I'd like it to be easy, but frankly, if it were I'd be out of the most interesting part of what I do. Nobody would need an agent if it were easy. Those people who do business with me and through me know how often I use the phrase, "If it were easy, anybody could do it." The context is almost always something has come up, and I have to do some work to make it right, but I'm also making the point that that's exactly what I'm paid for. It's an inalienable part of the job. If it were all peaches and cream, the vast majority of all new agents wouldn't quit (or essentially quit), would they? One of the nice staff people down at my local Board of Realtors tells me that significantly more than half the registered agents do zero or one transaction per year. You can't survive on one transaction per year unless it's maybe a ten million dollar property. You can't even keep up with changes on one transaction per year (but nobody can really do fifty or more transactions per year, either - not and guard their clients interests as you're supposed to)

Buying real estate is a fantastically good idea and great investment, as this and this and this being just the major articles directly on point that I can think of off the top of my head. There are also obstacles, I will admit. Hell, I pretty much proclaim it in big bold type and explain many of those issues in detail. Credit issues, debt issues, how difficult it is to save for a down payment. Unless you're eligible for a VA loan, there are no more "zero down" or "no cash required" loans at this time. I do believe they're come back within five years at the most, but it's better to act before the boost in price that's going to give the market. The point is this: Nobody can make up your mind to do what is necessary but you. I can and will gladly help with preparation and planning and budget and evaluating property and everything else, but you've got to first be the one to make up your mind that you want the benefits of real estate ownership, and will pay the costs required to get those benefits. Nobody can do it for you. Nor is pretending it's free or easy in your best interest. The buyers who tried to pretend it was all free and easy are pretty much getting smashed between a rock and a hard place right now.

My point is this: You shouldn't expect to buy or sell a half million dollar or more unique asset like real estate in the same fashion you would a loaf of bread or a box of paper clips. Especially not when there are major rewards for making it appear just a little bit better for the other side than it really is. Expecting to do so is an artifact of Hollywood, and it's worse than all of the horrible cliches in all the bad movies and TV shows that have ever been made about most other situations, because the people who get involved in those other situations know (or learn in short order) what a horrible crock of fertilizer it is, while people who get ready to buy real estate generally don't, and have only the one experience to learn. But that one experience often controls their life from that point on - even when they don't understand how, why, or the fact that it is controlling their lives. I don't think I've ever seen anything like an accurate media description of being an Air Traffic Controller or any of the other jobs I've done. I've been witness to or involved with several major news stories in my lifetime. Aside from sports, I don't think I've ever seen any events with which I was familiar accurately reported. The reason for the ability to accurately report sports is shared experience and widespread audience understanding of the key elements through repeated personal involvement, or at least personal observation. Not to mention that people are interested in sports or they just tune out. If you care about Antarctic Rules Underwater Basketweaving, you tune in to the station that reports it, while if it comes on and you're not interested, you pay attention to something else. If you're interested, you understand all the major points of Antarctic Rules Underwater Basketweaving - you've done it or watched it enough that you're familiar with what's important, as should any reporters. But with every real estate transaction, things are different from other real estate transactions. Not only that, if it's not your money, it's boring as hell unless you're at least a pretty decent agent who understands everything going on. But pretty much everyone who hopes for a secure financial future is going to have to buy real estate at least once in their lives. It's going to be a unique experience, and it's not all going to be pleasant. Quite often, it's frustrating as hell, even when it doesn't need to be - but you can't force the other side to be reasonable. Don't expect it to be like Hollywood depictions, and you won't be shocked. Whatever your job is (except show business itself, of course) I'll bet you serious money that Hollywood doesn't portray it correctly either. Why should real estate be any different? But here's one prediction I'll stake serious money on: The more time and effort and often disappointment and frustration you spend going through the buying process, particularly if you've got a good agent working in your best interests, the happier the eventual result will be.

My most spectacular, satisfying results have all come from clients who were difficult, or had difficulties, and kept going to the very happy conclusion. I don't have any objective measurements, but it sure seems like to me those were the ones who ended up happiest with their purchases in the end. The stuff you go through to buy a property is temporary. The benefits you get from having done so are permanent, and usually quite large, as discussed above. Even after you sell such a property, you've got more money than you would have had otherwise, money you can use for whatever is important to you. Real estate doesn't have to be your life to benefit from it - or be ruined by it. Keeping this in mind, doesn't it seem like a good idea not to expect it to be accomplished by a Fairy Godmother waving her magic wand?

Caveat Emptor

Article UPDATED here


This is a warning to those who purchase restricted sale property. I've gotten a couple of calls for refinancing these in the past couple months, and I've never covered this subject.

A restricted sale property is one where the identity of who can buy it and/or at what price they can buy it is restricted. Many local first time buyer programs restrict the conditions under which the property can be sold. The purchaser must be someone who has themselves qualified for their first time buyer program, the purchase price cannot be above the original purchase price plus a certain margin (usually reflecting a given percentage of Average Median Income for a given Metropolitan Statistical Area), or both.

These are by no means the only restricted sale programs. Many academic institutions have such property upon the grounds of their original endowment. There is a covenant which runs with the land that only faculty members or employees of the college or academy are allowed to purchase the property. I'm sure there are business employee restrictions and others.

This is a classic "good news - bad news" situation. At purchase, it's good news (mostly) because you typically get a far lower price than other, equivalent property, meaning you can afford it when you couldn't otherwise. At sale, however, it means you can't sell for a true market price because either the general public is prohibited from buying or the sales price is restricted by the bargain you made in order to purchase.

What this means is that if lenders have to foreclose upon such a property, they are pretty much up the creek. Such a property is unlikely to sell at auction, they can't just hire an agent and put it on MLS. If the property got beat up before the foreclosure (as happens quite often), it may not be something any of those eligible to purchase it are interested in.

Since it's not generally marketable, most lenders don't want to touch restricted sale properties. This means your loan choices are going to be restricted from the day you sign the purchase contract on. You will probably not be able to get a purchase money loan with most financial institutions. You almost certainly won't be able to refinance on favorable terms, even if everyone who bought without such a restriction can.

Typically, there are only one or two financial institutions willing to touch such a property, and only through their own internal loan officers rather than through any brokers they may do business with. What's going on is that the restricted sale entity (usually a municipality or educational institution) has contracted with them to somehow take care of the problem if there is a foreclosure. This usually takes the form of taking over the property themselves and buying out the lender's Note.

For refinances, all of the above applies, even more strongly because one lender already has the indemnity contract; any others that you might have been able to choose between do not. This means your choices are limited to "refinance with that lender or not at all". Not a good situation to be in as regards to getting a good rate for a reasonable cost. Whatever they feel like offering you is what you get. Nor do you get the standard rates everyone else gets from that lender. You're not in the same situation as everyone else. You're in a special program where nobody else can lend to you because your property cannot be sold to the general public. You're almost certainly stuck with that one lender. It's not like you can go somewhere else.

Due to this lack of competition, expect the rates on loans for such properties to be above market average. Some are fairly close, but it seems an average of half to three quarters of a percent higher on the rate is what you're going to pay when you finance such a property. Furthermore, the only ones able to refinance may be the current lender, as nobody else has that indemnity contract from the restricted sale entity. Lender's don't want to take over your property - they want the loan to be repaid. But they must be able to take over your property and sell it on the market for a market price in order to accept your loan. Anything else is a violation of their duty to their stockholders and bondholders, as well as a violation of federal banking regulations. Since they can't do this, it shouldn't surprise anyone that most lenders can't touch a restricted sale property.

Caveat Emptor

Article UPDATED here


I'm hosting this week's Carnival of Real Estate over at my "professional voice" website. My third time hosting; first time at the other site. Read it here: Carnival of Real Estate #141

**********

HOW CHURCHILL DEALT WITH THUGS

But Churchill also understood that, if barbarism was one enemy of civilization, another was a moral cowardice disguised as moral qualms -- an instinctive flinching in the face of danger, dressed up as "upholding our values."

Churchill had seen this flinching in such 1930s appeasers as Neville Chamberlain, and he feared that he'd see it again among Britons and their leaders after the war.

"There is no place for compromise in war," Churchill wrote. In choosing between civilized restraint and the British people's survival, he never hesitated. He contemplated using mustard gas if the Nazis invaded England. He authorized the fire bombing of German cities, the so-called terror bombings, in order to cripple the German war effort and morale. He was prepared to let Mahatma Gandhi die during his hunger strike in 1943 rather than be blackmailed into abandoning India, the last bastion against Japanese domination of Asia.

It isn't easy, or something to make you proud when you make a decision to do something you see as uncivilized. If the consequences of not doing so are worse, however, you are becoming even more uncivilized when you fail to do them.

**********

Thomas Sowell: 'Empathy' Versus Law

Justice David Souter's retirement from the Supreme Court presents President Barack Obama with his first opportunity to appoint someone to the High Court. People who are speculating about whether the next nominee will be a woman, a Hispanic or whatever, are missing the point.

That we are discussing the next Supreme Court justice in terms of group "representation" is a sign of how far we have already strayed from the purpose of law and the weighty responsibility of appointing someone to sit for life on the highest court in the land.

That President Obama has made "empathy" with certain groups one of his criteria for choosing a Supreme Court nominee is a dangerous sign of how much further the Supreme Court may be pushed away from the rule of law and toward even more arbitrary judicial edicts to advance the agenda of the left and set it in legal concrete, immune from the democratic process.

Would you want to go into court to appear before a judge with "empathy" for groups A, B and C, if you were a member of groups X, Y or Z? Nothing could be further from the rule of law. That would be bad news, even in a traffic court, much less in a court that has the last word on your rights under the Constitution of the United States.

Read the whole thing.

A Litmus Test That Counts

As the time approaches for President Obama to choose a successor to Justice David Souter, the term "litmus test" will be heard throughout the land. The White House will deny applying any such thing, but the nominee will undoubtedly be chosen according to where she stands on abortion, unions and other issues beloved by liberals. This is fine with me, but what I want to know is where she stands on Frank Ricci. He's a fireman.

He is also the lead plaintiff in a case recently argued before the Supreme Court. It was Ricci's misfortune to take -- and pass -- the New Haven, Conn., fire department's promotion exam for lieutenant, and then have the job denied him because he is white. Others will argue -- fatuously and, when they are before St. Peter, with head bowed in shame -- that race had nothing to do with what happened to Ricci, but the fact remains that had he been black, his uniform would already sport a lieutenant's bar.

Jeff Jacoby, definitely left of center, has no sympathy for an empathy standard either.

**********

Michael Barone: White House Puts UAW Ahead of Property Rights

But my sadness turned to anger later when I heard what bankruptcy lawyer Tom Lauria said on a WJR talk show that morning. "One of my clients," Lauria told host Frank Beckmann, "was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight."

This is vile, for two reasons. One, that the President would resort to such tactics at all, threatening private citizens with the power of the press. Two, the expectation that the White House Press Corps would actively cooperate with that agenda. This is not the way it's supposed to happen, not the reason why the press enjoys a privileged position (no other profession has a shield law). Would the press have cooperated thus with any previous administration? Would there have been any expectation they would do so?

a violation of one of the basic principles of bankruptcy law, which is that secured creditors -- those who loaned money only on the contractual promise that if the debt was unpaid they'd get specific property back -- get paid off in full before unsecured creditors get anything.

The reason is plain and simple: UAW's political support for the Democrats.

A hedge fund manager lays it all out: Unafraid In Greenwich Connecticut

He speaks truth to power, taking more risk in standing up to Obama than anyone did during the eight years of the Bush Administration. We've already seen how Obama deals with dissenters - going after them personally, abusing the power of the government - something George W. Bush (for all accusations to the contrary) never did. But somehow I don't think that those who lauded the idiot conspiracy theories accusing the Bush Administration of everything from silencing opponents to faking 9/11 will laud this man who has objectively taken more risk than all of those nitwits together in order to publicize the simple truth.

Q and O reports more government threats and intimidation

Confronting the head of a non-TARP fund holding Chrysler debt and unwilling to release it for any sum less than that to which it was legally entitled without compelling cause, this country's "Car Czar" berated the manager of said fund with an outburst of prose substantially resembling this:

Who the f*** do you think you're dealing with? We'll have the IRS audit your fund. Every one of your employees. Your investors. Then we will have the Securities and Exchange Commission rip through your books looking for anything and everything and nothing we find to destroy you with.

Faced with these sorts of threats, in this environment, with valued employees in the crosshairs and AIG a fresh, open wound upon the market, the fund folded.

I knew this clown Obama and his administration would be bad. But I didn't think it'd get this bad this fast. This is clear impeachment material - of the person uttering it, and all the way up the chain of command if they were complicit or instructed to say it by their superiors. Extortion is a felony, the more so because there were billions of dollars at stake.

**********

Our Have-It-Both-Ways Generation

**********

The Obama Lexicon

Washington always has been a thermonuclear cliché generator. But the Obama administration, with all its super-smarts, has taken the exploitation of the euphemism to spectacular new heights.

This week, we learned a bit more about what the terms "sacrifice" (do what we want, you filthy, unpatriotic swine), "era of responsibility" (double the "sacrifice," half the prosperity) and "investments" (we squander money so you don't have to) really mean.

I have never heard such a double-speaking tale-spinning opportunist as our current President and his administration. David Harsanyi lays it all out.

**********

The Obama Girls Aren't Like You and Me

If you know me on this issue, you know that I am very, very upset. And that I think that there is probably a special place in hell reserved for politicians who betray our nation's most helpless children for the benefit of a sullen and recalcitrant teacher's union. There they spend all eternity explaining to their victims why they couldn't possibly have risked their precious babies' future in the public school system, yet felt perfectly free to fling other peoples' children into it by the thousands.

Megan is definitely left of certer, politically. But she's willing to examine the facts and where they lead honestly, and she is not buying the difference between Obama's speech and his actions.

**********

If we're going to prosecute the Bush Administration for illegal torture, it looks like we're going to need to prosecute the Obama Administration right beside them

As the Holder Justice Department puts it on pp. 20-21 of the elusive DOJ brief:

[T]orture is defined as "an extreme form of cruel and inhuman treatment and does not include lesser forms of cruel, inhuman or degrading treatment or punishment. . . . " 8 C.F.R. § 1208.18(a)(2). Moreover, as has been explained by the Third Circuit, CAT requires "a showing of specific intent before the Court can make a finding that a petitioner will be tortured." Pierre v. Attorney General, 528 F.3d 180, 189 (3d Cir. 2008) (en banc); see 8 C.F.R. § 1208.18(a)(5) (requiring that the act "be specifically intended to inflict severe physical or mental pain or suffering"); Auguste v. Ridge, 395 F.3d 123, 139 (3d Cir. 2005) ("This is a 'specific intent' requirement and not a 'general intent' requirement" [citations omitted.] An applicant for CAT protection therefore must establish that "his prospective torturer will have the motive or purpose" to torture him. Pierre, 528 F.3d at 189; Auguste, 395 F.3d at 153-54 ("The mere fact that the Haitian authorities have knowledge that severe pain and suffering may result by placing detainees in these conditions does not support a finding that the Haitian authorities intend to inflict severe pain and suffering. The difference goes to the heart of the distinction between general and specific intent.")

I can see where the left would get upset that a Republican president would claim that something is not legally torture because there is no specific intent. I disagree with them, but I understand the merits of the position and the fact that they're using an available means to oppose someone of the opposing political viewpoint. Now it turns out that the Obama administration is making the exact same argument after condemning it (and still condemning it in speeches) in Bush's.

Once upon a time, I thought Obama might be an interesting guy to hang with. I take it back. I may have respect for the office of the President and the fact that he won the election, but it is hard to express my personal contempt for the deliberate bifurcation between words and deeds that has become the hallmark of the Obama administration.

**********

President of Yemen Personally Issues Death Threat to Former President of Yemen

Vienna - London, "Aden press," Special: 9-5 - 2009

Yemeni authorities have today carried out a telephone conversation with President Ali Salem Albied in the country, who lives in Austria and threatened him by physical liquidation by an official way , and accused President Ali Salem Albied in a telephone conversation with the "Aden press," Immediately after receiving the call, that the people spoke, by SANAA formal way and by the President regime of Ali Abdullah Saleh spoke to him this morning and told him explicitly that we know where you will be, where do you get rid if it did not stop what he described as "a farce and the storm," which raised Albied since announced his departure from Muscat and his call for the people of the South to unite behind their cause, just published in the In an earlier statement, "Aden press ."

Saleh Urges Real Dialog (after muzzling opponents)

Perhaps you buffoon, if there had been electoral reform as promised in 2006 and under the guidance of the EU, then the growing tensions would have been short circuited by authentically contested Parliamentary elections. Duh!

Are we all getting the causal relationship between the delayed elections and the uptick in tensions? The elections were delayed because...Saleh lied again.

Why would anyone, anywhere believe Saleh? Everything is smoke and mirrors, lies, propaganda and threats. Closing the newspapers while calling for dialog is the supreme example of hypocrisy.

Corruption Undermines Yemeni Unity

These three data points all tell you the way Yemen is heading - to a civil war.

It could happen here. I can make a very good case that our current administration is moving us in that direction. There is only a difference of degree between Saleh and Obama, and I have no reason to expect that said difference of degree will persist.

The left accused George W. Bush of wanting to create a theocracy and hang onto power after it's term was up. Here we are, four months after George W. Bush gave up power precisely when he was supposed to. However, Obama's quick moves to concentrate all power in his own hands - economic power, financial power, census power, together with his encouragement of voter fraud, his unwillingness to negotiate meaningfully with the minority party (something George W. Bush was often accused of, but in actuality negotiated far more than either his successor or predecessor), Obama's threats and actions against private citizens, his administration's attempts to define opposition as terrorists and threats and worthy of law enforcement intimidation - all of this paints a very coherent picture, and I don't like what it shows.

**********

Before Congress considers any form of government-run health care, they should hear the voices of patients denied care because the government deemed it too costly or delayed care because of long waiting lists for surgery or diagnostic tests.

Look at our own VA system. Most vets I know prefer private health insurance and health care, going to the VA only when they have no other alternative.

**********

This needs the widest circulation it can get. Video, 17 minutes

The True Story of the Atomic Bomb

**********

TARP: The Tragedy Deepens

Not only is the TARP program pernicious to the banking and financial sector, but it's implications go much deeper than that, and corrupt the rest of the economy as well. And most importantly, this is only the beginning.

The corruption expresses itself in a number of ways. Take a look at the GM/Chrysler situation. In both cases, the UAW emerge as the clear winners in the bankruptcy proceedings. In the case of GM, bondholders with $27 billion in bonds are supposed to accept 10% of the company's equity, while the UAW's retirement fund, which holds $10 billion in bonds, is supposed to receive 40%, with the Government taking the remainder of the equity. In what possible way is this supportable?

TARP as Shakespearean Tragedy

By inducing banks to take TARP money, whether through tactics or intimidation, the government has neatly cornered the capital flow of the country. Much like Hamlet surreptitiously forced his uncle to publicly face scorn for his act of regicide (by having performed the "Murder of Gonzago," aka the "Mouse-Trap"), the government has successfully lured failing banks into the public square for ridicule. Whereas Hamlet sought to elicit a sign of guilt in order to justify his vengeance, however, the government seems intent on effusing guilt throughout the banking industry so as to justify its controlling moves. By tainting the public view of the financial sector, the government seeks to undermine public confidence and build a chorus calling for its heavy-handed involvement. As mentioned above, protestations by the beggars for such action protest too much, methinks, but those who truly have no need of the interference have much cause to cry foul.
**********

California heading towards collapse, auditor warns

On the eve of a series of referendums proposed to increase taxes on Californians, the Golden State's legislative budget analyst warns that both the legislature and the governor have seriously underestimated the budget shortfall. The state has a $23 billion gap even after the legislative compromise earlier this year supposedly eliminated the red ink and could default by July:

We spend too damned much money. I'm not going to say that all of the causes are unworthy, because that is not the case. I am saying that there is no way the government (at any level) can create money without taking it from someone. Every single method the government (at any level) has of getting the money it spends hurts people at least dollar for dollar, and if you don't understand this, you are not a competent adult. We have got to limit government spending, and prioritize what we do spend. Because the whole system is near economic collapse, and if we don't do what is necessary to avert that collapse, the people we are trying to show "compassion" for will be hurt much worse by that economic collapse.

The oft-quoted Cruel versus stupid is a false dichotomy, because stupid ends up being far more cruel than "cruel" might ever consider.

Don't believe me? Read this" Hemorraging - especially Uncle Sam

**********

What have we learned?

The point was not that Obama likes Dijon mustard -- I do, too, as does the man who named it "DijonGate" -- but rather that MSNBC and other major media are no longer in the news business. They're doing public relations for the Obama administration and the Democratic Party.
**********

I have written the following to each of my Senators urging them to work against HR 1728:

Senator*,

I write you today as a constituent and mortgage professional urging you to act and vote against HR 1728 (Mortgage Reform and Anti-Predatory Lending Act).

Everything this act accomplishes is found elsewhere in Federal Law, with one exception: The prohibition of paying yield spread to brokers.

I'm a correspondent, not a broker. I don't get yield spread. This bill, however, will prohibit brokers from sharing in EXACTLY THE SAME PROFITS EARNED BY LENDERS UNDER EXACTLY THE SAME CIRCUMSTANCES. I can't see that it is any more evil for a broker to receive yield spread, paid voluntarily by lenders under no compulsion to offer it, while those lenders receive much larger premiums from the secondary loan market for precisely that same loan.

Whereas I personally stand to actually benefit from this bill, it adversely impacts consumer choice and ability to shop their mortgage around in search of the best possible loan. It removes the ability of legal adults to *choose* to pay a higher rate in return for removal of certain costs - but it only so restricts their choice if they choose to do business with brokers. I do not believe it is in anybody's best interest to do this - except possibly the major lenders themselves.

I have written a somewhat lengthy analysis of this bill at

http://www.searchlightcrusade.net/2009/05/hr_1728_proof_that_this_congre.html

if you are interested in more background.

Please do everything in your power to prevent this monstrosity from passing. If you don't succeed, at least you will be able to say that you tried when research indicates that lender profit margin per loan on the secondary market has doubled or more, at the expense of consumers.


I said a few days ago that Banks hate the concept of mortgage brokers, because without brokers, they could jack up their margin per loan. Here's what they're doing about it: Introducing a bill into Congress making it impossible for mortgage brokers to do exactly what the banks themselves do.

You can track HR 1728 here.

Text of HR 1728. Most of it is redundant, iterating other things already done. One that isn't, however, is found in Section 103, subsections 1, 2 and 4

'(1) IN GENERAL- For any mortgage loan, the total amount of direct and indirect compensation from all sources permitted to a mortgage originator may not vary based on the terms of the loan (other than the amount of the principal).

This means that they are not permitting differing compensation to an originator based upon the tradeoff between rate and cost of real estate loans. Defensible, in and of itself. But not in conjunction with other parts of this section.

'(2) RESTRUCTURING OF FINANCING ORIGINATION FEE-

'(A) IN GENERAL- For any mortgage loan, a mortgage originator may not arrange for a consumer to finance through rate any origination fee or cost except bona fide third party settlement charges not retained by the creditor or mortgage originator.

'(B) EXCEPTION- Notwithstanding paragraph subparagraph (A), a mortgage originator may arrange for a consumer to finance through rate an origination fee or cost if--

'(i) the mortgage originator does not receive any other compensation from the consumer except the compensation that is financed through rate; and

'(ii) the mortgage is a qualified mortgage.

This removes the ability of a broker to allow consumers the choice or paying the origination fee via yield spread. I've explained yield spread more than once. It can be thought of a "negative discount" because that's exactly what it is: Something the banks voluntarily pay brokers in order to get those brokers to bring them loans at that rate of interest. It is rooted in the secondary market for loans, and what that secondary market pays for such loans. If the secondary market won't pay a premium (i.e. more than face value of the note) for such loans, I've never heard of a single lender offering any yield spread on such loans. In fact, there's usually a difference of about 1.5 points between secondary market premium and yield spread, with yield spread being the lesser of the two. So if it's a $400,000 loan with a yield spread, that lender is making about $6000, over and above what they pay the broker - just for the act of funding that loan long enough to sell it on the secondary market. This premium has nothing to do with whatever interest the consumer may be charged - it's a strictly cash bonus earned by being an intermediary middleman between the broker and the secondary market. Many loans with secondary market premium bonuses are still charged discount by lenders. In short, this section prohibits brokers from simply sharing in the premiums earned by bankers on the secondary market.

Furthermore, there is absolutely nothing compelling lenders to offer yield spread in the first place for any loan. It is purely voluntary on their part. They do it because otherwise brokers will shop other lenders for their clients requesting loans in that current cost range. Since this happens to be the vast majority of all mortgage loans I have experience with, this will have no effect other than the restriction of consumer choice on the most popular loan choices, forcing them to go to direct lenders, prohibiting brokers from competing effectively. This is in the consumer interest how?

The answer is that it isn't. It's in the big direct lender's interests, because it would enable them to jack up their profit margin per loan.

The exception might be taken as allowing yield spread to be used to finance origination, except for the following in subsection 4

'(4) RULES OF CONSTRUCTION- No provision of this subsection shall be construed as--

'(A) permitting yield spread premiums or other similar incentive compensation;

'(B) affecting the mechanism for providing the total amount of direct and indirect compensation permitted to a mortgage originator;

'(C) limiting or affecting the amount of compensation received by a creditor upon the sale of a consummated loan to a subsequent purchaser;

'(D) restricting a consumer's ability to finance, including through principal, any origination fees or costs permitted under this subsection, or the mortgage originator's ability to receive such fees or costs (including compensation) from any person, so long as such fees or costs were fully and clearly disclosed to the consumer earlier in the application process as required by 129B(b)(1)(C)(i) and do not vary based on the terms of the loan (other than the amount of the principal) or the consumer's decision about whether to finance such fees or costs; or

'(E) prohibiting incentive payments to a mortgage originator based on the number of residential mortgage loans originated within a specified period of time.'.

The last sentence should be known as the "encouraging unethical mortgage originators clause" but it's that first sentence that's the real killer. It flatly prohibits yield spread, something that the lender's lobby has been after for years. Individual lenders pay yield spread because they make more money by encouraging brokers to place the loans with them (as I said, about 1.5 points per loan), while the industry as a whole has been looking for a way to ban it because if no lenders are legally allowed to pay yield spread, they will make even more money per loan, not to mention cut down on the competitive advantage brokers have by economizing.

I wrote in Yield Spread is a Beneficial Tool That Can Be Misused that yield spread is not a cost paid by consumers, and it isn't. It's a premium paid by banks so they can make more more money (roughly $1.50 per hundred dollars loaned) by doing a higher volume of loans. By having yield spread available as an option, consumers have the option of not increasing their loan balance, or not increasing it by so much. You can't do reduced cost loans, let alone zero cost loans, without yield spread.

Here's an example to illustrate: Suppose you have a $400,0000 loan at 7.5%, and rates drop (as they have currently). However, you're also planning to sell in a year or two. So you don't want to spend a huge amount of money you'll never recover before you sell the property on refinancing your property. Along comes a broker who says, "Instead of refinancing you at 4.5% with a point of discount and a point of origination, costing you $8000 extra on your loan balance, suppose I refinance you at 5.25% with no discount and no origination. I make what I need to via yield spread, and it only costs you about $2000 on your balance to refinance. You save 2.25% every year in interest cost, or $9000, so if you go a year and a half, that's $13,500 you save in interest charges, less $2000 on up front cost, giving you a net of $11,500 in your pocket a year and a half from now." Wouldn't you say "yes" to that? It is completely logical and to your benefit to do so. But HR 1728 would remove that option by prohibiting the payment of yield spread. The only people to benefit by this are the lenders who keep you in higher interest rate loans.

I personally work through a correspondent lender. We don't get yield spread (unless we choose to work as brokers instead) because correspondent lenders fund in our own name - thereby getting most of the secondary market premium that the big lenders get. HR 1728 would probably be a good thing for me, personally, at least in the short term by putting brokers out of business. But I have learned the hard way that anytime consumer choice is adversely impacted, I will pay for it later. Yeah, they're only coming for brokers and I'm not a broker. But then what happens next? Easy: Once true brokers are out of business, they figure out a way to kill correspondent lenders. Instead, I choose to help brokers, even though I haven't got a personal stake in it - yet. Furthermore, it seems rather spurious to villainize a process that is a much smaller piece of precisely the way the big lenders themselves do business.

Stand up and be counted as in favor of permitting yield spread. The only people who benefit from banning it are major lenders and corrupt politicians engaged in paying them back for campaign contributions and personal favors (Yes, I'm looking at you Barney Frank (D - Malfeasance), and Chris Dodd (D - Corruption), too.)

Caveat Emptor

A lot of advice gets given to choose a "top producing" agent. These highly corporate offices may have the name of an individual agent attached to them, but they are in fact transaction mills. They have done pretty well for themselves through the downturn by securing a lot of listings and waiting for something to happen. All they have to do is wait long enough, cut the price enough, and they will eventually get an offer on a property. If yours takes six months to sell, in the meantime they have sold 18 others that finally decided to cut the price enough to move. It's not that they did any work besides "sign in the yard, entry in MLS" to move the property, but their production makes it look like they're good to the consumer who asks the easy question, "How much real estate did you sell?" rather than "How well did you do for your individual clients?"

These agencies did well through the downturn by marketing themselves to lenders for selling property or advertising themselves as "short sale specialists." It's not like they did anything hard. Lender gets tired enough of carrying the property or close to the regulatory triggers for selling a property, they'll start taking ridiculously low offers. And their "short sale specialist" is more in the nature of "throw 100 transactions at the lenders. We'll close some of them." In case you didn't understand me, this is the old "Throw enough mud, and some will stick." Statistics on failed listings are not generally kept, and where they are, they usually excuse the agent for "lender wouldn't approve short sale". Sometimes the lender isn't realistic when they refuse the short sale - but more often it's that these nitwits wouldn't do the real work involved. Nor are there any readily available statistics on how well they did for individuals, rather than how many sales they produced or what dollar volume.

I have had more experience than I would like in dealing with these offices. Let me tell some experiences I've had very recently. I represent far more buyers than sellers, so they're going to be from a buyer's agent prospective:

I got to one property to show it, and the lockbox was open and the key was gone. I called the listing agent's number - just a courtesy call of the sort I'd like to have if this happened to one of my listings. I got their office phone tree instead - and no ability to get a live person on the line. Yes, it was still available, but all I could do was leave a message and hope. Actually, something similar has happened at least six times in the last couple of months: A problem making it difficult to show the property, or something that was a real issue with the property that had happened, and no way to get in touch with a live person to fix it. Once, I got there and the door was standing open and there was no way to lock it without the key that wasn't there, and neither the agent nor their office answered (I called the police switchboard after them). Okay, no problem seeing the property, but the ability to secure it afterwards was completely missing. You want this to happen to your property?

Upon several occasions in the last couple of months, I and my clients have made very good, strong offers - and the response we got was like dropping them into a black hole. In other words, none. I tried calling - phone tree of doom again. Leave messages every day for a week - no callback. I tried emailing several times - no response. I tried another fax asking if they'd gotten the offer - nothing there either. At least two of these properties have since had a closed sale for less than the amount my clients offered, both of them curiously enough with the listing agency representing the buyer as well, resulting in them getting both halves of the commission. Great for those buyers; not so great for the sellers whose fiduciary duty that agency failed in. I strongly advise against allowing your listing agent to represent the buyer as well, or at least no paying them both halves of the commission when they do. It's a fundamental conflict of interest to have a dual agency situation, disclosed or not. Nonetheless, the real point of this is that all of these agencies were too busy to respond to good, strong offers.

On several occasions, I've been told it was a multiple offer situation. That's fine. But rather than individual negotiation and counter-offers, I and my clients are given the incredibly weak line to "Send your best and highest offer" That is to save the agent and their assistant working time, not to get their client the best deal. To get the best results, you negotiate individually with at least the strongest three to five offers. For the others, who are way below market, the minimum response is a generic counter that tells them where the market for this property really is. Sure, some of them are likely to be low-balling with every intention of walking away if they can't get the property for that offer. But there's always the possibility that they will return a competitive offer if they're given more guidance. An agent who won't or can't spend fifteen minutes generating such a counter is not doing the whole job, let alone the agent who doesn't do individual negotiations. Yeah, the property will likely sell. But not for the best possible price. And it's amazing how many of these lazy agent "best and highest offer" deals fall through, putting the owner right back to square one with sixty days on market - which sixty days means that property will fetch less.

Short sales are even worse than that. You make an offer for a short sale to corporate agents, and they usually intentionally don't respond. The last four I've made were all intentionally not responded to. Instead they just forward all of the offers to the lender. The black hole situation again, even worse because there's not going to be a response for six to twelve weeks. By that time, those buyers are going to have something else and the offers will be useless. Particularly the good offers. They want a property. You can negotiate with these potential buyers, choose one and give them a reason to stay with your property, or you can throw mud at the wall. Actually, it's more like throwing "no stick" mud at a Teflon wall - because it's not going to stick. Furthermore, the back and forth of negotiations with multiple prospective buyers is highly useful and likely to help result in an acceptance. This makes both the seller and the buyer happy. Yes, the chosen buyer can still walk away in the meantime - but you've still got the contact information on all the others. In other words, you're no worse off by picking one particular offer, and you're likely to be better because there's a much higher probability of that best offer sticking around. Of course, not accepting any particular offer means that the property isn't marked "pending" and it isn't marked "offer accepted pending lender approval of short sale" which means the listing brokerage can still use it to troll for buyer clients and a way to make themselves more money by selling those clients something else. Amazing how and why that that works, isn't it? But the listing agent has the responsibility to do what is best for the clients, not themselves. I think this trick violates the fair and honest dealing duty to those buyers as well, but there isn't any real way to argue it doesn't violate fiduciary responsibility to the listing client.

The point I'm making is that while these corporate agents do sell a lot of real estate, and they certainly make an awful lot of money, they're pathetically bad choices for getting the best possible price, let alone quickest sale, and you can kiss actual good service right off your list. There are equivalent issues on the buyer's agency side as well - agents too busy to show property, poor negotiators, high pressure tactics where they are never appropriate. How can you know the agent isn't too busy to give you enough attention.

Personally, I use a points system. A loan is four points from application to funding, a buyer client is fifteen from when they start looking to close of escrow, a listing is twenty points in preparation for market, ten once the initial work is done and the property actually hits MLS through close of escrow. Negotiating multiple offers is two points per offer while negotiations are in process, and is the only thing that can possibly send me "over the limit" involuntarily. I'm only allowed 100 total points; I don't accept business that would drive me over that total (Yes, I've done 100 loans in one month. But loans have become progressively more complicated since then, especially in the last few months, and it's not fair to prospective clients to pretend otherwise). I'm not claiming there's anything perfect or sacred about my system, and agents with more people working in their unit can certainly handle more business than I can with just a contract loan processor and transaction coordinator, neither of which are allowed to talk to my clients. The point is that I have such a limiting system in place; I can and have told people "I cannot work with you right now because it would mean I cannot devote enough attention to everyone else I'm already working with." I also offer them a choice of referrals or waiting.

Talk to most agents and brokerages about such a system or threshold, and they look at you like you're from another planet. Asking prospective agents and loan officers about whether they have such a system and how it works is a good test. Not that the existence of such a system means they're a great agent, but the absence is a real red flag. They can keep hiring office people all they want, but the office is not where the real work takes place. The real work all involves the agent themselves, and there are only so many hours in the day. And if they try and fob you off on some "associate agent" of theirs (in other words, they take a big cut of what that agent makes in return for feeding them business) consider that "associate agent" as if they were who is going to be responsible for your transaction - because they are. That "big name agent" has already done everything they're likely to when they introduce you to their associate.

What else can consumers do? Call their prospective listing agent and deal with their phone tree as if you were an agent with an offer, or even just an agent calling with a concern about the property. If you can't get through to a live person, that's a problem. If you leave a message and nobody calls you back within one business day at the most; that's grounds enough to remove them consideration totally. Pretend you're an agent, at least until you get someone on the phone. For buyer's agents, it's hard to see evidence of their responsiveness ahead of time, but so long as you limit yourself to non-exclusive buyer's agency contracts, you can fire agents who don't measure up at any time - making it a situation where you literally can't lose. Listing contracts, however, by their nature, need to be exclusive right to sell to get the best results. This means you can give any buyer's agent a chance and lose nothing except a little time; for a listing agent you need to be careful about due diligence ahead of time.

As this article should make very clear, there is a major difference between asking the question "Who sells the most real estate?" and "Who sells real estate for the best possible price, in the quickest time, and deals with issues promptly so I get the best results?" You want to make certain you're asking the right question, because if you ask the wrong question, you get the wrong answer.

Caveat Emptor

Article UPDATED here

I am very sorry I haven't had much time to write new articles of late. All of the easy articles are written. New articles are generally taking me two hours plus to write - and I just haven't had two hours to write them. I am working on it. I have something over 90 article ideas saved and many actually have some significant development. It's for good reasons - clients and family - but I have been working 90 plus hours every week and there just hasn't been any energy left over in the evenings. I haven't even looked at my newsfeeds in over a week, and I'm a little scared as to what they probably look like. The one linked article below was headlined on my home page.

**********

Carnival of Personal Finance

**********

Worst Cities For Jobs

So what about California? The economic well-being of many metropolitan areas in the Golden State has been sinking precipitously since 2006. This year, three California regions--Oakland, Sacramento and San Bernardino-Riverside--have sunk down into the bottom 10 on the large cities list. That's a phenomenon we've never seen before--and never expected to see.

and

Much of the problem lies with the state's notoriously inept government. The enormous budget deficit will almost certainly lead to tax increases, which will fall mostly on the state's vaunted high-income entrepreneurial residents. Stimulus funds won't do much good either, Adibi notes, since "the state is grabbing all of the federal stimulus money" to keep itself afloat.

A draconian regulatory environment also could dim California's prospects for growth. Despite double-digit unemployment, the state seems determined not only to raise taxes but also to tighten its regulatory stranglehold.

and

It's sad because California has the capacity to recover more quickly than the rest of the country if the state moderates its spending and stops regulating itself into oblivion. This current round of legislation is so dangerous precisely because it could eviscerate the heart of the economy by slowing down entrepreneurial growth, the state's greatest asset.

It's obvious to him and to practically everyone else I talk to. Why are elected officials unable to see it? Because they stay in office by handing out state funds to people who want them in exchange for their votes.

Read the whole thing.

Copyright 2005-2024 Dan Melson All Rights Reserved

Search my sites or the web!
 
Web www.searchlightcrusade.net
www.danmelson.com


The Book on Mortgages Everyone Should Have
What Consumers Need To Know About Mortgages
What Consumers Need To Know About Mortgages Cover

The Book on Buying Real Estate Everyone Should Have
What Consumers Need To Know About Buying Real Estate
What Consumers Need To Know About Buying Real Estate Cover

Buy My Science Fiction and Fantasy Novels!
Dan Melson Amazon Author Page
Dan Melson Author Page Books2Read

Links to free samples here

The Man From Empire
Man From Empire Cover
Man From Empire Books2Read link

A Guardian From Earth
Guardian From Earth Cover
Guardian From Earth Books2Read link

Empire and Earth
Empire and Earth Cover
Empire and Earth Books2Read link

Working The Trenches
Working The Trenches Cover
Working the Trenches Books2Read link

Rediscovery 4 novel set
Rediscovery set cover
Rediscovery 4 novel set Books2Read link

Preparing The Ground
Preparing the Ground Cover
Preparing the Ground Books2Read link

Building the People
Building the People Cover
Building the People Books2Read link
Setting The Board

Setting The Board Cover

Setting The Board Books2Read link



Moving The Pieces

Moving The Pieces Cover
Moving The Pieces Books2Read link

The Invention of Motherhood
Invention of Motherhood Cover
Invention of Motherhood Books2Read link



The Price of Power
Price of Power Cover
Price of Power Books2Read link

The End Of Childhood
End Of Childhood cover
The End of Childhood Books2Read link

The Fountains of Aescalon
Fountains of Aescalon Cover
The Fountains of Aescalon Books2Read link



The Monad Trap
Monad Trap Cover
The Monad Trap Books2Read link

The Gates To Faerie
Gates To Faerie cover
The Gates To Faerie Books2Read link

Gifts Of The Mother
Gifts Of The Mother cover
Gifts Of The Mother Books2Read link
**********


C'mon! I need to pay for this website! If you want to buy or sell Real Estate in San Diego County, or get a loan anywhere in California, contact me! I cover San Diego County in person and all of California via internet, phone, fax, and overnight mail. If you want a loan or need a real estate agent
Professional Contact Information

Questions regarding this website:
Contact me!
dm (at) searchlight crusade (dot) net

(Eliminate the spaces and change parentheticals to the symbols, of course)

Essay Requests

Yes, I do topic requests and questions!

If you don't see an answer to your question, please consider asking me via email. I'll bet money you're not the only one who wants to know!

Requests for reprint rights, same email: dm (at) searchlight crusade (dot) net!
-----------------
Learn something that will save you money?
Want to motivate me to write more articles?
Just want to say "Thank You"?

Aggregators

Add this site to Technorati Favorites
Blogroll Me!
Subscribe with Bloglines



Powered by FeedBlitz


Most Recent Posts
Subscribe to Searchlight Crusade
http://www.wikio.com

About this Archive

This page is an archive of entries from May 2009 listed from newest to oldest.

April 2009 is the previous archive.

June 2009 is the next archive.

Find recent content on the main index or look in the archives to find all content.

-----------------
Advertisement
-----------------

My Links