Dan Melson: May 2006 Archives

Got a search for that, and it occurred to me that it is a valid question. The answer is yes.



The degree varies. You can simply contact the bank to make yourself responsible for payment. They are usually happy to do this, although unlike revolving accounts you typically will not receive back credit on your credit score for the entire length of time the trade line has been open. Nonetheless, if the bank reports the mortgage as paid as part of your credit, it can help you increase your credit score, so long as the mortgage actually gets paid on time every month. One 30 day late is plenty to kill any advantage for most folks. This is typically free. Hey, the bank has one more person to pay the mortgage! This is often used as a way to start rebuilding credit after a bankruptcy or other financial disaster. A friend or family member qualifies for the loan, then adds the person looking to recover to the loan later.



If you want to go one better than that, you can actually modify the deed of trust to make yourself responsible for payment, although it really has no measurable benefit as opposed to simply agreeing to be responsible, and it costs money to notarize and record the modification.



Unless you can get a better rate by doing so, I would advise against a full re-qualification for the mortgage just to add someone. It's a lot of hassle and expense for no particular gain. If you want to get me paid, I'm cool with that, but there are better ways to accomplish the gain to your credit at far less expense.



Caveat Emptor

UPDATED here

"what can a consumer recover from title company for undisclosed easement"



Basically, the cost of the immediate remedy, at least here in California.



Here's a standard example. Mr. and Ms. Smith buy a property and they wish to put a pool in. The purchase process reveals no easements and they quickly take possession of the property and start digging. Three hours later, the contractor hits a four foot water pipe buried six feet deep and cutting right across exactly where the pool needs to be.



With a standard owner's policy of title insurance, the title company will pay for the contractor's bill, including the cost of filling in that hole they dug. There may also be a small settlement made for the decreased utility of the property. After all, you can't really do anything about that easement, now can you? Nor can you build anything that conflicts with the easement holder's right of access. No pool, no granny flat, no game room or detached office, at least on that segment of the property, which, given the size of most recent lots, means not at all.



The title company will not, under the basic policy, purchase the property or make a large settlement. The reason for this is that if the standard policy made them liable for things like frustrated purpose of purchase, the standard policy would be far more expensive. People wouldn't want to purchase policies of title insurance, because they insured against risks which are relatively rare, but extremely expensive when they do occur. Who pays for that? The other policyholders, of course.



You can purchase a rider or endorsement for extended title coverage, of course. Furthermore, if certain purposes are critical to your reasons for acquiring the property, you can do additional research, or pay to have it done. It can be expensive, but if you don't want this $500,000 property unless you can build a pool, an office, or a granny flat on it, spending the money can be an excellent insurance policy.



Caveat Emptor

UPDATED here

Carnival of the Capitalists



Carnival of Personal Finance Recommended: Stop Buying Cr*p



RINO Sightings Recommended: enrevanche



Carnival of Liberty Recommended: Et Tu Bloge

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Pigilito Says has an article every communist apologist should read, concerning the International Brigades in the Spanish Civil War.



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I may have more later today.

Many people are uncertain as to what closing costs are.



Basically, they relate to the costs of doing the transaction. There are people who work on getting your loan through the process of approval and funding, and those people have got to be paid. Anytime you're talking about a fee for a service that needs to be performed in order to get a loan done, that's a closing cost. This includes even origination, which is normally quoted in points, as the fee that the loan provider takes for getting the loan done. Not all loans have origination fees, but I'd say that in excess of 95 percent of all sub-prime loans and at least two thirds of all A paper loans nationally do.



Every loan has closing costs. They are a fact of life. You can choose to accept a higher rate on your loan such that the lender will agree to pay your closing costs, but that is not the same thing as not having them. Indeed, you should be very wary of someone quoting you significantly lower closing costs that anyone else.



When you are talking about closing costs, the vast majority of all loan providers will pretend that so-called "third party" fees such as title, escrow, attorney fees in the states that use attorneys, appraisal, and notary fees do not exist. They will mark them "PFC" on the Good Faith Estimate or MLDS and then act all surprised when you complain about these extra fees that weren't on your beginning paperwork. I regularly have people tell me before they sign up for a loan that my fees seem high, compared to what everyone else is telling them. The difference, of course, is that I'm telling them about all the third party fees and the other folks they are talking to are doing their best to pretend those fees don't exist. They not only exist, but you're going to pay them as a part of any loan. Who would you rather do business with, someone who pretends it's going to cost you half as much as it will, or someone who tells you the real cost right at the start?



Now the critical difference between recurring and nonrecurring closing costs in that nonrecurring happen once, to do your loan, and then they are done. Recurring closing costs are those things that happen every month, like interest, property taxes, insurance, and the impounds for doing them, if applicable. Mellow-Roos and homeowners association dues also fall within the definition of recurring, but those items I just named are about the extent of the recurring closing costs. Pretty much everything else is nonrecurring. For example, you only need one appraisal, one notary fee, one escrow, and one title insurance policy per loan.



One thing that is often counted as a closing cost that should not be are discount points, which instead of being a charge for a service are a charge by the bank to give you a better rate than you would otherwise get. There is always a trade-off between low rate and low cost. The lender will give you a lower rate if you pay for it, but they won't give it to you free.



Many times, folks buying a home get an allowance from the seller for closing costs, and the wording for this on the purchase contract can be critical. Nonrecurring closing costs are far more limited than recurring, and just the impound account can add thousands of dollars to what you, as the seller, end up paying if you agree to recurring closing costs. It's up to you how bad you want to sell the property, but a buyer who needs you to pay recurring closing costs is likely not a very qualified buyer, and their loan is pretty likely to experience snags. I counsel my sellers to insist on substantial deposits and sharply limited escrow periods in such cases, and if the buyer is allowed discount points as part of what you're willing to pay, count on the fact that they are going to use the entire allowance you give them. If the buyer has a choice of allowing you to keep some of that money or buying themselves a lower rate, which also means lower payments, what do you think they're going to do?



Caveat Emptor (and Vendor)

UPDATED here

Got this search:

"should I get a buyer's agent if I've already found a house"



The answer is almost certainly yes, but I am going to examine both the pros and cons. Full disclosure: This is what I do for a living.



The con is fairly simple. If the seller isn't paying a buyer's agent, they may be willing to sell more cheaply. Then again, they may not. One of the reasons people sell For Sale By Owner is that they're a little too greedy. Even if they have a seller's agent, their listing contract may call for them to keep the buyer's agent's commission if the selling agent sells the property without a buyer's agent involved, and this may cause them to be willing to sell more cheaply. They are under no obligation to do so, however.



Many think the buyer's agent's job is to say, "Here is the living room." That's like saying the president's job is to look impressive. Sure, most presidents do look impressive and I do say "here is the living room," where it's applicable and my buyer may not have figured it out for themselves. Nor is it about looking in the MLS and my connections to find my buyer a property they like. It's not even about making showing appointments with listing agents and occupants.



My real job as a buyer's agent is to find you the best property for your needs under your constraints and get you the best possible bargain on it while making certain that the seller and their agent aren't hiding anything.



Many folks call the seller's agents and use them as their agent. This is what is known as a mistake. That seller's agent has a listing agreement telling them and the seller what the responsibilities of the agent are to the seller. They may or may not sign a representation agreement with the buyer. If they don't sign one, all of their explicit legal responsibilities are to the seller. They are working for the seller, not for you, and they have a contractual obligation to sell that property at the highest possible price. The buyer's interests do not enter into it. Perhaps they do an excellent job of representing your interests anyway, but the odds are against it. Their legal responsibilities are essentially limited to "don't tell any lies and don't practice law without a license." While I was working for the FAA, we found out about an agent who had made a real good living for a while as a seller's agent and how he had done it: By telling everybody he showed a house in the area to that the airport was going to close. Ladies and Gentlemen of the jury, that airport land was dedicated solely to aviation usages by an Act of Congress, and if the county had wanted to close the airport (they didn't; they were making enough money to pay for every airport in the county there, and socking up a huge fund if they ever figured out something else aviation related to spend it on), they would have had to have paid back tens of billions of dollars to the federal government. We got a call from one of his victims one busy Saturday, who asked, "When is this airport scheduled to close?" We advised him that any proposed closure was news to us, and explained the preceding to the gentleman.



Even if the seller's agent does sign a representation agreement with you, in approximately thirty percent of transactions (from my experience) a situation arises where the best interests of the buyer and the best interests of the seller collide. When this happens, no matter what they do, an agent representing both sides is stuck on the horns of a dilemma. If they do A for the seller, they are violating the best interests of the buyer. If they do B for the buyer, they are violating the best interests of the seller. Here's a hint as to which way they are going to jump in the event of conflicting interests: If they violate the seller's interests, they don't have a transaction at all. If you don't buy, they can always sell it to someone else, but if they lose the listing agreement, they are completely out in the cold.



Before I even point a property out to you, or if you find it surf the internet and ask, "What do you think?" I am evaluating the property for fitness, suitability, affordability, how it stacks up to other properties on offer, how many other properties are on offer, and what the details of the property likely mean in the way of potential problem issues. Just a for minor example, a property built in 1975 has to be concerned about both lead-based paint and asbestos; a property built in 1990 still has those worries but to a far lesser extent, as most building stocks with those concerns were long gone, and a property built in 2005 is more likely built over Jimmy Hoffa's final resting place than a repository for asbestos and lead based paint (it could happen, but the odds are long against it). I am not an inspector or a tester, but I can and do alert my clients to safety and environmental issues, potential repair bills, and all sorts of other items before we've made an initial offer. "Best thing you could do with this building is 'accidentally' run a bulldozer through it," is something I told a client in a few weeks ago, in the context of telling him the value, if any, was the land less the cost of demolition and haul-away. Initially built almost 100 years ago and haphazardly added to as well as obviously not in compliance with code, my client would have been facing the possibility of the county condemning the building as unsafe, and quite frankly, I didn't think anyone would insure it outside FAIR requirements. You're not likely to get that kind of talk from a seller's agent. Instead you get words like "charming," "funky!" and the ever popular phrase "needs a little TLC!"



When it comes to the offer, a seller's agent is looking to get the highest possible price. Period. They don't care if you could buy a better property for less elsewhere, their responsibility to the seller and desire for a larger paycheck are in perfect alignment. A buyer's agent is responsible to you, and whereas buyer's agents get paid based upon the sales price, same as the seller's agents, they at least have a legal responsibility to do their best for you. If there are any complaints, a seller's agent can take refuge in the fact that it is their primary duty to get the best possible terms (i.e. highest possible price) for the property. The buyer's agent has no such shelter. Which would you rather have as your representative?



Buyer's Agents do not usually cost you, the buyer, any extra money. I'm sure there are exceptions, but I've never run into one. Both the Exclusive and Nonexclusive Buyer's Agent Agreements used by California Association of Realtors state, in the absence of additional agreement, that any commissions paid out of the "cooperating brokers" amount on the MLS count against the buyer's obligation to the representing agent. This is typically agreed to be two percent in California, and I don't know the last time I saw a residential MLS listing offering less than that to the buyer's agent. The way the transaction is structured is that the selling agent gets the entire commission, but agrees via the listing contract and MLS to share a certain portion with the buyer's agent, if the buyer has one. Good buyer's agents typically beat the price down significantly more than two percent, especially in the current market. I am equipped to do value battle with that seller's agent in ways that members of the general public are not, and whereas it's true they don't have to negotiate with my clients, they've got to sell the property to someone. It's not like the real estate fairy is magically going to convert this property to cash.



Finally, if there's something you should know about a property, the buyer's agent makes certain the question gets asked and the answer disclosed to you. This eliminates a lot of potential surprises down the road.



In short, buyer's agents are the professional on your side, they typically do not cost you any additional money, they can save you a significant chunk on negotiations, and you're more likely to find out about potential problems with the property if you engage a buyer's agent.



Caveat Emptor

UPDATED here

Via World According to Nick, a do it yourself Demotivator page.

Build your own demotivator

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Language advisory: Hold The Mayo has a very worthwhile suggestion for making a point with Senator McCain.



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Argghhh! has a piece of courtroom humor that I had never heard before.



While we're at it, via Jawa Report comes an submarine story that should not be read before or immediately after eating. Make sure you visit the restroom before reading it, and a language advisory also applies. I laughed so hard it hurt. The Cook Shack



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American Political War on Terror Over at Milblogs. Read it.



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Q and O notes that Charles Grassley has decided to vote against the senate immigration bill because it has many Loopholes. I think some of his loopholes are small-time quibbles on the edges of a bill that is seriously flawed because the mindset of those creating it is flawed. Nonetheless, as I said a few days ago, if the choice is this or nothing, I'll take this. I'd rather'd have the House Bill.

Carnival of The Vanities RecommendedPart-Time Pundit (regarding congressional privilege)Jack Yoest (visit to Arlington National Cemetery)

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If you're going to be a link whore, be a link whore. Hit Associated Press! AP Unveils Deal to Tie Stories to Blogs



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Because of my trouble with Dell, I went over to Jeff Jarvis' place to see if there were any updates to his ongoing saga, and found instead, a nice three part piece on a panel of journalism types that also included Hugh Hewitt. Part One Part Two Part Three. Many good thoughts, but there were still those "journalists" who are unclear on what the troubles are, namely, first, that they've let their prejudices and agenda get in the way of their reporting while pretending they haven't, second, the fact that they are clueless about what they are reporting about but nonetheless hold themselves out to be experts. I have been witness to a few major news stories. In every case, those "news" reports I read later missed central facts, chose misrepresentative emphases, and in general,just blew it. Furthermore, I can't recall ever reading an article where I have relevant professional qualifications where the reporter did a good job on the professional knowledge angle. The sample size is large enough to be indicative. If they're that badly wrong, that often, when I can fact check them, why should I trust them to get it right when I can't or haven't?



To give many of them credit, they appear to be waking up to this reality. "Use the public," Mr. Jarvis writes them as saying, "there are people out there who really know this stuff!" To which I say, "Halllelujah!" but the proof of this is in the doing.



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Captain's Quarters had a conference call with Ed Meese on the similarity between the current senate bill and Simpson-Mazoli.



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I meant to run this yesterday, but with the internet being so intermittent I didn't notice it had slipped out of the Links and Minifeatures unsaved Revisionist History: Antiwar myths about Iraq, debunked in OpinionJournal



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Via Instapundit, who makes the point that this political solidarity likely has a lot more to do with fear of being caught themselves rather than any concern for their fellow Congresscritter, various congresscritters are crying that searching a congressional office is violating seperation of powers, despite the fact that there was a pesky little thing called a judicially approved search warrant executed.



Volokh Conspiracy notes that the Judiciary Committee is going to hold hearings on abuse of executive power as a result.



The relevant text of the Constitution:

The Senators and Representatives shall receive a compensation for their services, to be ascertained by law, and paid out of the treasury of the United States. They shall in all cases, except treason, felony and breach of the peace, be privileged from arrest during their attendance at the session of their respective Houses, and in going to and returning from the same; and for any speech or debate in either House, they shall not be questioned in any other place.

1) As I read this, this says you can't arrest them while they're actually in the halls of Congress in session. Says absolutely nothing about executing valid search warrants. They also cannot be charged for what they say in Congressional session. Has nothing to do with criminal activity elsewhere.



2)As I understand it, bribery in six figures is a felony, negating any defense under this section.



3) This has nothing to do with whether Jefferson was Democrat or Republican, an ally of the president or an enemy. He's being investigated for being more crooked than a fractal boundary. They have him on film and in the presence of witnesses taking $100,000 in cash bribes. Just as with "Duke" Cunningham, the FBI is quite correctly furthering the investigation to the logical conclusion.



4) So much for the part of the 1994 Contract With America that said Congress was not above the law.



5) It appears that about once per generation, the FBI has to remind Congress not to get too outrageous in its corruption, lest the public get wise to the game.



These rascals have grown too rotten to countenance. Time for new rascals. Luckily, most primaries are still to come. You can vote for for other members of the same party you usually vote for, so you needn't even vote for those of the opposition.



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Tomorrow's article will be new. Look for it bright and early at 7AM Pacific

Long time readers may be aware that I have never said anything bad about a specific company here before. This is worth an exception.



I had bought several computers from Dell before, and had been a satisfied client. In fact, last time I bought a desktop in November, I only compared them to one other online provider. They always built to spec and delivered on time. I had zero warranty issues or problems.



I just had an experience that changed my mind. Depending upon how you look at it, however, their customer service department is so bad as to be worse than a waste of time, or their customer disservice department is highly efficient and motivated.



The facts are as such. Couple of weeks ago, I got a thing in the mail saying "Thanks for opening a Dell Account." It had been months since I ordered anything from them. Quite frankly, I'm not interested in a credit account with any particular vendor. I pay with Visa or MasterCard where I need them, and pay the bill as soon as it arrives, and then I'm done with the issue.



So I called Dell, and told them that I didn't apply for this account, and wasn't interested in credit with them, please close the account. They said they couldn't do that, as it was "an open account with a balance" and tried to get me to give them my social. They wouldn't do anything without my social. Not on your life, I told them. I had never requested credit from them, and was not about to give them my social. I tried to make a police report as well, but the officer thought it was just "dead tree spam," and told me not to worry. I flagged my credit report anyway.



Well, I just got a bill. I checked my credit report, and sure enough, there was an account from Dell that hadn't shown up before. I disputed the credit line, and called Dell. Just a courtesy call to inform them that this was a fraudulent account. They wanted my social in order to report a fraudulent account. Once again, not on your life, numbwits. Not going to happen. Period, end of sentence. This is a courtesy call to let you know that you've got a problem. I know very well that you can find out (I could, if I were so inclined), but I'm certainly not going to hand it to you. Deal with it. Goodbye.



The correct response on their part would be "What account number is that? Thank you for letting us know. We will investigate." Easy, simple, no hassles, gets the ball rolling, and doesn't concede that they consider me not responsible (Because there are slimeballs in the world who open lines of credit and then disclaim them). As opposed to what they did do, which is not only completely incompetent, but so far out of line as to be from an alternate reality. Really. Somebody tells you an account is fraudulent, and you then demand their social security number. That goes beyond hubris, straight through chutzpah, and and several light years into pure rectal aperture territory.



Goodbye Dell. I like your computers, but your corporate attitude is unacceptable (not to mention that your customer disservice reps cannot understand standard american english at the speed of normal conversation). I'll find somewhere else to buy computers from now on.

Carnivals



Carnival of Liberty

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Got a search this morning for"how do I fill out a truth in lending on an option arm?"



For crying out loud. Anybody with any doubts about requiring your own license to work in this business (as opposed to working on the firm's license) should now have had those doubts dispelled. Not that even the California license is difficult. But to be selling the godforsaken P.O.S.es and not to even understand how to fill out the Truth In Lending.



That loud scream of anguish you heard was probably me.



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So much for high gas prices meaning anything that folks will act on, as opposed to merely complaining about it: Baby Boomers Push RV Ownership to Record



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Buying Property, Minus the Hassle



Limited partnerships have their advantages, but you've got to be careful. REITs and limited partnerships and all of that does add another layer of things to go wrong, while not really insulating you from the consequences of bad decisions. Think of them like mutual funds. Except that mutual funds do not, typically, leverage fifty percent or more of their investment.



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Opinion Journal on myths or Iraq and attempts to revise history.



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Jihad Watch notes that the imams of Kabul have called for their countrymen to join the Taliban.



Sigh. I really want to believe in moderate moslems, but I guess once they've had a taste of real coercive power, the clerics find it hard to go back to simply leading.



Toronto Star has the source article.



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Tomorrow's article will be a repost. I ended up working on a couple of ideas for non-financial posts today, one of which I've now posted and the second of which needs to percolate some more before I'm ready to finish it.

The Anchoress has a much needed perspective on President Bush. I am neither religious nor conservative, and yet I agree with the thrust of what she is saying wholeheartedly. He is as he always has been. Perhaps in twenty years we (as a society) will appreciate him the way we do Ronald Reagan now. It seems a rule of politics that conservatives are never accorded their due until they are safely beyond office.



This man has more strength of character than anyone who's occupied the White House since Truman, at least. It does not bother me that the source for this strength is christianity, any more than it bothers me that it was the source of Lincoln's strength, or Dr. Martin Luther King's. Yes, christianity has done a great deal of harm to the world, and many christians in this country do not understand the first amendment any better than the average atheist. Yet for every horrible action undertaken in the name of christianity, there are ten just as good as the one was bad, and this ratio is improving.



Compare and contrast this man's gentlemanly treatment of the press and his opposition, while they take every opportunity they can make or create to tar and feather him, a la the Two Minute Hate



(Hidden as most folks should be familiar with 1984)

Substitute left wing professors for the Thought Police, and the Legacy Media for the Ministry of Truth, and President Bush maps amazingly well into Emmanuel Goldstein.



One suggestion: Challenge anyone indulging in the ritual of the Two Minute Hate to come up with one good thing about President Bush. I'm as nasty a Clinton detractor as you can be, but I am rational enough to give him credit where credit is due, however few places those may be (Welfare Reform was largely due to him, to name one. Two: The Health Care Initiative, while severely flawed, was an intelligent and worthwhile thing to attempt. Three: However many people lost their lives in Kosovo, Croatia, Bosnia, and Rwanda while he figured out that voters actually cared, he did eventually act. Four: He kept sanctions in place against Iraq. Can you imagine our current situation if he hadn't?)



I'm sure this rule has been articulated somewhere before, but if you can't say something good about a person, chances are you haven't really looked at their life (Hitler gave a lot of strength to the environmental movement in europe, and a lot of their wilderness areas date back to the Nazi era). Those who cannot come up with something good to say about a person, no matter how justified their antipathy, are not demonstrating anything characteristic of rational judgement. (I suspect that the reverse is also true)



Five and a half years into his presidency, President Bush has a list of accomplishments in the face of adversity that the vast majority of his predecessors would envy and all of them (except perhaps Mr. Carter, and we all know how much good he did our country as President, but he has done a lot of good through Habitat for Humanity) would respect. Creating a moral compromise on fetal tissue. Rescuing our morale from 9/11. Ably prosecuting the War On Terror. Standing firm in the face of domestic opposition bigger than anything since 1864. Negotiating a real alternative to Kyoto that maybe someone intends to, you know, actually adhere to. Stimulating our domestic economy with two tax cuts. I don't care for his spending and government growth, and I was hoping for more from him on immigration, but considering the policies Gore and Kerry have espoused, infinitely preferable. He has reached out across the aisle to his opposition more times than any other president in my memory, and had his shoes metaphorically spat upon more often than not, and still he keeps trying.



Indeed, barring some future failing of enormous magnitude, upon leaving office he will be able to hold his head high at being compared to any of his predecessors, saying something analogous to Theoden's final words in The Return of the King:



"I go to my fathers, in whose mighty company I shall not now feel ashamed"



For all the failures anyone has even accused him of, I cannot help but think how much worse the hands our presidency could have been in, how much worse it almost was.



And of course, the Inner Party has gotten at least as much mileage out of the real world Two Minute Hate as the fictional one did out of theirs.

So what else is available, besides the thirty year fixed?



There are many kinds of loan out there. Here's a quick overview:



A Paper



In addition to the thirty year fixed, there are several other varieties of fixed rate loan available, and several that are not. Commonly available are five year fixed, ten year fixed, fifteen year fixed, twenty year fixed, and twenty-five, as well as forty making a comeback.



I tend to avoid them all with my clients, except for the thirty year fixed. You can always pay more if you have more money that month, but you cannot always pay less. The shorter the term, the lower the interest rate should be, as not only are they guaranteeing the rate will not change for a lesser period, but the shorter the term, the more principal you are paying every month and the less risky the loan is. Nonetheless, they are also harder to qualify for because the minimum payment is higher.



For instance, if you have $2000 per month payment that you qualify for, then at 6.5 percent interest rate, here are the amounts you qualify for:

term 40 30 25 20 15 10 5

amount $341,600 $316,400 $296,200 $268,200 $229,500 $176,100 $102,200

Thirty year fixed rate loans also come in interest only loans, usually for five years.



A paper loans also come in Balloon Loans, with thirty year amortization, where you make payments "as if" if were a thirty year fixed rate loan, but they are due in full after five or seven years (a few ten year balloons exist, and fifteen year balloons are almost exclusively Home Equity Loans). The shorter the balloon period, the lower the rate should be.



A paper loans also come in hybrid ARMs, with thirty year amortization and payoff term, but shorter fixed period. Unlike Balloons, you are welcome to keep them the full thirty years if you want to, but most folks want to refinance or sell before the adjustment begins. One, three, five, seven and ten years are commonly available fixed terms. Once they begin adjusting, they are based upon an underlying index plus a set margin above that, and the vast majority of A paper hybrids adjust once per year, and all the loans from a given lender will, once they adjust, adjust to the same rate no matter what you bought the start rate down to. For A paper, the base index is usually the US Treasury rate or the one year LIBOR. COFI, COSI, and MTA are Alt-A negative amortization loans, not A paper, and all three varieties of negative amortization loan are the same stuff from different outhouses. There are probably a hundred times more negative amortization loans than there should be, because they are so easy for those in search of a quick commission check to sell by the payment when you slap a friendly sounding label like "Pick a pay" on them.



Finally, there are some few A paper that are true ARMS, or so close that they might as well be. Month to month loans, adjust every three month loans, and adjust every six month loans. Their adjustments are usually on the same basis as hybrid ARMs, and they have thirty year amortizations. Some are even available in interest only.



Sub-prime



Sub-prime loans come in more flavors. The most common are fixed for two years, the next most for three. Both come in thirty and forty year amortization periods, as well as interest only. Interest only usually carries a higher rate for the fixed period, because they are riskier loans from the lender's point of view, but the payment is lower. These are usually called 2/28, 2/38, 3/27 and 3/37 loans, for the fixed period and the remaining term thereafter. Interest only variants are all 2/28 or 3/27, and when they begin adjusting they begin amortizing, which can make a sudden sizable difference in payments. Some sub-prime lenders also offer 5/25 and 7/23 programs, including interest only variants. Once they adjust, all of these loans adjust every six months, which is one way to usually tell if you have a sub-prime or A paper hybrid ARMs, as the latter almost always adjust once per year, although a few lenders also have A paper hybrids that adjust at six month intervals.



Sub-prime loans also have thirty and forty and are starting to come out with fifty year fixed rate loans, with some thirty year fixed rates having an interest only option, usually carrying a quarter of a point higher interest and an interest only period of five years. Nonetheless, the rate spread between sub-prime hybrid and sub-prime fixed is usually larger than the spread between A paper hybrid and A paper fixed. Where you might get the A paper thirty year fixed for one percent above the rate of a 5/1 ARM, the difference between a 3/27 and a 30 year fixed is usually closer to two percent (this is by recent standards. When I initially bought in 1991, I was offered a choice between 5.75 percent 5/1 and 11 percent 30 year fixed)



I tend to like the five year fixed for myself and my A paper clients. It saves a lot in interest, and you've got five years where nothing can change, which is a longer period than most folks go without refinancing, and it's usually only about an eighth percent or so more expensive, interest wise, than the 3/1 while being a quarter percent or so cheaper than a 7/1. For the sub-prime clients, I tend to prefer the 2/28 if I think they'll be A paper at the end of two years, the 5/25 if not and if I can find it (3/27 if I can't). Of course, if you really want to pay the higher rates for a long term fixed rate loan, I may believe you're wasting money, but it's your money to waste, and you're the one making the payments.



Two final types worth covering are the HELOC ("he-lock"), or Home Equity Line Of Credit, and HEL ("heal"), or Home Equity Loan. They are usually used as Second Trust Deeds, the second loan on a property. A HELOC is a variable rate interest loan, usually prime plus a margin, and there is often an interest only period. It is a line of credit, and so long as you stay within your credit limit, the initial underwriting covers it. Nobody does fixed rate HELOCs; what they do when you "fix the rate" is fix that part of it you've already taken out and lower the maximum available credit. HELOCs have two phases, a draw period, when you can take more out (up to the approved limit), and a repayment period, when you're repaying what you took. Most folks end up selling or refinancing, however. Home Equity Loans are one time, fixed rate loans. I've seen all sorts, but the most common is a 30 year amortization with a 15 year balloon, although the twenty year fixed is almost as common. You need to refinance, sell, or pay the loan off prior to the end of fifteen years, lest the lender call the note.



Caveat Emptor.



UPDATE: Added a word about the fifty year mortgage which has just started being offered, and a few editorial/spelling changes.

UPDATED here

Carnivals



Carnival of The Capitalists Recommended: Isaac Schrodinger



RINO Sightings



Carnival of Debt Reduction



Carnival of Personal Finance

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Remember the spreading hole in the Ozone layer that was going to let radiation down to the surface of the earth and turn all life into horrible mutations? Report: Ozone Hole May Disappear by 2050



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Right Wing Nuthouse is a voice of sanity to elephant purists.



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Via Respectful Insolence, my blogging style is Logical and Principled. What's yours?



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Enrevanche has actual quotes from Saudi school texts. Go check them out; they're every bit as outrageous and over the top as any has claimed.



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I kept losing my internet at work today, so the above is spottier than I would have preferred

In my experience, these are death to your credit rating. Why?



Because of how they work. The short story is they get your creditors to agree to accept some lesser number of dollars for your debts. The creditors, for their part, aren't happy about this. They often mark you as not having paid in full. But that's not the really painful thing.



Since you're not paying the service very much, what usually happens is that they sit on your money for as long as they can before passing it on to your creditors. Thirty, sixty, even ninety days, to earn all of the interest they can.



But your creditors want that payment every month on time. So of course they are marking you thirty days late, sixty days late, or even ninety days late. Every creditor, every account. Every single one that's late lowers you credit score. It's unusual for folks who go through this to have credit scores over 500, and the worst score I've ever actually seen was the result of a debt consolidation "service" promising to "help" them. To paraphrase Arthur Dent, these must be new definitions of those words "service" and "help" with which I was previously unacquainted.



(Unethical Chapter 13 bankruptcy trustees can do the same thing, which is one reason why Chapter 13 is usually worse on your credit than Chapter 7, a severe flaw in the bankruptcy reform law being that it forces folks to hurt themselves worse when they are already in a bad situation. I've seen people one day out of Chapter 7 with 650 scores, and 580 is pretty common. 650 would be possible A paper if you're full documentation and didn't have more than a couple late payments. 580 is eminently improvable to something that looks decent in a hurry. The score coming out of Chapter 13 is usually something under 500)



Furthermore, debt consolidation services don't do anything that you cannot do yourself. Call the company and tell them the situation. They will terminate any open line of credit and remove the privilege of new purchases from your account, but they'll do that as soon as contacted by debt consolidation services, anyway. Furthermore, if you're in a hole the first step to fixing the situation is to STOP DIGGING!



When you call, have a good idea how much you can really pay per month. If you need to do this with multiple creditors, keep in mind that whatever you've got to pay with is going to have to be parceled out amongst all of your creditors, and don't allow yourself to be talked into more than the proportional amount. If you run into a lot of problems with negotiation, go to a legal aid center. Bankruptcies are a large portion of what they deal with. Explain that you have tried to work out a payment plan but that creditors X and Y are not being reasonable. It may be that bankruptcy is the way to go, but that's between you and a lawyer to decide.



Furthermore, whatever you do, keep at least one or two accounts in good standing if you possibly can. Keep one or two credit lines outside the payment plan or bankruptcy, and pay the payments in full and on time every month. Once you come out of the payment plan or bankruptcy, you're going to wish you had. You see, percentage of trade lines you include is one thing that will help determine your credit score later. If you included everything, you've hit your credit report as hard as possible. If you don't have any credit lines, you have to have new ones to start building new credit, and every time you make an inquiry after bankruptcy, the hit is much harder on your score than an inquiry from someone who hasn't been bankrupt. Finally, if you don't have any post-situation record of payments, it's never going to get better. The poor schmoe who includes everything he owes is pretty much hosed for a long time. My understanding is that a credit line where you owe $75 counts for this every bit as heavily as one where you owe $75,000, but it would be wise to double check that as it may be incorrect.



Caveat Emptor

I've been doing this nearly a year now, and I'm happy to say my daily visits have gone up to the point where they are hitting 2000 visits per day more often than not. For everyone who drops by, thank you.



However, it is a bit more of a time sink than I had really intended, and to less personal benefit. I need to show my wife some positive gains from the time I spend here. So I'm going to make a few changes.



This will still be a consumer education website, first and foremost. Nothing will change that. But I think I'm going to have to start accepting advertising in order to justify the time I spend here.



Also henceforth, the real estate and mortgage posts will also be appearing at another site, Dan Melson's San Diego Real Estate and Mortgage Website, URL http://www.danmelson.com/. They will still be here also, but I am splitting the purposes I had in mind when I started this site. Searchlight Crusade will be where I speak my mind about whatever subject takes my fancy in addition to the consumer education. http://www.danmelson.com/ will be a website where I am explicitly trying to attract business, and will have a sharply focused commercial "voice". If you like the extra stuff, stay here. If you'd rather read something strictly business, go there. If you want a non-commercial forum, stay here. If you want local San Diego information, go there. Of course, you're also welcome to read both sets of posts, if such be your desire.

One of the two most undersold financial products is long term care insurance. Yet it is a critical need, ranking just below disability insurance in the estimation of most financial planning agencies.



Long Term Care is already a large part of our nation's health care costs. In 2002, the last year I actively worked as a financial planner, in the state of California, approximately 2 percent of the recipients of Medi-Cal (California's version of Medicaid) were in long term care of one sort or another. Those 2 percent used approximately 47 percent of the budget. A little over fifty percent of the population is expected to need long term care of a year or longer, and this percentage has been rising and is expected to rise further. With medical science able to stabilize people to live longer lives, the probability of people living years after they reach that level of frailty rises.



The reason they use so much money is simple. Once you're in them, you tend to be in them for a long time. You may be in the hospital overnight, or for a week, and it costs a thousand dollars or two per day. Long term care may only cost $150 to $200 per day, but it costs that much every day for months, if not years or the rest of your life. So one seventh to one tenth the money per day, but for a hundred or a thousand times longer.



End of life is not the only time someone uses long term care. Approximately 40 percent of the inhabitants of long term care facilities are under the age of 65. For whatever reason, they have a disability or a condition that requires around the clock watchful care.



California licenses two types of residential long term care facility: Skilled Nursing Facilities (SNF), and Residential Care Facilities (RCF). The SNF has more medical requirements to meet, and is therefore the more expensive of the two, both to operate and to reside in. There are also Senior Daycare Centers (much like child daycare centers) and various in-home options.



Many people think that the federal medicare program covers long term care. It doesn't. The Federal Medicare program provides only a very small part of long term care. For a one time stay, it will cover the costs of a stay of up to twenty days, and pick up days 21 through 100 with a copay of about $110 per day. This means that for the first three months, you're out about nearly $9000. After that, you're on your own, as far as the federal government is concerned. So if you're talking about hospice care for a terminal patient, Medicare may or may not stretch to cover it, depending upon how close they were to death when the doctors gave up on curative treatment.



Even so-called "medi-gap" policies only cover a tiny amount of long term care. The reason why is because its costly insurance. So for the same reason you don't find cars on your supermarket shelves across from the bread, you have to go to a special policy to get significant coverage.



The median billing here in California runs about two hundred dollars per day, and it can go much higher for Skilled Nursing Facilities. This works out to $73,000 per year for as long as it lasts. Not a big deal if you're a multi-millionaire, but if all you've managed to save is $150,000, two years and it is gone. So for most folks, self insurance just doesn't cut it.



Now there is one program that will cover Long Term Care - state-run Medicaid (called Medi-Cal here in California). Unfortunately, in order to get coverage, you've got to pay yourself down into practical poverty first. Nor are you allowed to give assets away or put them into trusts. The various states have "lookback" periods ranging from thirty months to five years prior to your application for benefits. Anything given away in that period is subject to asset recovery - in other words, the person you gave it to is going to have to cough it back up, even if it was already spent.



Let me give you an idea of what poverty looks like. Many people make a big deal of the "community spouse" regulations, that permit the keeping of $2000 per month and eighty-some thousand dollars of liquid assets, as well as a life interest for a married couple in one piece of real estate. First concern, let's say hubby goes in to care while wife stays out. Can wife live on $2000 per month? Maybe, if she doesn't have any huge medical problems. But if she's not drawing a pension herself, most of income is likely to be attached for hubby's care, and it doesn't take long to draw down $80,000 in assets when that's all you've got to live on. Plus medicare is not the greatest care in the world, so there is always the need to purchase side items. Also, these places are not high margin. They are not making money hand over fist, and they make a truly rotten investment. Many of them go bankrupt, and the ones that survive and provide good care tend to be in lower cost areas. So if you live in Los Angeles, your spouse could well be in a home in Barstow because that's the only place you could find that had a spare bed. Far away means visitors are rare, and visitors being common is one of the best predictors of how good the treatment will be, and how well they will respond.



Finally, this is just not what happens, statistically speaking. What usually happens is when one spouse gets sick, the healthy spouse takes care of them as well as they can for as long as they can, either with or without assistance. Then the first spouse is gone, and at some later point in time the second spouse becomes ill, and that's when long term care happens. Less that ten percent of the people in long term care have living spouses, and this includes counting the situations where both spouses are in long term care. (this .pdf document has a decent explanation)



Many attorneys will advertise structured trusts and other weird schemes to get you to qualify for Medicaid care while still retaining your assets. Spend a couple of thousand dollars on a one time basis, the pitch goes, and you'll be able to shelter your assets from the state. Unfortunately for this, the states narrow the gaps in the regulations every year, because they want to catch cheaters and people doing precisely this. A good general rule is that if you own the asset, if you control it, or if it can be used for your benefit, the state will force it to be spent or attach it in order to provide your care. Medicaid was meant for the poverty stricken, not to provide medical care for the wealthy. So it's a little change here for $1000, another little change there for $1000, and pretty soon you've spent all your money on the attorney. Best way to nip this in the bud is to ask said attorney point blank: "So you're going to write out a commitment to pay for my care yourself if this doesn't work, right?" Needless to say, this is not going to happen.



Furthermore, assuming it does work out and you manage to retain assets while the state pays for your care. Well then, I say, "Congratulations! You've won WELFARE!", in my best Monty Hall voice, and you can imagine the curtains coming back on "Let's Make A Deal" to reveal their gorgeous hostess, smiling from ear to ear while holding the lead on an old sway-backed donkey.



The medicaid package is not a lavish one. Remember I told you that nursing homes average billing is about $200 per day, and that they go bankrupt a lot? Well here in California, the state will pay about $110 per day for medicaid patients in long term care. You should be able to imagine the implications from there. I've visited a couple of medicaid wings, and the "Eeewww!" factor is significant. It starts with the smell, which hits even people like me who don't have much of a sense of smell, and goes downhill from there.



The final option to avoid this is purchase Long Term Care Insurance. There are two major types, with one subtype available for people who are lucky enough to live in one of four states. There is non-tax-qualified, tax qualified, and for those lucky enough to live in California, Conneticut, New York, and Indiana, there is a superior brand of tax-qualified, Partnership.



Part II on "Long Term Care Insurance: Non-Tax-Qualified versus Tax-Qualified, and Partnership" is here

Part III on "Shopping for Long Term Care Insurance - Who Should and Shouldn't Buy, and Policy Characteristics" is here.

Caveat Emptor

Originally here

Local News is treating the Marine Investigation as if guilt were an established fact, rather than merely under Investigation



Report: Local Marines Killed Women, Children

Military officials said Thursday that a criminal investigation into a firefight in western Iraq that left at least 15 civilians dead is not complete, but they did not dispute a congressman's charges that the attack by the Camp Pendleton-based Marines was far worse than originally reported.

This is a feature of any serious investigation. They don't eliminate suspects, much less publicly, unless they're certain of innocence, and probably not even then until the investigation is complete. If they did, one of the key questions the defense attorney would ask is why they said that. Some investigations exonerate their targets and the investigators themselves still never admit it to the media. What the military spokesman said was:

"There is an ongoing investigation, therefore any comment at this time would be inappropriate and could undermine the investigatory and possible legal process," said Marine Lt. Col. Sean D. Gibson, spokesman for the Marine element of U.S. Central Command.

In other words, precisely what proper procedure says they should say, no matter what the investigators think at the moment.

Officials in the Pentagon and at U.S. Central Command declined to say whether Rep. John Murtha, D-Pa., was correct in saying that the Marines killed innocent women and children "in cold blood" during the attacks last November. Murtha said U.S. troops overreacted and that nearly twice as many people were killed than first reported.



Time magazine reported in March that an Iraqi civil rights group said Marines barged into houses near a bomb strike in Haditha, Iraq, throwing grenades and shooting civilians.



Murtha told reporters Wednesday, "It's much worse than was reported in Time magazine," according to the Army Times newspaper.



There was no firefight. There was no [bomb] that killed those innocent people," Murtha said in the Army Times report.

Isn't that what the investigation is intended to establish? If the military doing the investigating does not yet know themselves, how can Rep. Murtha possibly know? It is possible he's made up his mind because he wants it to be true? Google Representative Murtha for the past couple of years (since the Iraqi invasion) and decide for yourself if you think it might be likely that the above quotes are politically motivated. I notice the article failed to report previous incidences of Murtha accusing people of things that might have been politically motivated. Accusations that investigations did not bear out.

Murtha, a former Marine and veteran of combat in Vietnam, has been a consistent ally of the armed forces as a member of Congress. He has called in recent months for a U.S. withdrawal from Iraq.



He said combat stress prompted the Marines' alleged rampage, according to the Army Times report.



"It's a very serious incident, unfortunately. It shows the tremendous pressure that these guys are under every day when they're out in combat," he was reported as saying. "One man was killed with an [improvised explosive device] and after that they actually went into the houses and killed women and children."

My opinion hidden. Click when you've dug up enough evidence to have made up your own mind.







Opinion Journal has more



Argghhh! has the statement of a participant in the taking of prisoners.









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Former Fed Chair Says Housing Boom Over But Sees Stable Prices I respectfully disagree with the latter prediction, but must admit he's got a certain level of qualification I don't.



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Fed's Hoenig warns of rate overshoot risk Good to know the Fed is considering what most people who work financial retail have known for months. I've said they probably overshot by about a full percent here, before the most recent hike.



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Immigration measure said likely to pass If this bothers you because you want it more strict, consider what happens if no bill passes: The status quo. I may want more, but this bill is preferable to that. Who knows: This could be enough. If there's still a perceived problem in a couple of years, we can go after more.



So long as they actually enforce it, of course.



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EU asks US to consider plane sales to Iran



This is why the eventual conquerors of France will be flying Mirage jets.



They want new airplanes? Here are some suggestions: one two three four



Maybe we should sell them some forked tail doctor killers? Allah forbid their population of lawyers should become too high!



(lest I be misunderstood, the above aircraft are probably safer than most commercial aircraft when operated within their limitations by a conscientious pilot. However, having worked a few years in the industry, I'm also familiar with how people in certain professions often fail to take intelligent precautions when it comes to small aircraft.)



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Wizbang notes that BellSouth has demanded a retraction of the USA TODAY story that claimed call pattern monitoring.







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Dr. Sanity shreds the reporting from the front about 105 casualties in Afghanistan which "just happened" to fail to mention that 80+ of those were enemy casualties.



Big Lizards has more details



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Many places are reporting, like Jawa Report that Iran has passed a law mandating clothing for everyone and different styles/markings for religious minorities (Yellow stripe for Jews, blue for Zoroastrians, red for Christians). I hope that I don't have to sketch the most obvious of many historical precedents for you. On the other hand, I've seen one story purportedly by an Israeli calling the story a hoax (can't find it again). So keep your outrage in check pending further confirmation.



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Captain's Quarters note that there may now be proof that the biggest class action lawfirm in the country paid named defendants kickbacks of lawyer's fees. This has been obvious to students of economics and logic for years; who would go through all that court plaintiff rigamarole for fifty-one cents and a coupon for a small order of fries? It costs more than that to ride the bus to court one morning. Needless to say, finding evidence is a welcome development.



His story focused on campaign donations. I'd rather focus on the good to the economy not having to deal with these shakedown artists.



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An exercise in perspective from Victor Davis Hanson



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Volokh Conspiracy fact checks Slate.



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"Tell the truth but not all of it" Michelle Malkin adds some relevant facts to an LA Times Story.



Oh. THAT leftwing media bias.



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Funny site: Dear NSA.com Mining your data since 2001!



HT enrevanche

I simply love: "Fear and Greed, or How Did the Housing Bubble Get so big?

I'm not sure if you are aware that there is a grass-roots group that is starting a "boycott on housing." They feel that the prices in the San Francisco Bay Area are unreasonable.

It's kind of interesting.

The website is at: http://www.boycotthousing.com/home.aspx

What do you think about websites like this? Do you think that something like this is "catch on?" I submitted my vote (I'm currently boycotting myself until my six figure downpayments actually matters in this wacky market). But I was just wondering what your thoughts would be on this issue.

Can boycotters make a difference in the "real estate" game?

I'm outraged at the high cost of food. Do you think me boycotting buying food will have an effect?

Well, if enough of us did, it would have a marginal effect for a while. But people have to have food to live, and creating all of your own food yourself is just not an option for most folks. This leaves your choices as supermarket or starve. Given those choices, I'll take the supermarket (much as a couple weeks without food might benefit my waistline)

The same goes with housing. I went and poked around that site, and just couldn't find any evidence of knowledge of the laws of economics. The only effect that boycotters will have is to marginally reduce demand, thereby slightly reducing prices for those who are buying, for which my clients surely thank you. If you couldn't afford to buy anyway, it makes zero difference. If it makes sense for you to buy but you choose not to, then you are hurting no one except yourself. If you want to do something real about the high cost of housing, you'd do better to read my article on The Economics of Housing Development and act accordingly.

There are circumstances where I straightforwardly recommend against buying. Right now, given the state of the market, those are a lot of circumstances. I could have made a lot more money than I have these last eighteen months had I been a shark. But the recommendation to buy or not to buy is always based upon individual circumstances balanced against the state of the market.

The clients I'm pursuing right now are those who are looking for a place they can be happy in for the next ten years. Speculators, Flippers, and other players of real estate roulette have mostly gotten the message and dropped out of the market anyway. Given past performance and the approximate size of the bubble (roughly 30 percent at peak in San Diego, in my estimation, which has since deflated by about 10 percent), the speculators who are left are like participants in a game of musical chairs who don't yet realize that the music has stopped. On the other hand, those who need a place to live and can afford it will do very well once prices recover in a few years. I know this from personal experience; I was one of those folks who bought near the peak of the last cycle. Furthermore, with the desperation of many sellers, the bargaining is highly favorable to my buyer clients right now.

There are also significant and increasing opportunities in distressed properties, providing you've got some cash and are willing to buy and hold for a while, or do some significant work. Distressed properties are not a game for the weak of wallet, because you've got to have a certain amount of cash to play the game decently. Given the state of the market, it's very possible to lose significant money even there, mostly if you're a do-nothing flipper. If you're a buy-and-holder or a fixer upper, there are still places for you to do very well in this market segment.

The third group of clients I'm seeking out is those who were taken advantage of by their agents and/or loan officers, to see if I can fix the situation with a new loan. These are folks who were sold on unstable or unsustainable loans in order to get into the property. I'm not an altruist by any means, I'm getting paid for my work, but that doesn't alter the fact that the client wins also, by being put into a better situation if it can be done. If it can't, I am set up to handle a distress sale to get them out of the situation before it gets worse. I'm not a magician who can make it never happen (and nobody else is, either!), but I can stop the green bleeding. Once the bleeding is stopped, then you can talk about getting some money back for having been the target of a Dastardly Deed™, but those sorts of solutions take years. If you try to get your pound of flesh first, you'll bleed to death long before you might possibly get it, with all kinds of unpleasant consequences.

To summarize, housing is a necessary good, one third of the basic "food, clothing, shelter" that everyone is familiar with. This creates a "need" as opposed to a "want". Mind you, most folks have wants bigger than their needs (and eyes bigger than their pocketbooks), but some market segment boycotting housing will hurt only themselves as rents get higher so that the landlords can feed the loan alligator. High demand is not going away. If you really want to make housing more affordable, start doing something about the low supply of new housing. Artificial scarcity benefits only those who are already owners, and that includes the flippers and speculators who are probably the largest part of the reason for the current bubble.

Caveat Emptor

UPDATED here

Carnivals



Carnival of The Vanities Recommended: Fearless Philosophy (Cory Maye)



Carnival of The Capitalists Recommended: Professor Bainbridge (amending Sarbanes-Oxley) Insureblog (how transparency in medical billing is important)

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Okay So I'm Not Really a Cowboy has an excellent article about marginal tax rates, who pays taxes, and all that sort of stuff.



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Definitely good news 'Triple Neptune' find raises hopes about extra-solar planets



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Interesting: Giant Slab of Earth's Crust Found Near Core So the Continental Drift theory may need to be modified.



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Are commercial real estate loans going to hurt banks? Doubt it. I'm not an expert, but the few times I've had a client who wanted one, I've learned that they usually require about 40% of the money to come from the borrower, and I've never seen less than 20. Remember that the loan always gets paid first if something happens. The commercial market is not overheated like the residential market, if at all.



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Does this actually surprise anyone? A world of spies has its eyes trained on USA



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Too much information: DNA study maps human-chimp split

The researchers, from the Broad Institute of MIT and Harvard, propose that humans and chimpanzees first split up about 10 million years ago. Then, after evolving in different directions for about 4 million years, they got back together for a brief fling that produced a third, hybrid population with characteristics of both lines.



That genetic collaboration then gave rise to two separate branches â€" one leading to humans and the other to chimps.



The work has inspired both admiration and skepticism. Many paleontologists have a hard time believing that some of the fossil humans that are known to have lived during that era could have been pairing up with apes.



"It's a totally cool and extremely clever analysis," said Daniel Lieberman, a professor of biological anthropology at Harvard who wasn't involved in the study. "My problem is imagining what it would be like to have a bipedal hominid and a chimpanzee viewing each other as appropriate mates â€" not to put it too crudely."

Yuck.



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Transparency Makes Fraud Harder: Fraud Data to Be Shared by Regulator



HT Mortgage Fraud Blog



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Q and O analyses the security angle to the immigration debate, and finds it worthy of concern.



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Dean's World has a very good bit on the lack of symmetry in the way the sexes are treated in this country, and why young men are tired of it and therefore leery of marriage.



I am happily married to the world's only perfect woman. Yet I have seen friends and coworkers go through worse than hell. One man divorcing after eight years who was told by the court that he'd be expected to support his ex-wife for the rest of his life. Another earning roughly $30,000 per year "allowed" to keep $400 per month to live off of because the judge "knew" how much he made and wasn't interested in documentation to the contrary. A third whose wife pushed him into the high paying career as a condition of staying married, then divorced him because she couldn't stand the weird hours that he had to work and the location he was assigned to, but wanted not only 75% plus of his gross pay but the right to take the two kids 600 miles away to live and to force him to pay for all visitation. Another whose wife wanted to divorce him because she wanted to be with her new paramour and initially told her future ex-husband in the presence of witnesses "and keep your filthy kid, too!" but who later demanded and got custody because her lawyer told her how much child support would be involved. Not to mention one guy I know whose girlfriend assaulted him with a kitchen pan but in defending himself, she got a bruise on her arm and so he got beaten up by the police and arrested for domestic violence and a couple other charges, never mind that he looked like the victim of a cattle stampede before the cops started in. Not to mention the ex-wife of one of my friends, who joined the Hare Krishnas after their marriage, wouldn't let him eat meat after that, and performed all sorts of other emotional tortures and mindgames, not to mention selling his car one day so he was forced to get rides from her and couldn't go anywhere without her taking him. He called up a mutual friend singing "Happy Days Are Here Again!" when the Krishnas sent her to out of town for a few weeks. We tried to get him to divorce her for several years before he gave up, and the court treated him like the bad guy.



If you want to encourage marriage, you're going to have to somehow change the perception that if it ends, the man is automatically going to get the high speed rotating stainless steel shaft no matter what happens. Many younger men today are willing to sire children and even to pay child support, but not to marry. Ladies, we have heard how much this hurts you so many times we can quote chapter and verse. Backwards. In our sleep. It's not even close to how much it harms the children or the man involved. If you want a better chance at the man picking up more of the load of the children, you're going to have to level the playing field.



Because no matter what you've heard from Catherine MacKinnon, the man is not always the problem, and definitely not always the only problem.



(Every single one of the men in the previous examples has since found other, apparently rational, women who want them in their lives, despite the fact that most of them are dead broke from having to pay their previous wives the majority of the paychecks)



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Respectful Insolence has some details on the Ward Churchill report.



Volokh Conspiracy has a chain of articles as well.



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Armies of Liberation has a good bit on prospects, or lack thereof, of the commanding officer of the USS Cole, left high and dry by the Navy in the name of protecting higher ups.



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Michelle Malkin has the actual records of the briefings the Donkeys were swearing they never got, including USA Today's whining about how awful it was that they couldn't blab about this classified information they had received.

I enjoyed finding your blog today. It was enlightening, particularly in the area of real estate appraisals.

Mortgage fraud is something I've been reading about lately. Since the FBI says 80% of it involves collusion and usually with the appraiser, it made me wonder why underwriters don't just ask for second appraisals when a loan looks like it could be part of a flipping scheme (e.g., the owner hasn't had it for long and the new appraisal has it coming in much higher than the last one).

Have you looked at this area at all? I'd be interested in your point of view.

Appraisal Fraud is more of a problem than it was. A couple of years ago, the appraisal was treated and regarded differently than it is now. On the one hand, appraisers were regarded as gods sitting in judgment of a property, which never was true. They're human, subject to human foibles and tendencies. On the other hand, it has perhaps swung a too far in the opposite direction, with many appraisers doing whatever the loan provider wants in order to continue to attract business.

A good balance is somewhere in between. Appraisers don't want to work any harder than necessary, of course, but they've got to remember that they are, first and foremost, businessfolk selling a service. I agree with the law that says minimum appraisals are prohibited, as it protects everyone. On the other hand, when I ask an appraiser to reconfirm if comparables don't support a value of $X, what I'm trying to do is protect my client. This gives me a chance to re-work the loan, or re-open negotiations with the seller, before my client has wasted hundreds of dollars for an appraisal that doesn't help. Eighty to ninety percent of the time, the appraiser who tells me the value isn't there gets paid anyway, because I can re-work the loan or renegotiate the deal to the point where everybody's happy and the transaction proceeds. If the appraiser just goes out, takes the check, and drops an appraisal that's $20,000 low on my client, I have a screaming mad client on my hands who is poison to my business because in their eyes I was the one who "tricked" this money out of them, and perhaps a seller and seller's agent who are angry as well because I hired an "incompetent" appraiser, with repercussions next time I write an offer for one of my clients, and nobody is happy, least of all me.

On the other hand, an appraiser who is willing to manipulate the data to come up with value no matter what is one I want to stay away from, and it's because of fraud. If there's no default and the loan gets paid back in full, appraiser fraud doesn't matter. But that's not the usual thing that happens with appraiser fraud.

I keep writing that a certain percentage of all attempted real estate transactions are fraudulent, and a good agent and especially a good loan officer keeps their eyes peeled for evidence. Real Estate transactions are very large dollar amounts. A one bedroom condo around here goes for over $200,000. This is more than most families make in a couple of years. An average single family residence might be $500,000 or more. This makes the temptation level considerable, and there are always folks around who have an eye for the quick easy dollar and never mind the effects on others or the prospects of prison if caught. Sometimes the lender is the intended mark, sometimes the other party to the transaction. I could tell you about all varieties of scams, but appraisal fraud is one of the most common.

Before we go any further, let's examine what an appraisal is. Accountants value goods using a method called "Lesser of Cost or Market," or LCM for short. This means a given property is valued for accounting purposes at either the purchase price (cost) or appraised value (market), whichever is lower. But this has been modified from its original form for real estate lending purposes, because in the real world real estate appreciates in value. At purchase, the cost or value argument still applies. No matter what, the lender will not lend based upon a value greater than the purchase price. Later on, however, they will, because land does not depreciate, it does not in general vanish or get used up, and it does increase in value (Pretty much universally over time frames of a decade or more).

This gives scam artists all the leeway they need. Some of them are relatively harmless, in that all they're looking for is a better rate on a loan that they do intend to repay. This doesn't mean it's smart to cooperate with them, as many agents and loan officers who did are likely to discover quite soon, as the loans default and the lender investigates why. The balance sheet reads a little differently when you discover that cooperating with the guy who just wanted to cut a few corners is going to cost you your license.

Appraisal fraud, however, is usually aimed at a large quick score. I'm going to keep my examples basic, lest I inadvertently release a couple more ideas into the wild. Let's say you own a property that's worth (pinky finger extended) one million dollars. You owe $900,000. If you sell, you're going to net about $30,000. But if you can persuade a buyer that property values are increasing much faster than they are, many will bite off on an increased sales price. You tell the appraiser "Appraise it for $1,250,000 and it's worth $25,000 to you!" He does so. You pay him his $25,000 and your net is still around $235,000 to $240,000. It's fraud, but fraud that many folks have gotten away with because the buyer doesn't realize he's been had and keeps paying the bank. Or you can't keep up the payments but want to walk away with as much cash as possible. Instead of a distress sale, where you'd be very lucky to break even with a sharp buyer's agent, you pay the appraiser $25,000 to appraise it at $1.25 million, refinance for cash out to maybe 90 percent of that value, pay the appraiser and walk away with a cool $200k, never making a single payment on the new loan.

Appraisal fraud can also be intentionally low. A buyer wants to buy the property, pays the appraiser to appraise it low, and renegotiates the price. I had this tried on me about two years ago. It didn't work.

Now once upon a time, there were real constraints to keep an appraiser from pulling this, on residential properties at least. To a certain extent, there still are but those guidelines have been relaxed due to the hypercompetitive market we've had the last few years. For instance, it used to be that the lenders would accept a value for a property on a refinance no higher than an annualized increase of 10 percent for the first couple years. That's gone by the wayside, as lenders get used to the fact that values are increasing faster than that. With many lenders, it's whatever the appraiser says the day after the sale. This is an invitation to fraud. Invitations to fraud do not excuse fraud, but they certainly make it easier. It used to be that no matter what, you couldn't pull cash for six months after a sale. That's now changed.

Underwriting in many lenders no longer has to pass a "smell test," where the lender pulls up the local market and sees what similar properties have really sold for recently. They're competing for loans! First time they tell the folks "no" that loan officer may not give them any more chances to do loans, choosing instead other lenders with more accommodating employees and policies. They have to do loans to stay in business, and avoid layoffs, but those lenders with more accommodating employees and policies are going to be in a world of hurt if the local market cools much further.

Now appraisers that do this are subject to discipline and legal penalties, starting with the fact that the lender has the option of never accepting one of their appraisals again and going up through loss of license and jail time. I'm not up on the penalty structure, but fraud that costs in excess of $100,000 is a serious felony. They've got the appraiser's name, license number, and other identifying information. In my opinion, aiding and abetting fraud is stupid and if you can't get them to fly straight, walking away as quickly as possible is your best option, but real estate compensations (and the amounts at stake) are large enough that many will do it. If you're not a pro yourself, your best protection is a good agent that's working for you, not splitting loyalty between both sides of the transaction, and making sure somebody working for you is there at the property to meet the appraiser.

Caveat Emptor

UPDATED here

pfadvice talks about debunking a money myth and perpetuates one of his own. He took issue with someone refinancing to lower their monthly payment, insisting instead that the term of the loan was all important.



His point is understandable in that because folks tend to buy more house than they can really afford, they also tend to obsess about that monthly payment. The solution to this is simple to describe but it takes someone with more savvy and willpower than most to bring it off: don't buy more house than you can afford.



Actually, there is nothing that is all important, but if I had to pick one thing as most important, it would be the tradeoff between interest rate and cost and type of loan. This is always a tradeoff. They're not going to give you a thirty year fixed rate loan a full percent below par for the same price as loan that's adjustable on monthly basis right from the get-go.



If you have a long history of keeping every mortgage loan you take out five years, ten years, or longer, then perhaps it might make sense for you to take out a thirty year fixed rate loan and pay some points. To illustrate, I'm going to pull a table out of an old article of mine because I'm too lazy to do a new one.

rate 5.625 5.750 5.875 6.000 6.125 6.250 6.375 6.500 6.625 6.750 6.875 7.000

discount/rebate 1.750 1.250 0.625 0.250 -0.250 -0.750 -1.250 -1.500 -2.000 -2.250 -2.500 -3.250

cost $4725.00 $3375.00 $1687.50 $675.00 -$675.00 -$2025.00 -$3375.00 -$4050.00 -$5400.00 -$6075.00 -$6750.00 -$8775.00

Now I'm intentionally using an old table, and rates are higher now. I'm assuming no prepayment penalties, and the third column is cost of discount points (if positive) or how much money you would have gotten in rebate (if negative), assuming the $270,000 loan I usually use by default. Add this to normal closing costs of about $3400 to arrive at the cost of your loan, thus:



(I had to break this table into two parts to get it to display correctly)

Rate 5.625 5.75 5.875 6 6.125 6.25 6.375 6.5 6.625 6.75 6.875 7

Points/Rebate $4,725.00 $3,375.00 $1,687.50 $675.00 ($675.00) ($2,025.00) ($3,375.00) ($4,050.00) ($5,400.00) ($6,075.00) ($6,750.00) ($8,775.00)

Total cost $8,125.00 $6,775.00 $5,087.50 $4,075.00 $2,725.00 $1,375.00 $25.00 ($650.00) ($2,000.00) ($2,675.00) ($3,350.00) ($5,375.00)

New Balance $278,125.00 $276,775.00 $275,087.50 $274,075.00 $272,725.00 $271,375.00 $270,025.00 $270,000.00 $270,000.00 $270,000.00 $270,000.00 $270,000.00

Payment $1,601.04 $1,615.18 $1,627.25 $1,643.22 $1,657.11 $1,670.90 $1,684.60 $1,706.58 $1,728.84 $1,751.21 $1,773.71 $1,796.32

rate 5.625 5.750 5.875 6.000 6.125 6.250 6.375 6.500 6.625 6.750 6.875 7.000

New Balance $278,125.00 $276,775.00 $275,087.50 $274,075.00 $272,725.00 $271,375.00 $270,025.00 $270,000.00 $270,000.00 $270,000.00 $270,000.00 $270,000.00

Interest* $1,303.71 $1,326.21 $1,346.78 $1,370.38 $1,392.03 $1,413.41 $1,434.51 $1,462.50 $1,490.63 $1,518.75 $1,546.88 $1,575.00

$saved/month $130.80 $108.29 $87.73 $64.13 $42.47 $21.10 $0.00 ($27.99) ($56.12) ($84.24) ($112.37) ($140.49)

break even 62.11922112 62.5610196 57.99355825 63.54001705 64.15695892 65.17713862 0 0 0 0 0 0

Now, I've modified the results based upon some real world considerations. Point of fact, it's rare to actually get the rebate (typically, the loan provider will pocket anything above what pays your costs), and so I've zeroed out those costs. You take a higher rate, you're just out the extra monthly interest. The fourth column is your new balance, the fifth is your monthly payment. For the second table, I've duplicated rate and new balance for the first two columns, the third is your first month's interest charge (note that this will decrease in subsequent months), the fourth is how much you save per month by having this rate, and the fifth and final column is how long in months it will take you to recover your closing cost via your interest savings as opposed to the cost of the 6.375% loan, which cost a grand total of $25 (actually, this number will be slightly high, as interest savings will increase slowly, as lower rate loans pay more principle in early years).



However, let's look at it as if your current interest rate is 7 percent. Your monthly cost of interest is $1575, there, so let's see how long it takes to actually come out ahead with these various loans.

Rate 5.625 5.75 5.875 6 6.125 6.25 6.375 6.5 6.625 6.75 6.875 7

Loan Cost $8,125.00 $6,775.00 $5,087.50 $4,075.00 $2,725.00 $1,375.00 $25.00 $0.00 $0.00 $0.00 $0.00 $0.00

New Loan $278,125.00 $276,775.00 $275,087.50 $274,075.00 $272,725.00 $271,375.00 $270,025.00 $270,000.00 $270,000.00 $270,000.00 $270,000.00 $270,000.00

Saved/month $271.29 $248.79 $228.22 $204.63 $182.97 $161.59 $140.49 $112.50 $84.38 $56.25 $28.13 $0.00

Breakeven 29.94960403 27.23218959 22.29233587 19.9144777 14.89346561 8.50926672 0.177945838 0 0 0 0 0

In short, since you're recovering costs quickly, it would make sense for folks with a rate of 7 percent to refinance in this situation, no matter how long they have left on their loan. For $25, they can move their interest rate down to 6.375, saving them $140 plus change per month. It's very hard to make an argument that that's not worthwhile. On the other hand, I would have been somewhat leery of choosing the 5.625% loan, as more than fifty percent of everyone has refinanced or sold within two years. On the other hand, I have a solid history of going five years between refinancing, so it makes a certain amount of sense, considered in a vacuum. Considered in light of the real world, rates fluctuate up and down. So I tend to believe that if I don't pay very much for my rate, I'm likely to encounter a situation within a few years where I can move to a lower rate for zero, or almost zero, whereas if I paid the $8125 for the 5.625%, rates would really have to fall a lot before I can improve my situation.



Do not make the mistake of thinking that the remaining term of the loan is more important than it is. You now have (assuming you took the 6.375% loan) $140 more per month in your pocket. It's up to you how you want to spend it. If you want to spend it paying down your loan more quickly, you can do that (providing you don't trigger a prepayment penalty, of course!). Let's say you were two years into your previous loan. Your monthly payment was $1835.00. If you keep making that payment, you'll be done in 288 months; 48 months or 4 full years earlier than you would have been done. So long as you don't trigger the prepayment penalty, you can always pay your loan down faster. Just write the check for the extra dollars and tell the lender that it's extra principal you're paying. I haven't made a minimum payment since the first time I refinanced!



Now some folks focus in on the minimum payment. By doing this, you make the lenders very happy, and likely your credit card companies as well. Not to mention that you are meat on the table for every unethical loan provider out there. It is critical to have a payment that you can afford to make every month, and make on time. But once you have that detail taken care of, look at your interest charges and how long you're likely to keep the loan, not the minimum payment.



Caveat Emptor

UPDATED here

Carnivals



Carnival of Liberty Recommended From My Position

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I've heard people say suicide is painless but I don't believe them. Case in point: Union Authorizes Strike Against Delphi.



The costs of making parts are so high, partially due to unions shaking down management, and partially due to simply bad management, that it's a miracle all those automakers haven't found alternative suppliers already. People gripe about industry moving to other countries, then pull stuff like this, where Delphi is in bankruptcy and just hoping to get enough in the way of concessions so that they are actually able to operate profitably again. Then the Union conducts a strike authorization because they're afraid the company will somehow bamboozle the court into modifying their contracts. Hello! Earth to UAW: Delphi is in bankruptcy. This means they are in trouble, and the plants are in danger of closing completely. Bankruptcies where there is no merit get tossed. Furthermore, only the deity of your choice knows what a bankruptcy trustee will do to management's attempts to pull the company out. The largest single reason Delphi is in bankruptcy is high labor costs. UAW has a choice. They can give a relatively small amount now, or they can lose the company entirely when the companies who buy from Delphi decide to get their parts elsewhere (by which I mean Mexico, Taiwan, China, Brazil, India or some lucky recipient to be named later). It's not like they have to buy from Delphi, much less Delphi plants in the US.



Unfortunately, union elections are conducted on the basis of "look what I did for you this time!" and "Look what my opponent did to you this time!" There's not a lot of room in there for looking at the situation dispassionately with an eye towards saving everyone's bacon.



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Dutch MP to quit amid asylum row



I'll believe this is motivated by principle when the Netherlands starts rounding up and deporting everyone else who lied on their asylum or citizenship application.



Most folks have feet of clay, something they've done in the past that would be cause for action against them. The Yahoo story makes plain that this was public knowledge quite a while ago. To quote, since Yahoo links are notoriously impermanent:

Hirsi Ali has admitted giving a false name and date of birth. She allegedly also claimed she was fleeing directly from war-torn Somalia instead of Kenya, where she was living with her family and enjoying refugee status. Hirsi Ali says she fled to escape an arranged marriage.



"I am astonished about how fast it all went. Within 48 hours my citizenship is revoked over matters that were public knowledge three and a half years ago," she said.

She has certainly been a productive member of Dutch society these last fourteen years, setting a beautiful example of courage in the face of real intimidation, death threats, and the need for around the clock protection. Holland has set a precedent that may be the critical nail in its own coffin as a tolerant pluralistic society.



Fear the people who fear your ability to speak.



Jihad Watch has her statement resigning parliament, as well as one possible explanation as to How it happened





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Research Fraud Rampant in China.



One of the many consequences of a lack of transparency. That these rip-off artists have the unofficial approval of the state is also fairly well known. I used to know a guy who had a simple medical patent. Amazingly enough, the vast majority of people infringing upon his patent were from Communist China.



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Panel Finalizes Access to Nazi Archive



It is important to remember. It is tempting to believe that people would never do that. People did. Ordinary people, not just the psychotic maniacs in charge. The youngest eyewitnesses are in their late sixties now, while those who saw as adults the barbarity of the concentration camps are in their eighties and up.



Denial sets the stage for it happening again.



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Iraq the Model notes that the Iranians are supplying al-Qaeda with Anti-aircraft missiles.



I do not want a fight with Iran. If we can hold off their craziest mullahs for a couple of years, there's going to be a revolution. Unfortunately, it's starting to look unlikely that we will be able to hold off.



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Those towards the right who are going full-bore anti Bush because the speech was only about 75% in line with your preferences might give Big Lizards a read. Calm down. Take what you can get now. If and when it works, chances are that you will be able to get more later. If you demand all or nothing right now, the american public is likely to give you nothing.



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Video of flight 77 hitting the Pentagon here at Judicial Watch



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Think the War on Terror has been botched? Read Victor Davis Hanson for a pale shadow of the article military historians could write about mistakes of past wars.

One of the things I'm seeing more of in MLS listings and developer advertising, among other places, is the phrase "$X in closing cost credit (or "$X in free builder upgrades" given for using preferred lender"



Sounds like a bargain, right? Just use their lender and you get this multi-thousand dollar credit. After all, "All Mortgage Money Comes From The Same Place!" Free money, right?



Well possibly, but not very likely. What most companies are looking to do with this advertising is give people a reason not to shop around. They hope that because most people think that "All Mortgage Money Comes From The Same Place", the average customer will just stay there to apply for a loan. Many builders and conversion companies will throw roadblocks in your way if you try to use another lender. They cannot legally require you to use their loan company (at least not in California), but they can make it exceedingly difficult to go elsewhere. I've been told by builder's representatives on two occasions that I was wasting my time with a loan, because "If they don't use our lender, they won't get the property!" despite already having a signed purchase agreement. Roadblocks take all sorts of turns. They won't let the appraiser in. They won't cooperate with requests for information, without which the other loan is going nowhere. And so on and so forth.



The builders wouldn't give those incentives to use their lender, or throw roadblocks in your way when they're trying to sell you a property, if they weren't making more money with the loan. Quite often, they're making more money on the loan than they are from the sale. Put you into a loan half a percent above market, stick a three year prepayment penalty on it, and voila, anywhere from a 6 percent premium to perhaps 10 percent. To give you a comparison, around here an agent makes 2.5 to 3 percent from a transaction, and I do my loans on anywhere from half a point to a point and a half, depending upon difficulty and size. But the average consumer is distracted by these "free" upgrades or closing costs that they don't realize how badly they've been raked over the coals. If I can get you that $400,000 loan half a percent cheaper and with no prepayment penalty, I'm saving you $2000 per year for certain, and very likely about $12,000 on the prepayment penalty.



Furthermore, on some of the builder's loans I've analyzed, they're getting you a rate that would carry a point and a half retail rebate, even without the prepayment penalty. This means on a $400,000 loan at that rate, the lender would be paying you a $6000 incentive to do that loan, more than covering normal closing costs. Have no fear, that builder is doing quite well for having loaned you that money.



What can an average person do about this sort of thing? As I've said before, builders often throw roadblocks in the way of outside lenders, and there's not a lot that you or anyone else can do about this fact.



Many people want brand new homes if they can get them. Given the realities about Mello-Roos and how prevalent homeowner's associations are in more recent developments, I'm not certain I understand this. It's one thing to deal with Mrs. Grundy when you're all cheek by jowl in a condominium high rise. It quite another thing to deal with her complaints because you left your garage door open ten minutes longer than the rules say, you want to paint your detached home a couple shades darker or lighter than everyone else, or whatever's got her dander up today.



I do have a trick or two up my sleeve for when I'm a buyer's agent in new developments. It's my job to outmanouever the selling agents the builder has on staff (who tend to be heavy hitting pressure salesfolk). But they are dependent on some things that change from transaction to transaction, so I can't really describe them in any kind of universal terms. Writing an offer contingent upon an outside loan has its limits. Builders who throw roadblocks have that one wired; they wait for the contingency to expire at which point they've either got your deposit or your loan business as you are so desperate not to lose your deposit you'll do almost anything, particularly since most folks don't understand how much that loan is really likely to cost them.



Caveat Emptor

UPDATED here

Carnivals:



RINO Sightings Recommended: Politburo Diktat (debunking Intelligent Design) Strata-Sphere (surveillance programs and 9/11)



Carnival of Personal Finance

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Judge grants preliminary injunction against high school exit exam

The ruling could affect 47,000 seniors, about 11 percent of the class of 2006, who have yet to pass both the English and math sections of the exam.

(snip)

"They have not offered any evidence that would support that the reason why they have not yet passed the (California High School Exit Exam) is because of some failure by the state," the state lawyers wrote. "To the contrary, the reason why these students have not yet passed the CAHSEE is due to their lack of English skills, as established by their own admissions."

Let's see. The can't pass an English test and claim they should graduate anyway because they have poor english skills?



The state doesn't come off any better by saying, in effect, "these kids had a wonderful education but couldn't pass the test because they had poor english skills." Question: What were the schools supposed to be doing for these people six and a half hours a day for twelve or thirteen years? If proficiency in English wasn't a major part of it, we need to abolish every such school district.



A pox upon both their houses. The alleged students for sabotaging any value that diploma may have had for others. The alleged schools for failing to teach them one of the major tools for prospering in the United States.



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Sorry about not having any new articles for a few days. My wife and I had a discussion about the time (and money for hosting) that I've been spending here, so expect to see some changes soon.



I wrote two articles today, and they're set to go tomorrow and Wednesday. Tuesday's subject is inducements to use a particular lender for a purchase, Wednesday's goes over some refinancing math as to whether or not it pays off. I have at least two more articles incubating on the front burner (appraisal fraud and more on the limitations of believing the initial paperwork), that I hope to post by Saturday at the latest.



I'm also going to try to do more Links and Minifeatures this week than last. Getting off to a bad start, I know.

It seems I can't hardly turn around in the investment world without a paean to Jack Bogle, who preaches the advantage of the index fund.



Mr. Bogle's reasoning goes something like this: Looking at the world of mutual funds, relatively few funds beat the S&P 500 Index, so why not just buy the whole S&P Index?



This is nothing short of the most successful sales pitch based upon a straw man argument in history.



Index funds are huge. Mr. Bogle's own original fund is the largest mutual fund, and both of the two largest mutual fund families base their pitches (in large part) upon their large number of Index Funds based upon various indices. That's how successful the pitch has been.



What Mr. Bogle doesn't tell you is that Index funds aren't the Index either.



There's a bit of Red Herring in the argument also. Index Funds aren't some ideal investment package that doesn't have expenses. They may be low (21 basis points per share for the biggest the last time I looked), but they are there. So in an ideal universe, they lose to the index by this amount. Plus they do have the same need managed funds have to hold some cash. Since the market goes up about 72 percent of the time (over the course of historical years), and they lose an amount of gain or loss proportional to their cash holdings, over time they lose more than they gain on this. By comparison, the measurement made of managed funds is after all such inefficiencies.



In other words, the Index Fund sales pitch reduces to "Most of these other finds don't beat this measurement. Come to us where you're guaranteed to fall short!" The thrust of their sales pitch is holding themselves out to a a perfect idealization, which in fact they are not.



There are other reasons to avoid Index Funds. The most famous, best known and largest are all built upon the S&P 500 Index. This is a market capitalization based Index. The Fund buys into these companies based upon market capitalization. It should be no surprise to anyone that this means that whatever the largest company in S&P is, it will be several times the size of number 500, so the funds investment in them will be correspondingly weighted, while having zero investment in number 501. This means (because Index funds are such a large portion of the overall market) that Index Funds cause demand for those companies which are a member of this universe to have larger demand than they otherwise would, therefore artificially inflating the share price of those companies somewhat.



Now, one of the reasons people gravitate towards mutual funds is instant diversification of investment. You put in your $1000, and because it's is in turn invested as a part of a much larger investment pool, you have much more diversification than you would otherwise be able to purchase with that same investment were you to purchase stocks directly. One of the reasons I worked almost exclusively with mutual funds (and mutual fund-like) when I was in the business is that if you want to build a diversified direct stock portfolio in an efficient manner (buying whole, as opposed to odd share lots), it takes about $100,000. This is more than most folks are willing or able to invest in a single shot.



But one of the open secrets of the mutual fund industry is that many, if not most, funds are over-diversified. Their holdings are so diluted that when they pick a winner, their shareholders see comparatively little benefit because they've made too many bets. When you bet 100% of your money and the stock doubles, you get 100%. When you bet 1/500th of your money and the stock doubles, you get 0.2%. This dilution effect is directly proportionate to the number of investments (bets) they have made, while the benefits of diversification are only proportionate to the square root of the number of investment holdings they have. In other words, the fund with 400 holdings is sixteen times more dilute than the fund with 25, but only four times as protected by diversification. One of my favorite fund families, in which I myself continue to invest for other reasons which outweigh this, had 432 holdings in its growth fund the last time I got a report. That is way too many. Mathematical models have determined that the optimal number of holdings for a fund is in the range of twenty to thirty, getting good protection of diversification while not suffering from over-dilution of good investments. I am becoming, more and more, a fan of "focus" model funds, where the investment managers are forced to be choosy by limiting the overall number of investments to a certain number of securities.



Index funds typically have way too many funds to qualify for this. Of all the major indices, only the Dow Jones ones have a small enough base to be considered as having a near optimal number of components. I just don't hear about people wanting to invest in those. 20 Transportation? 15 Utilities? They're derided as sector investments, and not good ones. 30 Industrials still seems to have some cachet, but by comparison with S&P 500 or even the Russell Indices (1000, 2000, and 3000), the amount invested in Dow Industrials is microscopic. Perhaps because it's not a "true" index, but is selected by the publishers of the Wall Street Journal, theoretically for the components representation of the entire market.



Index funds are not without their benefits, of which their mindless vanilla nature is probably the greatest. If you want an investment you can just make and not watch and not worry about unless the entire asset class tanks, Index funds are fine (S&P is large cap blend). For market-timers, index funds are unmatched, particularly since their cost of putting the investment in and taking it out tends to be low. But I am not a mindless vanilla investor, and for one step up the mental chain, index funds can be beaten by periodic investment class reallocation. Furthermore, I am an investor, not a market-timer. So any time somebody's recommendations for investing include index funds, I'll pass those recommendations by.



Caveat Emptor.

Everybody has been talking about the problems that both major parties have. The Republicans have this problem, the Democrats have that one. Snipe, snipe, snipe. Everyone is saying what a low approval rating President Bush has, while the commentators I respect note that Congress' is even lower. The way I put it in a conversation the other day is that as unpopular as he is, the President has half again the popularity of Congress.



Congress doesn't have to have a lower rating than the President. Back when the Republicans took control in 1995, its ratings were significantly higher than the President's. Why? Because they were doing their job, what they said they would do in order to get people to vote for them and get elected. There were also points in the latter part of Reagan's presidency, and Bush pere's, and Carter's, where Congress enjoyed higher approval than the President. Of late, however, both parties have allowed themselves to be held hostage, to one degree or another, to various special interests within the party. My observation is that people appear to be tired of partisan politics, tearing down the other side to no good purpose, even damaging our national interest, just to score points with the extremists in your camp.



It occurs to me that this gives both major parties a real opportunity, as well as a problem. The first party that "grows a pair" politically, and moves decisively towards the center will capture the election. If they stay there after the election, they will cement an electoral alliance that will rule for years.



This victory isn't going to come free or without risk. Each and every candidate of the party is going to make a decision to sign or not sign on board the pledge. If they don't get enough candidates sign on to make the public believe they mean it as a party, there will be no gain and they will have alienated their base activists, likely depressing turnout among that group. Obvious solution, of course, is to get at least 200 sign ons before they take it public. Keep in mind, however, that it's not like the Democratic special interests will turn and vote Republican, or vice versa if the Republicans move first. Vote for the enemy because your longtime allies get less cozy? Not likely.



Nonetheless, the leaders of either party could pick any group of at least four or five points from this list, get enough of their candidates to sign on for critical mass, and make the following declarations:



"Citizens of the United States, we have been listening to what you're saying, and we have learned that you are mostly tired of partisan bickering, sniping back and forth between the major parties to the detriment of the country, all to score points with a handful of dedicated partisans, when the majority of the electorate knows the steps that have to be taken and is willing to undertake them."



"We hereby pledge a less partisan atmosphere in Washington. Whatever the outcome, we will not treat President Bush or whomever wins the election in 2008 as the enemy. The President is always the only person in this country to have been elected as the result of a national election, and is therefore entitled to our respect. We reserve the right to disagree with specific positions, and will work in favor of our viewpoint, but we will attempt to reach compromises acceptable to all. Once we have agreed to a compromise, we will commit ourselves to that course of action and not attempt to undercut it in order to alter it after the fact."



"One of the things that has contributed to the partisan atmosphere is the partisan gerrymanders passed by many legislatures, permanently putting as many seats as possible beyond the reach of one party or another. This means that the winner of one particular primary is guaranteed a victory in the general election, and encourages them to appeal to the partisans of that party, rather than the electorate at large. In order to correct this, we hereby commit ourselves to amending the federal code to making equal representation and minimum length of the boundaries between districts the only two criteria to be considered in drawing boundaries. To the extent possible, we believe that you should have the same choices as those living near you."



"We have heard many stories of voter fraud and voter intimidation. In order to be honest, our elections must be free of any intimidation, but they must also be free of fraud. Every fraudulent vote negates the value of one real citizen fulfilling their duty to this country. We commit ourselves to a requirement that every voting machine in this country make a permanent paper record of each vote as it is cast. We shall also take steps to ensure that only citizens may vote and nobody may cast more than one ballot per election. Voter intimidation and vote fraud, as well as conspiracy to commit either, shall be a felony punishable by the permanent forfeiture of your right to vote or hold office. Non-citizens who attempt any of these shall be subject to mandatory deportation. Voting is a right and a duty of citizens, and only of citizens. Voter fraud and voter intimidation are crimes against all of us."



"We must have a common language that we can all speak. If we cannot talk to one another, we are not one nation. English is the language of our government, and of our businesses. It is no kindness and no service to those who do not speak English to allow or encourage them to remain forever closed to and forever apart from the world of our public discourse and opportunity. The only people who gain from such a situation are those who derive their power from that separation. Therefore, we shall commit ourselves to limiting the availability of government materials in a language other than English. Within ten years, it is our goal that we will all be able to read, write, and speak in English. Ten years in our midst should be plenty of time to learn enough English to communicate with your fellow Americans. Within ten years, we should all vote in English, fill out government forms in English, and be able to apply for a job in English. The only exceptions to this should be the forms for official translations, and the forms for immigration."



"The United States is a nation of immigrants, but our past immigrants were legal immigrants. We need legal immigrants for any number of reasons, but we must insist upon the legal part of that designation. Countries that lose control of their borders soon lose control of their country, as well. Nonetheless, there are those currently here illegally who have been productive members of our society for many years, and we must come to an accommodation which acknowledges this fact. Once we have done so, however, this must be the last time we reward lawbreaking, as we have done in the past. Future illegal immigrants shall be deported and forever barred from entry. Employers who employ those in this country should face fines of three years' of this country's median cost of a legal employee, per emploee per incident. To counterbalance this, we shall commit ourselves to raising quotas and streamlining the process for those who wish to become Americans. Priority shall be given to those who possess skills in short supply, such as nursing currently is, and those who can pass an examination in written and spoken english. We will always welcome as many of those who wish to become Americans as possible."



"The point of our government is neither the creation of jobs nor the subsidization of large corporations. When the United States pays out our taxpayer's dollars, it should be for things that benefit the country as a whole, and only those things. Too many programs exist despite the agency involved being willing, even eager to dismantle them and use the savings elsewhere, because it meant benefits to a powerful member of congress, rather than the nation as a whole. We commit ourselves to the elimination of all earmarks, and a requirement that members of congress whose district benefits from a particular program more than the average district of the house or senate must recuse themselves from deliberations or voting in committee, although they should still be permitted their vote on the floor of the entire chamber. If ninety percent of the program's activity takes place in your district, you are not a disinterested judge of its value."



"We commit ourselves to a sane budget process. No family or corporation starts with a budget that spends every penny they possess and then permits anyone and everyone to suggest or demand additional money without corresponding cuts. We must set a yearly spending limit, and pick and choose what to spend, and at what priority, within the framework of that limit. We can no longer pretend that we can fully fund everyone's wish list. That way lies national bankruptcy."



"The actuaries have been telling us Social Security needs to be reformed for thirty years. The politicians of this country, ourselves included, have ignored the increasingly imminent course for fiscal disaster this has placed us upon in the name of political expediency for at least that long. Whereas those currently receiving benefits and those approaching retirement are morally entitled to the benefits they have been promised, those twenty years or more from retirement should be afforded the opportunity to direct part of their retirement funds away from the government, into an account associated with their own names, for their own benefit in their eventual retirement and able to pass them to their heirs, in exchange for which we will gradually decrease and phaseout retirement checks from the government treasury for new retirees altogether."



"We feel that whereas the separation of church and state need not be absolute, there can be no favoritism for the practices of one religion over another; nor can there be discrimination against the practitioners of any given religion. Religious symbols in public affairs should be preserved where they have real historical significance, but no additional ones should be emplaced. There is currently one religious legal holiday; those of other religions, or none, should be allowed to replace it with a substitute holiday of their own choice. Neither will we continue our more recent practice of permitting displays of religious activity of any other religion, while pointedly snubbing only our historically dominant one. If a school or other public entity wishes to have an activity promoting one religion, they should be required to so promote every other religion for which there is a request. Practitioners of every religion or none should be able to promote their viewpoints in public discourse and vote their consciences according to their various religions, but not to exclude those with other viewpoints from the public debate. Such was the intent of our founders, and our party is determined to return to that ideal."



"The idea of censoring speech to prevent offense is repugnant. To attempt to do so is the mark of a moral coward. There is no limit to what someone can or will claim offends them. If the mere act of expressing disagreement is potentially offensive, and therefore subject to censorship, we have lost the ability to discuss our issues in the public forum and resolve them in a way that brings justice and fair-mindedness, rather than strife and bitterness, to that resolution, and the issue will never be settled so long as many of our citizens believe they have not received a fair hearing or evaluation of their viewpoint. If the speaker is someone who indeed practices hate, prove them wrong by your speech in response, and by your deeds, not by being afraid or unwilling to answer their hate with your sanity, their accusations with your reason, their despite with your dignity. We shall commit ourselves to the nationwide removal of speech codes everywhere."



"Similarly, the relative ethnic, religious, or political alignment of the victims and perpetrators of a crime should be of no consequence to the severity or sentencing of a crime. The idea of laws against murder, against rape, against assault, is that the people of this great nation be secure in their lives from these threats. The idea of increasing the sentence for a crime because the victim was a member of a protected group, or because the perpetrator was not, brings back the worst spectres of the time before our civil rights movement, when there were people in jail or worse because of the color of their skin or the house of worship they attended or didn't. If were are dedicated to the proposition that we are a nation of idividuals who are equal before the law, this in intolerable, and although such determinations are largely reserved to the states, we intend to work against it to the maximum extent allowed by the Constitution."



"Most importantly, we are at war. We did not choose this war, and all wars with any hope of success involve offensive operations. Whatever the antecedents, the consequences for us as a nation of defeat would be far worse than any stain upon our honor of fighting the war as it needs to be fought. We shall continue to require our conduct, and that of our soldiers in this war, to reflect favorably upon us as a nation. Nonetheless, it is an unfortunate fact that some mistakes are unavoidable in war, and and that there will be casualties. We shall no longer accept conduct that undercuts the efforts of our brave defenders and endangers their lives for political gain. Henceforth, our position as a party shall be limited to giving our best advice as to how to most effectively win this war. Whether President Bush's successor is of our party or of the opposition, we shall urge that President to vigorously conduct this war to a successful conclusion."





I am sure there are other issues they could select. Except for that last issue, which is a trump with many rational centrist voters who have understandable nightmares about terrorists unleashing weapons of mass destruction or their functional equivalent upon our cities, none of them is mandatory, and in fact, this might work with as few as three such points, but the more ways in which they commit to moving to the center, the less they will have to work at convincing the voters of their sincerity. The idea is to move strongly towards the center, and in so doing crowd the other party into appealing to small portion of the political spectrum. Admittedly a tough deal to swing with those who are used to holding conversations only with the most dedicated partisans of their own party, but here's the bait: The first party to persuade the voters they mean it will win a veto-proof majority of Congress, control of most state legislatures, an increased share of governorships, and have the inside track on the presidency, and this advantage will last for a political generation. If either party doesn't like the opening this gives the other, they should move first.

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After I had written most of this, while mulling over the final wording, I was surfing around and encountered, via Dean's World (which has his own input to the idea), The Moderate Voice has a take that makes many points that support my conclusion. There is very old wisdom in political, mercantile, and military circles that you can't beat something with nothing, and both of our major parties would do well to remember it.

I got a search for "which states allow prepayment penalties". I'm not aware of any that don't. If you are, I'd like to know. Any such states should immediately be renamed "Denial".



I really hate prepayment penalties, for a large number of reasons. Nonetheless, to make them illegal would not be in the best interests of consumers.



Let's examine why. Let's consider a hypothetical couple, the Smiths, who don't have much of a down payment, and have difficulty qualifying for the loan. They want to become owners rather than renters, and it is in their best interests to do so.



The cold hard fact of the matter is that nobody does loans for free. Real Estate loans are complex creatures, and they don't just magically appear out of some hyperspatial vortex upon demand. I may cut my usual margin by half if I'm the buyer's agent as well, but that's because I've found I'm going to do a large portion of the work anyway, have to ride herd on the loan officer, and stress out because it's a major part of the transaction that can really hurt my clients that is not only not under my control, but I cannot monitor with any degree of confidence I'm being told the truth. I keep telling folks that the MLDS or GFE don't mean anything. They are not contracts, they are not loan commitments, they are not the Note or Deed of Trust, and they definitely aren't a funded loan. They are supposed to be a best guess estimate of your loan conditions, but with all the limitations and wiggle room built into them, the regulators might as well not have bothered. By themselves, they are worthless. None of the paper you get before you sign final loan documents means anything unless the loan officer wants it to. Unless the loan officer guarantees it in writing that says that someone other than you will eat any difference in costs, what you have is a used piece of paper with some unimportant markings on it. If I, as a better more experienced loan officer than the vast majority of loan officers out there, cannot monitor what another loan officer is doing with any degree of confidence, do you want to bet that you can?



So we have some folks who can just barely stretch to do the loan. In order to buy them a little space on their payments, so that any bill that comes in isn't an absolute disaster they cannot afford, and also so I can get paid without it coming out of the money these people don't have, I talk to them about the situation and we all agree to put a two year pre-payment penalty on the loan. This buys them a lower rate with lower payments, without adding anything to their loan balance. They don't owe any more money, they get a lower rate, I get paid, and they didn't have to come up with money they don't have. Everybody wins, whereas without the prepayment penalty they would be paying $200 per month more, and perhaps they couldn't qualify. No loan, no property, no start to the benefits of ownership. They certainly wouldn't have that $200 per month cushion that's likely to save their bacon from their first emergency. Leaving aside for a moment the issue that most folks want to buy more house than they can afford, that really stinks from the point of view of the people that those who would outlaw prepayment penalties altogether say they are trying to help, those who are trying to buy a home and just barely qualify.



Many folks have a long mortgage history, and they are comfortable in the knowledge that they will not refinance or sell within X number of years. They're willing to accept a pre-payment penalty in order to get the lower rate. They want that $200 per month in their pocket, not the bank's, and they are willing to accept the risk that they may need to sell or refinance in return. After all, if they don't sell or refinance within the term of the penalty, it cost them nothing. Zip. Zero. Nada. For all intents and purposes, free money. I may advise against it, but it is their decision to make or not make that bet, not mine, not the bank's, not the legislature's, and definitely not some clueless bureaucrat's, let alone that of some activist who only understands that lenders make money from them, and not the benefits that real consumers can receive if they go into it with their eyes open.



Pre-payment penalties get abused. Badly abused. I know of places that think nothing of putting a three year pre-payment penalty on a loan with a two year fixed period. There is no way on this earth anyone can tell those folks truthfully what their payments will be like in the third year. I may be able to tell them what the lowest possible payment could be, but not the highest. I've seen five year prepayment penalties on two and three year fixed rate loans, and that situation is even worse. I've heard of ten year prepayment penalties on a three year fixed rate loan. I've seen even A paper lenders slide in long prepayment penalties on unsuspecting borrowers that mean they get an extra six or eight points of profit when they sell the loan. So there are some real issues there.



With this in mind, there are some reforms I could really get behind. The first is making it illegal for a prepayment penalty to exceed the length of time that the actual interest rate is fixed. Regardless of what the contract says, once the real interest rate starts to adjust, no prepayment penalty can be charged (This means no prepayment penalties on Option ARMS, among other things). The second is putting a prepayment penalty disclosure clause in large prominent type on every one of the standard forms, and making it mandatory that the loan provider indemnify the borrower if the final loan delivered does not conform to the initial pre-payment disclosure. In other words, if I tell you there's no pre-payment penalty and there is one, I have to pay it for you. If I tell you there's a two year penalty, and it's a three year penalty, I have to pay it if you sell or refinance in the third year (in the first two years, it's your own lookout because you agreed to that from the beginning).



But to completely abolish the pre-payment payment penalty is not in the best interest of the consumers of any state. Show me a state that has abolished them completely, and I'll show you a state that has hurt its residents to no good purpose. Sometimes there is a good solution to a problem, as I believe I have demonstrated here. It's just not the first one that springs to mind.



Caveat Emptor.

UPDATED here

Carnival of The Vanities Recommended: Escape From Cubicle Nation

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Cool! They've got a mathematical model of how Neptune might have captured Triton, which always appeared to have been formed elsewhere, as well as orbiting retrograde to other moons.



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Men Pay the Ultimate Price to Attract Women



I hope someone gets film of when they tell Maureen Dowd, Catherine MacKinnon, and Susan Estrich.



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via LGF comes this IRNA article confirming that Ahmadinejad's letter to Bush was a call to Islam, with likely effects I discussed yesterday.

Jihad Watch has the text of the letter President Ahmadinejad sent to President Bush.



I'm going to hide some text here so that you won't read interpretations until you've looked at it, if such be your desire.



He thinks it's a Call to Islam, as encouraged by Mohammed in the Koran, possibly as a prelude for an attack. Reading it in it's entirety, I was thinking "Statement of causi belli according to an Iranian hardliner." Sort of analogous to our own Declaration of Independence in a twisted around kind of way. My estimate is that President Bush is not the real intended audience of the letter, which is intended to furnish ammunition for the apologists here in the US as well as rally the Islamist faithful. As is implied by the fact that it was an open letter.



Please read it for yourself. I am interested in what others have to say.

Via neo-neocon (who has her own worthwhile input), More confirmation in the New York Post.



Protein Wisdom says the obvious very well.



Scrappleface has the only possible reply from President Bush. Simultaneous reading of this reply and consumption of beverages is contra-indicated.



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Captain's Quarters has a nicely reasoned article on HUD Secretary Alfonso Jackson's turnabout on whether or not a Bush hating contractor had it's contract killed.



Two points I would like to make. First: What proportion of corporate contracts would you expect to stay rewarded if you told a loyal subordinate that the CEO was a incompetent and he intended to see that CEO replaced? Having a government contract is not some sort of right. Someone who tells you he's an in-your-face partisan of the other side may have incentive to use that contract to arrange for political embarrassment. I don't agree with revoking the contract but I can certainly understand the rationale and concede that it was a reasonable, intelligent response. I don't call my clients, who are putting money into my pocket, names. They'd dump me. I cannot blame Secretary Jackson for that.



Second, I would like to know how the above action by Secretary Jackson can be unacceptable, while Hillary Clinton's firing of the formerly nonpartisan employees of the White House Travel Office in favor of political appointees is acceptable? They didn't declare themselves her enemy, and as I recall, about half of them were registered Democrats. The only offense any one of them was guilty of was having served the Republican previous administration.



Volokh Conspiracy covers the legal angles.



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Meet the new members of the UN Human Rights Council: Cuba, China, Russia, Pakistan, Saudi Arabia, and Azerbaijan. I wish I was joking. Okay, I'm not aware of any major human rights violations Azerbaijan is guilty of, but that's not something I can say about the other new members. As the UN proceeds upon its quest to prove itself capable of making any situation worse, no matter how bad it was to begin with, Michelle Malkin has a round up.



Crimenetly, as many pies as the UN has their fingers in, you'd think they'd occasionally accomplish something beneficial by accident. No such luck, I'm afraid.



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Putin offers Russian Women Cash to have more babies



Glenn Reynolds has a good discussion.



Foreign Affairs has more.



I can tell you how to encourage children in one short sentence: Cut back on social insurance for old people. I'll let you folks do your own research to confirm or deny. You won't be convinced if I just lay it out.



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Professor Rudy Rummel, posting at Dean's World, has a list of the mass murdering realms of the twentieth century. For those condemning colonialism or imperialism, it is a damning condemnation of communism. 148 million citizens dead at the hands of their own communist governments.



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I've decided to do away with the "issues" email. Try as I might, I just couldn't get folks to use it, and so I am deleting that mailbox. Use the "dm" email for everything.



Stay tuned for more changes coming up, and there will be a new mortgage article tomorrow morning, as well as quite possibly a political one later.

(This is a somewhat redacted letter I've been sending out now for several months)



I have just recently attended a talk by Gregory Smith, the county assessor, on the future of home values in San Diego. He expects prices to continue to rise by 5-10% per year, citing scarcity as the reason. Basically, too few homes are being built, so we are in a situation with excess demand and not enough supply.



Now, public officials of the county of San Diego have an incentive to want prices to continue to rise. I tried to ask him a question about any other factors holding the price up, and he was unable to produce any.



Unfortunately for this point of view, high demand and scarce supply has a long history in the San Diego area. This has been a constant of the market, rather than a variable, since the late 1970s. Even during the last downturn, the problem was not a lack of interested buyers, the problem was that they couldn't afford the prices when interest rates went up. Sellers had a choice of selling at the prices people were able to qualify for or not at all. Many chose the latter option, it paid off in spades when interest rates fell and prices started rising again. Those in situations where waiting was not an option had no choice but to sell at lower prices.



The fact is that only 9% of the people can afford to purchase a home in San Diego. Even for wealthy investors who put $100,000 down on a $500,000 home with the intent of renting it out, their monthly cash requirements are $2528 to cover a 6.5% loan, plus approximately $500 per month to cover basic property taxes and then insurance, maintenance, etcetera on the property. Unless rents are well in excess of $3000 per month, which they are not, this amounts to investing $100,000 only to have to invest more every month in hopes that the market rise will eventually reimburse you. I agree with every respectable real estate investing guide that negative cash flow on an investment property is a recipe for disaster. This current situation in real estate has many parallels to the dot com investing bubble of several years ago.



Furthermore, we have many people who obtained short-term financing in the last several years, loans that must be refinanced within the next eighteen months, and will not be able to obtain terms that are as good or allow their adjustable rate loans to adjust. Either way, they are facing higher payments - payments that many are unlikely to be able to make. They will either sell voluntarily for what they can get, or involuntarily as the lender liquidates a nonperforming loan.



Even though long term rates are still remarkably affordable, short term financing, particularly on a "Stated Income" basis has become more prevalent for purchases, especially for beginning buyers, and these have risen enough to slow the market greatly. We are starting to see indications of a buyers market now. Homes are taking much longer to sell, and buyers are getting much more leverage on their offers. When longer term rates return to their historical margins above short, the effect will multiply. It doesn't take a genius - only a calculator - to know that when owner occupied rates go from 5.5% to 6.5%, somebody who could afford a $400,000 loan at 5.5% can only afford $359,000 at 6.5% (this difference is magnified for those willing to take interest only loans).



What does this mean to you, a homeowner? If you intend to hold onto your home for many years, I am confident that the market will eventually make good any short term correction. On the other hand, now is the time to secure the long term financing that enables you to hold onto the property profitably, while the high price of comparable properties helps your equity picture. (omitted text here)



If you are in a situation where you know that you are going to need to sell within the next few years, the time to act is definitely now, lest you lose more of your precious built-up equity to the short-term vagaries of the market. This market is going to get much worse for sellers before it gets better. (omitted text here)



And if you're looking to move to a larger house soon, the time to act is now to leverage the market! Sell while the market is still high, knowing that when prices recede later, the money you get from the sale will help you buy more house for less! (omitted text here)

Caveat Emptor

UPDATE: Today's mail had an invitation to a fundraising event for Mr. Smith's re-election, sent out by the realtors association. Nothing new, but it illustrates the fact that he's in the good graces of the realtors association. This doesn't happen by accident

originally here

Carnival of Liberty

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Holy Rabid Moonbats Batman! Ten Leftist Conspiracy Theories



I'm perfectly willing to entertain evidence in support of any of them. Given the realities of the situation, however, I'd more likely bet the ranch the other way than bet a nickel that any of them are likely to be true.



HT Wrightwing



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Chapomatic has an interesting post titled "On A Genocide Prevention Corps" Worth reading in that it tells us what we need to do if we really want to get involved in genocide prevention.



Unfortunately, the political will to succeed at genocide prevention does not exist in this country. I wish it were otherwise, but wishing does not make it so. We're having enough political trouble with the die-hards about what's already on our plate, in which the United States has vital immediate interests. I'm not sure we have the leftover resources for Darfur, but if those who run our military say we do, I'd vote for intervention. Every person whose government treats them like that makes for a less secure, less happy world, and any investment we make will be repaid many times over. But if we were to intervene, many domestic interests would turn it for their own ends, with the end result that we'd depart with the mission unfinished and the end situation would be many times worse. Indeed, the false hope engendered would magnify the damage.



I'm not a religious man in the traditional sense, but if I were I'd hope there was a special hell reserved for people like Milosevic and the Khartoum government, among others. And second one right next to it for those who play political games for their own benefit with the victims of those in the first one.



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Eidelblog goes a bit over the top in taking apart a socialist methodology, but I suppose that if you need shaped charges to penetrate the solid neutronium head plating. It makes a lot of points that cannot be made too often.



While you're there, Eidelblog also ably defends the Laffer Curve, while directing me to Poor and Stupid's excellent speech to the National Organization of Investment Professionals.



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Wizbang notes that Israel may have saved the life of Palestinian president Abbas from the Hamas thugs in his own government. I'm no huge fan of Abbas, but he's all that's keeping an even worse group of terrorists from complete control of the Palestinian apparatus and an even worse situation for the civilized world.



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via Argghhh! , an Orson Scott Card piece that says at length what I said in about two paragraphs a couple of weeks ago. He gives more depth, more examples, but the conclusion and basic reasoning is the same.



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Jihad Watch has the text of the letter President Ahmadinejad sent to President Bush.



I'm going to hide some text here so that you won't read interpretations until you've looked at it, if such be your desire.







Please read it for yourself. I am interested in what others have to say.



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I'm likely to have retreads for the morning article for the next couple of days. I gave you folks five articles last week, and it looks like I may have to dial it back a little this week.

do your property taxes go up in California when you refinance your property

This is one of those urban legends. People are concerned that because the house is appraised by the lender, the assessor is somehow going to find out that their property is worth more and send their tax bill soaring.

However, thanks to Proposition 13 in California, the formula for property taxes has little to do with what the home is really worth. The formula is based upon the purchase price plus two percent per year, compounded. If you can document that your home is worth less than this amount, contact your county assessor's office. But if it's worth more, they cannot increase it beyond this number.

Indeed, certain family transfers can preserve this lower tax basis. Mom and dad deed it to the kids, and the kids keep paying taxes on it based upon a purchase price of perhaps $60,000 (Plus thirty-odd years of compounding at two percent, so maybe $115,000) when comparable homes may be selling for $600,000.

There are two major exceptions. First, a sale. If you sell it to someone else, then repurchase, you don't get the old tax basis back. Second, improvements. If you take out a building permit, the assessor will add the current value of your improvements to your tax bill. This can, in situations like the previous paragraph, result in a tax bill that literally doubles if you add a room. Indeed, this is one of the main reasons for the growth of the unlicensed contractor industry, because licensed ones have to make certain the permits are in order, and homeowners are trying to sneak one over on the county. This is why a very large proportion of properties in MLS have the notation that "this addition may not have been permitted." They know good and well that the addition wasn't permitted, and quite likely isn't to code, either. If it's built to code, subsequent owners can get forgiveness as innocent beneficiaries who bought the house like that, and so the purchase price included the value of that room (and occasionally, the state finds it worth its while to go after the previous owner for back taxes and possible penalties, and I believe that the incidence of this will likely increase dramatically in the next couple of years). If it's not built to code, however (an offense unlicensed contractors often commit), the subsequent owner can be looking at a large mandatory repair bill, or perhaps even demolishing the addition they paid for if the county inspector deems it unsound. You want to be very careful about properties with the "addition may not have been permitted" disclosure.

Other states, by and large, still follow the assessment model California used to follow, pre-Proposition 13. They have county records of the property characteristics, and evaluate the home based upon those characteristics, whence comes your assessment, and hence, your property tax bill. This still encourages unlicensed contractors and working without required permits, with effects much the same as the previous paragraph, which is definitely not good, but in this case subsequent owners have nothing but incentive to keep improvements off the county books, where in California, subsequent owners have motivation to want improvements updated into county records. I am not aware of any state which follows a model whereby refinancing will alter your tax bill.

Caveat Emptor

UPDATED here

Carnival of Investing



Carnival of Personal Finance Recommended: Insureblog



RINO Sightings Recommended: Pigilito Says



Carnival of The Capitalists Recommended: Membox

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Cool! Saharan Sand type Dunes Found on Saturn's Moon Titan



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Election manipulation in Yemen. Forged Voter Records. Assaulting and intimidating election monitors. All the usual suspects.



It's enough to make you grateful for our founding fathers all over again.



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Via LGF, The Corner reports that Scooter Libby's defense team supposedly has five folks who will testify Joseph Wilson told them his wife worked for the CIA.



So there's a strong possibility that the person who blew Plame's cover was Wilson himself? Oh, irony!



Do you suppose there will be any charges filed?



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Sorry about the lack of new stuff. I spent the weekend refinishing kitchen cabinets, which now look gorgeous (and they'll look even better when I put the doors back on and drawers back in), as a result of which I'm sitting here so sore it hurts to type. Belt sander and orbital all day Saturday, hair of the dog Sunday, which is to say manual sanding, followed by staining and varnishing. It's been nearly thirty years since I did that much of this sort of work.



My brother (who we told about our plans) had the gall to call while we were at dinner Sunday night about 7:30, and ask if there was anything he could do to earn some money. Well, not now. Saturday and Sunday, I'd have let him bring his laundry over and watch movies with the kids while Ramona and I worked, and probably even have paid him a few bucks to keep the kids out of the way. Or, I'd have paid him more to help me while Ramona watched movies with the kids. But with everything done but the re-assembly, which will take maybe an hour of easy work, he calls like he wants to earn money. I didn't bother to call him back, but if he were a politician, I'd predict a great future.

What is the reasonable amount of notice to give when changing contract terms in California

That was a search I got. Unfortunately for this person, a real estate contract is not something like Lando Calrissian's bargain with the Empire, where Darth Vader was free to alter it at will.

The real estate contract is negotiated until both sides are in complete agreement as to the terms the exchange will be made upon. There cannot be any differences in the terms of the proposed agreement and accepted agreement, or you aren't done negotiating yet.

Once accepted by both parties, the contract terms are not unilaterally alterable by either party. They can, in most cases, walk away from the deal completely if something isn't right, but they can't say, "The deal is still on, but you're paying me $5000 more than you thought," any more than they can tell you, "And I get your car, too!"

Now, if something pops up such that you don't think it's a good exchange to be making any more, in most cases you can walk away from it, albeit with possible consequences for the deposit. In such cases, if the other party wants to keep the deal going, they can offer concessions, but you cannot force them to change the terms of the contract. The same thing holds true in reverse. They can't force you to alter the terms of the contract, but if they're ready to walk away and you want to keep them in the contract, you can offer concessions or ask what it would take to keep the transaction going. If you don't like what they say, you don't have to accept those terms, any more than they had to accept the contract in the first place.

In short, contracts to purchase real estate are two-sided contracts, and are not alterable by any party to it without the agreement of all parties.

Caveat Emptor.

UPDATED here

There are all sorts of reasons why escrow falls through, but they fall into three main categories. They can best be described as failures of qualification, failures of the property itself, and failures of execution.



Before I get into the main subject matter of the article, I need to define a contingency period. This is a period built into the beginning of the escrow process when one party or the other can walk away without consequences or penalty, usually for a specific reason. For instance, the default on the standard forms here in California is that all offers to purchase are contingent upon the loan for seventeen calendar days after acceptance. If the loan is turned down on the sixteenth day and the buyer notifies the seller that they want out immediately, the seller should allow the deposit to be returned by escrow. If it happened on the nineteenth day, the buyer should be aware that their deposit is likely forfeit. A contingency, just like anything else, is something negotiated as part of the purchase contract. If it's in the contract, you have one. If it's not, you don't, although some states may give buyers certain contingency rights as a matter of law.



Failure to qualify means that something goes astray with the buyer's quest to acquire necessary financing. They cannot qualify for the loan, they do not qualify within the escrow period under the contract, they allow their loan officer to spin all kinds of fairy tales about what the market is doing or likely to be doing when the plain fact of the matter is that the loan officer just can't do the loan on the terms they indicated when the poor unsuspecting consumer signed up. Maybe it existed at one time, or maybe they just hoped it would. In any case, it wasn't locked in and it certainly doesn't exist now, so rather than pay the difference out of their commission, the loan officer delays and hopes for the market or a miracle to save them. Or they told the consumer about a loan they thought they might be able to qualify them for, only to find out they don't, and they're stalling, hoping a better alternative will open up. Fact is, that if a loan officer can't get the loan done in thirty days, I'll bet money they can't do it on the terms stated in the initial documents. Jokers like this are a large part of the reason you should have a back up loan if you can find someone willing. Chances are much better that both loans will be ready to go with a lot fewer games played.



Sometimes it does happen that consumers don't qualify for the loans due to real problems that just don't come up until the file is in underwriting. Since this can cause you to lose your deposit, it's a good idea to ask your loan officer about any potential problems before you make an offer. You know your personal financial situation but you probably don't know what all of the potential disqualifying issues for a lender. The loan officer should know what the issues are that may cause lenders to have difficulty approving your loan, but they don't know your history unless you tell them. Many things that underwriting will catch do not necessarily show up on a loan application or credit report, so if you have an unpaid collection, monthly expenses that might not show up, a lien, a dispute in progress, any issues with your source of income, or anything else in your background that you have any questions about whether it could impact your loan, it's a good idea to ask right upfront, before you get into the process. Sometimes these issues mean that you flat out do not qualify, sometimes they mean that instead of 100 percent financing, you only qualify for 70 percent. Unless you have that extra 30 percent of the purchase price lying around somewhere, the transaction isn't going to fly, and the sooner you find out, the better. A loan officer who can't show you a loan commitment with conditions you can meet before the end of the contingency period is not your friend.



The second category of reasons escrow fails are failures of the property. Some defect is disclosed by the inspection process that the owner does not want to correct or is unable to correct, and the buyer decides that the property is not for them under the circumstances. Mold, termite damage, seepage, damage to the foundation, and all of the other usual suspects fall into this category. Title issues are here also, although they usually become unsolvable when they impact the loan. If the seller can't deliver clear title, the title company won't insure it, the lender won't lend the money, and any rational buyer should want to walk away. Why do you want to give someone money when they are likely not legally entitled to sell you the property?



For defects, both structural and title, providing it was discovered within the contingency period, it's up to the seller to convince the buyer they should still be interested. After the contingency period is over, things are more complicated as there is the possible forfeiture of the deposit to weigh. Good agents that you want to recommend to your friends get out and get the inspections done right away to avoid this issue. Agents that are looking to line their own pocket wait until the contingency period is over before doing so, as this gives the buyer more incentive to stay in the transaction. Let's say you've got a $5000 deposit on the line and seventeen days to remove contingencies, as is the default here in California. Would you rather your agent got an inspector out within a couple of days, or waited three weeks? Keep in mind that you're going to pay the inspector, but that's money you're going to spend regardless. The first possibility means that you find out about potential defects while you can still recover your deposit, while the second possibility means the seller can likely keep that deposit. I know which situation I'd rather be in.



Failures of execution are likely to be because someone messed up. The seller didn't do this. The buyer didn't do that. One agent or the other dropped the ball. The escrow officer didn't do their job. Loan officer failures would be here if loans weren't a whole category on their own. This category covers all the little details in the purchase contract, each of which has to be met before the escrow officer can close the transaction. These failures may or may not be actionable, in the sense of you being able to hold them responsible for their failure. Many times, the escrow officer is used as a whipping post for the failures of other parties, but some escrow officers do screw up big time. Sometimes it takes an outside expert to dissect things dispassionately in order to figure out what went wrong where and whose fault it was, but outside experts cost money, so most of the time everybody just fades into the sunset pointing fingers at each other, unless there's some pretty significant cash involved. The transaction is dead and it's not coming back. Unless there's a good possibility of recovering enough money to make it worthwhile, let it go.



Caveat Emptor.

UPDATED here

Riverside County Foreclosure Rates Rise 64%



Riverside County is the exurban bedroom community not only for San Diego, but for Orange County and Los Angeles County as well. It's where people head for affordable housing, despite commutes that vary from one to two hours each way. Entry level people were buying there, just to get their foot in the door of being homeowners. And people being people and real estate agents and loan officers being what they are, of course the people were encouraged to stretch too much so that the alleged professionals could get a bigger commission, and now the chickens are starting to come home to roost. A couple years ago you could still get a decent house in Hemet for $100,000, but part of the price for most folks was an 80 plus mile commute, the first twenty of which were to get to the freeway. The same thing today is around $300,000 or so. Temecula and Murrietta are as expensive as suburban San Diego county. Market overheats, people pay too much and secure it with unstable short term loans that they know they're going to have to refinance. Then Wile E. Coyote looked down, and now the folks are upside down on their mortgage and they can't refinance, not to mention rates are up (At least a full quarter of a percent on 30 year fixed in the last week or so, over half a percent since the start of the year).



The lenders are going to be in trouble soon. Bet they're regretting pushing all the garbage loans, and I'm betting underwriting and program standards are going to get tightened in a hurry, particularly in the subprime market.



I've gotten compliance alerts that were non-news to me from at least four lenders in the last week. This was stuff like "Don't commit fraud" and "We're watching for excessive fees". The lenders normally send out this kind of thing when they've been sued, as evidence to show they're supposedly on top of it, or that they're closing the barn door after this particular horse has escaped, so that, to quote Leo Bloom "We're very sorry and we'll never do it again!" But the real hazard to the lender's health is going to be defaults, foreclosures, and REO's where they don't recover their investment. We are likely looking at subprime lenders failing in the same numbers as Savings and Loans did in the early nineties.



I do not believe the A paper lenders are going to have that level of problem, as the Fannie Mae and Freddie Mac guidelines are probably going to turn out to have saved their bacon in retrospect. They'll have some increase in the default rate, of course, but nothing like what the subprimers are likely to see. They'll also probably lose some refinance business because Loan to Value ratios won't be there to meet guidelines.



Taxpayer bailouts are likely to be limited, however, as most subprime lenders are packaging houses that work with Wall Street money rather than depositors' funds, but look for some real trouble in the bond market, particularly mortgage bonds, but bleeding through to corporate in some instances. Now would not be a good time to be in residential REITs, either.



Now if your current lender fails, it really doesn't make much of a difference to you. The right to receive payments is going to be sold off somewhere, so just keep making those payments on time. Nor are they going to alter the terms of the contract you signed. But when you go to refinance, it could be a lot harder to find a loan if large numbers of subprimes go out of business and the survivors tighten up their policies. The ones who survive are also going to raise prices, aka rates, because they will be able to. Furthermore, with market deflation, a lot of folks that are A paper now could find themselves stuck in a subprime lending situation. Say you bought the property with an A paper 3/1 ARM two years ago, but you can't afford what it adjusts to and when you go to refinance you find that you're now in a subprime situation because you've lost some equity. This may well be a horns of the dilemma situation as you can't afford your current A paper loan and you can't afford the rate on a subprime refinance.



This is why ignorance of financial principles among other things, can be deadly to your financial health. These folks were encouraged to stretch too far by unethical people who pretended to be their friends in that they promised to get them into property they should not have been able to afford. Now the people are going to lose their home, their investment, have their credit rating ruined (because nothing hurts credit like a mortgage default), and likely owe thousands of dollars in taxes from debt forgiveness. I sincerely hope that those agents and loan officers who made this their practice face some severe consequences. If there's some lawyers out there looking for class action work that actually benefits the public, I know where you can start looking. Ditto district attorneys looking for some high profile public feel-good cases.



Caveat Emptor

If you're looking for my article on "Southern California Real Estate and Loan Market Outlook" the link is here. For some reason it's not displaying on the main page, and I can't access it myself at the moment to fix the typo in the title. I had to get the link from email. Probably something I inadvertently did myself, and I've asked Powerblogs tech support for help. I hope to have it restored soon.



UPDATE: Okay, I've got a copy of the post in email, but Powerblogs is acting awfully squirrelly here. The post is not showing up at all now, and that includes after I cut and pasted it a second time. I will post it again as soon as this problem gets straightened out.



UPDATE AGAIN: As I was getting ready to post, I decided to try one more time. The link above is now fixed. I hope this is the last word on the subject.

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From Remarks by President Bush to the American Council of Engineering Companies

But the problem is, is that there are fewer payers per beneficiary into the system than ever before. In other words, there is a heavy burden on a young generation of Americans coming up to pay the promises that Congress has made. And I really, really think that Congress has got to address this issue with me.



I tried last year, I took it on, Social Security in particular, and went around the country saying, folks, we got a problem — on the theory that when the people said we got a problem, Congress would respond. Well, I got half of it right. (Laughter.) People said, we got a problem. And it's so political up here that it's difficult at this stage of the game to get people to come together, to come with a bipartisan solution. Look, we don't have to cut programs. It's like making sure you slow your car down to the speed limit. You don't have to put it in reverse. There are common-sense ways to keep the promises to the generation that is fixing to retire, but make sure that future generations will have a sound Social Security and Medicare system.



So I just want to assure you this issue is on my mind a lot. I like to remind people that the job of a President is to confront problems, no matter how difficult they may look, and not pass them on to future Presidents. I also believe — (applause.) So we're in the process of working with Democrats and Republicans to come together to forge a bipartisan solution so that we can say we did our duty, that we came and we made the system work better. It's a really important issue.

This man may make mistakes and I certainly have my disagreements with him, but he's a walking talking miracle: an elected politician willing to take responsibility and fix a problem that he could ignore. The whole speech reads like something Reagan would have said, but even Reagan never had the guts to tell Congress he'd give them the political cover for fixing social security.



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via Combs Spouts Off, I read Of Fire in a Field, having to do with 9/11 and United 93, both the flight and the movie. I highly recommend you do, as well.



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What he said: Captain's Quarters on the differences between natural rights and civil rights, as that difference relates to the illegal immigration debate and the Civil Rights movements of the 1950s and 60s.



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Frontpage tells us what the Cuban Revolution was really like.



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Lest Darkness Fall has a good article on the effects of the illegal alien boycott on Los Angeles. San Diego was much the same, from what I can tell.



My supervising broker (himself a legal immigrant from Mexico while a child) said it best, "If this is what happens when they boycott, I hope they do it more often!"



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Ogre notes a certain consistency to the "Big Government" mindset.

Asymmetric Information has an excellent article on what journalistic ethics are and are not, much to the chagrin of Juan Cole. As I stated a few days ago, I would not make it illegal for the press to publish anything, so long as they're willing to defend it's factuality in court. That they publish a given piece of information may disclose all sorts of moral and ethical failings on their part, and they perhaps should face economic consequences as a result, but should not be subject to legal action for the act of publishing factual information that someone would rather remain private.



The immediate issue raised by Ms. Galt has to do with writings that were supposed to be limited in distribution that were exposed to a far wider audience than intended, but it has much broader applicability. To my mind, it includes everything, includes national security information. Those who divulge classified information to the press should face severe legal consequences, which is one of many reasons I oppose shield laws for journalists or anyone else, but the journalists themselves are doing their jobs. They signed no loyalty oath, promised no secrecy, obtained no security clearance. Indeed, their livelihood is something of the opposite.



And as for national security information itself, better that we know it is compromised and how it was compromised than think it wasn't. If a journalist could find out about it, it wasn't as secure as it needed to be, was it?



And if partisans of one political party are willing to spend time in prison to bring things to the light of public scrutiny, that is a valid point in favor of their viewpoint. If they are only willing to betray national security in order to score political points if they can escape the legal consequences, that is an equally big point against them.

This is a question that gets asked a lot.



Escrow is nothing more or less than a neutral third party that stands in the middle of a real estate transaction and makes certain all of the i's are dotted and t's are crossed. They make certain that all of the terms of the contract have been met, and then they make certain that everyone who is a party to the transaction gets what is coming to them via the contract.



Many times folks complain about the escrow company or escrow officer, when it's not their fault and the problem lies elsewhere. The escrow company is obligated to make certain all of the terms of the contract have been followed, not just most of them. I've talked before about how if the contract is not accepted exactly as proposed in the most recent modification, you don't have a deal. There cannot be any points of disagreement, or you don't have a purchase contract. Similarly for escrow. Usually problems that the client sees are not the escrow officer's doing, but rather someone else's. Quite often, the person complaining is the person who caused the problem. The escrow officer can't do anything without mutual agreement. If the loan officer doesn't get the loan in a timely fashion, it's not the escrow officer's fault. If the agent doesn't meet the inspector or appraiser so they can get their work done in a timely fashion, it's not the escrow officer's fault. If you can't qualify for the loan, if you have to come up with more money, if you don't get as much money as you thought, it's not the escrow officer's fault. But in many cases, the escrow officer makes a convenient whipping boy for the sins of others.



This is not to say that it's never the escrow officer's fault that something goes wrong, but if one party or the other is not in compliance with the terms of the agreement, the only thing the escrow officer can do is get an amended agreement or get them into compliance. Nonetheless, I have seen many transactions fall apart because the escrow officer was a bozo. The really good escrow officers are like chess masters - several moves ahead of the whole game, and when I find one, I want to use them all of the time. Unfortunately for buyer's agents, the seller is the one with real control over where the escrow transaction goes, and when the seller's agent decides they want to use some bozo, that's probably where it's going. I can do all kinds of things that should move them, but the bottom line is they want to use their broker's pet escrow (who is more likely to be staffed by bozos than any other escrow company, as they've got captive clients), I as the buyer's agent cannot force them to go elsewhere.



As the escrow process moves forward, the escrow officer collects documentation that the various requirements of the contract have been fulfilled. When they have all been fulfilled, the transaction is ready to close and record.



The loan is usually the last thing left hanging after everything else is done. There are a variety of reasons for this, most obvious of which is that the loan's conditions are likely to include everything else being done before the loan funds. Appraisal, grant deed, inspection, etcetera and ad nauseum. When the borrower meets underwriter's guidelines, they go and sign loan documents. Signing loan documents does not mean the loan will fund, and it is a major misapprehension to believe so. It is legitimate to move conditions from prior to docs to prior to funding if doing so serves some interest of the client, such as funding the loan before the rate lock expires. If they go to documents before the client's income and occupational status have been verified, that's an unethical lender looking to lock the client into their loan or none at all. Always demand a copy of outstanding conditions to fund the loan before you sign loan documents.



Once the loan documents are signed is when the real fun begins, because that's when the underwriter takes a step back and the funder steps to the forefront. The loan funder is an employee of the lender who fulfills much the same function as the escrow officer - make sure all of the conditions have been met before they release the money. The loan funder has responsibility only to the lender, though, not the borrower, not the seller, not anyone else. It's their job to ask such questions as when the homeowner's insurance got paid (and where is the proof?), has the final Verification of employment been done (assuming they aren't required to do it themselves), or work out a procedure whereby they get proof that all of this stuff is satisfied before the funds get released. If the loan officer has done their job correctly, the funder is working primarily with the escrow company. If I have to talk to the funder as a loan officer, that's usually a sign I should have worked a little harder earlier on, because my part should be done before the funder gets involved.



Once all of the conditions to fund the loan and close the transaction have been met, the escrow officer records the transaction. In point of fact, it's the title company who usually is set up to record the documents, something they will charge for. Until the transaction is recorded, the lender can pull the funds back. It's not the escrow officer's fault (in most cases) if they do this. It's because something about the borrower's situation changed, and now the lender is unhappy. Only rarely is it caused by a bozo of an escrow officer who doesn't understand what's going on, and tells the funder something that causes the lender to get nervous. Remember, they are loaning a lot of money, and the list of reasons why lenders justifiably get nervous is fairly long, especially as a certain percentage of all mortgage applications are fraudulent.



Once the loan is funded and the transaction recorded, the escrow officer has some final stuff to do. Send out the checks to everyone who's getting one, complete with an accounting of the money. Make certain all charges relating to the transaction are paid, for which they will usually keep a small "pad" for last minute expenses, so that the buyer and seller are likely to see a check a few days later after the escrow officer has made certain everything is paid to the penny. And so ends the transaction, and this article.



Caveat Emptor.

UPDATED here

legal information on going through probate without money

That was a search hit I got.

The problem with this question is that you can't go through probate without money. The deceased's creditors want cash. The probate court wants cash. Attorneys and anybody else your executor has to hire want cash. Federal Estate tax may be on the way out, but while it's still here, that final tax form and the cash are due nine months after death. State estate tax is still here in most states, nor is it likely to go away, and the state wants cash, not promissory notes.

Your estate is going to have to get this money from somewhere, and I'll enumerate the classical alternatives, assuming that the point is not moot. If you die owing more than you have, settling your estate becomes a matter of purely academic interest, because your heirs aren't getting anything substantial.

Most obvious is to pay for it with money on hand, already in the estate. If you could afford this, you wouldn't have been running that search.

Also obvious is to have the executor (or other heir) loan the money out of their own pocket. This sometimes happens in the case of someone who's inheriting a house or other major assets. Sometimes executors take out short term loans for this purpose, also. Be careful - one thing most state laws require is that when you pay a debt for an estate, you must get written proof that you paid it out of your own funds for the settlement of the debts of the estate. On the other hand, if you could do this you probably wouldn't be running this search.

The next option is sale of assets to pay the debts, taxes, and anything else. This happens disturbingly often, mostly as a result of people who persist in believing that they're going to live forever. The notable drawbacks of this are two. The minor one is that maybe your heirs didn't want to sell, and the major one is that they're not likely to get anything like full price in such a situation. When you have to sell, the ones with the cash drive fire sale-like bargains. Also, the executor has to have the court approve this, which costs money in and of itself.

The next option is to do nothing. If this is what your heirs opt for, the vast majority of the time the court will order any assets there may be sold in order to pay the existing creditors and new assessments caused by your death. Your heirs are likely to get even less money here than the previous paragraph, and the court itself certainly won't cost any less.

The final option, and likely the best one, is to do what folks who plan ahead do, and have a policy of life insurance in effect. This is one of the reasons why Variable Life, and particularly Variable Universal Life Insurance, beats term life insurance like a red-headed stepchild when you consider the lifelong implications. The proceeds are all leveraged, tax free money, coming to pay your estate's bills as soon as your executor sends the insurance company your notice of death. Unfortunately, at the time your heirs are running that search, it's too late for this option. Like most really wonderful financial windfalls, you've got to plan ahead to make this work for your heirs.

Caveat Emptor.

Carnival of Liberty 43

The Carnival brought to you by members and sympathizers of the Life Liberty Property community.


Editor's Choice

Right Wing Nation

There is nothing I can say that adds to "You made us believe in heroes."

Life:

Reb Chaim HaQoton has a lengthy and detailed article tracing the politics and factions of Zionism from the 19th century to the present day in Reactions to Zionism

Pubcrawler brings british housing policies to our attention in Centralized housing policies. Pay attention: That's where the communists economic rights activists would have the United States go.

Resistance is Futile! brings us a riposte to Neil Young's latest in Southern Man

The Liberty Papers talks about President Bush's many failures and while reminding us that the other choice was even worse in Why Did I Vote For You?

Radical Libertarian talks about his experience in jury duty in Aaron Kinney vs. Jury Duty.

Left Brain Female has a question to ask: Immigrants or Migrants? I think the answer is closer to "colonists."

Liberty:

OK, So I'm Not a Cowboy makes an intricately reasoned case for saving marriage by removing state sanction in Defending Marriage.

New World Man has a nicely reasoned article about the government, the internet, and not offending people in Something that will never be discussed with intelligence or clarity anywhere. Except in his essay, of course.

Ane's Weblog discusses a certain lack of symmetry in I wonder would they do the same?

Homeland Stupidity talks about The true way to fix the entire government. Basically comply with truth in labelling?

Don Surber has an interesting letter on work requirements in Mexico from someone who had jumped through all the hoops. I highly recommend you read How Mexico Treats Its Illegal Alien Workers. I knew most of it, but people don't want to believe.

The Skwib discusses preventing old folks from acting like college kids in City council bans "overage" concert going

Property:

Mondo QT has an in depth report about the leveraging of potential eminent domain to force folks to sell in EDA's Follies: Part Four. The best way to deal with eminent domain abuse, of course, is to take away the money motivation.

No Government Cheese talks about the President caving to cheap political pressure in More Domestic Wimpyness From President

Fearless Philosophy has a proposal to make in A Fearless Free Market Solution to Lower Gas Prices

Combs Spouts Off in a highly literate, well researched article on how to fix the high price of gas in Gas prices, demagoguery, and economic illiteracy I recommend reading this article before you start complaining about oil companies. As I've said before, the problem is politics, not oil company greed.



Next week: Robot Guy

Carnival of Insanity Recommended: Thomas Joscelyn, Canadian Financial Stuff, Israelly Cool (16 minutes but especially recommended!), One Cosmos, Done With Mirrors,



The above was a carryover from last week. I didn't submit to any carnivals this week, although I'll have Carnival of Liberty tomorrow. Here are the links from some I often do submit to:



Carnival of Capitalists



Carnival of Personal Finance



RINO Sightings

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A lot of people are writing about how translating "The Star Spangled Banner" into spanish bugs them. It would not bug me if the words and sentiment were the same as the original, but they are not. Mind you, I think the protesters
have every right to do their version, but it's not helping them make their case, as far as I'm concerned. If they sang "The Star Spangled Banner" in english, or even translated literally into spanish, I might be impressed with their patriotism and willingness to adopt the US as a homeland, to assimilate enough into our culture, etcetera. With the version they are pushing, they make me believe they are whining gripers about having merely gotten the best immigration deal available anywhere in the world.



We need immigrants who want to be part of our society. Would be colonists need not apply, as far as I'm concerned.



Now, I live in San Diego, and my office is in a heavily hispanic area less than 10 miles from the Mexican border. Thus far, I have noticed zero difference between today and any other day, nor has anyone else in my office.



Seems to me that the big May 1 "strike" is a bust, as I predicted.



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Via ROFASix, an article detailing Congress' willingness to cut appropriations for combat necessities in order to pay for weapons systems that may never work. I cannot believe they are still spending money on the V-22. That thing should have been staked through the heart ten times by now, and would have, if not for Congress.



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What he said: Respectful Insolence has the best take on the Andrea Clarke case that I have read so far. Money quote:

If the hospital and those supporting the withdrawal of care against a family's will are going to make the argument that we as a society can no longer afford to provide what it considers "futile care" to Clarke and others like her, that doing so raises everyone's health care costs and uses up scarce resources for little or no benefit, they should make that argument rather than hiding the what is clearly primarily an argument weighing the good of the patient versus the good of society in unconvincing arguments based "personal autonomy"--or explain how it serves personal autonomy to let a woman die against her and her family's will.

I agree completely.



Make no mistake. Eventually we are going to have to have that argument. Attempts to avoid it by claiming, like the hospital here did, that further treatment is against the best interests of the patient when the patient does not agree, is deceitful at best. As medicine gets more and more capable, and more and more expensive, there will clearly be a point at which we have to give up treating a given patient. I fully expect that that point will eventually be variable from patient to patient and even from time to time, based upon monetary concerns. But attempting to sidestep this debate by pretending you are motivated by patient welfare is vile.



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neo-neocon has an article up questioning whether we in the United States should prosecute leakers, and whether it should be criminal.



My take is that it varies with the status of the individual doing the leaking. If it is someone with no special access or priveleges, who came by the information because others failed to contain it, that should not be a criminal offense.



If, on the other hand, it is someone who pledged secrecy through obtaining and accepting a security clearance, with all that that entails, then it should be prosecuted as Treason without exception.



If this is someone who truly believes the good of the country requires this disclosure, they should be willing to accept the consequences of doing so. Gandhi, MLK, and others who used civil disobedience thusly were quite willing to face the consequences. Gandhi faced the judge and told him that he freely admitted his guilt, he was unrepentant, and he planned to commit the same crime again, so if the judge believed that the law was just, that judge had no alternative but to impose the maximum penalty.



We will not continue to function indefinitely as a society unless we can rid ourselves of the poisonous idea that that those placed in positions of authority are always evil, always wrong, or always cowards fleeing the political consequences. Like it or not, these are the people that have been entrusted with making those decisions by the people of this country. It does all of us violence to dodge the decisions of those who have acquired said power legitimately. You want to be the one to make those decisions, you get yourself elected. Until then, you agreed to be a minion. If you cannot continue to do so in good conscience, the correct thing to do is resign. Not that this gives you the right to leak the information you were entrusted with, of course.



For those cases where it did serve the good of the country, that is what executive clemency is for. But in order to procure this kind of clemency, you have to roll the dice that the average citizen of the country will agree that what you did was, under the circumstances, correct. You may have to spend some time in jail first, of course. But that never stopped those whose teachings and example the leakers are claiming to be following.



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Sorry - out of time for today!

I keep getting search result hits for the string "fsbo horror." It's an amalgamation because I haven't done any postings on this specific subject.



Both buyers and sellers have problems relating to For Sale By Owner issues.



For sellers, the largest issue seems to be properly disclosing all relevant items to satisfy the liability issue. There are resources available, but the question is whether the you took proper advantage of them and made all the legally required disclosures on any issue with the property there may be. If you have an agent that fails to do this, you can sue them. If you are doing it yourself, the only one responsible is you. You are claiming to be capable of doing just as good a job as the professional, and if you didn't do it right, the buyer is going to come after you.



Now I'm going to leave the marketing and pricing questions out of the equation, because with a For Sale By Owner most folks should understand that in return for not paying a professional to help you, you've got to do it yourself. What many For Sale By Owner folks seem to fail to understand, however, is that if you haven't met legal requirements, the real nightmare may be just beginning when the property sells.



Let's say it was something fairly innocuous, like seeping water from a slow leak you didn't know about. A couple years pass, and now there's mold or settling. Perhaps the foundation cracks as a result of settling. Bills are thousands to hundreds of thousands of dollars. Your buyer goes back and finds that your water usage went up by fifteen percent in the six months before the sale. He sues, saying that even though you didn't know, you should have known based upon this evidence. Court cases are decided based upon evidence like this every day. A good lawyer paints you as maliciously selling the property as a result of this. Liability: Steep, to say the least.



Now, let's look at it from a buyer's prospective. You have a choice of two identical properties. In one, a seller is acting for themselves, in the other, they have an agent. The price may be a little cheaper on the for sale by owner one, or it may not. One of the reasons people do for sale by owner is they are greedy. But when I'm looking at a for sale by owner, the question that crosses my mind is "Are they rationally greedy, or are they just greedy?" Are they going to disclose everything wrong or that may be an issue with the property? At least here in California, the agent has pretty strong motivation to disclose if something is wrong that they know about. If they don't, they can lose their license, and even if they don't, they have potentially unlimited personal liability. If they did disclose, they're probably off the hook, and even if they aren't, their insurance will pay for the lawyers, the courts, and any liability. If there's one thing all long term agents get religion about, no matter their denomination, it's asking all of the disclosure questions.



This is not the case for many owners selling their own property. Some are every bit as good and conscientious as any agent. A good proportion, however, are intentionally concealing something about the property. What's going to happen when it comes to light? If there's an agent, there's a license number, a brokerage who was responsible for them, and insurance. The latter two are deep pockets targets for your suit, and you can find them. Once that owner gets the check, you can find them unless they're dead, but they may not have any money. Even if they do have money, it may be locked up and inaccessible via Homestead or any number of other potential reasons.



One of the reasons that I, as a buyer's agent, am always leery of a for sale by owner property is that I have to figure that first off, there's a larger than normal chance that this property has something wrong that's not properly disclosed. When that happens, my client is going to be unhappy. When my client is unhappy, they are going to sue. The first target is the seller, but if they're gone or broke, who does my erstwhile client come after? Me. So I have to figure that not only is there a larger chance of there being something wrong, I have to figure there is a larger chance of me being held responsible for something I took every step I legally could to avoid. For Sale By Owner properties usually have to be priced significantly under the market in order to persuade me that not only am I doing the right thing by my clients in trying to sell them this property, where my clients have to pay my buyer's agent fee out of their pockets rather than out of the selling agent's commission, but also that the heightened risk of future problems is worth more than the price differential to my clients. Unless the answer is a strong solid "yes" that I can document in court if I have to, I'm going to pass it by in favor of the agent-listed property next door or down the street.



Caveat Emptor (and Vendor).

UPDATED here