Dan Melson: March 2009 Archives

I don't do rental agency, but I do I work with people to get them to the point where they are ready to buy. I recently got this email from a single mother I'm trying to get into a position to buy

Hi Dan,

An opportunity came up for a 4 bedroom house to rent. It's actually a "too good to be true" opportunity. The rent is only $1400 (only $150 more than what I am paying already) and it is in DELETED. I would still be able to save some money to buy a house plus we would be comfortable in the process. Anyways, I was hoping you could read the response from the owner and tell me what you think. I was also hoping you had a way of checking to make sure this house isn't in foreclosure. That would be a nightmare. To move into a house and then get evicted or worse.

As always thank you for your time and generosity.

The email is below. I'm sure you'll agree it has all the hallmarks of those Nigerian 419 scammer emails.

Hi Thanks for the email. I DELETED owns the house and also it is situated and also want you to know that it was due to my transfer that makes me and my family to leave the house and also want to give it out for rent and looking for a responsible person that can take a very good care of it as we are not after the money for the rent but want it to be clean all the time and the possible tenant will see the house as his or her own. We have left the US and we are currently in the West Africa for a program called 'World Conference Against Racism Youth Summit, Empowering youth for combating racism, HIV/AIDS, Poverty and Lack of Education, the program is taking place in three major countries in Africa which is Sudan, Ghana and Nigeria. It as been a very sad and bad moment for me, the present condition that I found myself is very hard for me to explain. If you will be the right tenant to our house, we will get the keys and documents of the house sent to you via courier services as soon as all terms are settled.

HOUSE ADDRESSES : DELETED. 4 Bedroom, 2 Bath, 2 Car attached garage. Nicely upgraded house on a Cul-De-Sac in quiet Santee neighborhood. Remodeled kitchen with Granite countertops, Refrigerator, Microwave, Dishwasher, and Gas Range included. Remodeled master bathroom and fireplace with marble tile. Mirror closets in all bedrooms. Laminate wood and tile floors, carpet in the bedrooms. Central A/C. Large backyard with a nice view of the mountains and city lights. Close to shopping centers and schools.

All types of pet allowed and Additional monthly charge of $80 for pets.....You can drive down there to take a look at it and also Available now!.

I will be online through out to get back to you as soon as you are able to get back to me. I would want to know how soon you would want to move in, as I will be taking a 2 month upfront payment which mean the first and second third months you will be staying in the house including some utilities (Electricity, Water, Internet and Garbage). I am asking for $1400 and I believe we should be able to help ourselves. I am accepting $1400 including utilities because I want you to take a very good care of the house while I am away.

I am looking forward to hear from you ASAP so that i can forward you an application to fill out and discuss on how to get the house rent over to you so that I can get the keys and papers sent to you via FedEx or ups e.t.c, also are you ready to rent it now or when? Await your reply. I will be willing to send the inside view of the building if you demands for it.

I could let you remain in the house till I come back if you are a good tenant and
you can reach me on DELETED PHONE NUMBER.

Thanks and God bless you..

My response:

The name given is the name of the actual owner of record. There is no Notice of Default flag in that portion of the public records I have access to via MLS (it's been known to be mistaken, but is most of the time it's spot on).

With that said, I don't practice rental agency, but my understanding is the maximum they can collect up front is the deposit plus one month rent.

Furthermore, a situation like this where they are "out of the country" is rife with potential for fraud. There is a lot of rental fraud out there right now. Run "rental fraud" and "landlord fraud" through a search engine for articles. It's just as easy for scammers to look up who the owner of record is as it is for anyone else. They also can get the information from legitimate ads. My advice to you is to ask for their local agent, make sure they have agency authority (the document is easily understandable) and are licensed and bonded, and deal with that agent.

Otherwise, you could very easily find yourself in a situation where you have wired several thousand dollars to a scammer in another country. This situation and the email you got rings all of the alarm bells of any 419 scam. It could be legitimate, but everything I am reading tells me BEWARE!

Yes, you might lose a sweet deal. But you also have thousands of dollars at risk in a situation rife with opportunity for fraud. This is not a subject where I am really competent to advise.

The lady emailed me back

Hi Dan,

There have been a lot of conflicting stories since I wrote you earlier today. Last night we drove by the house and it was obvious that someone is living there. I received a second email from the "owner" telling me that the house is vacant. I drove by there tonight and got up the nerve to knock on the door. The new tenants were living there and had been living there since March 1. I think what happened was someone saw the original posting on Craigs List, used that info to create a dummy listing. This is truly heinous. I'm glad I'm smarter than the crook that is doing this scam. I'm going to back to Craigs List and report them before they cheat someone out of thousands of dollars.

Happy ending for this one, but every day people get taken by scams like this one. Your protection against this (when the owner is not local enough to meet and show the property themselves) is to use a licensed bonded rental agency. Yes, insisting upon this protection might possibly mean that you miss out on a really sterling rental deal, but it's far more likely to mean that you miss out on wiring several thousand dollars to a scammer you'll never be able to track down when it turns out they had no authority to rent the property.

Caveat Emptor

Article UPDATED here

Carnival of Personal Finance

I'd Like To Hear The Left's Comments About The Expansion Of "Executive Power" Now ...

I'm still in rather stunned disbelief about the White House ousting GM's CEO.

I'm still stunned, but not in disbelief. Only in how fast things have gone downhill.

Lileks (Twitter)

Maybe I'm old-school, but "President fires CEO" looks as wrong as "Pope fires Missile."

My desktop spent the day at the shop. I just don't find writing on a laptop to be as comfortable, or as conducive to thinking. Touchpad versus 4 button trackball. Small screen versus large. Not to mention that the laptop isn't as aggressively protected (so I have to be a lot more careful what websites I visit) and doesn't have a lot of the information I've stored on the desktop. Awkward versus practiced.

The laptop is a convenience for servicing clients so I can take the information, print a few things, and bring it all back to the office. The desktop is where I do serious work. So not having it seriously cramps my style.

The guidelines for this carnival. There was an disproportionate amount of inappropriate material (pure spam and link spam) submitted this month, and another huge dollop of material that was just plain worthless or actively wrong and damaging to any who might have paid attention to it. Readers: Be careful who you trust out there.

Out of 55 submissions, I was only able to use nine in good conscience, and one of those was a dual submission. To be fair, three people submitted more than twenty submissions between them and have now been blacklisted, so it might not be quite as bad as first glance suggests, but 10/33 isn't a sterling ratio either. If you submitted and were not included, READ THE GUIDELINES before submitting again, put some thought and effort into it, and check your work with someone who knows what they're talking about in the field of real estate. If you can't write quality articles containing accurate information, don't bother. I will skip a month or cancel the carnival altogether before I link to the stuff I rejected. It does you no good to submit fecal matter. It wastes your time and mine. I would rather have one article or none at all than link to crap.

End rant.

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

I don't like to toot my own horn, but this one is just that much better than the other stuff submitted Buyers: Stretching Your Budget Means Compromise

RECOMMENDED

The Asset Protection Misconception: Why Insurance Alone Isn't Enough Reads like an insurance post at first, but it evolves into an article telling you why you should have a limited liability or business entity taking title to an investment property because it protects your other assets in the event of a successful tenant lawsuit.

How to Respond to Late-Paying or No-Paying Tenants gives a pretty straightforward approach to the problem.

Is it Ethical to Re-Lock your Mortgage Deal when Rates Drop? He neglects to mention that the lender you locked with has already ordered your money and committed to paying for that money. A lock is a bargain you should not break without better reason than "I can do better now." You were happy with it or you wouldn't have locked in the first place. The lender has to deliver to you; contracts are not one sided. You should expect to live up to a lock you agree to. A better plan is to try renegotiating that lock with the same lender.

Housing Rebound "The last piece of the puzzle to a housing recovery is a lower inventory of homes available for sale. Once this equation returns to a more historical level, housing prices should start to rise." That is market specific. Here in San Diego, we've seen inventory levels drop over fifty percent from a year ago. Also, treasuries have no longer have direct impact upon mortgage rates. It's the rates on securitized mortgage bonds that you need to watch.

MET GUIDELINES

An Interesting Day Today. Yes, when banks are telling you they're not willing to loan money on a property, that's something to be careful about. What they're saying is that if you don't make your payments, the bank doesn't think they can sell it to someone else.

Why it's a Great Time to Remodel Your Home

location, location, location

Free Insulation - R Value

SPAM AND OTHER RIDICULOUS SUBMISSIONS
I got a blortload of spam submissions this month. Uselessly vague, misinformed, and flat out wrong information. I don't know who posted the carnival to the spammeisters forum, but it's not doing you any good. However, most of them at least mentioned real estate, and it's vaguely possible that some of them were written in good faith by hydrocephalic six year olds who have no clue what they're talking about. Be careful about what you trust on the internet - ask yourself what assurance do you have that this writer has a clue about what they're writing on, because I got at least a dozen submissions that would cost you tens of thousands of dollars if you paid attention to their advice. Nonetheless, because they were real estate articles, I could not fairly put them in this section.

Someone named Bill Johnson submitted a post claiming to help people make money that was a recruiting pitch for a multi-level marketing scheme. No, it did not so much as mention real estate. What a scamming spamming moron.

A site named 401k Lookup submitted a completely worthless post about borrowing from your 401k that did not mention real estate. Not only did it not mention real estate, it didn't build any kind of a case for what it was proposing. You don't want to use a financial advisor that votes "present".

An idiot named Jack Schmidt submitted a whole bunch of articles having precisely nothing to do with real estate. By this evidence, he's either illiterate or feels that guidelines are for other people, if he even thinks there are other people on the planet. I'm not real certain he does. For multiple link spam submissions, this clown can join the Blacklist.

Another person who believes that he's too important to follow guidelines is Jim DeSantis, who submitted an irrelevant political post. I may agree with more of it than I disagree, but it should not have been submitted to this carnival.

Yet another imbecile named Steve wanted to tell us about how to buy mailing lists, submitting multiple posts for his loser site Mailing List Resources. Here's a couple of clues for this clearly challenged individual: This is the Consumer Focused Carnival of Real Estate. Marketing has no function here except enabling consumers to deal successfully with marketing. Second, even agents who use mailing lists don't buy them if they want to be successful. The only list relevant to this clown is the Blacklist.

Yet another boob named Jay submitting spam for his computer repair business. I wouldn't use him at all as he clearly is incapable of paying attention to even major information, and I definitely wouldn't trust him to deal with a spam, trojan horse, or virus problem as he's part of that problem, not the solution.

Damn, it's the Month of the Mailing List Zombies. If you ever do meet Mike Stevens from Biz Data List, I suggest you employ any anti-zombie measures you think appropriate. My first measure is placing his email and site on the Blacklist for the carnival.

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

So much for Obama's campaign promise to increase transparency.

Don Surber: Open government hits women, minorities hardest:

It is pathetic to watch Democrats backtrack on Barack Obama's pledge for more openness by appropriating Obama's wife. Apparently, if the first lady is at a meeting, the public is not going to be allowed in.

I agree with Don:

Excuse me, but when an Ivy League-educated lawyer enters the political ring to lobby for legislation, she is fair game. I don't care who she is married to.

Ain't that right, Hillary?

I agree. Bring this guy to the US, or at least clone him. Watch the video.

What the heck, here's an embed:

Via neo, Presidential Straw Man Argument

Powerline
How Non-Political Can You Get?

But an e-mail and flyer recently circulated to Justice Department employees indicate Attorney General Holder has an interesting definition of what it means to be "less political." The flyer invites all employees to attend a speech in the main Justice building on Pennsylvania Avenue. In fact, it notes, all "[s]upervisors are encouraged to grant official time to employees to attend this event."

And what pillar of the legal profession will be lecturing Justice employees to help them "serve justice" in a "less political" way? Why, none other than Donna Brazile, whose own website biography describes her as a "[v]eteran Democratic political strategist" and a Vice Chairman at the Democratic National Committee."

I think that the folks at Powerline are correct in that the only possible fig-leaf to make this appear non political would be to give the employees official work time to listen to a speech by Karl Rove. But since both of these people are mouthpieces for political parties, that wouldn't be non-political; it would merely be balanced. The current situation is neither.

Actually, it's quite a bit worse

Under this reasoning, anyone who says we should secure our borders, enforce our employment laws, and deport illegal aliens is engaging in criminal oppression and intimidation. Should anyone who has expressed his views on this subject, particularly in connection with an election, expect to be called in front of a federal grand jury to answer for his "crimes?" While the views espoused by Walsh, Blumberg, and Kappelhoff are well outside the mainstream, they are perfectly aligned with liberal groups who do not believe that voter registration applicants should have to answer questions about their citizenship, and who in fact make a point of not advising registrants of citizenship requirements.

NEW PREZ FLUNKING GLOBAL TESTS

All new administrations stumble a bit as they seek their footing. But President Obama's foreign-policy botches have set new records for instant incompetence.

Contrary to left-wing myths, I wasn't a fan of the Bush administration. (I called for Donald Rumsfeld to get the boot in mid-2001.) But fair's fair. Despite his many faults, Bush sought to do good. Obama just wants to look good.

Vice President Dick Cheney was arrogant. Vice President Joe Biden is arrogant and stupid. Take your pick.

Don't worry about the new administration's ideology. Worry about its terrifying naivete.

Consider a sampling of the goofs O and his crew have made in just two months:

Read the whole thing.

Video: If government doesn't work, why expand it?

Freddie Mac's Duel With Regulator: Does It Report Government's Role in Its Losses?

But when Freddie Mac's executives concluded a few weeks ago that they had to disclose that the government's management of the McLean company was undermining its profitability and would cost it tens of billions of dollars, the firm's regulator urged it not to do so, according to several sources familiar with the matter.

Freddie Mac executives refused to bend. The clash grew so severe that they threatened to go to the Securities and Exchange Commission, which oversees corporate disclosures, to secure a ruling that the regulator's request was out of line. The company's regulator backed down, the sources said.

Simon Jester Lives

Expert Financial Advice Cuts Brain Activity

I hope I'm not cutting anyone's brain activity. That would be one thing that might me consider not writing any more. Because I agree with the conclusions and warnings given:

"This study indicates that the brain relinquishes responsibility when a trusted authority provides expertise, says Berns. "The problem with this tendency is that it can work to a person's detriment if the trusted source turns out to be incompetent or corrupt."

It is hard to know whether someone is an expert. Those confident-sounding types might just be wishful bettors. Sometimes they stand to profit if they can get more people to listen to them and so they strive to sound credible.

You can not escape the need to think - at least not without paying a price.

I always try to provide evidence and reasoning that others can follow as to why I recommend the path I do as opposed to others.

At least that way, if I'm full of it, somebody else can see it and point it out. Or at least decide they don't believe me on the basis of insufficient evidence.

In addition to all the other deficit spending, The Social Security surplus goes deficit

All of this money we've all been lending Congress? They're going to have to start paying it back. Any bets on when they start to delay eligibility for Social Security and reduce benefits still further?

Effective May 1, 2009, we're going to have problems with appraisals like never before. I'm going to cite relevant sections of the new code and its implementation and comment individually, but save the comments on the entire thing for the end.

To help enhance the integrity of the home appraisal process in the mortgage finance industry, in March 2008, Fannie Mae entered into an agreement with our regulator - the Federal Housing Finance Agency (FHFA) (then the Office of Federal Housing Enterprise Oversight) - and the New York Attorney General's office to adopt certain policies relating to appraisals for loans delivered to us. Following a public comment period, the Home Valuation Code of Conduct has been modified and will be effective for single-family mortgage loans (except government-insured loans) that are originated on or after May 1, 2009, and delivered to Fannie Mae.

The new appraisal standards are here, and if that stops working, try this one.

I'm going to quote large chunks of it and comment

B. No employee, director, officer, or agent of the lender, or any other third party acting as joint venture partner, independent contractor, appraisal company, appraisal management company, or partner on behalf of the lender, shall influence or attempt to influence the development, reporting, result, or review of an appraisal through coercion, extortion, collusion, compensation, inducement, intimidation, bribery, or in any other manner including but not limited to:

(1) withholding or threatening to withhold timely payment or partial payment for an appraisal report;

(2) withholding or threatening to withhold future business for an appraiser, or demoting or terminating or threatening to demote or terminate an appraiser;

(3) expressly or impliedly promising future business, promotions, or increased compensation for an appraiser;

(4) conditioning the ordering of an appraisal report or the payment of an appraisal fee or salary or bonus on the opinion, conclusion, or valuation to be reached, or on a preliminary value estimate requested from an appraiser;

(5) requesting that an appraiser provide an estimated, predetermined, or desired valuation in an appraisal report prior to the completion of the appraisal report, or requesting that an appraiser provide estimated values or comparable sales at any time prior to the appraiser's completion of an appraisal report;

(6) providing to an appraiser an anticipated, estimated, encouraged, or desired value for a subject property or a proposed or target amount to be loaned to the borrower, except that a copy of the sales contract for purchase transactions may be provided;

(7) providing to an appraiser, appraisal company, appraisal management company, or any entity or person related to the appraiser, appraisal company, or appraisal management company, stock or other financial or non-financial benefits;

(8) allowing the removal of an appraiser from a list of qualified appraisers, or the addition of an appraiser to an exclusionary list of disapproved appraisers, used by any entity, without prompt written notice to such appraiser, which notice shall include written evidence of the appraiser's illegal conduct, a violation of the Uniform Standards of Professional Appraisal Practice (USPAP) or state licensing standards, substandard performance, improper or unprofessional behavior or other substantive reason for removal (except that this prohibition will not preclude the management of appraiser lists for bona fide administrative reasons based on written, management-approved policies);

(9) ordering, obtaining, using, or paying for a second or subsequent appraisal or automated valuation model (AVM) in connection with a mortgage financing transaction unless: (i) there is a reasonable basis to believe that the initial appraisal was flawed or tainted and such basis is clearly and appropriately noted in the loan file, or (ii) unless such appraisal or automated valuation model is done pursuant to written, pre-established bona fide pre- or post-funding appraisal review or quality control process or underwriting guidelines, and so long as the lender adheres to a policy of selecting the most reliable appraisal, rather than the appraisal that states the highest value; or

(10) any other act or practice that impairs or attempts to impair an appraiser's independence, objectivity, or impartiality or violates law or regulation, including, but not limited to, the Truth in Lending Act (TILA) and Regulation Z, or the USPAP.

Most of this section is actually pretty reasonable, and I agree with the majority. But subparagraph 2 removes the ability of anyone - loan officer or otherwise - the ability to stop using a bad appraiser short of an actual provable violation. Anybody else see a problem here? This has, of course, been a long term goal of appraisers. But just because I can't get them convicted of actual malfeasance doesn't mean they're any good. In conjunction with subparagraph 8, once they're approved, we no longer have the right to stop using them. Waste the money of every client they get by coming in with a low appraisal? Set me up for fraud by coming in with a high one? I am completely helpless to simply stop using them.

Subparagraph 5 is another one I have issues with: I can't ask them not to waste my client's money if the value obviously is not there. A good loan officer wants an appraiser who will return an honest value no matter what, but when 5 minutes checking says the transaction isn't going to fly, this is a waste of client money.

What they are doing is called "rent seeking behavior". Look that up. And everything else about this section was already present.

III. Appraiser Engagement
A. The lender or any third party specifically authorized by the lender (including, but not limited to, appraisal companies, appraisal management companies, and correspondent lenders) shall be responsible for selecting, retaining, and providing for payment of all compensation to the appraiser. The lender will not accept any appraisal report completed by an appraiser selected, retained, or compensated in any manner by any other third party (including mortgage brokers and real estate agents). The lender may accept an appraisal prepared by an appraiser for a different lender, including where a mortgage broker has facilitated the mortgage application (but not ordered the appraisal), provided the lender: (1) obtains written assurances that such other lender follows this Code of Conduct in connection with the loan being originated; and (2) determines that such appraisal conforms to its requirements for appraisals and is otherwise acceptable.
B. All members of the lender's loan production staff, as well as any person (i) who is compensated on a commission basis upon the successful completion of a loan or (ii) who reports, ultimately, to any officer of the lender not independent of the loan production staff and process, shall be forbidden from (1) selecting, retaining, recommending, or influencing the selection of any appraiser for a particular appraisal assignment or for inclusion on a list or panel of appraisers approved to perform appraisals for the lender or forbidden from performing such work; and (2) having any substantive communications with an appraiser or appraisal management company relating to or having an impact on valuation, including ordering or managing an appraisal assignment. If absolute lines of independence cannot be achieved as a result of the lender's small size and limited staff, the lender must be able to clearly demonstrate that it has prudent safeguards to isolate its collateral evaluation process from influence or interference from its loan production process.
C. Any employee of the lender (or if the lender retains an appraisal company or appraisal management company, any employee of that company) tasked with selecting appraisers for an approved panel or substantive appraisal review must be (1) appropriately trained and qualified in the area of real estate appraisals, and (2) in the case of an employee of the lender, wholly independent of the loan production staff and process.

So mortgage brokers as well as real estate agents are now completely cut out of ordering an appraisal. Actually, all loan officers are, apparently. So no more calling Appraiser A to find out how fast he can get me the appraisal. I have to use an appraisal management company, or delegate the ordering of an appraisal to an individual "appropriately trained and qualified in the area of real estate appraisals". In other words, appraisers decide who gets appraisal work. More specifically, senior appraisers decide who gets appraisal work. Not the hardworking young appraiser who's still trying to make friends. Not the independent appraiser who's willing to call other appraisers on what they're doing wrong or should be doing better. This reduces to "The old boys network decides who gets work". I thought we were trying to get away from that sort of thing - particularly when they owe no benefit of loyalty to anyone aside from each other.

Question: Would you like to have a real estate agent assigned by the old boys network without input from you? A loan officer?

This is going to have far reaching consequences for consumers, and they're not going to like it. One person, the identity of whom is not in any way controllable by them or anyone else with whom they have any contact, is going to control the outcome of their loan. Because The Mortgage Loan Market Controls the Real Estate Market, this is going to have the potential to break every single real estate transaction, randomly and arbitrarily resulting in unhappy buyers and sellers, lost deposits, and all other sorts of problems. If they take a disliking to you, all they have to do to spike the loan and the transaction is to come in just a little bit low on the appraisal.

IV. Prevention of Improper Influences on Appraisers A. In underwriting a loan, the lender shall not utilize any appraisal report: (1) prepared by an appraiser employed by: (a) the lender; (b) an affiliate of the lender; (c) an entity that is owned, in whole or in part, by the lender; or (d) an entity that owns, in whole or in part, the lender. (2) prepared by an appraiser (a) employed, (b) engaged as an independent contractor, or (c) otherwise retained by any appraisal company or any appraisal management company affiliated with, or that owns or is owned, in whole or in part by, the lender or an affiliate of the lender.

B. Section IV.A. shall apply unless: (emphasis mine)
(1) the appraiser or, if an affiliate, the company for which the appraiser works, reports to a function of the lender independent of sales or loan production;
(2) employees in the sales or loan production functions of the lender have no involvement in the operations of the appraisal functions and play no role in selecting, retaining, recommending, or influencing the selection of any appraiser for any particular appraisal assignment or for inclusion on a list or panel of appraisers approved to perform appraisals for the lender or forbidden from performing such work;
(3) employees in the sales or loan production functions of the lender are not allowed to have any substantive communications with an appraiser, appraisal company, or appraisal management company relating to or having an impact on valuation or to be provided information about which appraiser has been given a particular appraisal assignment before completion of that assignment;
(4) the lender, or its agents, and any appraisal company or appraisal management company providing the appraisal to the lender do not provide the appraiser any estimated or target value of the property or the loan amount applied for (except that a copy of the sales contract for purchase transactions may be provided);
(5) the appraiser's compensation does not depend in any way on the value arrived at in any appraisal or upon the closing of the loan for which the appraisal was completed;
(6) the lender and any appraisal company or any appraisal management company providing the appraisal to the lender has adopted written policies and procedures implementing this Code of Conduct, including, but not limited to, adequate training and disciplinary rules on appraiser independence (including the principles detailed in Part I of this Code of Conduct) and has mechanisms in place to report and discipline anyone who violates these policies and procedures;
(7) the lender's appraisal functions are either annually audited by an external auditor or are subject to federal or state regulatory examination, and, unless prohibited by law, the lender promptly provides to Fannie Mae or Freddie Mac the results of any adverse, negative, or irregular findings of such audits and examinations indicating non-compliance with any provision of this Code of Conduct, whether or not the examination was conducted for the purpose of determining compliance with this Code of Conduct; and
(8) the lender and any entity described in section IV.A. providing the appraisal to the lender recognize that, once the Independent Valuation Protection Institute is established, the Institute will receive complaints for review and referral regarding non-compliance with the Code of Conduct. Referrals and reports shall be made to Fannie Mae and/or Freddie Mac regarding such complaints and the Institute will provide information on the results of complaint reviews to Fannie Mae and/or Freddie Mac and make them available to the other parties to the Home Value Protection Program and Cooperation Agreement

This isn't independence. This is unaccountability.

An Independent Valuation Protection Institute (Institute) shall be created as approved by the parties. Subject to section IX, when the Institute is established, the lender will provide information to appraisers and borrowers regarding the availability of the Institute's services, which are expected to include: (1) a telephone hotline and email address to receive any complaints of Code of Conduct non-compliance, including complaints from appraisers, individuals, or other entities concerning the improper influencing or attempted improper influencing of appraisers or the appraisal process, which the Institute will review and report as provided in IV.B(8) and IV.C(2) of this Code of Conduct; and (2) the publication and promotion of best practices for independent valuation. The lender shall not retaliate, in any manner or method, against the person or entity that makes a complaint to the Institute.

So we can't complain about lazy worthless appraisers for anything less than an obvious violation of code - but appraisers can complain about anyone else. And we can't stop using them when they libel us. Even if the accusation is baseless. As I said above, this isn't independence. This is unaccountability.

The lender agrees that it shall quality control test, by use of retroactive or additional appraisal reports or other appropriate method, a randomly selected 10 percent (or other bona fide statistically significant percentage) of the appraisals or valuations that are used by the lender, including the results of automated valuation models, broker's price opinions, or "desktop" evaluations. The lender shall provide to Fannie Mae or Freddie Mac a report of any adverse, negative, or irregular findings of such quality control testing, and any findings indicating non-compliance with any provision of this Code of Conduct, with respect to loans sold to Fannie Mae and Freddie Mac respectively, and the Enterprise may enforce all applicable rights and remedies, including requiring the lender to repurchase mortgages or the Enterprise's participation interest in mortgages.

Here's the translation: Appraisers can't get in trouble for coming up with a value that's too low. Lenders don't lose money in the accounting sense when the appraisal is too low. All that happens is that they don't make money they could have made from doing that loan, an item that does not show up on financial statements. Appraisers can, however, get in trouble for coming in too high. Does anyone thing this means anything other than "They're going to come up with the lowest value they can justify?" That's where the incentives run. Result: Consumers get hosed (along with everyone else except the appraisers)

VIII. Representations and Warranties A lender shall certify, warrant, and represent that the appraisal report was obtained in a manner in compliance with this Code of Conduct. If the Enterprise determines, on its own or from a referral made by the Institute, that a lender is in breach of a material aspect of this Code of Conduct or in violation of a provision of the Code by a complaint referred from the Institute, the Enterprise will enforce all applicable rights and remedies, including suspension or termination of the lender's eligibility to sell loans to the Enterprise, if the lender fails to remediate.

Sounds reasonable, doesn't it? What this means is that a single appraiser making an accusation has the power to threaten a lender's ability to sell loans to Fannie and Freddie. Since those are far and away the most popular loans with the best rates, this means that lender loses most of their business - especially as VA and FHA can be expected to follow suit.

Fannie Mae put out a set of FAQ's to lenders a week or so ago

Scope of Coverage Q1. What loans are affected by the new Home Valuation Code of Conduct?

Fannie Mae has agreed to adopt the Home Valuation Code of Conduct ("the Code") for all conventional, single-family loans originated on or after May 1, 2009, that are delivered to Fannie Mae. For purposes of the Code, origination date means the date of the application. The Code will not apply to multifamily loans, or to loans insured or guaranteed by a federal agency; the Code only applies to 1- to 4-unit single-family loans sold to Fannie Mae. The Code will not apply to loans sold to Fannie Mae on or after May 1, 2009 that were originated prior to May 1, 2009.

This means every Fannie Mae loan starting May 1. The same applies to Freddie Mac.

Q3. Does the Code allow an appraiser to update an appraisal for another lender?

Yes. The Code does not prevent an appraiser from performing an update of an appraisal for another lender.

That's nice. It still doesn't force a lender to release the appraisal, something that would have made a positive difference to the public. I order an appraisal and I can't perform the loan on the terms indicated, I should release it to someone else who can.

Q6. After May 1, 2009, is it permissible for Fannie Mae to purchase private label securities backed by mortgage loans that do not meet the requirement of the Code?

Yes. The Code applies only to 1- to 4-unit single-family loans sold to Fannie Mae by mortgage originators. It does not extend to Fannie Mae's investments in mortgage-related securities.

So it doesn't apply to what caused Fannie and Freddie to melt down. This whole code is a distraction from really fixing what went wrong.

Q7. Does the Code require lenders to obtain appraisals where they were under no such requirement pursuant to the Fannie Mae Selling Guide?

No, nothing in the Code requires a lender to obtain a property valuation, or to use any particular method for property valuation. Nor does the Code affect the acceptable scope of work for an appraiser in connection with a particular assignment.

Meanwhile, back on planet Earth, lenders are required by the Federal Reserve and SEC to use all due diligence. Every loan that goes south without a full appraisal is grounds for getting somebody fired. What do you think is going to happen? How often do you think lenders go without full appraisals now?

Q9. Does Section I.B.(9) specifically prohibit a lender from ordering a second appraisal?

No. Section I.B.(9) only prohibits a lender from ordering a second appraisal when they are attempting to influence the outcome of the first appraisal and are now "value-shopping." As a risk control measure for certain loan products, it may be common for a lender to order more than one appraisal, and this subsection does not prohibit that practice.

In other words, yes it does prohibit getting a second opinion if the first appraisal is a piece of garbage. The only exception is if the lender makes a practice of ordering a second appraisal for that particular loan product. More money for appraisers, and the second appraiser isn't accountable either.

I'm going to take these next ones together:

Q11. Does Section II of the Code require the lender to provide the appraisal free of charge?

No. The Code requires the lender to provide, free of charge, a "copy" of any appraisal report completed in association with a specific loan. The lender may require the borrower to reimburse the lender for the cost of the appraisal.

Q13. Does the Code prohibit an appraiser from collecting payment for the appraisal directly from the borrower?

Yes, for loans to be delivered to Fannie Mae. The Code requires the lender or any third party specifically authorized by the lender to select, retain, and provide for all compensation to the appraiser.

If you think this isn't going to cause problems, welcome to Earth and I hope we can be friends. This places the burden for payment upon the lender, who remember has no ability to control which appraisers they use. Paying through escrow might be a theoretical possibility, but it leaves open the possibility that the lender gets stiffed and has to pay out of their own pocket. Lenders are going to have a choice of 1) Requiring an upfront deposit for the appraisal or 2) Jacking up their margin so that clients who close pay for ones that don't. Either one of these is vile, and bad business. My company (and every other lender and loan officer out there) is going to have to figure out which of them is the lesser of two evils. This is going to have implications for escrow accounting, as well - the number one reason that brokers and lenders lose their licenses (and 99% for completely stupid technical reasons having nothing to do with consumer benefit). From a benefit to the consumer standpoint, requiring the lender to release the appraisal to a new lender would be far superior. But that doesn't give appraisers power, see that they get paid, etcetera.

Q18. When selecting an appraiser, may lenders use a pre-approved appraiser list or panel? Yes. Lenders may use a pre-approved list or panel to select a residential appraiser, provided that (1) any employees of the lender tasked with selecting appraisers for the list are independent of the loan production staff; and (2) the loan production staff is not involved in selecting appraisers off the list for particular appraisal assignments.

Confirming and emphasizing what I said earlier. There is no way I or any other loan officer can keep from using a bad appraiser, no matter how bad they are.

Q19. May a servicer use an affiliate company to order appraisals for borrower-initiated private mortgage insurance cancellation based on current value?

Yes. The Code does not apply to appraisals for cancelling mortgage insurance based on current value. The Code is specific to "a mortgage financing transaction," and cancellation of mortgage insurance is not "a mortgage financing transaction." The Fannie Mae Servicing Guide states that "To determine the current appraised value of the property, the servicer must select an appraiser, order a new appraisal (which must be based on an inspection of both the interior and exterior of the property and be prepared in accordance with our appraisal standards for new mortgage originations)."

So feel free to value play games with the appraisal when you're trying to remove PMI. Why this would be such a straightjacket for new loans, and completely inapplicable for leaving lenders uncovered by mortgage insurance, contradicts all reason - but not politics.

In-House Appraisers Q21. May in-house appraisers prepare appraisal reports? Yes, in-house appraisers may prepare appraisal reports if the conditions of Section IVB. are met.

Q23. May a correspondent lender use in-house appraisers? Yes, a correspondent lender may use in-house appraisers if they meet the criteria in Section IV.B. of the Code.

In other words, so long as the appraisers are completely unaccountable. They can't even be fired for consistently producing bad valuations, so long as they don't go over the line into actual misconduct.

Appraisal Management Companies Q25. Is a lender required to use an appraisal management company for ordering appraisals?

No. A lender may order appraisals directly from an individual appraiser.

So long as it isn't any dirty filthy loan officer, anyone accountable to any loan officer, or in fact, anyone other than another appraiser doing the ordering. See above.

Q27. When a lender uses an appraisal management company, the appraisal management company is responsible for retaining and paying the appraiser. Is it likewise permissible for a mortgage broker to use an appraisal management company, since the mortgage broker does not technically retain or pay the appraiser?

No. The Code prohibits lenders from relying on an appraisal where the broker had a role in selecting, retaining, or compensating the appraiser.

Q28. May a mortgage broker provide the lender with an approved appraiser list for the lender to use when ordering appraisals for that particular broker?
No.

Q32. May a lender accept an appraisal prepared by an appraiser that was ordered by a mortgage broker?
No. The Code does not allow a lender to accept an appraisal prepared by an appraiser that was ordered by a mortgage broker as noted in Section IIIA. of the Code.

Q33. May a mortgage broker order an appraisal directly from an appraisal management company that was specifically authorized by the lender?

No. The Code prohibits brokers from ordering appraisal services.
Q34. Does the Code permit a mortgage broker to select an appraiser from the lender's list of approved appraisers, if the lender is responsible for the relationship with the appraiser, including compensation?

No. The Code prohibits lenders from relying on an appraisal where the broker had a role in selecting, retaining, or compensating the appraiser.

Once again, I'm mostly a correspondent. The restrictions on brokers don't mean that much to me, per se. This is just more emphasis that appraisers are no longer accountable in any way, shape or form. But they do seem punitive.

Portability of the Appraisal Q29. May an appraisal be transferred to a lender from a correspondent lender and, if so, under what circumstances? Yes, a lender may accept an appraisal from a correspondent lender that complies with the Code. Q30.A mortgage broker submits a loan to lender A, which orders an appraisal. The broker later decides to submit the loan to lender B because it is offering better terms, or for another reason. May the appraisal obtained by lender A be used by lender B (assuming the mortgage broker has no control over or involvement in the assignment)? Yes, a lender may accept an appraisal from a different lender that complies with the requirements of the Code and in particular Section III.A. in connection with the loan being originated. Lender A must be named as client on the appraisal report.

Note that there is still no requirement to release the appraisal - meaning the appraisers get paid again when the lender won't.

Furthermore, this means the lender's name is on the appraisal - not the broker (if there is one), not the loan officer. You think a lender is going to release an appraisal when someone wants to take potential business away from them? I don't.

Now, my comments on the entire thing. There were abuses of the appraisal process. They need to be fixed. This is not the way to do it. This does absolutely nothing to stop collusion between an appraiser and another party, which was the largest problem that has not yet been fixed. Properties were selling for those amounts. It was not the fault of loan officers, whether lender, broker, or correspondent, that the values got so high. By far the largest root cause was the fault of the loan programs the lenders were offering, or rather, very aggressively pushing. If you offer a loan program specifically designed to make it look like someone making minimum wage can afford a $500,000 property, you can expect problems when people take you up on it. Yes, there were loan officers colluding with appraisers. There were also sellers, buyers, agents (Realtor or not), and everybody else under the sun colluding with appraisers. Collusion, problem though it was, was not the largest problem by an order of magnitude - that was loans that set the borrowers up to fail, and the lenders themselves with them. This solves neither of those problems. The largest one has already solved itself as lenders stopped lending money on a Make Believe basis. The lesser although still major problem of collusion this does nothing to stop. In fact, it explicitly states that communication between an agent and an appraiser is not prohibited, nor is communication between a buyer or seller and the appraiser, or for that matter, between a loan officer and an appraiser. It's when the appraiser takes exception that such becomes a problem - there is no new control on collusion anywhere in the process. All it does is prohibit responsiveness to the needs of the consumer.

All of the incentives in place are for appraisers to come up with a value that is too low. They no longer can lose business for bringing out appraisals so low as to constitute nonsense - they can't be pulled off the eligible list, and the lender has no power to direct future work away from them. The only real way they're going to get in trouble is by coming up with a value that's too high, and that's going to be rare, both because the system isn't set up to catch it until after the fact and because that's the only thing about an appraisal that can cause lenders lose money in a traceable, accounting sense.

I don't know how many self righteous appraisers have told me "We are the only representative for the house." Well, the house is neither living or sentient. It's a thing. It has no interests. The legal responsibility of the appraisers is entirely to the lender, not to the consumer. Comparatively few appraisers understand how it damages a lender to have the value come in lower than it should - a loan does not get made where it should have been made, and the lender does not make money when they should have. Comparatively few appraisers care about the consequences to consumers of appraisals that are too low, who put money in the appraisers pocket only to be denied the benefit they paid that money for and that they should have gotten. What they have told me time and time again is important (by their actions, and more often than not, by their words) is putting money in their own pockets whether or not it benefits the consumer, whom they have no legal responsibility towards.

There will be no more developing a good working relationship between appraisers and anybody. I have (soon to be had) a couple of appraisers I have learned to trust - they're honest enough that I don't have to worry about them returning a fraudulently high appraisal, they're responsive enough that I know when they tell me the value isn't there, it isn't. They've helped me to learn what to look for so that I know ahead of time whether they value is going to be there or not. I have never asked an appraiser to give me a higher value. All I have ever done is not used them again if they ripped off my clients, and comparatively few times at that (about 5, in over 1000 loans in every county in California, and quite a few in Florida and Nevada, so it's not like I've been limited to one or two appraisers in San Diego County). That ability to stop using problem appraisers is no longer something I'm going to have. I'm going to have to get used to clients being ripped off, and there being absolutely nothing I can do. The only way to protect myself and my company from false accusations of manipulating the appraiser will be not to discuss anything with them verbally. I'm going to stop meeting appraisers, and am only going to communicate a bare minimum of information through things like email and facsimile, and I'm going to start advising my clients not to be there either. I'll get a combo lockbox for the keys, so the appraisers can let themselves in.

So don't get mad at your loan officer. If the appraisal doesn't come in for a needed value, it won't be because of anything they could have done or not have done. Nor can we complain. Loan officers are very exposed to reprisal; the appraiser is almost completely insulated from any consequences. Appraisers can potentially kill our loan business with a single accusation - justified or not. We can't do a damned thing to them unless we can prove an actual violation - a much higher standard of action, especially as appraisal standards use a lot of words like "reasonable". In other words, judgment.

I would not presume to argue that appraisal standards did not need reform. They did, very badly. They still do, as this was not what they needed.

The appraisers organization has somehow gotten themselves into a position like tenured college professors, and without any of the (debateable) reasons for that. But there are a lot of bad appraisers out there who waste appraisal money with absolutely no understanding of the damage they are doing. It's going to get a lot worse until public outrage puts a stop to it. Appraisers will own the problem - there is absolutely no way to blame any future problems on anyone except appraisers. Unless the appraisers who have been creating all of the problems, and their organization, change their way of thinking and police their own problems, I firmly believe they're going to learn to appreciate the virtues of the old aphorism, "Be careful what you ask for. You might get it."

Like it or not, however, it's going to be the law of the land effective May 1st, 2009. Every loan officer is going to have to live by it. The only way to stop it is for consumers to start expressing the outrage that they will soon be feeling every time an appraiser returns a garbage value that wastes their money. Express it loudly, express it repeatedly, express it to all of your congressional representatives and senators. Make them understand they have to actually fix the problem, which means taking the time to actually understand it and think, not finding one scapegoat and declaring someone else to be sainted by virtue of having obtained an appraiser's license. You don't fix problems by giving one person absolute power over a transaction with no real accountability to anyone else.

Caveat Emptor

UPDATE (3/27): I spent an hour or so yesterday talking to an appraiser whose information I have reason to trust. He indicated that while certain appraisers and their organization were pushing for all of this, the execution is hurting them a lot precisely because they wanted to remove the ability of loan officers to choose an appraiser. This means good, ethical appraisers who earn business by doing high quality appraisals are not going to be able to attract business any more. It's all going to be lenders ordering from appraisal management companies, who charge as much as the market will bear and pay the appraiser as little as they can get away with. There being fewer appraisal management companies than appraisers, there is less competition and therefore prices are rising - I heard $700 for an appraisal quoted yesterday - while the appraisers are getting paid less (one company is only paying them $150. As my source said, if that's the way things shake out he will go get a job at Starbucks because he'll make more money and have health care paid too). The only real way lenders can order appraisals is through an appraisal management company, and working for an appraisal management company is the only way appraiser can get work. This bottlenecks the process, and puts appraisal management companies in a position where nobody has any choice but to deal with them. Upshot: The appraisal management companies are going to make money hand over fist, but everybody else loses. I strongly urge everyone with a stake in the real estate loan process (in other words, everyone who might like a loan someday) to write your congressional representatives and senators and get this abomination repealed now, before appraisal management companies become an entrenched special interest.

The appraisers, for their part, have already discovered the gotcha! in what they pushed for. They already know that what they thought they were asking for is different from the reality.

UPDATE: 4/28/2009 Here's a video published today It's aimed at realtors and agents, but everybody should be able to understand the essential points.

Article UPDATED here

Here is the difference between Israel and its Arab enemies

Well, one of them anyway:

When terrorists kill Israeli women and children with bombs or missiles, they regard it as a triumph worthy of celebration; sweets are passed out; the terrorists themselves are venerated as martyrs. When Israeli soldiers deliberately kill Arab women and children, on the other hand, most Israelis regard it as a disgusting aberration, and a legal investigation is launched.

I cannot believe I'm reading this:

South Africa bars Dalai Lama from peace conference

But because the Dalai Lama isn't being allowed to attend, it is now being boycotted by fellow Nobel Peace prize winners retired Cape Town Archbishop Desmond Tutu and former president F.W. de Klerk as well as members of the Nobel Committee.

"It is disappointing that South Africa, which has received so much solidarity from the world, doesn't want to give that solidarity to others," Nobel Institute Director Geir Lundestad told The Associated Press in Oslo, referring to the decades-long fight against apartheid.

The government of South Africa is saying the Dalai Lama visit would be too high in profile, and disrupt the peace conference. Why? He's never disrupted anything peaceful before.

ANC (the current ruling party of South Africa) spent lots of effort getting people to divest from and boycott South African goods in the seventies and eighties, among many other things. This divestment and boycotting was against our own best interests, but we did it to help them win a voice in their government - a voice which turned out to be the dominant one. And they can't host an exiled leader of a conquered (now) province who doesn't want nearly what the ANC asked for and got out of the world - only to stop the persecution and repression of his people, not a voice in the government?

Seems to me there's a biblical story with more than a grain of universal truth about that, and for that matter a different one in the Koran as well. Just because I'm not a Christian or Moslem doesn't mean I can't or shouldn't concede their wisdom when it is appropriate. Even just the Golden Rule of "treat others as you would like to be treated" is directly applicable. Shame on President Kgalema Motlanthe and the ANC heirarchy, shame! The men who won the Nobel Peace Prize for bringing the change to South Africa have bowed out of the conference on the basis of this development. Anyone who feels like a badly used tool because of this is entirely justified, and until the ANC makes amends, I think we ought to boycott South Africa again.

Nobody can be entirely free while others are enslaved as the Tibetans are. We helped the majority of South Africans win their political voice, and this is how they pay that debt forward? Shame!

More of how Obama going to save our foreign policy after Bush and make everybody like us: Obama Upsets Sarkozy With Letter to Jacques Chirac

Even the French got tired of Chirac. Sarkozy has been their president for almost two years now. While Bush was president, the French called Sarkozy "The American" and his popularity is pretty high. Now that Obama has written to his predecessor, who knows? This is act that would be about equivalent to Valdimir Putin and Hu Jintao writing to George Bush - out of office and a member of the opposing political party - looking forward to working with him over the next four years.

Obama keeps this up, and he might as well change his name to Larry Harmon, because he's going to be synonymous with Bozo

Talking ourselves to death: Obama must get tough on an increasingly dangerous Iran

Well, if we don't want to end up as a radioactive wasteland

Every U.S. administration since 1979 - yes, including the last one - has reached out to the Iranians. To adopt President Obama's inaugural metaphor, every open hand has met a clenched fist. It is the same dismal story with five years of efforts to curb Iran's nuclear ambitions.

It is not that the Iranians don't want to talk - they do. That's all they want to do, play for time. They seek the technical know-how that will give them the breakout capability to produce nuclear weapons in a short period. They are in the midst of producing stockpiles of low enriched uranium. They are adding centrifuges faster than the UN Security Council can step up the pressure and are learning about the art of connecting a large number of centrifuges to a vast amount of pipe work, while maintaining everything in a vacuum.

Simultaneously, they are enhancing their ability to launch long range ballistic missiles, a potential delivery system of nuclear weapons. What madness it is to empower Iran to do what it most likes to do - hold hostages, in this case the entire region.

The Economic Contradictions of Obama-ism

The Obama budget envisions an explosion of economic growth as the country recovers from the current recession--more than four percent a year from 2011 through 2013. This will supposedly be sufficient to halve the $1.75 trillion deficit it projects for 2009. But there is something off here. Many of the policies Obama and his team are pursuing, cap-and-trade being the most obvious, are likely to interfere with growth in exactly the sectors in which the United States will need it. If the goal is growth, as it should be, the role of government should be to determine ways in which its conduct can fuel that growth. And that is precisely what Obama is not doing.

Ladies and gentlemen, business does not end up paying taxes - its customers do. Otherwise it can't stay in business. These costs are passed along to us in the form of higher prices. Higher prices mean lower sales. Lower sales mean fewer jobs. Fewer jobs mean fewer people have the money to pay those prices, meaning they are spread between fewer people and the cost per person goes up again. It also further raises the tax burden on the rest of us when those people who would have had jobs, but don't, mean the government has to raise taxes again so those of us who still have jobs can pay what they need paid. At a certain point, a business will shut down completely, meaning that not only does nobody have a job there, it doesn't have owners or managers either, and its products are no longer available.

The upshot of this is that if you tell me you want economic growth, but what you do is enact policies that restrict growth and encourage constriction of the economy, I know which of the two contradictory positions I believe. And no matter how many cheerleaders you have, there comes a point when it's going to get through to even the most religious followers of Obama-ism.

BLAME WASHINGTON MORE THAN WALL STREET FOR THE FINANCIAL CRISIS (it's eighty two pages, but worth reading)

Michael Barone:

But I have noticed what I think is a paradox in the Geithner plan. He is asking the most unregulated parts of the financial system--hedge funds, private equity firms--to bail out the most regulated part of the financial system--the banks. With government help, or subsidy, of course. But of course the government isn't really regulated either, is it? Except, I suppose, through the political process.

Democrats like Barack Obama and Barney Frank, at least on the campaign trail or in sound bites, have portrayed the financial crisis as the product of deregulation. The solution, they say, is more regulation. In that vein Frank, one of the brainiest members of Congress, is proposing that the Federal Reserve become a regulator of systemic risk, with the power to regulate firms that because of their size or strategic position are of systemic importance.

Obama wants to be more European? Then maybe he should listen to the President of the EU: EU Presidency: Obama Plans 'a Way to Hell'

He slammed the U.S.' widening budget deficit and protectionist trade measures -- such as the "Buy America" -- and said that "all of these steps, these combinations and permanency is the way to hell."

Q and O with some good perspective:

It is also important to understand that "cutting the deficit in half" is a mask for the fact that it means he'll still be running up a record deficit of over 600 billion a year. That is not progress in deficit reduction or "fiscally responsible" government. But it sounds good when thrown out there in a sound bite

Yes, Bush was horrible in that he spent waaayyyy too much. I and many others in the libertarian and conservative camps said so repeatedly. But Obama has already left Bush's spending record that in the dust, and he's less than three months into his term. Not to mention "tu quoque" is an attempt to divert attention from Obama's indefensible deeds, rather than an actual defense of them, and a nasty strike against any claim to leadership ability that Obama might make. He's not a leader; he's an inciter of the mob.

Headed toward extinction?

Darwinism presupposes, and modern biology teaches, that all organisms breed to the limit of their available resources. Yet starting in the world's richest, best-fed nations during the 1970s,and now spreading throughout the developing world, we find birthrates falling below the levels needed to avoid long-term, and in many instances, short-term, population loss. The phenomenon has spread beyond Europe and Asia to Latin America.

Once upon a time, there were two primary reasons why people had kids. The first was survival of their personal gene pool, the second was old age insurance: someone to personally take care of them when they are too old to work any more. Social insurance programs worldwide together with increasing personal wealth have largely eliminated that second reason, vastly reducing the effective benefits of having children. Furthermore, in modern society the personal costs of having children are skyrocketing - not just money but time, constraints upon personal desire (I and my wife have at least four sets of free movie tickets her employer has given her, sitting in the desk drawer unused for years. It isn't that we don't want to go to free movies, it's that the constraints associated with the kids are preventing us), constraints upon personal space, etcetera. Everyone who has kids lives with this fact every day. Is it any wonder that people are looking at their individual costs and benefits of having children, and deciding to have fewer of them, or none at all?

(Let me say this, though: raising two children is the most rewarding and most important thing I will ever do in my life)

The children of a society, though, are its true future wealth. It is intellectually trivial to reverse the economic conditions that are causing birth rate to fall. It's simply a matter of finding the will, and find the will we must, because as Japan is discovering and China will soon, if there aren't enough workers in the next generation to pay for the social insurance programs, those social insurance programs will have no choice but to reduce benefits or even be eliminated entirely. Standards of living will slip as there aren't enough workers to run all the needed specializations in the economy. You take it from there.

By the way, our low savings rate as a society is also coupled with generous social insurance.

Memo to the prez: No free lunches

Now we are told that all those ambitious budget plans to overhaul health care, education, energy and taxes are going to cost one heck of a lot more than President Obama told us they would. At least the Congressional Budget Office says so, and while there may be some give in their estimate that we will have to borrow $9.3 trillion over the next 10 years if they go into effect, there is not much room to argue. Actually, one probably should bet on that estimate being conservative.

Does this really astound anyone? Not if they have been paying attention to initial estimates attached to initiatives dating back to the establishment of Social Security and then Medicare, whose sponsors' original cost estimates were a fairy tale designed to get them adopted. What is astounding is that the new president seems to believe he can accomplish this by increasing the bite on only the top 5 percent of taxpayers while giving the other 95 percent a cut.

Every time I hear about one of Obama's social engineering programs and the allegedly low costs for it, I can't help but think, "and then Santa Claus and the Easter Bunny and the Great Pumpkin will hand out free manna and ambrosia to everyone!"

Dreaming of President Petraeus and an American Surge

You and me both, sir. You and me both.

Even the possibility of this is very good news: Scientists in possible cold fusion breakthrough

Researchers at a US Navy laboratory have unveiled what they say is "significant" evidence of cold fusion, a potential energy source that has many skeptics in the scientific community.

The scientists on Monday described what they called the first clear visual evidence that low-energy nuclear reaction (LENR), or cold fusion devices can produce neutrons, subatomic particles that scientists say are indicative of nuclear reactions.

Twenty years ago a couple of guys thought they had something, but nobody could reproduce their results. Cold Fusion has therefore acquired kind of a voodoo reputation in the scientific community. If this is really cold fusion, it has the potential for immense (and fairly portable) energy sources, and petroleum engineers become the guys who make interesting plastics and OPEC diminishes in importance (and income) by a factor of 10 at least.

On the other hand, don't break out the champagne yet

Paul Padley, a physicist at Rice University who reviewed Mosier-Boss's published work, said the study did not provide a plausible explanation of how cold fusion could take place in the conditions described.

"It fails to provide a theoretical rationale to explain how fusion could occur at room temperatures. And in its analysis, the research paper fails to exclude other sources for the production of neutrons," he told the Houston Chronicle.

The acid test will be if anyone else can reproduce their results. Expect that to take a while.

Obamateurism of the Day

Obama: It took us a couple of days because I like to know what I'm talking about before I speak.

So after the two days of research to find out what he's talking about, he didn't know that his own Treasury Secretary asked for the language that allowed the bonuses to be paid? Obama doesn't want previously written contracts to be honored? He doesn't want the people who just might know enough to protect the taxpayer's $180 billion (and climbing!) investment in AIG to stay, at a cost of $165 million, less than one tenth of one percent of the amount taxpayer's have at risk? Economic insanity.

Furthermore, Mr. "Constitutional Law Professor" is completely clueless about the fact that both bills of attainder, that target one specific person or group, and ex post facto laws such as the confiscatory tax he was calling for are explicitly prohibited in the Constitution?

There are many excellent reason for those prohibitions, by the way. Our founding fathers had experience with them via the british, and knew they were a far more fertile avenue of legally destroying political enemies (or anyone!) than anything else. To use a comparison, the Fourth Amendment protects against the manufacturing of evidence, while if Bills of Attainder or ex post facto or both were constitutional, there would be no need to manufacture evidence because the people in change could take down anyone, at any time, for any reason that struck them as sufficient.

Or is Mr. "Constitutional Law Professor" fully cognizant of that prohibition and intentionally trying to destroy those protections? I'd rather attribute it to stupidity, but he's supposed to be one of the smartest guys we've had as President. You can't have it both ways: Either he's terminally stupid about something he's supposed to be an expert on, or he is intentionally attacking two of the most important protections of constitutional liberties.

Or, of course, he doesn't mean a word of it and is politically grandstanding for the benefit of his ignorant supporters and whipping them into a frenzy for whatever purposes he may have. Take your pick, but I think that one is more reprehensible than stupidity, and gives directly attacking major constitutional protections a run for its money.

On the same subject, via Instapundit, an interesting article from Mark Steyn:

We have a president who shows no instinct for economic issues; a Treasury Department that, in a supposed crisis, is just one designated fall guy rattling around an all but empty building for whose senior positions no one has even been nominated; and thug legislators-for-life who bear far more direct responsibility for this mess posing as champions of da liddle guy in order to extend their already disastrous "oversight" ever deeper into the private sector. Things are going to get a lot worse.

The full letter Mr. Steyn references is here. Mind you, this is a one sided editorial, but it paints a compelling picture that he has earned that money and is entitled to it, ethically as well as contractually.

As opposed to the ignorant words of fomenting the rabble from Mr. Obama and his allies.

Those more I see of President Obama, the more I hope to discover something impeacheable for which even the Democratic Congress will have no alternative but to vote him out of office. Joe Biden may be stupid, but he doesn't have the ability to inspire millions of ignorant morons, which means the damage he would do is far more limited.

Why Toddlers Don't Do What They're Told

"For example, let's say it's cold outside and you tell your 3-year-old to go get his jacket out of his bedroom and get ready to go outside," Chatham explained. "You might expect the child to plan for the future, think 'OK it's cold outside so the jacket will keep me warm.' But what we suggest is that this isn't what goes on in a 3-year-old's brain. Rather, they run outside, discover that it is cold, and then retrieve the memory of where their jacket is, and then they go get it."

I would take issue with the proposed solution, though.

It's very simple really, and this is something I have never covered in the perhaps mistaken belief that it was too simple and everybody knew this.

The Note is the loan contract that sets the terms of the loan, repayment, etcetera. This contract is the document that controls, in conjunction with state law, your loan. Term of loan, interest rate, prepayment penalty, penalties for late payments, it's all there.

The Trust Deed is the security instrument. Without the Deed of Trust, the Note still creates the indebtedness, it's just not secured by anything specific. You still owe the money, but without the Deed of Trust the lender cannot force the sale of the residence (or take possession themselves) in satisfaction of that Note. Actually, I should say that they can't do so without recourse to the courts, and they would have to stand in line with all of the other unsecured creditors. The Deed of Trust creates that security interest, and makes the debt secured by a specific asset - the land given in the Deed of Trust. The Deed of Trust, unlike the Note, is recorded with the County Recorder with an official document number, and indexed in public records to as being associated with a particular piece of land, hence the ability to find it pretty easily.

You hear talk about a Note secured by a Deed of Trust. They're talking about a Note, and telling you that it is a note secured by Deed of Trust on a particular asset. Both real estate and automobile loans are routinely secured by a Deed of Trust against that particular property or vehicle, which is how the various holders of those loans have the ability to take back the secured property administratively, without recourse to the courts, provided certain conditions are met. If these loans were not secured by the pledge of a specific asset, these creditors would have to go through the courts, and stand in line along with credit card companies, etcetera. If they did not have a greater security interest, there would be no incentive to give real estate and automobile loans better rates than credit card holders get. So think about that before you advocate making it harder for lenders to foreclose. Every little bit you restrict a lender from its valid security interest means higher rates for everybody else as well tomorrow. This is basic economics.

There's a great brouhaha right now about "produce the Note." People who are in over their heads are telling lenders to "produce the Note" in order to proceed with a foreclosure. They're hoping for a jackpot, and a few years ago, in the case of perhaps one to two percent of all borrowers, usually with a loan that had been sold multiple times, the lender was unable to produce the note and the person ended up with a free house instead of losing it. I shouldn't have to tell you who ends up paying for those houses and the loans associated with them, should I? Here's a hint: It's not the lender or their stockholders. If you're completely clueless, It's customers of that bank and future borrowers who end up paying. If it gets bad enough, its the US taxpayers and depositors with over the insured amount in that institution. These days, however, "produce the Note" is a delaying tactic - figure the lender is going to find it in all but a very small number of cases - on the order of winning the lottery odds. It may take them a while, but it's a safe enough bet that they will find it. It may buy you a month or two delay, that's all - perhaps only a day or less. If you can solve the problem presented by the default in that period of time, all well and good. If you can't, all you've done is delay the inevitable and perhaps make it worse (The Trust Deed is part of the public record, and trivial to find and produce - the title companies can all do it within thirty seconds).

The two legal documents (or instruments) can be combined, but generally aren't, and I don't know why. However, this can be a problem for lenders who buy the loans from other lenders. It doesn't happen much any more, but it does still happen that lenders cannot produce the Note, and it usually is something that takes a while. Without the Note, there is evidence of debt and therefore no loan to satisfy, and so you can have your lawyer insist that the Trust Deed be reconveyed. to clear the cloud it creates upon your title. Essentially, free money. Without the Reconveyance, however, it's difficult to sell the property and this can give the lender leverage to require repayment if you're trying to sell the property right now. Any unreconveyed Deed of Trust creates a cloud on title, and you need to clear that title in order to be able to sell, quitclaim, or even conceivably, will the property to an heir or even have it pass by action of law. If court action is required to clear a title, it's called a quiet title proceeding.

I'm not a lawyer in any state, so if a lawyer tells you something different than this, take their word for it, not mine. Even if I'm right in every other state, the lawyer is going to know that yours is the exception. This is simply the understanding of a layman who has had things explained to him by lawyers, and is attempting to pass on general knowledge of the differences and relationship between two loan related legal documents.

Caveat Emptor

Article UPDATED here

Carnival of Personal Finance

Carnival of Real Estate

Iran's response to US shows mind-set of leadership

"It's the first stage of the bargaining in classic Iranian style: Be tough and play up your toughness," said Abdulkhaleq Abdulla, a professor of regional politics at United Arab Emirates University. "The Iranian leaders are not about concessions at this stage. It's still all about ideology from the Iranian side."

Well, duh. These clerics are locked into a mindset that makes the Inquisition look flexible and compromising. They're looking for a bigger stick to hold on the rest of the world, because they have seen the respect that the west gives North Korea, a tiny little disaster of a state that has managed to procure a nuclear arsenal and some long range missiles to launch them on They want that kind of respect. They want that kind of power.

"Have you released Iranian assets? Have you lifted oppressive sanctions? Have you given up mudslinging and making accusations against the great Iranian nation and its officials?" Khamenei said in a speech in the northeastern city of Mashhad. The crowd chanted "Death to America."

The US plays a political function to the Iranians much like the Jews did to the NSDAP: The enemy to keep the masses united against. The Iranian clerics are not interested in being friends. They're just interested in keeping the US from ever making up its mind to actually invade. Right now especially, when they're on the verge of a nuclear arsenal. They see a threat, and it's not unreasonable from their point of view: Where are Iraq and Afghanistan with respect to Iran? Once they get a nuclear arsenal, they quite correctly expect that we'll leave them alone to basically do what they want. Democracies (real ones anyway) do not elect the kinds of leaders that are willing to take the kind of losses necessary to a nuclear battlefield. I don't think we've even got the will for a containment policy any longer - witness the incredible ease with which a resurgent Russia has gotten its way on everything of substance (help us in exchange for dropping the missile defense system? Why would they do that? Obama campaigned on dropping it anyway! Don't think they don't listen to our politics. Putin would want another concession, one that even Obama doesn't want to give).

The difference between Putin and the Iranian clerics is that while Putin might be what we call avaricious for power, he's rational about the possibility of losing it and won't go over a line which would cause the necessary coalition to band together for the purposes of ousting his regime. The Iranians are insane enough to turn everything they can into a glowing wasteland to earn their places in heaven, rather than accept defeat

Belmont Club has context, and more.

Villainous Company contrasts the treatment military families have received from our current and former presidents.

Mark Steyn

But don't forget, folks: Somewhere in Texas a village has been reunited with its idiot, and we now have the whip-smartest administration of David Brooks's lifetime.

Read it and weep - for ourselves.

Commandante Obama

The American tried to shrug off the Latin Americans' warning. To his consternation, he found that he couldn't. Peron, Fidel, now Chavez, they insisted. The emergence of misrule, corruption and economic stagnation in Latin American nations follows a particular sequence or progression. Now the sequence was unfolding in the United States.

and

"The last step?" asked the Cuban. "Censorship. It won't be obvious at first--they're always too smart for that. But it will come."

"Never," replied the American. "We have the First Amendment."

"And soon enough," the Cuban said, smiling sadly, "you will also have the Fairness Doctrine."

Read the whole thing.

Our Partisan President

I am worried. Not because I am enamored of bipartisanship. I like Ike - but I like "Give 'em Hell" Harry, too. I have no problem with the sharp elbows approach, even coming from the White House. I am worried because I thought partisan reconciliation was an animating force of Obama's candidacy, a big reason why he thought he - rather than one of the 306 million other Americans - should be President. I am worried that, amidst a credit crisis, two wars, and a lack of confidence in our nation's institutions, we have installed as President a man apparently willing to abandon a foundational premise of his candidacy not three months into his tenure.

I, on the other hand, never drank the Obama Kool-Aid. I observed his prior electoral behavior before he even had the Democratic nomination (disqualifying opponents from the ballot, disqualifying a critical number of their sponsorship signatures, vilifying opponents via opposition research and proxy attacks) and thought it likely we would see more of the same from a President Obama. I watched his tactics, and those of his proxies in the primaries, and found them despicable. My assessment has been borne out, and more rapidly and more definitely than even I thought. He's about as post partisan or bipartisan as Josef Stalin. Remember "A leopard does not change his spots without clear and convincing reason" His spots were succeeding wildly for Barack Obama - there was no reason for him to change.

What do we do now? The only thing we can do is help Obama opponents get ready for 2010. They're not all Republicans. A considerable number of Democrats oppose his policies and are worthy of sponsorship in the primaries. The alternative - catching Obama in an impeachable offense - is not under our control and his supporters in the Senate will prevent removing him from office anyway. (Facts? You silly person, these are Democratic party hacks we're talking about. They haven't considered facts since they came to Washington - they will vote against removal. Bill Clinton's impeachment proved that. He was guilty, everyone knew he was guilty of perjury, the House managers proved it beyond a any possible doubt - and how many Democrats voted to remove him? The answer is zero. I guess nullification is a good thing where Democratic political interests are involved)

Bonfire of the Trivialities

That's $165 million in bonus money handed out to AIG debt manipulators who may be the only ones who know how to defuse the bomb they themselves built. Now, in the scheme of things, $165 million is a rounding error. It amounts to less than 1/18,500 of the $3.1 trillion federal budget. It's less than one-tenth of 1 percent of the bailout money given to AIG alone. If Bill Gates were to pay these AIG bonuses every year for the next 100 years, he'd still be left with more than half his personal fortune.

This would be funnier if it were less true: Obama to Limit Pay for Wall Street, NFL, NBA, MLB

"In America you can dream as big as you want, but everyone agrees we need strict controls on those whose dreams have come true," Mr. Gibbs said. "The people deserve a system in which there are no limits to your potential, only to your achievements."

If the supremely productive few are taxed as heavily as Mr. Obama would like, what incentive is there to put in the kind of hours and effort and risk to create the kind of companies that produce the well paying jobs for employees?

Via Volokh Conspiracy, the past, present and future of Obama's Public-Private partnerships

Grim proving ground for Obama's housing policy

The squat brick buildings of Grove Parc Plaza, in a dense neighborhood that Barack Obama represented for eight years as a state senator, hold 504 apartments subsidized by the federal government for people who can't afford to live anywhere else.

But it's not safe to live here.

About 99 of the units are vacant, many rendered uninhabitable by unfixed problems, such as collapsed roofs and fire damage. Mice scamper through the halls. Battered mailboxes hang open. Sewage backs up into kitchen sinks. In 2006, federal inspectors graded the condition of the complex an 11 on a 100-point scale - a score so bad the buildings now face demolition.

They never do connect the dots to what you would ask of any other Chicago dirty deal: "Who got paid, and who did they pay off to get it?" despite (because of?) the fact that several of these folks are members of Obama's team. PS The Boston Globe is a Democratic party mouthpiece.

Give Investors A Place To Rest Their Fulcrum

The FDIC will lend 85% on a non-recourse basis, which means that they can only look to the underlying assets of the investment vehicle for repayment and can not attempt to collect any shortfall from the private investors. (This creates the "heads I win, tails they lose" problem to which people refer).

Sounds like a sweet deal to me - 15% of the money for all of the possible upside. Where do I sign up? I don't? "Qualified Investors only"? I wonder exactly how much in campaign contributions means you "qualify"? (Look up how much investment bankers contributed to Barack Obama over John McCain. In what way can you demonstrate that this is not a probable political payoff of hundreds of billions of taxpayer dollars, an amount to beggar the combined fortunes of Bill Gates and Warren Buffett?)

Marginal Revolution thought the numbers were a typo

The remaining 15 percent will come from the government and the private investors. The Treasury would put up as much as 80 percent of that, while private investors would put up as little as 20 percent of the money, according to industry officials. Private investors, then, would be contributing as little as 3 percent of the equity, and the government as much as 97 percent.

How do I get a piece of that action? Oh, that's right - I can't. Neither can you, unless you're a member of that privileged club of investment bankers, who just happen to have made about eighty percent of their quite substantial campaign contributions to Barack Obama and the Democratic Party.

They say to the victor go the spoils, but the electoral spoils have never been this valuable, or this blatant, before.

While we're at Volokh Conspiracy, a guest author on what Obama could easily change if he were even a little bit serious about changing the way Washington does business. We'll see how far these recommendations go.

So solar power isn't so environmentally friendly? Who knew? Feinstein seeks block solar power from desert land

"It would destroy the entire Mojave Desert ecosystem," said David Myers, executive director of The Wildlands Conservancy.

and

"This is unacceptable," Feinstein said in a letter to Interior Secretary Ken Salazar. "I urge you to direct the BLM to suspend any further consideration of leases to develop former railroad lands for renewable energy or for any other purpose."

Okay, she's got a valid point. The land was donated for wildlife conservancy, but the point is that solar and wind are being sold to the public as the environmentally friendly alternatives - but then they are unacceptable because they damage the environment too?

We've got to get our power from somewhere. Megawatt-hours do not magically appear in the power transmission lines.

This one's so easy Arnold can get it unambiguously right

Republican Gov. Arnold Schwarzenegger complained about environmental concerns slowing down the approval of solar plants in California.

"If we cannot put solar power plants in the Mojave desert, I don't know where the hell we can put it," Schwarzenegger said

So let me sum up: We're not being permitted to develop new petroleum sources because of environmental issues, forcing us to develop wind and solar instead. But they won't let us develop wind or solar power either because of environmental issues.

Question: What happens when we start running out of power? Who goes without? More correctly, who goes without first? What are the economic, societal, and cultural effects of this result?

Question: What could be the possible reasons behind such an agenda? If you can't come up with at least ten, you're not trying. Which are not contradicted by other deeds?

Question: How many "environmentalists" need to be actively malicious (as opposed to stupid ignorant dupes) in order to direct the goals of the organization towards a given result for a given reason?

Question: based upon the premise "never attribute to malice what can adequately be explained by stupidity", what would you estimate the most likely reason behind the agenda is?

The clock is ticking. Help us figure this one out. We start not having enough power, and that's a real problem

As a good buyer's agent, I love a challenge. When someone comes to me trying to make a budget stretch just a little bit further than it would usually go, that's the kind of client I love to have. My goal is always to make at least a ten percent difference to the price the client pays, the value of the property they get, or some combination of the two. Nonetheless, the ones who can almost but not quite afford what they want without me (or someone equally good) as an agent are the ones I really get off on working with. The single mom of two who I can help get into the three bedroom condo or PUD instead of two, so everybody gets their own room. The huge family (or multiple family) where everybody pitches in together for the house they're all going to live in together. The young newlyweds who are just getting started and may only intend to hold onto the property for a few years, but they're going to start their family there. One hopes you get the idea, and of course, preventing the "mistake" properties that are just going to suck a budget dry and be an ugly problem to sell.

There is nonetheless a thin but sharp divide between someone like that and someone who will only buy the Taj Mahal at a cut rate price. Someone calls me and asks for something that doesn't exist and isn't going to at a price they are willing to pay, I'm going to be completely upfront about telling them that what they're asking for is not realistic, and any agent worth a damn is going to do exactly the same thing. Anyone who can swing it is eager to buy the Taj Mahal at a cut rate price.

I did use the phrase "cut rate Taj Mahal" deliberately. If it's beautiful, people will want it. That's the way people are wired; women especially so, and women are the ones that make the "buy" decision. The only thing that prevents it from selling is if they can get more for their money out of some other property. An attractive property that is not significantly over-priced will sell in any market. Of course, it will sell for significantly more in a hot market than a buyer's market, but that's an entirely different subject. The property is on the market when it is on the market, and whether a seller could have made more by waiting is a subject for a different article. The point is that beautiful properties will sell, there is always demand for them, and if they are priced even close to the right level, you will get people lining up to buy them. The probability of a cut rate offer being the one that is accepted is about the same as winning the lottery with a single ticket. An ethical listing agent won't let it go for less than it's worth. Heck, a crummy listing agent won't let it go for less - even they are paid on commission!

I just checked the statistics on MLS. As I'm writing this, the San Diego area is down to 12099 active listings, while 946 have gone Pending in the last seven days, giving us about a 13 week theoretical supply (89 days) in inventory. That's a balanced market, no longer the buyer's market. But a sample of actives in a couple of diverse zip codes yields that about 20% of the theoretical actives are short sales with an accepted contract that are allowed to remain on the active list. Looking at 80% of the actives number, and assuming that a short sale takes about ten weeks on average, that means the real numbers are about a 57 day supply of inventory - just over 8 weeks. This means we're edging down to a full fledged seller's market, and we're not to Easter yet.

So what does this mean to buyers? The first thing to consider is that the above numbers are the statistical mean. You're lumping the beautiful property in a great neighborhood with fantastic schools with the cluttered, trashed, falling apart piece of garbage in an area where the schools mostly teach "Hanging out with an ankle bracelet", and then taking the middle course between the two. Assuming you don't really want the cluttered trashed falling apart ghetto property, this means you're competing for the property at the other end of the spectrum - by which I mean the highly desirable properties that are going quickly and for good prices. Just this morning, I called the listing agents on two such properties that have been on the market less than a week, and got believable responses that both properties have already gotten multiple offers. Those properties are not going to go for a cut rate price, and buyers putting in low-ball offers to see if they work are wasting paper and wasting time. The days when I or anyone else could "steal" an attractive property like that for thirty-five percent under the appraised value are over, at least for now, as I must have predicted on at least three or four occasions - not that there was any great predictive ability involved.

If you're wealthier than Midas and don't mind spending your wealth on housing, this article just isn't relevant. For those looking to buy significantly below the limits of their means (and I do seem to get a fair number of clients in this category, for which I am profoundly thankful, and I can make an even larger difference than usual), large parts can be ignored because they have the alternative of increasing the budget if they don't like their choices at the current dollar limit. For those who want to stretch their budget and make every dollar count, it is critical, and failing to follow something very close to this model is a recipe for disaster. The idea is to make rational, informed choices that you will be happy with later.

The first thing to consider is your budget. In order to buy within a budget, you have to know what that budget is. There are no more "Make Believe" loans - and this is a Good Thing, as I'm certain the vast majority of the millions of people facing defaulted Make Believe loans right now would agree. They could have afforded something good enough with a sustainable loan, and instead they chose a Make Believe loan in order to get the Taj Mahal, but now they're losing the Taj Mahal, and can no longer qualify to buy the eminently suitable property they could have had if they had chosen rationally in the first place.

I compute what every single buyer client can afford, whether or not they're planning to do the loan with me. I sit down and discuss the questions that need to be answered: "How much cash do you have for the down payment and closing costs?" and "how much income can you document for (the relevant period)?" and "What is your credit score?" I sit down and go over what those numbers mean in terms of purchase price in the current market, and then both the prospective buyers and I have got to agree upon a maximum purchase price we will consider. If the property cannot be obtained within that purchase price, it is a non-starter. There may be a certain amount of gray area as asking price is not the same as sales price, but the bottom line is that if I cannot persuade someone to sell for a price within the budget my client and I have agreed upon, we're going to put that property out of our minds. Most of the trouble I do get arises because there is a lot less slack in the asking price for beautiful properties new on the market than there is for less physically attractive properties that have been sitting a while. I have a choice as to where to put the dividing line as to what the clients see, and my default is always to allow them to see all the properties within a set mark-up of the agreed upon budgetary maximum, even though that may have attractive properties new to the market where the price is not that negotiable, or not that negotiable yet. Transparency, always transparency - even when it causes me problems.

The next thing to consider is "what does the property absolutely have to have?" The hard part here is cutting this list to the bone, if not all the way down to the marrow. You have got to focus on no more than one or two things at this level. It can be a good school district, it can be a certain number of bedrooms or certain size of lot, it can be a certain section of town, it can be a lot of other things but the critical thing is to get that focus laser-sharp. One thing, or at the very most, two. To paraphrase the immortal Monty Python, three is right out, and for reasons similar to those given in the Book of Armaments. You have got to be clear, and you've got to mean it. If it doesn't have this one thing, it's off the list of possibilities, no matter how beautiful it is. That's pretty easy for most folks. The logical corollary of that, however, is much more difficult: that if it does have that one attribute, the property is a serious possibility no matter how ugly, no matter how trashed, no matter any number of other undesirable factors. If you're not serious about this one point, you're not serious about stretching your budget. I'm not going to say that there's nothing a good buyer's agent can do for you, because it wouldn't be true, but you have become, to whatever extent you can't abide this corollary, your own worst enemy. This is at the heart of why there is money in fixer properties. If someone else has already made it beautiful, people are going to line up to buy it at a very competitive price. If you want a budget stretching price, you've got to be willing to some degree to be the one who makes it beautiful.

This applies no matter what else you want. The ultimate expression is that if I run a search and there is one property that meets your budget and your "must have" list. This has never happened to me yet, but there's nothing that says it won't happen tomorrow. At that point, you have Hobson's Choice: that property or none at all. Mind you, "none at all" (i.e. continue renting) is likely to be the superior of those two alternatives in this situation, but it would certainly cut down on my time requirements. Also, there is always the option of "wait and see". Just because nothing on the market today fits the bill doesn't mean that there never will be. It's not for nothing that "patience" is the number one item on my list of Top Twelve Things That Help You Buy a Bargain Property.

Things usually aren't that cut and dried, however. Usually, there are several dozen possibilities, sometimes hundreds. This is because I will either keep badgering people to expand their criteria until there are enough possibilities to give a real selection, or I will tell them point blank that the list of possibles is short and once we have seen what's available, they're going to need to make a choice. It doesn't take very many properties on the alternatives list before there will be at least one worth buying whether they like it or not, and if they choose not to buy anything available within their budget, I have to reconsider whether I'm able to help them.

Keeping in mind that thin line between my favorite clients in the "challenging but possible" camp and those in the "want a bargain on the Taj Mahal" camp, there are only two choices for an ethical agent who believes he's got someone in the latter category: Have a frank talk with the client in which these folks convince me that they have seen the light of what is realistic, or I must stop working with them. If I continue working with them when they have unrealistic expectations, I'm wasting my time, their time, and the time of every listing agent and seller whose property I want to show, because it's not going to happen, and it's my fault if I don't put a stop to the wishful thinking. I'm wasting money and gas and nice afternoons that we both could be spending doing something else and keeping myself from helping other people where I might make a real difference. My point is this: People looking for something unrealistic are not going to turn into happy owners. I can tell them they're not realistic, or I can put them into a property they are going to be miserable in. In the latter case, they're not going to be happy with me. If I tell them the truth in the first place, they might be able to respect my professionalism and refer someone else I can make into a happy owner. If I put them into a property where they are not a happy owner, then I might get one paycheck, but I'm going to be paying for it forever when those people tell all of their circle of influence how miserable they are and whose fault it is.

I'm not a wealthy broker running a transaction mill. Yes, I'm busy, partly because I'm good and partly because I earn my pay. I spend a lot of time and effort doing the best I can for each and every client, and I don't accept clients if I haven't got the time to do a good job with them right now. You really want an agent who follows this business model, by the way. Firing a client has real consequences to me and my family, and I don't do it lightly or often. Nonetheless, I will do it if I need to because the consequences of not doing so are worse.

Starting from a point where there are several dozen properties that potentially fit the bill of being within budget and possessing the absolute "must have" quality. This means the client has a range of options, and usually more properties coming onto the list by the time we've looked at all of them. We don't have to look at all of them, and in fact I don't think I have ever shown every single property on their list to anyone, but we could. In the meantime, if something catches their eye as being something they think they'll be happy with, especially once we've discussed downsides and potential downsides, it's a good idea to make an offer on it right away. In my experience, hoping for something perfect is more likely to net you frustration than a good property you'll be happy with at a good price. Beyond a certain point, the more you try for perfection, the less happy you're likely to end up.

The real point is that there will be a set of trade offs the client can choose between. This one will have more square footage, while that one will be beautiful, but have a homeowner's association that comes with it. This one will have some significant extras but need lots of cosmetic work, while that one doesn't have a lot of the lesser qualities they want but be move in ready. It's the client's money, therefore it's the client's choice. My principle jobs as a buyer's agent are to 1) Differentiate the obviously unacceptable and those with problems that laypeople may not spot from those that are real contenders, 2) Make certain that the client understands the ramifications of their choice before signing away hundreds of thousands of dollars in cash and borrowed money, 3) Negotiate as effectively as I can for a better deal, 4) Be aware of everything about that transaction and 5) be willing to take action, up to and including counseling my clients to walk away if something is wrong enough.

The more you require in a property, the more it will cost. There is a measurement for how desirable a property is, and the unit of measurement is the dollar. If you've only got a certain budget and you're looking to buy in the best neighborhood in town, it's going to cost you more than the same property in the ghetto. The difference is that value of the neighborhood. The same property in the district with the very best school system (or best school) is going to be more valuable than the otherwise identical property down where schools are just a taxpayer subsidized babysitting service where the kids learn undesirable behaviors. People seem to soak this up easily, but they aren't usually as fast on the uptake of "holding the neighborhood constant, you can have a beautiful turnkey property or you can have an extra bathroom, two bedrooms, and four thousand square feet on the lot by being willing to beautify a solid property or you can have a huge lot with a better zoning where the existing building needs to come down completely." All of these, and many others, are potentially valid choices and I can see where making any of these choices could be the most rational choice if your needs and resources match the right profile. It's my job to help you with that, too, but the final choice has to be yours. Nonetheless, there will be tradeoffs involved - you can't have it all. If I were some corporate or NAR flack, I'd be telling you otherwise, but the fact is that you're going to have to choose what's most important to you, and either create the rest yourself or do without. The more you have to spend, the broader your choices and the more you can expect to receive for that money, but even the richest man on the planet has alternative uses for the money that he's giving up to buy this property. Nobody has an unlimited budget.

Putting up with things that others are not willing to is worth some money - often enough for a major shift in the question of whether they're being realistic. I just had some clients who were relocating from the primary flight path of a major jet airport. They laughed every time I talked to them about traffic noise as a negative factor, and that was fine. They had told me they didn't care, but they had also told me that this wasn't a forever property for them, which means that when they go to sell it, it's going to be a factor for them. They wanted to consider a property on what was essentially a frontage road to an interstate. I convinced them otherwise for a number of reasons that include that street might as well be a drag strip because mild mannered housewives with their hair up in curlers turn into testosterone fueled racing junkies there - all within feet of where children are playing in their yards. But if the traffic noise had been all there was to the issue, they could have used it to snare a bargain property because they would be willing to put up with something nobody else would. They were also shopping well beneath the limits of their means, so I was also able to put them into something in a better location with a lot more upside for the same money.

The bottom line is that more money buys a better property. Like any other good buyer's agent, I can stretch your available dollars, but there is a limit to how far I can stretch them. I'm aware of that limit, and so are my buyer clients because I will make certain that they are aware. There comes a point where a given set of search criteria flips from "challenging but possible" to "not likely to happen on Planet Earth." If that happens to you, you are wasting your time and everyone else's. Most buyers have to accept compromises in order to get what they need within their budget, and it's only going to get worse as we finish working our way through the problems that caused the meltdown. If you understand this in the first place, you're in a much stronger position when you start looking.

Caveat Emptor

Article UPDATED here

Quite a while ago, I wrote Top Ten Reasons You Bought The Wrong House and Top Ten Reasons Your Home Isn't Selling. In that vein, I'm going to write a list of the most important things when you're shopping for a property. Lots of folks shoot themselves in the foot, and it's easy enough to see why in retrospect - but isn't it better to not make those mistakes in the first place? I'm going to count down from twelve to one and try to inject what humor I can.

12)Short escrow periods, but only if you can perform. That seller is out money every day of the escrow period, and every day that passes while the property is Pending is another day that other potential buyers aren't looking at it. This daily racking up of costs has been known to cause seller panic. Knowing that there's a limit to how many days the property is going to be tied up is certainly something that can be useful in convincing a seller that this is a better offer. Warning: The deposit is always at risk, so if you cannot perform within the time period you agreed upon, you could find yourself out the deposit money.

11) Short term leasebacks: If the seller is living in the property, accepting your offer means that they have to get on the stick to find their next home. This can cause them quite a bit of anxiety, especially if they're not certain the transaction is going to close. The sellers can sign a lease and risk not needing the leased property while still having to pay a mortgage, they can enter into another purchase contract and find themselves unable to perform, they can find themselves living in a hotel because they didn't allow enough time, and with the problems in the market today, they can often be risking homelessness. If you're not in a particular hurry to move in (and you shouldn't be!), offering to lease the property back to them for up to thirty days after closing is a major anxiety reducer for the seller. Delaying your own gratification - the ability to turn that key and say "Mine, mine, all mine!" like Daffy Duck - can be a lever to get a better price or something else you want out of the seller. Short sales are a particularly good time to offer this - you're looking at an extra six weeks, possibly three months or more, before the lender gives their blessing to the transaction, then usually wants to close faster than the speed of light while the buyers are trying to get their loan done and the sellers are stressing about the tax implications and whether anyone is going to be willing to rent to them along with everything else. To add both parties suddenly having an urgent and immediate need to pack up for a move that they're not certain is going to happen and sign a new least or give thirty days notice when they're possibly going to be without a place to live doesn't make things any easier. As long as the move happens within thirty calendar days of closing, loan standards for "owner occupied" loans are still satisfied, making it a win for everyone.

10)Buyers have liquid cash - Sellers have an illiquid property. Cash money is the universal problem solver - everybody takes cash, everybody needs cash. What most buyers have isn't the full price in actual cash - but the seller gets cash proceeds from the loan as well. That seller isn't sitting upon the crown jewels of the world either - they have the most illiquid investment there is, and they are attempting to exchange it for cash - that universal problem solver. Otherwise you wouldn't see that property listed for sale. The buyer is the one with access to the universal problem solver, and if that seller wants that problem solver, they had better be cognizant that their problems are not the buyer's problems until the deal is done. If the property has problems, it is the seller's challenge to persuade the buyer that it is worth the buyer's resources to deal with those problems. Otherwise, that seller is stuck with those problems.

9) Be willing to do without meaningless contingencies. The appraisal contingency is the prime example of this. By requiring an appraisal contingency, you're saying that you don't want the property unless everything is absolutely perfect - unless some appraiser can pretty much arbitrarily be persuaded to say the property is worth at least the official purchase price. That's a weak offer, and it puts a lot of sellers in the position of resistance because they "don't want to sell for less than it's worth". If more agents explained what the appraisal is and is not, this would be a much smaller problem. I am always looking for value, and always mindful of the minimum necessary appraisal amount, but I'm also pretty much always willing to give up the appraisal contingency if I even put it into the offer in the first place. If there's a loan, the loan contingency is going to cover my clients. If there wasn't a loan, why would you care if the appraisal came in? You shouldn't ever offer more money than the property is worth to you, so why should you care if the property appraises? Being unwilling to give up the appraisal contingency is the sign of a weak offer from a buyer who isn't really sold on the property.

8) Zig when everyone else is zagging. The time to buy a property is when nobody else is willing or able. If potential buyers are waiting for the market to bottom, if they're scared they'll lose money on paper, scared they'll lose their job, or just don't want to move right now because it's Christmas, that's the time to be out buying. On the flip side, as this whole housing bubble and Era of Make Believe Loans should have made clear to everyone, when everyone is convinced that prices are going to keep going up 25% per year and therefore real estate is selling like hotcakes is probably the time to sell yours and go rent until the bubble pops. Don't confuse mass psychology with the fundamentals of the market. This applies in reverse as well.

7) Know what cannot be improved or fixed. Location is the first item on that list. If the property is already the best in the neighborhood, it's not a bargain. If everything around it is selling for half the price, it's not a bargain, it's a misplaced improvement. The area is what it is, and while sometimes they do improve, it's not under any individual's control unless you're a corrupt public official capable of zoning that airport out of existence. There are other items here - environment, view, desirability, etcetera - but what I wrote about location finds a good analog in each of them.

6) Look for properties you can improve: If they're the cheapest property in the neighborhood, that is an opportunity for profit. The beautiful turn-key property where everything is already perfect is not an improvable property - at least not at a price that's worth it, not only because everything easy has already been done, but because those properties are in high demand. When everybody wants it exactly as it is, that's not a bargain property. If you look at it and fall in love with the beautifully done kitchen and bathrooms, that's not a bargain property because most buyers are willing to pay a premium for those sorts of things. Which leads us into-

5) Look for solid, not beautiful. Even if it hasn't been updated in fifty years, a good floor plan is a good starting point. Most people will not look past an outdated surface to what is underneath - solid foundation, good floor plan, good location, lot with plenty of usable space. Yes, you're going to have to do some work to make it shine, but you're looking for a bargain property, not the one that's already been over-improved by a devotee of one of those house-flipping shows. The people that have done that work expect a premium for all that effort. If you want already beautiful, you can expect to be the one paying that premium. If you're willing to take something solid and make it beautiful, you're going to be the one getting that premium.

4) Don't fall in love with one particular property Be willing to walk away if the negotiations don't work out, or if you discover something about the property that's worth walking away from. I see people get all worked up over the possibility of losing a $3000 deposit and sign on the dotted line for things that are going to take ten times that much money just to bring the house up to where it should have been already. I tell buyer clients that the ideal time to fall in love with a property is as I am handing them the keys - something that doesn't happen until escrow has closed and they actually own it.

3) Have a plan Why are you buying this property? Is it a starter property for a few years, are you trying to flip for a profit, or is the home you're going to live in the rest of your life? Are you planning to hold onto it and rent it out once you're done living in it? Is it the basis of the plan to use leverage in your favor so you qualify for a better property when you sell this one? Is this the end property, or is it a shortcut for getting where you want to be? Each of these possibilities has consequences and implications that make it advantageous to do one thing and not the other. A good agent knows what they are. Plan ahead for what you want, and the right things to do to achieve it are a lot more definite.

2) Good buyer's agent. This is the expert who will help you with how best to make the transaction in your favor, as well as reverse engineering what the sellers and their agent are trying to do. Everything about a real estate transaction happens for a reason. You want someone who can take the what and figure out the why from that, as well as the how of getting from where you are to where you want to be most efficiently and effectively. It is easy to find a good buyer's agent if you make the effort. But this is not number one because the best buyer's agent in the world can't do you much good if you haven't got the

1) Patience If you're only willing to look at a few properties, if you're not willing to investigate the property and the market, if you're not willing to consider that maybe another property might be better for you - if you're going to get your heart set on one beautiful property because it's the most upgraded one in the neighborhood, there's not much anyone or anything else can do for you. The more patience you have, the more I and other buyer's agents can do for you. If you're not in any particular hurry, we've got time to make things happen your way. If you need to be under contract in two weeks, you've got about a week to start negotiating an offer, and no plan B available if that first negotiation fails. This weakens your bargaining position, to say the least.

Bonus item: Higher Deposit People are funny about cash. Perhaps it's because they had to earn that cash dollar by dollar, not spending it on other things. Every dollar in that deposit represents something that they could have bought, fun that they could have had, but didn't. A large deposit is therefore indicative of someone who has made some serious sacrifices and is putting that money on the line in the pursuit of this property. That says a lot of positive things about how serious they are, how certain they are that they want the property, and how certain they are that they can make the loan happen. A large deposit is also (usually) indicative of someone who's in the habit of saving and therefore really does have good credit. The deposit is always at risk, but there are steps you and your agent can take to minimize that risk. Look at it from the seller's point of view: You've got someone willing to put thousands of dollars of their own money potentially on the line, versus someone who's scraping together change out of the seat cushions of their couch. Which of those two offers would be more attractive to you?

Caveat Emptor

Article UPDATED here

This is going to be a long article and somewhat technical in places, but it needs to be covered and everyone who is thinking about getting a real estate loan needs to read it.

"Fall-Out" is very simple: The number and percentage of dollars of loans that get locked that eventually fund. If I lock $1 million worth of loans this month, and fund $650,000 of that, I have a fall out ratio of 35%, and a "pull through" of 65% (my personal "pull through" is much higher than that, but this is an industry wide issue). The secondary loan market is putting immense pressure upon lenders to deliver a very high percentage of what gets locked. This has implications for the way loan officers need to handle loan applications, when they lock your loan, and many other things.

I got this email sent to me the other day from headquarters. It's very representative of tensions going on between the interests of consumers and the interests of lenders, and has implications for what can be done to advance the interests of consumers and the direction the loan industry is likely to go in the near future. Because the email is long, I'm going to break it up and respond in pieces. I'm going to put the email text in various block quotes, while my responses will be normal text style. If I need to change some jargon in the body of the email to render it comprehensible, I'm going to change it and put the changed text into parentheses. Specifically identifiable information (personal or corporate), I am going to show as DELETED.

The question has come up many times "Is the brokerage business going to survive?"

I recently had factors explained to me that moves my answer away from just having a positive faith into a more realistic understanding of what elements will determine the outcome. Economic systems live or die on economics. Seems simple enough. If the brokerage channel is economically viable, then it will survive; if not, it won't. If companies are economical, they will survive; if not, they won't. And of course, the same is true for (loan officers).

In my discussions with that lender, I now have a better understanding of how fallout plays into the economic model and what lenders are going to do differently now to ensure their own survival. Brokerage channels are inherently more unreliable and inconsistent on fulfilling lock promises than retail banking. As such, the secondary market is paying substantially less for broker commitments than the equivalent banking commitment. When bank retail (loan officers) lock loans, they don't have the ability to move the loan for a better rate. The pull through on locks in retail channels is 10-20% higher than DELETED. The reason I bolded above is broker (loan officers) vary on pull through from 10% to 45% back to 100%. It's that inconsistency that prevents lenders from picking, say 40% fallout as the number. When you want the lock to exist, you want your cake. It's just broker LO's want both.

It shouldn't come as any surprise to anyone that this is changing, driven by the secondary market. When a loan officer locks a loan, the bank turns around and orders funding from Wall Street Investors at the rates available at that time. This changes with market conditions, and that is the reason why there can be half a dozen loan repricings per day as the market waxes and wanes with events. If that money that gets ordered does not in fact get used, the bank is out the money.

This is going to have effects within the industry. Consumers are going to find it much harder to get a loan locked without paying a deposit to the lender. The only way - and only loan officers - which are going to be an exception to this are loan officers who either 1) Float the rate while telling you it's locked, or 2) Ruthlessly weed out their loan applications of anyone who is less than fully qualified and completely committed to this loan. Since one or the other of these latter conditions applies to the vast majority of everyone, the practical upshot of would be a loan officer passing upon the majority of their potential income, which just is not going to happen.

Mortgage Loan Rate Locks have always been the horns of a dilemma for loan officers. Lock now and you risk the consumer bailing out on you if the rates fall, or demanding a renegotiation. Float the rate, and you risk those rates rising to the point where the consumer is angry, starts shopping elsewhere, or even just blows off the idea of getting a loan entirely. Consumers have had this choice far too easy for the last ten years or so, free-riding upon the intense competition between lenders. In case you haven't noticed, there aren't nearly so many lenders in business today as there were two years ago. Lenders are going to start charging for a rate lock because they are now able to do so. This may change back again in a few years, but for now you can look at it as the way things are going to be for the forseeable future.

Lenders need to have 75% pull through in order to make money. Think about it: in order for them to sell their portfolios, roll in all the costs of their operation, roll in all the "touches" on files that close and all the files that don't close, the lost hedge fees on loans that don't close, plus all the losses that occur on buybacks - 75% is the bar they have set. When a company is below that, they lose money.

As you've seen, lenders are starting to differentiate between profitable companies and unprofitable companies. DELETED volume makes a lender's effort at rehabilitation worthwhile. That lure is always there, but if the
relationship doesn't work, it doesn't work. DELETED has long talked about fallout as a major problem, but lenders and DELETED have been giving it only lip service in the past. No longer.

If the brokerage business is to survive, the broker has to make it so the lender wins. No lender, no broker. Since the lender knows the relationship is symbiotic, many lenders are creating pricing tiers to incentivize companies to figure it out. That is only the first step. Lenders are now dropping unprofitable mortgage as they try to improve their execution price with Fannie/Freddie. In other words, the brokerage business will be smaller, more focused, more partner-like than what has been in the previous "sales" model of mortgage brokering. DELETED plans to "partner"
with its top lenders and assure top tier pull through in order to get the best from each company. We need to make that commitment to them which will assure our mutual survival.

A very important shift must occur to be successful. The (loan officers) must shift their thinking to make sure the lender wins 80+% of the time. The math is very, very simple: What's the dollar volume that gets locked? What is the dollar volume that closes? What's the ratio?

I would take issue with the contention that "the lender needs 75% pull-through to make money". Their own captive loan officers rarely achieve 75% pull through. Talk to me about it when lenders start firing their "in house" loan officers for less than 75% pull through. But there is a point at which it is no longer profitable to do business with a given brokerage or loan officer, and a large percentage of loan officers are below that point. The upshot is that lenders are increasingly serious about this, and are terminating relationships that don't measure up. For that matter, they are terminating their own loan officers. Net result: fewer loan officers, less competition, and the balance of power shifts more towards those loan officers remaining in the business, away from consumers. Nor is this going to be an issue at brokerages only - direct lender loan officers are going to get hit by it.

This is also leading towards a dichotomy that the lenders which are more reluctant to lock a loan are going to be able to get better pricing for their loans once they do lock. The lenders are passing along the negative parts of the investor incentives to whomever is originating the loan. If you've been reading this site very long, you've heard me say upon multiple occasions that "It's not real if it's not locked." But if I lock a loan for someone who is playing games, it hurts all of my clients as well as my ability to attract future clients, so I'm going to be really careful about which loans I lock, and I am going to be very upfront about what it's going to take in order to lock a given loan. I'd rather lose one loan than the ability to compete as strongly as I do, let alone lose access to a lender with useful programs. I am still disposed against the cash deposit in order to lock, but I may have no choice in the long run. Loan officers, whether they're brokers or work directly for the bank, have to keep lenders happy or pay the consequences, which means all of their clients also pay those consequences.

This is making it a lot harder to persuade someone to provide a backup loan. It has always been difficult to persuade someone to do a backup loan, and it's going to become a factor of ten more difficult. What this means is that you have to do real due diligence ahead of time, nail down prospective loan providers by asking them all the necessary questions and insisting upon a loan quote guarantee. Alternatively, you'll probably be able to make a cash deposit - but the loan originators are going to get very hardcore about keeping it if you don't fund your loan. It won't matter why - your fault, my fault, nobody's fault. The downside of all of this is that instead of having a third option, consumers are going to be stuck with either loan A or no loan at all, giving unscrupulous originators even more of an edge than they've got already.

Here's the tough part. It doesn't matter:

* That the house didn't appraise

* That the borrower didn't qualify

* That the rates dropped significantly

* That the borrower walked

* That the borrower was related to someone who got them a better deal

* That the Lender changed their program mid stream

* Etc, Etc, Etc.!!!

If you locked, the lender lost money. Of course those are good (loan officer) reasons, but if DELETED loses our lender relationships due to those reasons, then something's got to change. The thing that has to change (and will change) is what factors must exist for the (loan officers) to lock. Ideally, after Clear to Close, lock it and doc it and get 'er done. But many (loan officers) don't work that way. Well, I am asserting that ultimately there is no home anywhere in the mortgage business for the (loan officer) who locks first and apps later. No home for the (loan officer) who locks before he's run (automated underwriting system), seen the documentation, determined value, and checked with the lender. No one will be able to lock as what will soon be referred to as "old school". All brokers will have to conform to this mode of thinking.

He's unfortunately correct - and it's going to apply to all loan officers, whether they work at a brokerage or for a direct lender. It's going to take a very sharp loan officer to be able to get away with locking before clearance to close. Loan officers who do that are going to have to know the standards cold, and still they will be taking risks. But here's the thing - you want a loan officer who is willing to lock sooner than that.

I'm not certain that any of these except "lender changing their program mid-stream" is unpreventable. At the end of January 2009, Fannie and Freddie suddenly imposed a requirement that almost half of everyone with a loan in progress fell afoul of, and that they're suddenly over conscious of the fact that they've had a major fall-out surge is supremely ironic, because that surge is nobody's fault except their own. "House didn't appraise" isn't a factor if the buyer's agent knows what they're doing. This might change in May 2009 when the new appraisal standards hit full force. It's a bad news/good news/horrible news situation. The bad news is that good ethical appraisers and good ethical loan officers are going to find it a lot more difficult to develop a working relationship. The good news is that the less ethical examples of each are going to start running up against the better ones on the other side. The horrible news is going to be that there will be nothing that good loan officers can do about rotten appraisers. If you don't think this is going to have consequences, watch out. The appraiser organization is going to learn the hard truth about being careful what you ask for, and although there are going to be what are euphemistically called "growing pains", they're not really here yet. They are on the way, however.

"Borrower didn't qualify" is ninety nine percent preventable by going over income documentation on debt to income ratio, asset documentation and being mindful of how much cash a buyer has to play with so that you know how much you need for loan to value ratio and cash to close, and if necessary, the the buyer's agent writes the purchase offer and negotiates it with the loan in mind. The time is long past when all buyer's agents should start consulting a loan officer before you make a purchase offer, and listing agents to require that a lender's prequalification or preapproval letter must be offer-specific - tailored to this particular purchase offer on this particular property at this particular point in time. If not, you might as well use the darned thing for toilet paper because it doesn't mean anything. You can't fake up a loan any longer with a 100% loan to value stated income negative amortization loan. Agents have got to learn to be clear whether a potential buyer can qualify before they write the offer - and definitely before you counsel your listing client to accept it. It's also smart to build in a bit of wiggle room in the qualification. Lender standards are cold and hard thin lines - on one side, the buyers qualify, while on the other, they don't. If buyers have stretched to the absolute limit and the tradeoff between rate and cost on loans shifts upwards just a little bit, that can put a buyer on the other side of a hard line that says "No way". For buyer's agents, the need to be able to work within a client budget, and also to persuade those clients to stay within that budget, is here to stay. There are no more Make Believe Loans.

"But what if rates drop half a percent and the lender has a bad re-lock policy?"

Don't use that lender if they have a horrible re-lock policy. The re-lock policy is a feature of the product they are selling. Don't buy from them if you don't like that feature.

"What if their rates are terrific?"

Then use them, but keep your pull through at 80% or be subject to consequences.

And that's the issue. The brokerage community has never really had to pay the consequences. Now brokers will. Therefore, brokers and (loan officers) have grown up in the industry with the mindset of the child whose parents constantly threatens and repeats, but never follows through. The shocking turnaround seems unfair. But what really is happening is a movement to align value with value. "For those that help us win, they get value. For those that don't, they're gone."

This is a fact of life for all loan officers, whether they're working for a brokerage or a direct lender. It is therefore going to be a fact of life for consumers, and it is going to have effects upon their loan choices. Consumers are going to have to decide between great rates and the ability to cancel a loan without consequences. Consumers are going to be forced to choose between locking early and not having to make a loan deposit. I despise deposits, but there it is. Consumers are going to have to learn that there are things which may not be obvious on the face of it that are important to their loan satisfaction, to do their due diligence first, and if they don't do it right, they are going to be stuck. Consumers are going to have to learn the difference between merely talking a good game, and actually delivering the loan that was talked about. Loan originators are not going to accept dual applicants (lest they lose hundreds to thousands of dollars per loan when their fall out ratio becomes unacceptably high), and while all credit reports run within fourteen days count as one, it's going to be more than fourteen days between credit reports if you've had a loan fall apart in between. And consumers are going to need to be far more in touch with the consequences of their choices, as the ability of loan officers to shelter their clients is disintegrating.

I've spoken with several small to midsize mortgage companies throughout the country. They are being cut off by lenders for several reasons: low volume, high fallout, high touches. DELETED have avoided that fate due to our volume; however, there could come a time that volume won't even help if we don't move our pull through and quality into the next era.

This is from a lender this morning that supports my point:

What does a "loan lock" mean? One top agent sent out a note to her staff. "I think as a consumer, or even a loan officer, when we lock a loan, we feel like we are simply "securing" or "holding" that rate for a client. That is only part of it. Once a lock is made, at that moment, the investor is expecting delivery of that loan at the interest rate as part of their portfolio. (In essence, the loan might not be closed, but it is already sold.) If you can't deliver, or don't close on time, or you are just simply "trying" to secure a "deal" based on rate, then the investor is going to call your lender and ask, "Where is my loan? Where is my money?" Then your lender might try to "replace" that loan with another loan, or just say to the investor, "Sorry." You are not just simply holding for you and your client an "Insurance Policy" to try to get that rate, if by some chance you get the loan, you are, in fact, impacting the investors who are trying to make money on those sold loans. It may be hard to miss that "single day" rates are awesome...but, if you are not in Contract, and you don't have an Appraisal...and you don't have a true file you can close in 30 days...then DON'T LOCK...UNTIL YOU DO! LOCK when you KNOW you are going to close it. Lock AFTER you have an approval. Don't lock at multiple Banks. A lock is a promise to deliver!"

The lenders are starting to enforce that promise to deliver, and putting loan originators who don't deliver into the penalty box if not throwing them out of the game entirely. Anywhere that loan originators go, their customers will follow. The loan originators that survive are going to be the ones who are careful about locking, and make it difficult for clients to bail out of a rate lock without an over-ridingly good reason. The ethical ones are going to be honest about it. The less ethical ones are going to continue to give you the same snowjob you've always gotten.

One of the practical effects of this is going to be to essentially kill online mortgage quotes as being of any use whatsoever to the public. I am sorry to see this happen, but that's economic reality. When loan officers can't honestly quote you a binding rate and cost without building in an an ungodly amount of slop to account for how much the market may move between quote and lock, there are going to be two kinds of quotes: High ones that the loan officer is prepared to stand behind, and low ones that are the result of lowballing, wishful thinking and just plain lying. There will be no exceptions. The originators can either quote you a rate and cost predicated upon the rate/cost tradeoffs not going up, or they can make an honest allowance for that. In the first case, if the rates go up, you're either paying the higher amount or you're not going to have a loan, as loan originators certainly aren't going to do loans which cost them money, as these would require them to do. The only alternative for this brand of loan officer is to play the "wait, delay, and hope" game in speculation of the rate/cost tradeoffs coming back down. In the second alternative, you're going to be expecting consumers to sign up for apparently high priced but real loans versus shameless lowballs that are not going to be delivered on those terms when the loan is ready to go. That hasn't been working out very well for consumers these last forty years or so - I see no reason to expect it to miraculously change now.

These developments are going to make a lot of changes to effectively shopping for a real estate loan. The one thing that isn't going to change is that you're going to have to have a real conversation with several loan officers, and ask each and every one of them all of the relevant questions. Just getting a quote and hanging up is going to become even more of a recipe for disaster than it already is.

Caveat Emptor

Article UPDATED here

Carnival of Personal Finance

Obama Takes a Dive on Earmarks

President Obama has vowed to curb the number of earmarks, also known as pork, in future spending bills. A commendable promise, had his number been zero. Unfortunately, the president wants to deal with an unsavory dish by cutting the portion size.

If a given earmark cannot survive upon the merits of the project, irrespective of who gets the money or where the work is performed, we have a problem. Obama promised to cut earmarks. Thus far we have lots of soaring rhetoric on the subject from him, but no actual action.

Wrong Move: Obama's Liberal Agenda

Obama's proposed budget shows all the vision, restraint and grace of a grasping committee chairman, using the cover of a still-unresolved banking crisis to push through a broad liberal wish list before anyone notices its costs and complications. The pledge of "responsibility" has become the massive expansion of debt, the constant allocation of blame to others and the childish cultivation of controversy with conservative media figures to favorably polarize the electorate. The pledge of "honesty" and "sacrifice" has become the deceptive guarantee of apparently limitless public benefits at the expense of a very few. The pledge of "bipartisan" cooperation has become an attempt to shove Republicans until their backs reach some wall of outrage and humiliation.

I tried to tell people why Obama was selling us a phony bill of goods but people had their fingers stuffed into their ears. Now we're stuck with this clown for four years (unless we can catch him doing something impeachable - in which case we're stuck with Gormless Joe Biden, an even bigger idiot, difficult as that may be to believe. But at least Gormless Joe doesn't have religious worshippers getting tingles up their leg every time he speaks, so he wouldn't be able to do as much active damage.)

The Brokest Generation

Just between you, me, and the old, the late middle-aged, and the early middle-aged: Isn't it terrific to be able to stick it to the young? I mean, imagine how bad all this economic-type stuff would be if our kids and grandkids hadn't offered to pick up the tab.

Well, okay, they didn't exactly "offer" but they did stand around behind Barack Obama at all those campaign rallies helping him look dynamic and telegenic and earnestly chanting hopey-hopey-changey-changey. And "Yes, we can!"

Which is a pretty open-ended commitment.

Read the whole thing

Even Richard Nixon didn't focus-group his enemies list.

Team Obama -- aided by Clintonistas Paul Begala, James Carville and Stanley Greenberg -- decided to attack Rush Limbaugh after poring over opinion research. White House senior adviser David Axelrod explicitly authorized the assault. Chief of Staff Rahm Emanuel assigned a White House official to coordinate the push. And Press Secretary Robert Gibbs gleefully punched the launch button at his podium, suckering the White House press corps into dropping what they were doing to get Mr. Limbaugh.

LISTEN TO THE GITMO FIVE

Desperate to placate its blame-America supporters, the Obama administration has clamped down on news from Guantanamo. Why? After their lurid criticisms of Gitmo, the Dems now have the world's worst killers on their hands.

And they don't know what to do. Responsibility sucks.

Today's imbecile measure by the Administration?

Obama administration says it will no longer use one of Bush's key phrases: enemy combatant

I am not making this up. I wish I were.

It's not Bush's phrase. It's a technically defined term under the Geneva Conventions. It denotes someone who has conducted armed operations against this country. And Obama thinks we're treating the poor widdle babies too harshly by keeping them contained in a prisoner of war camp with all the comforts except the freedom to kill Americans.

I just hope that the lives these bozos take when (not if) they attack again belong to the idiots who made the decision to release them. Alas, such is extremely unlikely. But they will kill Americans.

Morally Unserious in the Extreme

Restoring? The implication, of course, is that while Obama is guided solely by science, Bush was driven by dogma, ideology and politics.

What an outrage. George Bush's nationally televised stem cell speech was the most morally serious address on medical ethics ever given by an American president. It was so scrupulous in presenting the best case for both his view and the contrary view that until the last few minutes, the listener had no idea where Bush would come out.

Obama's address was morally unserious in the extreme. It was populated, as his didactic discourses always are, with a forest of straw men. Such as his admonition that we must resist the "false choice between sound science and moral values." Yet, exactly 2 minutes and 12 seconds later he went on to declare that he would never open the door to the "use of cloning for human reproduction."

Does he not think that a cloned human would be of extraordinary scientific interest? And yet he banned it.

This was strictly red meat for the "We hate Bush!" crowd, because there is no case made as to the morality of the change, and the case that can be made is sabotaged by what he did on cloning. Purely political.

PJ O'Rourke, himself suffering from cancer, rips the President's argument to shreds.

For the first time since Grover Cleveland, a president is going to skip the Gridiron dinner: Gridiron singed by Obama no-show

"I don't think he understands the implications of not coming to the club in the first year. It's not your ordinary state dinner. I think it would be helpful for him and his relations with the Washington establishment to come to the club."

Here's the issue, skirted around in the article and never confronted head on: traditionally, the Gridiron dinner is a celebrity roast with the President as the roastee. The presidents have long expected to tell jokes about themselves (President Bush did very so very well), and sit through a series of speakers and skits whose object is to skewer the President (whatever party he may belong to).

President Obama has decided he's not willing to serve as a target, either out of an inflated sense of self-importance or because he expects at least a few of the barbs to hit too close to home. Furthermore, it gives journalists the idea that the President is a regular guy with foibles and capable of making mistakes, an impression team Obama has been doing its best to pretend is not the case (when's the last time a Presidential candidate designated their own official seal? Not in my lifetime!), and he definitely doesn't want to encourage the idea that it's okay to make jokes about him - too many good jokes there, of a sort that would do real political damage.

The excuse that Michelle Obama decided otherwise is transparently thin. That's not the real reason, and everyone in Washington (and those who pay attention outside the capital) knows it. This decision came from the President himself. He can't face even light satirical criticism. It would show him up for the lightweight he is.

If familiarity breeds contempt, Barack Obama is the best case in point I've encountered since at least Jimmy Carter. I keep thinking nobody can really be that bad, and I keep finding out I'm wrong.

Now Obama Tells Us?

I can't see him getting elected to the White House if he had given a speech honestly disclosing what he intended to do upon inauguration.

My imam father came after me with an axe

Actually, it's worse than that: After beating her repeatedly from the age of 5 on, and repeatedly raping/molesting her, he came after her with a gang of men armed with axes, etcetera.

Oh, and this didn't happen in some nameless village in the 'stans. It happened in England. Read the whole thing.

Ed Morrissey on how Obama is getting burned by a fire he stoked: The bailout backlash problem

The angry populism in the electorate didn't begin with the bailouts, or the economic crisis. Democrats spent the last two years -- really, the last six years -- stoking that anger and attempting to turn it into electoral gold.

Hot Air also rips the president to shreds for wanting to offer government health care to everybody while wanting to offload the care for wounded veterans onto private insurers.

What's that I said above? "I keep thinking nobody can really be that bad, and I keep finding out I'm wrong." Here's another example. These men and women earned that care - and they already paid for it in terms far more precious than cash. And after wasting $1.6 Trillion dollars in the last two months, our President can't come up with the little bit extra to meet the obligations we have accepted?

Do you really need me to spell out how penny wise and pound foolish this is? Or what the likely effects will be on our armed forces?

I just found a reason why I'm sure I want him impeached and out of office if we can find a way. Gormless Joe Biden may be an incompetent idiot, but better an incompetent idiot who can't get anything done than one who can get all the wrong things done.

When Israel invaded southern Lebanon a couple years ago, this picture from Reuters ran worldwide

The problem was that it was heavily photoshopped by a Palestinian stringer trying to make it appear like the Israelis were setting the entire city on fire indiscriminately. This was original photo:

It shows one fire and smoke from it drifting as it dissipated, presenting a far different picture of the situation. Instead of shelling everywhere, Israel was making precise strikes at locations where there actually were terrorists firing at their troops. Reuters got a lot of bad publicity out of this, and it cost them a fair amount of money because it wasn't what they were representing it to be. Reuters claims to be reporting the news as it really is without an agenda to grind, and items like this (of which there have been many) punch significant holes in their credibility with people who really pay attention to what's going on. (If you care, I got the photos from an article Little Green Footballs did on it)

So what's this got to do with real estate?

Unlike Reuters, listing agents don't have any sort of obligation to report the news as it is. Theoretically, agents and Realtors have a duty of fair and honest dealing with all parties, but this is more honored in the breach than in any other way, and they figure that if you can come out and see the actual property, doctored photos don't matter. It's their job to make the property look attractive. Hundreds of thousands of dollars are at stake. People lie, cheat, steal, commit felonies and risk jail to sell real estate for a higher price - on that scale, the minor dishonesty of doctoring photos just doesn't register. Result: Lots of photoshopped pictures.

I do not understand why people pay attention to online photos. Actually, I do. I'll admit to being a bit slow on the uptake - it must have taken two months back when I first started being an agent for me to stop paying attention to them. People think they're saving the time and gas of driving to ugly properties. The truth is that there really isn't a lot of actual correlation between ugly photos and bad properties, or good photos and worthwhile properties. I usually don't look at photos at all unless clients want to talk about them - I look at several other factors that tell me whether there's a possibility of finding a bargain here.

Most buyers, however, won't listen until they've had a certain amount of bitter experience with cold hard reality, which is that somewhere between the camera lens and the online listing pictures, there have usually been alterations made. I tell my clients point blank that I never look at photos, but when people are starting to look it seems they just can't help but shop for property by the photographs. After all, this apparently saves the effort of driving to the property! Even when I ask people point blank whether they've heard of photoshopping, they won't connect it to this situation - until they've dragged themselves to a couple dozen properties where the photos did their subjects entirely too much justice, if you know what I mean.

Instead of pictures, I tend to look at things like price (especially as compared to nearby properties), showing instructions, whether the listing acts like it really wants to sell or is doing the peasantry the immense favor of offering it for sale, whether the listing agent works within a very few miles or is from further away and a few other data points that most clients never do figure out the importance of. Are they telling us it's a "fee simple" title while admitting there are HOA fees? If they're trying to play buyers for saps, chances are that property is not going to be a bargain or even so much as worth looking at. That listing agent is hoping to get a sucker to come in and via Dual Agency make an offer based on an undebunked rose-colored picture of the property. Not only is this another reason buyers want to find a good buyer's agent before they start looking at actual property, but it's a sign that there are likely to be other games going on once you make an offer as well.

Sometimes pictures not only haven't been altered, but don't do their subject properties sufficient justice. It is just as silly to toss a property from consideration for a bad photo as it is to include it because of a photoshopped one. The only way to see what it really looks like is to go look at it with your own eyeballs - there are no acceptable substitutes. I've seen just as many real pictures taken with bad cameras from poor vantage points as I have photoshopped ones. As I've discussed, just because flinty eyed buyer's specialists like myself have learned to ignore online photos, or at least take them with an appropriate amount of salt, doesn't mean everyone has. Good photos can bring people out to the property to look.

I do advise against photoshopping in significant ways. If the photo doesn't match the reality, most people will figure it out at some point. It's fine to choose a good angle that shows the property to advantage, but if you change an entire room full of clutter to what George Orwell would have called unpersons, people who actually come look at the property, which is what you want pictures to cause them to do, are going to be turned off. If you simply showed things as they are, someone might have thought it was good enough. It really is a matter of managing expectations. Lure people with a promise of something super, and the merely satisfactory doesn't cut it, but if they're only expecting the satisfactory, they might be happy with it.

I don't trust any real estate photos I can't vouch for personally, which means that I have learned not to pay a whole lot of attention to them. Similarly, doctoring photos doesn't really help. If potential buyers are obsessing about the cool pictures of the bathroom, the kitchen, or the backyard pool, they're more likely than not going to be disappointed when they actually go to the property, and disappointed people don't make good offers, which is what the sellers (and their agents!) really want.

Caveat Emptor

Article UPDATED here

Deception at Core of Obama Plans

Forget the pork. Forget the waste. Forget the 8,570 earmarks in a bill supported by a president who poses as the scourge of earmarks. Forget the "$2 trillion dollars in savings" that "we have already identified," $1.6 trillion of which President Obama's budget director later admits is the "savings" of not continuing the surge in Iraq until 2019 -- 11 years after George Bush ended it, and eight years after even Bush would have had us out of Iraq completely.

Forget all of this. This is run-of-the-mill budget trickery. True, Obama's tricks come festooned with strings of zeros tacked onto the end. But that's a matter of scale, not principle.

As Rahm Emanuel, Obama's chief of staff, has stated, "Never let a good crisis go to waste" Obama has used this crisis to cram at least 1.6 Trillion dollars in irrelevant Democratic patronage programs down our national throat.

If Obama Is Wrong, the U.S. Will Be Bankrupt

Then came his near-$4-trillion budget last week. It is a manifesto to usher in a new age of government activism that involves levels of borrowing and spending never before seen in the US and is a document of such staggering ambition and risk that even some of Mr Obama's Democratic supporters are suddenly beginning to feel a little queasy.

A keen poker player, Mr Obama is gambling not only his own presidency, but the future wellbeing of the country. If he pulls it off, they might find room for him on Mount Rushmore. If he fails, he could bankrupt the world's largest economy.

The problem is that he's wrong - testably verifiably historically wrong. These tactics have been tried before, and they failed miserably. In fact, they are the exact opposite of the only thing that has worked in the past. But cutting taxes doesn't feed Democratic special interest groups and Democratic electoral supporters.

Obama's fear-mongering

Numerous commentators, including me, have pointed to this never-waste-a-crisis mantra as ideological evidence that Obama's budget priorities are a great bait-and-switch. He says he wants to fix the financial crisis, but he's focusing on selling his long-standing liberal agenda on healthcare, energy and education as the way to do it, even though his proposals have absolutely nothing to do with addressing the housing and toxic-debt problems that are the direct causes of our predicament. Indeed, some -- particularly on Wall Street -- would argue that his policies are making the crisis worse.

Beware the Debt Star

Now You Own It, Mr. President

If Washington had a buck to spare, it still wouldn't stop at the top. But let's, for the sake of argument, concede that presidents trigger recessions. Well, then, we also must concede that nearly every initiative enacted in the first 50 days by the Obama administration has exacerbated what Bush started.

Isn't it too early to judge? It would be if Obama had not accelerated the timeline with his "ambitious" agenda, including the partisan trillion-dollar project masquerading as a stimulus bill and the deficit-busting budget. It would be if Obama had not worked early to support agenda-driven omnibus pork bills, job-killing cap and trade schemes, and union assaults on workers' rights, to name just a few of his priorities.

Health 'Reformers' Ignore Facts

The Democrats' case to expand government health care is so full of holes that passing it quickly is their only hope. If Americans slow down and ask questions, they will be hard-put to come up with answers.

The Great Pretender

Obama is a great pretender. He repeatedly says he's doing things that he isn't, trusting his powerful rhetoric to obscure the difference. He has made "responsibility" a personal theme; the budget's cover line is "A New Era of Responsibility." He says the budget begins "making the tough choices necessary to restore fiscal discipline." It doesn't.

The Anti-Stimulus Plan

These programs are not directed at the economic emergency, but are instead unrelated, enormous policy initiatives. They are not akin to the New Deal but to the Great Society initiatives of the mid-1960s, which were the outcome of a progressive worldview that wanted to change the character and role of government in American life. But the Great Society was not enacted in the midst of an economic crisis. It came in the middle of a lengthy and sustained period of growth and prosperity and was in part understood as a way to make use of the tax revenues flooding federal coffers. The kind of ambitious expansion of government Obama envisions requires similar economic growth.

The President Starts War on Business

Islam Should Prove It's a Religion of Peace

Many Muslims seem to believe that it is acceptable to teach hatred and violence in the name of their religion -- while at the same time expecting the world to respect Islam as a religion of peace, love and harmony.

Scholars in the most prestigious Islamic institutes and universities continue to teach things like Jews are "pigs and monkeys," that women and men must be stoned to death for adultery, or that Muslims must fight the world to spread their religion. Isn't, then, Mr. Wilders's criticism appropriate? Instead of blaming him, we must blame the leading Islamic scholars for having failed to produce an authoritative book on Islamic jurisprudence that is accepted in the Islamic world and unambiguously rejects these violent teachings.

Obama Politicizes Stem-Cell Research

Yesterday President Barack Obama issued an executive order that authorizes expanded federal funding for research using stem cells produced by destroying human embryos. The announcement was classic Obama: advancing radical policies while seeming calm and moderate, and preaching the gospel of civility while accusing those who disagree with the policies of being "divisive" and even "politicizing science."

Agree with Obama or You're an 'Ideologue'

The President has things precisely backwards. In a stem cell context, the "ideology" is that Science, the great abstraction that only really smart people understand, trumps competing considerations. What Science wants, Science deserves -- didn't you know?

The difference between destroying embryos for research and torturing "subraces" for medical knowledge a la Dr. Mengele is one of degree, not of kind. The last eight years we have found many workarounds and alternatives - more ethical ones - because federal funding was prohibited if you destroyed another life.

Economic crisis shows government isn't the answer

Far from demonstrating the demise of free enterprise, this long-running, deepening recession is revealing the limitations of government.

Government, in its various yet powerful incarnations, has been offering one fix after another since August 2007.

The more the Fed and Treasury have tried, the less sure they seem and the more nervous the money makers have become.

Q and O

He's precisely right - it wasn't a problem with lack of regulation or lack of legislation. It was a lack of proper regulatory oversight and a willful decision by legislators to ignore the building crisis coupled with government distorting the market and actually incentivizing risk taking far beyond that which is prudent that led us here. And now that they have us in this position, all of them, Greenspan included, are engaged in a flurry of finger-pointing and name calling at every one but the right ones. This wasn't a crisis which happened in just the last 6 months or 8 years. This one has been building for a while.

Putting Obama on the Couch

Well, I think I've figured it out: The White House, fatigued if not overwhelmed by the horrific economic crisis, may be suffering from a number of "cognitive biases" as identified by the burgeoning field of behavioral economics. This approach looks at the various flawed ways humans make choices in the real world vs. the "econ" world where supposedly we're all cool, calculating "rational agents."

It has been obvious to me from day one that Obama and his team have started with the answer they wanted, then figured out a way to justify it. Other people are starting to figure it out.

A Presidential Crisis of Competence

Less than two months into this administration, three things are clear.

First, its agenda is every bit as radical as many of us expected and feared. Based on President Barack Obama's supposedly unimportant past, there was every reason to believe that this would happen. That some Obama supporters are surprised is a "tribute" to a media elite that treated decade-plus relationships with radicals Jeremiah Wright, Bill Ayers, and others as "distractions from the real issues," and to a McCain campaign that refused to treat Obama's candidacy as the threat that it was, and now is.

Second, despite strong signals that he is guiding the ship of state in the wrong direction, Obama and his administration have largely refused to bow to reality. Having triumphed in the presidential campaign with marketing and misdirection, they actually believe that voters gave them a mandate to spend hundreds of billions of dollars we don't have, and to bail out banks, companies, and homeowners without apparent limit. While the markets continue to beg to differ, Obama has been essentially indifferent.

The beauty of the modern era is that a President doesn't need intermediaries such as a "Kitchen Cabinet" (Roosevelt's name for his friends who guided him from outside of official positions) to find out what people think, or for a reality check. He can go onto the internet and find out.

But Obama doesn't want to hear that the Titanic is headed straight for that iceberg. That's the way he wants to go; therefore, that's the way we're going to go if he can cajole, trick, intimidate, shame or a combination of all available techniques into going along with his desires.

The "Man-Cession" Continues

If this disparity was the other way around, we'd never hear the end of it for all the feminist accusations of "Sexism!" and "discrimination!"

If you don't know, chances are your agent doesn't either. Even if you know, chances are that your agent is as clueless as a newborn about loans.

I and my clients get asked for all kinds of nonsense (to put it very kindly). Every single one of them has some kind of idea what makes a good lender letter, and none of them are correct. As of this moment, not one single agent (other than me) has asked for anything in the way of a lender letter that means a damned thing.

The first thing to get into your head is that there is no such thing as a letter that guarantees funding on a loan pre-purchase contract. No loan officer can write a letter that guarantees a loan will fund. The only guarantee of funding is a loan commitment written by an underwriter, which may or may not have conditions a particular borrower can meet. They are always written to a specific property, and require (among many other things) either already holding title to the property or a fully negotiated purchase contract to buy a specific property. You tell me how any buyer is going to get that before the purchase contract is negotiated. Go on, we're waiting.

The fact is that loan officers cannot be held responsible for preapproval and prequalification letters. Unforseeable things really do pop up, loan standards change (I got lucky and didn't lose anyone when Freddie and Fannie changed their standards on investment property in late January 2009 - but that was sheer luck. Skill had nothing to do with it. I can name loan officers that lost sixty percent of their loans in progress through no fault of their own), a full underwrite of the file finds that the borrower applicant has somehow misrepresented their situation. Upshot: there is no such thing as an infallible lender letter. Nor can you sue the loan officer who wrote the letter. Since you can't sue the loan officer, many loan officers get very lazy about writing their lender letters. There is no magic bullet for determining who is and who isn't doing full due diligence. The loan officer writing a preapproval or prequalification has got to show his work, and you (or someone you trust) has got to have enough understanding of loans to follow that work and enough understanding of current loan standards to know whether such a loan can be done. There are no shortcuts to this that work, for all of the illegal, unethical, and just plain wishful thinking for one that get tried.

Let's list a couple of the wrong methods. The first and most common is dictating that you have to have a lender letter from a particular lender or loan officer. This is illegal under RESPA. I don't care how many years you've been doing it, or how many times you've done it, it's still illegal. it doesn't matter if the client is dictating the choice of lender, it is still illegal under RESPA. I don't care who the specific lender or loan officer is, it is still illegal under RESPA. Everybody involved is breaking the law - whomever designates the specific provider, you for going along with it, and any lender involved if they are aware of it. I offer the client the option of whether they want to go get the lender letter from the specified source anyway as a way of not making waves in the transaction, but this is common enough that I've gone to the trouble of making up a template for letters to send to Department of Housing and Urban Development later. The folks at HUD are well aware that agents and Realtors do this for kickback and mutual referral purposes, and they frown on it severely. You can win the argument for the transaction if you're silly enough to insist, but six months down the line HUD is going to be knocking at your doorstep for a RESPA violation, and it's probably not a good idea to be telling them how long you've been doing it wrong and how. An agent might keep their license over one although they're going to be facing hefty fines, and I'm sure that as a client you'd rush right out and sign up with an agent who has broken the law, right? Better for all concerned not to do it at all. If you're an agent who does this now, stop immediately. All it takes is one complaint, and HUD will often subpoena back records of all of your former listings. Ignorance is no excuse.

Of late, the "must have letter from direct lender" has gotten more popular, although this is another way of simply ruining a piece of paper. No big loss, but it doesn't mean anything more from a direct lender than it does from a broker. Less, actually, as most loan officers working for direct lenders are a lot less experienced in the ways that loans get rejected. Nor are they any better at taking into account the effects of a specific transaction upon likelihood to qualify. They aren't any better at knowledge of lending standards, either. I've seen some pretty stupid letters from direct lenders that brokers with a broader knowledge of industry standards would laugh at. This requirement is useless if not counterproductive, and is usually practiced by agents looking for a cheap way to cover their backside in case the transaction falls apart, in which case they will show the client "See, they had a letter from National Megabank! If we can't trust them, who can we trust?" This entire line of thinking is what logicians call a Red Herring - an irrelevant distraction to the important question, and even counterproductive in this particular case, and if you have a competent real estate agent, they should know enough to know better.

Enough of what a good lender letter isn't. Let's talk about what it is.

First of all, a lender's letter must be specific to a given purchase offer. It has to be written in accordance with the purchase offer that is being made, and therefore written within no more than one business day prior to the tender of the offer. "Why" You ask? Because every single transaction is different. Rates change every day - or more specifically, the tradeoff between rate and cost changes every day. The purchase price being offered on this transaction is not the same as the purchase price they may have offered last time, and the down payment may not be the same, meaning the loan amount and the projected payment are not the same, either. The borrower may no longer have sufficient cash to consummate the transaction with all of these changes. All of this is basic, "hit the ball with the bat" level stuff. If any of it changes, so can the answer to the question of whether a loan is possible. There are still people wandering around with lenders letters that are months old; with the standards changes of the last three months the only things those are useful for is tinder for a fire or a good laugh.

Second, and even more importantly, the loan officer must show their work. What's the borrower's known and documented income? What are their cash reserves available for this loan? You want a lender's letter that testifies to the exact amount of cash reserves the borrower has shown, details where any additional funding is coming from, and how long of a period how much income is averaged over (at least 17 months), to give a figure for monthly income. It should also specify the actual FICO score reported by each major agency. You can't hold the loan officer who wrote the letter responsible if the loan fails to fund, but you can hold them responsible for specific statements about assets and income and credit score. Not only that, having this information gives you the opportunity to check their work! Indeed, the only advantage of not showing such information is that it gives weak or unqualified buyer/borrowers a chance to pull the wool over someone's eyes, and since those buyers are risking thousands of dollars that is clearly not to their benefit either. These numbers are what is really important, not the identity of someone who writes a "black box" letter - "I don't know how they're qualified, but this says they are!" Wouldn't you really rather be able to check and know?

A good lender's letter will lead you through the calculations of loan to value ratio and the specific rate, point, and closing costs of the loan being contemplated, as well as required reserves for prepaid interest and impound account and compare it to known assets to determine that the buyer really does have enough cash to close the transaction. If they don't and you accept their offer, you are praying for a miracle because that is what it will take to make this loan close.

A good lender's letter will also go through the computations for debt to income ratio based upon the loan quoted. They have determined income averaged over a period which leads to average monthly income. You should be able to determine within a very close range exactly what the other costs of owning the property are going to be. The lender's letter should state a number for monthly debt service for existing obligations - credit cards, student loans, car payments, etcetera. This number is available right on the credit report, and if the credit report is not used as the source of this number, there should be a good explanation as to why the number on the credit report was not used. You don't need to know the social security number and all of the account numbers, or even all of the individual payments. What you do need to know - what you are entitled to know - is whether they qualify for the loan, which means the total of existing monthly debt service is necessary. It is also sufficient unto the task, which means you have no justification for asking for more information. If the total cost of owning the property and existing debt service fit within appropriate debt to income ratio guidelines, you have a qualified buyer. If not, you are wasting your time accepting their offer because they are not going to qualify. Stated income loans are all but dead, and the rates for the few remaining providers are not anywhere close to normal rate/cost tradeoff - you can figure at least a two percent differential right now at the same cost as well as a rock bottom equity requirement of twenty percent - more likely twenty-five to thirty. Your buyer is going to have to document income to the lender in order to qualify for that loan, so they can bloody well tell the seller how much income they can document. That seller is making a decision of whether to grant credit, and if the buyers cannot qualify for that loan probably going to cost those sellers thousands of dollars. Therefore, the seller is completely justified in asking for this information - they are perfectly justified in requiring it.

The contemplated loan should have been priced within one business day of submitting that offer to purchase, and it needs to include both a rate and a total cost of that loan that you can check. Yes, the available tradeoffs between rate and cost vary every day, but the longer you go between pricing and submission, the more opportunity there is for change. I'm a lot more comfortable with lender's letters where the quoted loans priced with low to no points (if not a zero cost loan). Why? Simply because there is wiggle room on the quote. If rates go up a quarter of a point for the same rate tomorrow, or a week from now, the buyer can quite likely still make it work - particularly if they're not pledged right up to the limit of their available assets. Similarly, I like to see a lender letter that's built some wiggle room into the cash to close. It's the difference between a very qualified buyer who can still make the transaction happen if rates go up a bit or costs are slightly higher, and a marginally qualified buyer who is going to crash and burn if any little obstacle comes up (If the buyer was lowballed on their mortgage quote to use one all but universal example), or at least need the seller to bail them out with further concessions. If the loan officer who wrote the lender letter shows the work, it helps you know the difference between these two very different buyers, as well as between them and the completely unqualified bozo. It can be worth the risk of dealing with the marginally qualified buyer if you are getting a particularly good price and have the money to lose if the transaction falls apart, but it shouldn't be any surprise that the solidly qualified buyer is in a stronger bargaining position and likely to get a better price, thereby giving that solidly qualified buyer a reason to want to show all of this, demonstrating what a strong qualified buyer they are and what a strong offer they are making. Depending upon the seller's financial position, in San Diego this can be worth ten thousand dollars or more on the sales price of an average home!

I have shown that both the buyer and the seller are better off with a solid lender's letter that takes the cash and the income necessary to fund that loan and compares them in concrete numerical terms with the buyer's financial resources and liabilities. These aren't the only questions possible, and therefore the need for loan officer contact information. I call the loan officer on every single lender letter I get and ask questions - does this buyer own investment property being particularly important right now. If they're claiming something I don't believe can be done, I'm going to ask what lender is willing to fund that loan and then check if such a program exists to actually do so - and either I learn something new about the current loan market or I prevent my seller client from accepting an offer that cannot be consummated.

The important thing is concrete information being attested to, that allows any other person who knows enough about loans to retrace the work and verify whether a loan can be done under current conditions. If the agent can do it, great - agents should know enough about loans to do so! Even if they don't, any loan officer should be able to do the work. The identity of who wrote the letter is trivial - a distraction dreamed up by agents who are incompetent to judge, looking for kickbacks, or both. I will take a letter with the required information from any loan officer that I don't know to be a complete and utter bozo, and even then, I have the information they are using to make that determination, which is one hell of a lot stronger than reputation or lack thereof. The critical information is specific concrete numbers about the buyer's situation that enable anyone who knows loans to make an informed decision as to whether this loan is doable, not whose signature is on it, or which letterhead it's printed on. When I make a recommendation to accept an offer or even just pass it along without a recommendation against, I am telling my seller that I have a reasonable basis to believe that this potential buyer has the wherewithal to make it happen. If I'm not doing the necessary due diligence before I do that, I have failed in my fiduciary duty - and that means knowing the difference between what is important and what is not. Having all the numbers for me or another loan officer to trace and check the work is important. The identity of who wrote the letter is not.

Caveat Emptor.

P.S. If you're looking for an example of a good lender letter, you could do worse than The Qualification Letter I Use

Article UPDATED here

Got a question asking if zero cost loans really exist. They do. I've done several dozen myself, for clients who listened to me about the nature of the loan market.

Let me define what a zero cost loan is. It is a loan with a higher rate deliberately chosen so as to get a high enough rebate, or Yield Spread, to cover not only the loan provider's margin, but all closing costs you would normally have had to pay as well. So that except for any cash you get, your loan balance should not increase by a single penny.

Even on a zero cost loan, you're likely going to write a check or even more than one, but they are for things like Prepaid interest. Prepaid interest is not a cost; it's paying money that you would have owed anyway in a slightly different manner, a little sooner than you otherwise would have, and you will get it back by not having a payment the next first of the month. Matter of fact, prepaid interest is the reason there is no payment due on the first of the next month. You're not skipping a payment. You never skip a payment, and any contention to the contrary is reason enough not to do business with that particular loan provider. You generally have the option of rolling prepaid interest (along with other prepaids) into your mortgage, but then you're paying interest on it and it's stuck in your balance forever. Ditto an impound account. That is your money, not a cost of the loan. We are talking zero cost here, which is an entirely different thing from the lender absorbing money that you would have had to pay anyway. But in a true zero cost refinance, no money gets added to your loan balance. $X before the refinance, and $X after, not $X+6000. You will likely need to pay for the appraisal (if required) out of pocket when the appraiser comes out, but you get that cost refunded upon funding for a net zero out of pocket. True zero cost. This does entail accepting a higher rate, and therefore higher payments than you might otherwise have gotten, but if you only intend to keep the loan a relatively short period of time, you start ahead by doing this and there is not enough time for the lower payments to break even. For instance, a while back I had a par rate of 6.25% on a thirty year fixed loan, but providing your balance was at least a couple hundred thousand, I could do 6.625% for literally zero cost. If you were planning to sell in two years but your current rate was eight percent, as many people have nowadays, but their credit has improved now to where they qualify A paper, this saves them a lot of money for literally zero cost, so there are no "sunk costs" to recover; it's pure profit from day one. I happen to think that with rates as volatile as they have been the last few years, it makes a lot of sense to choose a zero cost loan. If rates go down half a percent six months or a year from now, you can go get a rate that much lower for zero cost when they do. If you paid two points to get the rate, it's going to cost you the same two points again to benefit by as much.

Now this is not to say that you shouldn't be on your guard when someone talks about a zero cost refinance. What most lenders mean when they say "zero cost" is "No money out of your pocket" while rolling thousands of dollars (including multiple points) into your loan balance, where you not only pay them, you pay interest on them. Many lenders will talk about putting money in your pocket, when what they are doing is adding not only that money but all the costs and all the points to your loan balance, and people who have been doing this every two years wonder why their loan balance is ten times their original purchase price. I call these Stealth Cash Out Loans. There is no such thing as a free lunch. You paid for the cash out; you're going to be paying for the cash out for many years, just the same as you paid for your closing costs in the previous paragraph with a higher rate than you would otherwise have gotten. The difference is that money added to your balance tends to stick around for as long as you own property, whereas a higher rate is over as soon as you sell or refinance that particular property. If you choose a zero cost loan, your balance should transfer straight across; you are continuing to pay it down as soon as you write the first check on the new loan. Whereas if you chose a loan that adds thousands of dollars in closing costs etcetera to your balance, it's going to be years of payments before you're back where you started. Here is a list of Questions to Ask Prospective Loan Providers in order to pin down what they are really offering.

There are two reasons not to consider zero cost loans: First, if you have a history of keeping loans a long time between selling or refinancing, you will usually more than get your money back within some number of years. Second, if the tradeoffs between rate and cost are shallow enough so that you are likely to get any money you actually spend back fairly quickly. At this update, the slope of the tradeoff curve is so shallow that you're likely to get the money for closing costs back within six to eight months. But that's an individual computation at the time you start your refinance. The higher rate for lower cost is often better for your pocketbook.

A true zero cost loan not only has no net "out of pocket" expenses, it has literally zero added to your mortgage balance. They do exist, mostly for well-qualified A paper borrowers, despite what certain skeptics might say, and for most people who qualify for them, they are something you should strongly consider in most markets, whether you're planning a purchase or a refinance.

Caveat Emptor

Original here

WOW! Most important article I've seen in months!

The Triumph of Banality

If we wish to get health-care costs under control, then we should at least be honest with the American people and admit that we are all paying a collective fortune largely for three reasons: (1) to keep functioning into their 60s those who drank, smoked, and ate too much and in a past era would have passed on at 60; (2) to give us all an extra three to five years of mobility and functionality after we reach 75; (3) to fit us up with IVs, feeding tubes, and respirators so that in our last six months of life we can die in a rest home or among machines and specialists in a hospital rather than in our own home with a few morphine tablets for pain and a bowl of soup with a straw on the nightstand.

If we're going to keep spending all this money, we have to understand that it comes with a price. And it's not just health care.

Looks like even some Democrats are starting to understand that class warfare doesn't work - or at least that it will impact their campaign contributions

Obama aides to defend budget plan to Congress

Lawmakers in both parties question Obama's call to reduce high-income earners' tax deductions for the interest on their house payments and for charitable contributions. Also drawing fire is his proposal to start taxing industries on their greenhouse gas pollution - a move sure to raise consumers' electric rates.

and

"This massive hidden energy tax is going to work its way through every aspect of American life," said Rep. Dave Camp of Michigan, the top Republican on the Ways and Means Committee. "How we light our homes, heat our homes and pay for the gas in our cars, in every phase of our daily lives, we will be paying higher costs."

Will Obama Stand Up for These Kids?

That's the reality that the Parkers and 1,700 other low-income students face if Sen. Durbin and his allies get their way. And it points to perhaps the most odious of double standards in American life today: the way some of our loudest champions of public education vote to keep other people's children -- mostly inner-city blacks and Latinos -- trapped in schools where they'd never let their own kids set foot.

This double standard is largely unchallenged by either the teachers' unions or the press corps. For the teachers' unions, it's a fairly cold-blooded calculation. They're willing to look the other way at lawmakers who chose private or parochial schools for their own kids -- so long as these lawmakers vote in ways that keep the union grip on the public schools intact and an escape hatch like vouchers bolted.

In short, better schools for the well off politicians children (and children of other limousine liberals), but not for the children of the working class. Can't contribute to breaking the stranglehold of teacher's unions, a Democratic constituency.

WAGING WAR ON PROSPERITY

But they have enormous economic significance. Those who earn more than $200,000 pay almost 60 percent of America's income taxes and account for a third of its total disposable income. If these spenders and investors are hunkering down, waiting for the revenuers to beat down their doors, their confidence will be anything but robust. Their spending will drop; they'll be unlikely to invest (except in new tax shelters).

This is economically assured self-destruction. These folks are the ones that create jobs for ordinary people. Their struggles to increase their income makes for more and better jobs. They put in hundred hour weeks so they can expand their businesses. But when everything extra they earn would be confiscated, why should they bother?

Lest you not understand, you want them to bother. That's where all these beautiful high paying jobs come from. That's where they get the money to pay taxes. What happens when these extremely productive people decide they'd rather live in Hong Kong or Mumbai? Without these people, we're eventually looking at turning into Zimbabwe, if not Somalia. They are why we became the world's economic powerhouse. It wasn't the government that created our Oil or Steel or Railroad (or Automobile or Airplane or Semi-Conductor or ...) industries - it was entrepreneurs looking to make money. They are why people have jobs and cars and homes and cell phones and computers and internet instead of horse drawn plows. The government didn't do it. Individual people building businesses so they could make money did it.

Communism is an experiment that has been tried about 100 times in the last 92 years. It has never worked once, and while they were failing in spectacular fashion, they have led to all but one of the worst human disasters of the last 100 plus years and something north of 100 million murders. Even the exception has a lot more in common with communism than the capitalist system.

This guy understands: Entrepreneurs are best stimulus for the economy. It really isn't a stretch. We did this once in the early eighties, and it worked. There was more turnover in the Fortune 500 under Ronald Reagan than the previous fifty years. It wasn't that old companies were necessarily dying, although a few did. It was that the Reagan tax cuts opened the doors for newer, more efficient businesses.

Tax the Rich and What Do You Get?

In short, a complete klutz has a better chance of joining the Flying Wallendas than the bottom 95% of taxpayers do of getting a tax cut. Instead, they will all see a significant tax hike, whether in their marginal rates, in excise taxes, corporate taxes, fuel taxes, or other forms of indirect taxation. And as those taxes begin to mount up, and the national debt does it's best imitation of the Challenger, people will work and produce less and less, and tax revenues will dry up.

That is the plan for our recovery. Read it and weep.

Michelle Obama's Patient-Dumping Scheme

The University of Chicago Medical Center has received a good deal of justly opprobrious press over its policy of "redirecting" low-income patients to community hospitals while reserving its own beds for well-heeled patients requiring highly profitable procedures. Substantial coverage was given to a recent indictment of the program by the American College of Emergency Physicians. ACEP's president, Dr. Nick Jouriles, released a statement suggesting that the initiative comes "dangerously close to 'patient dumping,' a practice made illegal by the Emergency Medical Labor and Treatment Act, and reflected an effort to 'cherry pick' wealthy patients over poor."

You sure you want these people running the only health care there is?

Things That Need To Be Said...Unofficially (for now)

Investors are not going to sit around and wait to have their Euro-denominated paper revalued in Drachma. They'll immediately start dumping that paper, and moving all the assets they can out of not only the offending nation, but any other country that looks like a weak sister. As the article Bruce quoted notes, "Such a wholesale shift would lead to a collapse in the money supply..." Gee, you think?

The era of governments being able to borrow money at will is on its last legs - mostly because so many of them have abused the ability worse than homeowners ever abused stated income loans.

McCain Slams Obama: "So Much For Change"

Jim Cramer: different subject, same conclusion:

You help grade Obama:

An Assault on Authentic Compassion

President Obama is willing to see private charitable giving to the poor decrease in order to see the scope and size of government increase. These are the actions of an ideologue, not a "pragmatist."

The Obama budget is going to give us a record fiscal deficit. It will create a troubling compassion deficit, as well.

The Feds' Bailout Black Hole

If it wasn't already obvious, this week's $30 billion check that the U.S. Treasury handed to insurer American International Group should demonstrate the folly of propping up crippled companies.

This is the fourth bailout to AIG, which already has put over $170 billion in government funds at risk, and it won't be the last. AIG lost $62 billion in the last three months of 2008.

Once we admit they're too big to fail, we commit ourselves to propping them up. But if they don't turn themselves around, that amounts to a continuing unlimited drain on taxpayers. Furthermore, having access to the federal checkbook gives many companies (such as GM) an excuse not to undertake needed actions and reform to return to profitability. In short, the taxpayers are funding companies that now have very little incentive to compete.

Obama: The Great Divider?

And in the case of Sen. Obama, in his nascent career in the Senate, he had already compiled the most partisan record of any Democratic Senator. He had attended religiously one of the most racially divisive and extremist churches in the country. His Chicago friends were not moderates. His campaigns for state legislature, the House and the Senate were hard-ball, no-prisoner affairs of personal destruction, even by Chicago standards. Campaign references to reparations, gun- and bible-clingers, and Rev. Wright's wisdom were not words of healing.

President Obama: Just because you can rely upon traditional media to spin the story in whatever way is most favorable to you doesn't mean that folks won't figure out that it's not the truth eventually. It's been just over a month now, and more people are figuring it out all the time. Jimmy Carter had a far more monolithic media with fewer alternative channels available, and people still figured it out en masse in time for the 1978 midterms.

Reminds me of this gold rush movie (one that I recommend watching if you have a chance)

Okay, it's not quite like that, but correctly priced properties are flying into "Pending". It has to do with supply and demand. At $600,000, comparatively few people can really afford a single family detached property. But at $400,000 and under, there's a whole lot of offers going on.

There were signs of this turnaround all last summer, but it really hit hard after Columbus Day. All of a sudden, I was busier than the proverbial one armed paper hanger, and all the correctly priced properties were seeing multiple bids. I've put in offers on thirty-five or forty properties in the last few months, and I can count on the thumbs of one hand the times my clients' offer was the only offer. Yes, I know that listing agents often pretend there are other offers, but a good buyer's agent knows what to look for to indicate whether there really are other offers.

Sales prices aren't being negotiated down very often, either. If I'm representing the only offer, the sellers and their agents aren't in what might be considered the strongest of negotiating positions. If there are three or four other offers in play, however, the trick is to get the property without outbidding the other prospective buyers by any more than you have to. The best trick is not to offer more money, but to learn what things other than money influence an informed seller. These things vary from situation to situation. A short sale wants slightly different things than lender owned property who in turn want something slightly different than ordinary sellers. You can't reason with a seller who just wants the highest bid, but you can reason with a competently advised seller who understands that a purchase contract does not equal a consummated sale.

In all three cases, we have to deal with a paranoid lending environment. Fannie Mae and Freddie Mac have (within the last month) relaxed their standards to once again allow lending to someone with up to ten real estate loans, but the odds of this happening are essentially non-existent due to the fact that they have made it extremely difficult to get credit for rental income from investment property. Without rental income, debt to income ratio is too high for the prospective borrower to qualify under the standards for Fannie and Freddie, leaving your alternatives as portfolio lenders at a higher rate of interest, once again impacting debt to income ratio, or the high down payment requirements of commercial loans. A large part of the reasons for Fannie and Freddie cracking down thus are the prevalence of "buy and bail". Most people are not intending buy and bail, but it's very difficult to prove that you're not, and Fannie and Freddie's standards are about prospective borrowers proving that they can afford the entire situation. Even portfolio lenders are decidedly on the paranoid side right now, and for good reason: If you default, it's coming directly out of their pocket. There is no more selling the loans to idiots on Wall Street who are only looking at the interest rate because "real estate never loses value!"

Over forty percent of prospective buyers with a fully negotiated purchase contract here in San Diego have been unable to consummate the transaction because they are unable to actually get the loan they require. The fallback of stated income is gone except for a few portfolio lenders, and they've got pretty draconian rules themselves, like "You can't own any investment property!" at one. Equity requirements from maximum loan to value ratios on purchases are as hard as concrete, and they're even harder if you've got investment property. If you don't have thirty percent equity in every other property you own, you should probably plan on being forced to sell that property in order to buy another one.

As far as loans go, I'm just now getting comfortable with telling people I've got conventional loans for 95% of value - requiring 5% down. I've had one program for quite a while, but now I've got a second way to get it. Both require PMI, but better to pay PMI than not to get the property while it's cheap. Anything over eighty percent loan to value on a single loan is going to have PMI required - it's sourced in Federal Reserve Rules, and trying to evade the requirement is a recipe for trouble - legal trouble as well as a failed transaction. Since second trust deed lenders don't want to go even to 90% of value right now (and some are limiting themselves as low as 75%), your choice is basically a single loan with PMI or no purchase. You might as well take it into account before you make an offer - and if you're a seller, make certain that any buyer you accept based upon less than 20% down can afford the PMI as well as the basic payment. Pre-qualification and pre-approval letters have an ugly habit of not doing that.

FHA loans require 3.5% down payment, and they have their own mortgage insurance requirements - 1.75% of the loan amount up front plus 0.55% per year, and the basic debt to income ratio limit is 43% instead of 45%. Make sure your calculations of Can I afford this property include those figures. You would be amazed and disgusted how often buyers and their agents and loan officers base their "Can we qualify?" figures upon what's basically wishful thinking, because it doesn't take into account things they need to pay. Both FHA and VA loans restrict what properties they are willing to fund loans upon far more than conventional lenders. There is a laundry list of disqualifying characteristics that can mean you can't get a government loan on the property.

VA loans are still the magic bullet, as they will fund loans up to 103% of purchase price, meaning no down payment. However, they've got the same rules as FHA as to what they will and won't fund as far as property goes, and they won't permit buyers to be charged for many real, legitimate fees of getting a loan done, which means that lenders often have no choice but to make their money via yield spread or secondary market bond premium, which means that available rates may not be as low as other loan types in some situations. However, there's no mortgage insurance on VA loans, a fact that makes them inherently superior to FHA loans if you or your spouse have VA loan eligibility.

San Diego property has become affordable again. The most recent set of figures I saw said that seventy-three percent of all families in San Diego can now afford a median entry level property. Given this fact (particularly as opposed to the nine percent affordability ratio a couple of years ago), it's no surprise that people are looking to buy. Once current inventory clears, expect prices to be off to the races again. We may not get twenty percent per year for five straight years, mostly due to the investment property constraints, but I'm expecting solid noteworthy increases in prices before the end of the year. In some highly desirable areas, prices have already been rising for nine months to a year. Inventory is in the process of clearing out the backlog - we're down to just over 15,000 active listings from 18,000 a couple months ago. When we get down to ten or twelve thousand active listings, we'll see countywide price increases again.

The conclusion is quite strong: If you're a buyer, the time to move is now. If you're a seller, hold on if you can. If you're looking to sell so you can buy something else, talk to me. Prices are going up soon. Furthermore, with all the building restrictions we still have in place, I would bet serious cash that real estate prices are never going to be this affordable again.

Caveat Emptor

Carnival of Personal Finance

Carnival of Real Estate

"Card Check" Not as Bad as Thought! It's Worse.

The budget reveals the liberal Obama

Take this budget at face value, and when Mr Obama talks about "a new era of responsibility" he does not mean: "We are all in this together." He means: "The rich are responsible for this mess and it is payback time." Leftist Democrats are thrilled, and rightly so. The budget has three themes: healthcare reform, public investment and unflinching redistribution. This is indeed a new social contract: we get, they pay. Liberals never had it so good.

Question: What happens when the 5% Obama claims he wants to soak to the exclusion of everyone else leaves the country, or simply decides to stop earning quite so much money? Will he expand the target, or will he merely shift it onto the most affluent people who are left? Here's some cold hard numbers: If you soak the richest 5% for every last penny they're not already paying in taxes, it's not enough to pay for Obama's budget now.

Class warfare not only doesn't work, it's actively suicidal for a society.

There are those trying to save us: here's one group (put April 15th on your calendar). I joined their Facebook group, I intend to be at whatever San Diego rallies there are on April 15th.

If Mr. Obama doesn't back off his current course, he's going to be the best recruiter the Republican Party has ever had. I'm old enough to remember what Jimmy Carter did (and didn't do) and why Reagan won.

Victor Davis Hanson remembers also.

I wouldn't be this polite: Media Objectors to New Dover Photography Rules Can Pound Sand

That early graph is quite telling. If the aim is to honor the fallen, then with the permission of the surviving family, the best way to honor a fallen American man or woman is to capture their indiviual coffin and procession. Name them. Explain who they were, what they did, why and where they served. That's honoring them.

But most of the media simply doesn't want to get dragged out to individual funeral processions. It's quite a bother. Instead, their objectives are often disconnected from honor and instead focused on journalism critical of war efforts.

Don't take my word for it. Look at the coverage of the Iraq war sans images of draped coffins. How many soldiers, sailors, airmen and Marines were you introduced to? How many reports of individual stories of sacrifice, courage and honor did you hear? How many of the fallen did you actually get to know as they were dutifully honored by the national media?

The aim is not to honor the fallen. It is to show bodies coming back. It is to to create popular sentiment against the war. In other words, propaganda. I don't think the fallen need to feed anyone's propaganda machine. To their credit, neither the Bush nor Obama administrations has attempted any noteworthy war propaganda. But that doesn't mean there isn't any. There's quite a bit of organized, directed, anti-war propaganda, and most of it is lying in the most vile ways possible.

Using photos of men like these to dishonor their sacrifice? I don't think so. The current rules (family permission required) make sense.

Wanting Obama to fail

Here's a confession: I'd be lying out of my 3rd point of contact if I said I wanted him to succeed. That's because "success" would mean the subversion of everything I find important into something I loathe. It would mean the supplanting of free market and capitalistic economic mechanisms with those designed by government. It would mean sanctioning and approving govenment driven market distortions. It would mean approving government picking economic winners and losers. It would mean agreeing that it is the job of government to provide health care, welfare, and retirement. And on and on we go.

I'd prefer that Obama fail to implement his agenda (or any more of his agenda), which is going to do major damage even if the Republicans win all available seats in the 2010 elections and reverse everything immediately (they're not going to do either of those). That's the absolute minimal fail possible - failure to implement any more of his disastrous agenda.

Beyond that, though, it isn't a matter of "hoping" he fails. It's a matter of watching something as inevitable as gravity unfold. Once started on the path, it's only a question of how bad the disaster gets, and how long we sit in denial watching it get worse. The Gods of the Copybook Headings ride again.