Dan Melson: May 2008 Archives

Appraisers Petition Against "Make The Deal"

I've spoken about these issues before in this post.

I've certainly heard of plenty of abuse on both sides of this equation, and there is plenty of motivation for lenders and brokers to abuse the situation by requiring a higher than "real" appraisal value. Still, I think that by reading only the comments from various appraisers one would get a skewed vision of what is going on.

It is part of the appraiser's job to do their best within the rules to get a value that is useful. Theirs is a service occupation, just as mine is. If they are out there hustling for business as most of them are, wanting me to order the appraisal from them instead of another appraiser, they should offer a reasonable level of service. I don't expect to be paid if I can't help the people with their situation. Sometimes I put in hundreds of dollars and dozens of hours of work and it all falls apart because of something beyond my control. Situations like this are part of being in business for yourself. I don't expect to get paid when I can't or don't help the people. Why does the appraiser?

These houses are selling for these prices. If the last three similar houses in the neighborhood sold for $600,000, then this one is likely worth $600,000 also. When the appraiser tries to tell me a house that I've seen and is immaculate and further upgraded than than any of the last three is worth $150,000 less than those sold for, something is wrong, and it isn't with the house.

Basically, what's wrong is they don't want to work. They want to be able to drive over and pop the customer for the bill and let the chips fall where they may. And if the house is really only worth $450,000, the house is only really only worth $450,000. But most of the time, if they worked a little bit, and maybe chose a different sale to compare to, they could justify the higher appraisal, but they don't want to be bothered.

Let me ask you: Somebody bills you $400 or so for work that doesn't help you and in fact makes all of the work you put in worthless, it makes you feel all happy, right? They knew before they went over and asked for the check that they weren't going to be able to get the necessary value. You know something? I'd be more forgiving of him charging me $400 in those circumstances than charging my client $400. If the appraiser called first, and told me he couldn't get value, that gives me a chance to re-work the loan and save everybody's investment in this by talking to the client before the client has written a check for $400. If I can't get the client to accept the new loan, at least they're not telling people I screwed them out of $400 on the appraisal. That's right, the appraiser gets the money, but it's the loan provider that gets the blame for this in the customer's mind. If I tell them about a change before they spent $400, they're not going to be as angry, and even if this loan falls apart they're likely to tell people I was honest and saved them from being out $400 rather than that I took their $400 and didn't deliver. I didn't get that $400 - the appraiser who screwed the loan up did. If I can't turn it into a new different loan, the appraiser is out a little bit of work. I've put ten times as much into making this happen. It's much easier to tell the client their house is only worth $450,000 before they've written that check for $400. The check gets written, and the whole thing is gone up in smoke.

The appraiser, understandably, wants to get paid for their work. So do I. All I ever ask is that they don't intentionally waste my client's money. If they can't get value, give me a chance to re-work the loan, call it all off, or find someone who can get value. In some situations on a sale, this allows me a chance to re-negotiate the price down so my client gets a better price on the house they want. If that appraiser just makes the phone call that gives me a chance to fix it before my client has wasted hundreds of dollars, I will use them again. That's the kind of appraiser I want to work with, not someone who is going to find the value no matter what, leaving both of us open to later problems. But do a "hop pop and drop" ("hop on over, pop the customer for the bill, and drop a useless appraisal on the bank") so that they get paid once while I'm stuck with a pissed off customer who is now going to tell all their friends and family what an awful person I am, and I think they've earned a spot on my personal list of appraisers I will never do business with again. I'll forgive it once, maybe even twice, if this appraiser has a history of calling me first and this time it just happened that they couldn't get value when they thought they could. Treating your customers right is part of the requirements of being in business for yourself, and sometimes this means you did some work and didn't get paid. You want a job with a steady income where you don't take any risks, go find something with a w-2 involved, and the only risk you take is being fired. You won't make as much money, but you will get paid for all the work that you do. For as long as they put up with you.

Caveat Emptor

Original here

UPDATE: Home values here locally have deflated significantly. Right now, the value the appraiser comes back with is not usually an issue unless there have been a lot of distress sales in the neighborhood. The appraisal is rarely a major issue when prices are deflating, because it works by historical sales. Yes, there could be five identical homes sitting on the market and not selling for $10,000 less; but the last one that actually did sell sold for $20,000 more, and the appraiser works off of actual sales.

Mice Vote to Bell Cat

The United States and other leading cluster bomb makers - Russia, China, Israel, India and Pakistan - boycotted the talks, emphasized they would not sign the treaty and publicly shrugged off its value. All defended the overriding military value of cluster bombs, which carpet a battlefield with dozens to hundreds of explosions.

It'll work as well as it always does

Pope Innocent Banned the Crossbow in 1139. They were nonetheless used for about another 500 years, until firearms technology replaced it.

People will decide that their circumstances are special enough to warrant use. This includes the signatories to the treaty banning them. That's basically a constant of the history of warfare.

Poetic Justice: It appears that the Democrats are about to nominate someone who won the nomination by being what gamers call a "rules lawyer": Obama used party rules to foil Clinton

Clinton hinged her whole campaign on an early knockout blow on Super Tuesday, while Obama's staff researched congressional districts in states with primaries that were months away. What they found were opportunities to win delegates, even in states they would eventually lose.

Obama's campaign mastered some of the most arcane rules in politics, and then used them to foil a front-runner who seemed to have every advantage

Here's the thing about rules lawyers: They're weak players. In a presidential campaign, even with the media in the tank for him, expect this to be a very long summer and fall for the Democratic nominee.

I've been doing my best to ignore Scott McClellan ("full of sound and fury, signifying nothing" came to mind when the news about his book broke). Since ignoring him doesn't seem to be enough with the shot in the arm he's given to the BDS sufferers, I'll just say I'm with Bob Dole on this one. If it was as bad as he claims, a man with any integrity would have quit and blown the whistle. He didn't.

In fact, Little Green Footballs follows the money trail right to hard left financier George Soros.

Powerline covers the how and historical precedent.

Tired of high gas and energy prices? It isn't the oil companies. It's high demand and low supply.

Given the expanding economies of the formerly third world, demand is going to keep going up no matter what some individuals or groups conserve. The only way to lower prices is to increase supply, which means tap new sources and alternatives energy technologies.

via Don Surber, I discover a petition to allow more oil drilling.

Many people think that mortgage interest works like rent: paid in advance before you live in the property for the month.

This is not the case.

Mortgage interest is paid in arrears. As you begin the month, interest begins accruing. It accrues throughout the month, and the payment is due at the beginning of the following month. The reason for this is that the interest is unearned until you have actually borrowed the money throughout the month. You could win the lottery, write a best seller, sign a contract a with professional sports team, or any number of other farfetched but real possibilities for suddenly acquiring a windfall of cash enabling you to pay that loan off. You could also refinance, in which case that lender is only entitled to the interest from the days you had their loan.

When you refinance, however, or even when you take out an initial purchase money loan, you will generally be required to pay the interest for the remainder of the month on that new loan in advance. The reason for this is quite simple administrative - it gives the lender some time to set all the bookkeeping on that account up, gives them a full month at least between initializing the loan and the time any money should be hitting their account in payment of that debt.

So when you refinance, you make an upfront payment to the old lender for the part of the month they held your loan during the month, and to the new lender for the time they held your loan. Say the new loan funds and pays off the old loan on June 15th. You will pay the interest from June 1st to 15th to the old lender, and from June 15th though the 30th to the new lender. You never, ever, get a free month, because interest never stops, at least so long as you owe the money. In point of fact, I tell people to think of it as making their normal payment early, as in this case they're writing the check they normally would have written July 1st two weeks early on June 15th. It's really just the interest owed, but since most folks don't keep their loan more than a few years, there usually isn't a large proportion of principal in their regular payment anyway. Therefore, if you think of it as your regular payment, paid early, it'll usually be a little bit less. There are usually one or two days of overlapping interest, which is why most escrow officers won't request funds on a Friday. You don't want to be paying interest on two loans over the weekend to no good purpose.

So why do lenders use the "skip a month of payments!" come on? Some will even use, "Skip two payments!" Because a new loan is being originated, they can (generally) roll that money into the balance on your new loan where you not only pay the money, but you pay interest on it for as long as you owe that money. Make you feel all warm and cuddly? Didn't think so. Anyone who uses the "skip a payment!" promise to get you to refinance has just told you point blank that they're a dishonest crook. However, since most people don't know how to translate loan officer speak into English, they get away with it disgustingly often. The state of financial education in this country is a national disgrace. Of course, it's to the benefit of certain political groups to have voters believing that there is such a thing as a free lunch.

You never really skip a loan payment when you refinance. If you try, all you're really doing is adding it to your balance. You can decide to pay your balance down at loan inception and pay closing costs out of pocket, and while an accountant or financial planner will generally tell you there are better uses for the money, it can be a very smart thing to do if your circumstances are right for it.

Caveat Emptor

Article UPDATED here

Below the Beltway is sounding kind of like William F. Buckley: You Can't Believe In Limited Government And Want Barack Obama In The White House

Hate Lobbyists? Willisms has some interesting numbers in who the largest lobbying organizations are and how they donate.

"Change you'll have to pay for", the basics of the free trade versus protectionism debate.

I pretty much agree with Gregg Swan on the much overhyped NAR/DOJ settlement. I have some disagreements on peripheral issues, but not on the main issue of the agreement itself: That it's nothing more than a meaningless cosmetic settlement to make gullible folks believe that the government is helping them while allowing them to continue to be fleeced. I was going to write something on this, but Gregg beat me to it. Now I get to be lazy and tell you all to read his article.

Many agents seem to answer this question differently depending upon whether their client is the prospective buyer or seller. When their client is making an offer, "No, your deposit could never possibly be at risk," while when their client is evaluating an offer, "And besides, if they renege or can't bring it off, you get to keep the deposit." Both of these are false, misleading, and practicing law without a license.

The cold hard fact is that the deposit is always at risk, but there is absolutely no guarantee that a jilted seller will get it, either. The answer to "Is the deposit at risk?" from a real estate agent can never honestly be anything other than "Yes."

For buyers, the deposit is "at risk." Otherwise, what would be the point of having it? If it couldn't be lost, why would it need to go into escrow? Just to prove the buyer has a couple thousand dollars to their name? I can do that with a Verification of Deposit. The only reason to make a deposit on a purchase offer is that it is at risk, and no listing agent in their right mind is going to accept any purchase offer where there is no deposit - even if the buyer is doing a "one dollar down" VA loan. That seller is risking a minimum of a full month of all carrying costs (usually much more) upon your representation that you want the property, and they are entitled to keep your deposit if certain conditions are met. For sellers, no you don't automatically get the deposit if the buyer flakes out. There are burdens upon you and your agent, and contingencies, or escape clauses for the buyer, built right into the purchase contract. You don't want to allow those clauses, that's your choice, but you'll severely restrict the number of people willing to make offers as well as the price you will actually get. Even if the seller negotiates the payment of the deposit to them as part of the contract, the buyers can still sue to get it back. This is the real world and an offer is being made with real money and real consequences to that money. If you're unable to come to terms with that fact, stay a renter, because that fact is not going to change. For agents, if the only way you can make a sale is to misrepresent the deposit, it doesn't take a great fortune teller to see a courtroom in your future.

For buyer clients, I can do a lot to keep a deposit from being forfeit - any agent and loan officer can. Get out in front of all the contingency issues and any other reason that my client might decide they don't want to purchase the property, and get them dealt with right away, during the contingency period. Loan, appraisal, inspection, I want them all done before their contingency expires, or at the absolute minimum, a loan commitment with contingencies I'm certain we can meet. As of this writing, I have not yet lost any buyer deposit money. Nonetheless, since no agent can honestly guarantee the deposit will not be lost, I cannot and will not pretend that I'm some kind of exception to the law. The only way I could make such a guarantee is by putting up my own money as a surety, and if my client lost a deposit for a reason that was in any way my fault, I hope I would reimburse them (Until it happens and I'm facing an actual choice, there's no way to be certain). But it's not my investment, and if the investment succeeds, I'm not going to share in the proceeds (I'm given to understand that's illegal, at least in California), and one of the essential, unchangeable facts about investment is that there is no such thing as a risk free investment. If you don't understand this, any money or assets you may have can be considered a temporary thing, and you have no business in a profession with responsibility for other people's money. Anyone willing to say that there is no risk is either a fool or a crook. Nor is it likely your agent or anyone will reimburse you, especially for situations beyond their control, or if you misrepresent your situation or miss deadlines.

For listing clients, the same thing applies: Get what I need to done right away, and keep after that buyer's agent to remove contingencies in a timely fashion. If they won't remove contingencies when they are supposed to be removed, it tells me all I need to know. It's my client's call, but I know what my recommendation is going to be. I want the transaction to work, but I also want my client to get that money if it doesn't. Incidentally, Deposit issues are one reason of many that nobody should ever be willing to accept dual agency.

The bottom line is like something out of quantum physics: Schrodinger's Cat. Ideally, you want the sale to go through and record and for everybody to be happy because it all turned out exactly as agreed. Unfortunately, that's not perfectly predictable or knowable in advance. If it was, no real estate transaction would ever blow up, and the deposit would not be an issue. There are laws and procedures, and things agreed to in the purchase contract, that you have to be a real estate lawyer to offer an informed opinion about, and the judge, arbitrator, or whatever making the decision to make a definitive ruling. Escrow has custody of the money, but they're not going to do anything without mutual agreement of the buyer and seller. Either side can potentially decide to be stubborn and force the matter to arbitration, court, or whatever is appropriate, and all the consequent expenses of the legal system (which additional money is also at risk as the usual agreement is that prevailing party is entitled to legal expenses). And the legal system runs in incomprehensible ways for unpredictable reasons - the one thing that seems to be a constant is that if the judge wants the ruling to go a certain way, they can probably find a precedent to justify it if they try.

The point is this: The deposit is at risk. It is not "safe", and it does not necessarily belong to the seller either. Since this is cash, people understand that it is real money, because they had to scrimp, save, and set every single dollar in it aside from other uses, so they get understandably nervous about it. It represents a great vacation, a down payment on a new car, or something else very desirable that they're giving up, and they're putting at risk of forfeiture. Against this, the seller wants it if the transaction fails. There are ways to protect it, and ways to endanger it, and you've got both agents working to their client's advantage. As with any other competitive or potentially competitive situation, that makes the result indefinite until the game is complete. It isn't common in my experience that the deposit is forfeit, but it does happen. And anybody who tells you otherwise is either lying or hopelessly incompetent. Nonetheless, real estate is such a powerful investment that you are well advised to come to terms with the risk, because it's a necessary risk in order to buy real estate.

Caveat Emptor

Article UPDATED here

Carnival of Personal Finance

Carnival of Real Estate

Long, but every word is worth reading: Beneath the Hope from Victor Davis Hanson.

Hot Air: Did Democrats argue that Congress can hide legislation from the President?

If they can hide the text of the bill from the President, who can they not hide it from?

And the implications of this behavior stop where? Certainly not within the bounds of the Constitution.

What Kind of Justice Would President Obama Mete Out?

This is worrisome, especially as the Congress has declined to so much as vote on hundreds of President Bush's judicial nominations. Many have been unfilled since 2002, thanks to the virtual filibuster. It would give President Obama the opportunity to stack the courts in such a manner as has been denied Presidents since the founding of the republic. The biggest check upon the appointees of any one philosophy as evidenced by a particular president's preferences, has always been the existence of prior judiciary appointments. If Obama was allowed to fill all of Bush's vacancies (blocked from confirmation for up to six years), plus the ones naturally occurring during his own term, this would allow him more control over the federal judiciary than any president has had since at least FDR's three terms plus, and given the lifetime nature of service being extended as it has been in recent years, more power to remake the courts than any president since Lincoln at least, and probably than any president since Washington in practice, and for a longer time. George Washington included his political opposition in his cabinet, and not just milksop posts like Transportation, which we didn't have then, and he appointed judges from the other side as well. Obama has said he's not going to do that, as well as that he intends to appoint unabashed judicial activists. Given the number of vacancies he will fill, I think it's far more important than normal that someone who at least wants to appoint judges with the mind set of an umpire, like Chief Justice John Roberts. Unfortunately, Obama voted against Justice Roberts' conformation. That's not a good portent for the kinds of judges he would likely appoint.

Gateway Pundit on a real difference between Obama and McCain. Those who are against Iraq keep harping on what it's cost us in international relations. They may have a point, but what it has and will cost us in international relations, even in a worst case scenario, isn't one percent of what leaving the job undone will cost us in the same field.

Given that one of the two men will be President next January 20th, I'd rather it was the man who understands that.

On the other hand, I'm reading loads of gibberish about Obama confusing the meanings of Veterans Day and Memorial Day. They have a point when you think about it, but it's just a non-starter politically and practically. When we get the federal budget fixed, when we get the corruption weeded out of our political system and the all of the other real ongoing structural issues dealt with, then I might have the energy to stress about a candidate who's unclear about the difference between Memorial Day and Veterans Day. This issue is nothing more than a (politically) unimportant distraction that could well backfire.

A few days ago I wrote an article explaining why borrowers should consider a 5/1 ARM, because the tradeoff between rate and cost is lower for that loan, and most people don't keep their loans 5 years anyway, so having a likely need to refinance 5 years out is not an additional cost for most people with mortgages.

There are two sorts of cost for loans: The cost to get the loan done ("closing costs"). This pays for everything that needs to happen so that the loan gets done. These costs may vary from place to place, but they are absolutely mandatory - they are going to get paid. For instance, on a $400,000 refinance with full escrow, my clients are going to pay $2945 in closing costs, when you really include everything. Many lenders will try to pretend some or all of the closing costs don't exist in order to get people to sign up, but they do. I can save some money with virtual escrow in some cases, but $2945 is real. The proof is that I can put it in writing and guarantee in writing not to go over. Lenders don't want to do this, but if they're not willing to put it in writing that they'll pay anything over that, the reason is because they know it's going to be more when it comes down to it at the end of the loan.

The other cost is the cost for the rate. There is always a tradeoff between rate and cost. If you want the lower rate, it is going to cost you more money. If you are willing to accept a higher rate, you can save money on the cost for the rate, to the point where it can reduce or eliminate the closing costs you're going to have to pay. Zero Cost Real Estate Loans exist - I've done dozens. I love them because they save my clients money.

You can lump the loan provider's profit in with the costs for the rate, as origination points, or in with the cost of the loan, as an origination fee, pay it via Yield spread (if you're a broker) or even (in the case of a direct lender) hide it in the fact that you're going to make a huge profit selling that loan on the secondary market, but I guarantee you it's going to get paid somehow. Nobody does loans for free, for the same reason you wouldn't work if you didn't get paid.

These costs are going to get paid. End of discussion. The costs are slightly different in states with different laws, but necessary costs are going to get paid. They can get paid out of pocket or they can get paid by rolling them into your loan balance but they are going to get paid. Most people don't understand loan costs which aren't paid by cash, and think that they are somehow "free", but that is not the case. Not only did you pay it, but it increases the dollar cost of any points you may pay, you're going to pay interest on it, and (less importantly) it's going to increase your payment amount.

The genesis of this whole thing was a guy I thought I had talked into a 5/1 ARM a few days ago. I went through this whole process of explaining why the rate/cost tradeoff for a 30 year fixed rate loan was not going to help him, and then a couple days ago, he called me saying he'd found a thirty year fixed rate loan at 5.5, saving him three quarters of a percent on the interest rate and almost $400 on the payment. Remember that at the time, I had 5.5 available as well (I still do - but the rate is so expensive I wouldn't counsel anybody who wasn't certain they were going to keep it 15 years to buy it). So I'm going to keep that exact same table:

The problem with the rate of 5.5% is that for a $600,000 loan, those closing costs are going up to $3475 (lender and third party costs are higher above the conforming limit) in order to get the loan done, and at the time, based upon current loan amount, 2.6 points would cost $16,100 and change. But he had gone to a loan officer who did his math as if that $19,585 (my loan - I suspect the competitor's was higher) was going to magically disappear like one of a David Copperfield's illusions. He calculated payments and savings as if there were no costs - based upon the current balance and new interest rate and amortization period. Of course, this makes it look like the client was saving a lot of money $382 off the payment and three quarters of a percent off the rate, give him a whole new thirty years to pay off the loan, and pretend the costs of the loan aren't going to happen to get the guy to sign up. You'd think that somebody who reads this website every day would know better, but that does not appear to have been the case. In point of fact, the competing loan officer still has not told the guy how much his closing costs are or how much that 5.5% rate is going to cost him through him. I'll bet it's more than I would charge, but I don't know.

Psychologically speaking, what the competing loan officer is doing is smart. Because there's incomplete information available to the prospect, and I'm straightforwardly admitting how much it's going to cost (which is a lot, as most people who aren't billionaires or politicians think about money), an indefinite, uncertain number sounds like it might be less, even though it won't end up that way. Furthermore, by pretending costs don't exist, he has raised the possibility in the client's mind that there won't be any, because most people don't know how much lenders can legally lowball. There will be costs,and I'm willing to put my money where my mouth is that they'll be higher than mine. If this other loan officer could really deliver that loan at a cost lower than I can, there would be no reason for him to prevaricate, obfuscate, or attempt to confuse the issue. I've written before about how you can't compare loans without specific numbers, and there is no doubt in my mind that this other loan officer knows what those numbers really are - he just doesn't want to share that information, and the way our public consciousness about loans works, he can most often get away with it. It's still scummy behavior, and takes advantages of loopholes in the disclosure laws to practice bait and switch, knowing that when the deception comes to light (at closing) most people won't notice, and most of those who do notice will want to be done so badly they'll sign on the dotted line anyway.

Now what's really going to happen in 99% plus of all cases is that the costs are going to get rolled into the balance of the loan. The client certainly isn't going to be prepared to pay them "out of pocket" if they're not expecting those costs. So here's what happens: The client ends up with a new loan balance of $619,585 (Probably higher, because they're likely to roll the prepaid interest in as well, and quite likely the money to seed the impound account, but I'll limit myself to actual costs). In fact, the difference in payment drops to $290 when you consider cost, and $115 of that difference is directly attributable to starting over on the loan period, stretching out the repayment period to an entirely new thirty year schedule of payments (even though he was only two years in), completely debunking any serious consideration of payment as a reason to refinance. But lets compare cost of money, in the form upfront costs ($19,585 to get the new loan, versus zero to keep the loan he's got) and ongoing interest charges ($3125 per month on the existing loan, versus $2840 per month on the new loan). In this case, you're essentially spending nearly $20,000 in order to save $285 per month on interest. Straight line division has that taking sixty-nine months to break even. Actual computation of the progress of the respective loans cuts a month off that, to sixty eight months. As compared to a national mean time between refinances of 28 months, and this particular prospect is currently looking to refinance after less than that. In good conscience, I cannot recommend a loan where it's going to take him almost six years to break even, and by not considering the costs involved in getting that rate, he's setting himself up to waste probably half or more of the nearly $20,000 it's going to cost him to get that loan.

In fact, if this prospect were to refinance again in 28 months (once again, national median time), he would have spent $19,585 in order to save himself $7847. That doesn't sound like a good deal to me, and it shouldn't sound like a good deal to you. But here's the real kicker: The balance of the loan he refinances in two years is $19,250 higher. Let's assume it takes a low rate, rather than a cash out refinance to lure him into refinancing again, so he gets a 5% loan to refinance again. The extra $19,250 he owes will continue to cost him money, even thought the benefits of the refinance he is considering end when he refinances again or sells the property. At 5% for a putative future loan, that $19,250 extra he owes will cost him $962.50 per year extra on the new loan. Even if he sells in order to buy something else, that's $19,250 the client needs to borrow, and pay interest on, that he otherwise would not. Even if the client waits a full five years to refinance again, he's only saved roughly $16,400 in interest, and the additional balance owed on the new loan has actually increased slightly, to $19,280 (Remember, he's two years into the existing loan, hence $115 of phantom payment savings which keeps reducing his balance if he keeps paying it)

Failing to consider the fact that most people are not going to keep their new loan as long as they think they will is the gift that keeps on giving - to lenders. I run across people in their forties and fifties who have done this, all unsuspecting, half a dozen times or more, running up eighty to a hundred thousand dollars in debt for nothing but the cost of refinancing, and at 6% interest, that's $4800 to $6000 per year they're spending in interest on that debt. A more careful analysis says that the calculus of refinancing should emphasize finding a rate that helps you for a lower cost, but that's not the way lenders get paid the secondary market premium, and that's not the way that loan officers get paid to do lots of loans. Therefore, if you find someone who will go over these numbers with you and tell you it's not a good idea to refinance when it isn't, that loan officer is quite a valuable treasure because they're going to keep you from wasting all that money to no good purpose. (Here's one guy who will for my California readers)

A good rule of thumb is that if a zero cost loan won't put you into a better situation, it is unlikely that paying costs and points to get the rate down is really going to help you either. You are unlikely to recover those costs and points before you sell or refinance your property. If a loan that's free doesn't buy you a better loan than you've got, then the current tradeoff between rate and cost isn't favorable to refinance. There may be reasons to do so anyway - cash out, ARM adjustment, etcetera, but chances are against you getting a rate that is enough better to justify the cost. When you consider how often most people refinance or even actually sell and move, it's hard to make a case for anything other than low cost loans and hybrid ARMs. I understand the people who want the security of a fixed rate loan, and a low fixed rate. But that rate, especially, is likely to come with a cost that they will never recover before they voluntarily let the lender off the hook. Good mortgage advice takes this into account, with the net result that the folks don't end up in debt to the tune of $80,000 to $100,000 extra, and spending thousands of dollars per year just on interest for money they shouldn't owe in the first place. No, they never wrote a check for it, but it's money they spent, and if they had needed to write a check for it, they probably wouldn't have spent the money in the first place. Kind of like having a credit card with a balance owing of $80,000 or more, just for the unrecovered costs of refinancing, but people don't realize it because it's not broken out of the total cost and balance of their mortgage, and nobody educates them as to where they would be if they hadn't made these mistakes. I try to teach my clients what they need to know to avoid that situation, so they don't find themselves victimized by it.

Caveat Emptor

Article UPDATED here

Volokh Conspiracy on California's Proposition 98 and 99.

Rent Control is a very bad thing economically, no matter how popular it is. As far as I'm concerned, it's another reason to vote for Proposition 98.

The Federalist Society Online Debate Series: Subprime Lending & Financial Services Reform

My most central take on the matter is here.

Hot Air on Entitlement liabilities cost over $500K per household

Sen. Edward Kennedy has cancerous brain tumor

I have to admit my failure. Several really vicious pieces of humor went through my mind when I read that headline. No, I'm not going to repeat any of them, and yes, I am ashamed that I'm not a better person. Let's just say I'm nowhere near morally and ethically perfect. I'm certain those thoughts added significantly to any time in Purgatory or Limbo that I might have coming eventually.

Nonetheless, brain tumors are something I wouldn't wish on the worst enemy of civilization, and the sum total of everything he's even been accused of doesn't put him into that category. The doctors say it's not curable, and only sometimes treatable. The odds are against him, but here's hoping he beats them and achieves whatever the best that can be hoped for is. Let's not be haters. Here's hoping you have many good years left, Senator Kennedy.

DJ Drummond said it best: Any victory over cancer is both noble and good. I'm not going to take back anything I ever said or wrote about him - they were considered, and I was and am prepared to defend any of it based upon the facts. But I'm not going to say evil things about anyone with brain cancer. This is called self-censorship. Unlike government censorship, there needs to be more of it in the world.

Q and O has a list of questions I'd like to see the oil companies ask Congress.

My favorite:

For those of you who have voted to restrict American energy supplies, especially during periods of increased demand, how are your actions any different than those that you have frequently ascribed to OPEC?

Probably the most telling:

As the gap between supply and demand expands, oil prices increase, and oil company profits rise. What's the best way for oil company executives to send the entire U.S. Congress a "thank you" note for keeping energy supplies down and corporate profits up?

It does end up with a cheap shot, but considering the behavior of Congress, I can't say the cheap shot is in any way unearned on their part.

I'm probably going to have reprinted articles through Memorial Day, with new articles starting again on Tuesday. I may do things other than professional articles, if the mood takes me. This is probably going to be more consistent through November. Feel free to chime in with opposing points of view when I do it, so long as kept within standing comment rules. There's no point in having comments if only my own viewpoint is permitted!

The guidelines for this carnival. Frankly, the submissions this time were (as a group) pathetic.

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

STRONGLY RECOMMENDED

There were no strongly recommended posts this time

RECOMMENDED

Frankly, I'm embarrassed to be part of this carnival, but there's got to be one entry worth reading, so I'm submitting A Good Listing Agent's Most Important Responsibility

MET GUIDELINES

"Demystifying" The Subprime Mortgage Crisis And Other Questions; An Interview With Dan Crittenden is one of the largest whitewashes that I've read in recent memory - but it meets guidelines. Anybody selling mortgage accelerators isn't exactly some kind of uber-analyzer looking out for the best interests of the public.

Buy a House for $100 a Month falls short of being recommended for several reasons. It doesn't make a case as to what the benefit - or potential benefit, anyway - will be. Not to mention that there is no such thing as a no down payment purchase for investment property. I never did have a single lender willing to do 100% of value on an investment property. You also have to consider alternative uses for the money, and make an allowance for repairs. It certainly doesn't consider the risk involved. Landlording is not a simple business, and focusing on cash flow only is an invitation to disaster. But with all of that said, there are many areas of the country where investment property makes sense in ways that it has not for several years.

Minimizing Risk & Reducing Stress While Buying a Foreclosure in the Poconos might have made the recommended category if not for the direct solicitations in the article.

SPAM AND OTHER RIDICULOUS SUBMISSIONS

"Community Disaster Preparedness Tips - Plan Ahead of Time" wasn't prepared for the disaster of not meeting guidelines. Not that it's not a good idea, just that it's not appropriate for this carnival.

"What I like about Credit Cards" was even worse. Spam spam spam spam spamity spam. Couldn't be bothered to read guidelines or submit something that was even vaguely on topic. Somewhere there's got to be an empty oubliette that can be used for this sort of "author"

"Micropayments Make Cents" was generic garbage. Strike One. I've probably seen fifty thousand better articles with more specific, more useful advice on paying off debt. Strike Two. Nor was it even close to the guidelines. Strike Three, and they're out of here. Loser.

Dang. And I was so happy not to have any of those last time.

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

Consumer Focused Carnival of Real Estate will return in two weeks (June 4th, 2008), here at Searchlight Crusade, unless someone else wants to host. Deadline for submissions will be June 2nd.

No, I'm not a David Letterman watcher, for reasons having to do with turning into a pumpkin before his show starts. I'm going to treat it a little more seriously than he does, as this is a serious subject, but I'll do my best to inject a little humor into it.

10. Surrounding Environment - These are environmental factors arising from areas beyond your property, and therefore, beyond your immediate control. Freeway noise 24/7, being downwind of a hog or chicken farm, being next door to a strip club with a huge neon sign constantly flashing, "LIVE NUDE GIRLS" - all of these and many more neighborhood factors can prevent people from even looking at your property. They see what's around it, and decide they're not interested in living there, or that the investment potential for the property is limited (to be charitable). The only real way to fix problems of this nature is not to buy the property in the first place. Look at all of the issues. Just because it doesn't bother you now doesn't mean it won't bother prospective purchasers later. Blame your buyer's agent. If you didn't have a buyer's agent, that leaves only one candidate for blame. You'll find them hanging around any mirror you might check.

9 HOA: This is closely related to surrounding environment, and condos and PUDs are the poster children of what a lot of people don't want. People want the property to be theirs to do with as they please. It's a sad fact of life that in an increasing number of places, they are going to be disappointed because they can't afford anything without a homeowner's association. Homeowner's Asssociations really are a good guardian of property values, but they have a tendency to give way to much power to the busybody and the would-be dictator. Unfortunately for a lot of people, the newer developments they crave all have homeowner's associations because while everyone knows that they personally can be trusted to maintain the property, those horrible neighbors who can't be trusted won't trust them. Unfortunately, the only way to appeal to people who don't want an HOA is not to have an HOA. Once again, blame the buyer's agent that "helped" with your purchase.

8. Zoning: Zoning restrictions, lot constraints, etcetera are all parts of this category. If you've got a two bedroom property and setback requirements keep you from building a third bedroom, your property is not likely to appeal to people who need a three bedroom place to live in. Once again, the only way to fix this issue is not to buy where it is an issue. Over-restrictive zoning is a real economic problem for a lot of reasons, but while people like to be able to cause everyone else in the neighborhood problems by not having enough parking for their apartment house or mini-dorm, they don't want everybody else turning the tables and causing them problems. Yeah, maybe you can get the zoning changed sometimes - but that's not the way to bet.

7. Schools: If you buy in an area that includes the right to attend a great public school, that's a gift you give yourself that keeps on giving, at least until the neighborhood starts voting against additional property tax bonds. Or if you can cause a school that heretofore taught only "hanging out with a GPS tracker on your ankle," to start teaching the kids some economically desirable skills, you can expect a windfall in the form of property value. I think that shackling kids to a particular neighborhood public school is slow motion suicide for society, but evidently at least fifty percent plus one of teacher's unions feel it's beneficial to getting union leaders more money and power. Once again, this is just a fact of life, and once you have bought a particular property, you're locked into whatever the local educational insanity might be.

6. Clutter: If you're tripping over knick-knacks, carnivorous house plants, and cannot eat meals as a family because the table is six feet deep in stuff, it would be a real good idea to do something about it. There are a lot of easy options here: Trash, charity, storage rental, loan or give it to some family member who's not trying to sell their house. If you're trying to sell, engrave the saying, "A place for everything and everything in its place" upon your soul for the duration. If there's any doubt as to whether you need it in your day to day life, the place for it is "elsewhere." If the place is so full of your stuff, people worry about whether there's going to be room for their stuff. Believe me when I tell you I understand how difficult this is: I've got two young kids and two dogs, all four of which are highly efficient entropy generators, but getting clutter under control and keeping it there is critical to selling for a good price.

5. Staging: Absolutely empty is better than "chock full of clutter," but then people wonder how their stuff would fit. I still have trouble believing this one, but facts are facts. Most people have a hard time picturing their couch and their TV in the living room. A small amount of furniture gives them a reference point, scale, and a starting point for their mental decoration. It helps them figure out how their stuff is going to fit. A bare minimum of vanilla furniture shows better than even a vacant, empty property. Even most stagers seem to want to put too much stuff in the place, for some reason. Seriously, keep it to a bare minimum. A bed in the bedroom, a couch in the living room, a dining set in the dining room. Maybe one nightstand in the master bedroom, a coffee table and placeholder for the TV in the living room. That's it. If the place is not vacant, and you are still living there, that's still the target you should aim at. If you don't absolutely have to have it every day, get it out of there. This especially applies to family heirlooms, anything expensive, and anything irreplaceable. Get. It. Out. People want to be able to see their stuff in the place, and they can't do that if there's too much of yours. By the way, this applies to you, too, at least while prospective buyers are looking at it. Don't follow them around your property like you're worried they're going to steal the silverware. Get out. If there's anything you're worried about them stealing, get it out also, and keep it out until the property is sold. For everything else, your listing agent should have a record of who has been in the property, and you should be insured even if you're not trying to sell the property.

4. Condition Is it clean? Is it neat? Is it attractive? Here's an example for you: Carpet is maybe $40 per square yard, installed, with a good pad. If you've got a hundred square yards of carpet that needs to be replaced, call it $4000. Not replacing it will probably cost you at least $10,000 on the sales price. More likely double that, and it'll take longer to sell and you'll end up giving a carpet allowance to your buyers out of what you do get. Dirty floors, chipped tiles, all that stuff is unbelievably costly not to fix. Believe me, I understand what a pain it is. My newest family member loves to chew drywall. It costs far less to fix it yourself than you're going to have to give up to sell the property. Get a cleaning service in if you don't want to scrub everything yourself. It's stupid, but opening the blinds or drapes so that prospective buyers see all that light as they're walking in is worth serious cash, not to mention much broader interest. The point is this: Many prospective buyers have the imagination of a rock, and their agent isn't any better, because they don't want to say anything that would give the people they're supposed to be helping (but aren't) grounds to sue. You can choose to market only to the people who are visualization's answer to Albert Einstein, but it really does narrow your potential market, and hence, cost you money and time (and therefore more money) when you're trying to sell.

3. Showing Restrictions: If people can't see your property when they have the time, they're not going to make an offer on it. Cold hard fact. Since the time of highest interest is the first few days its on the market, if you haven't gotten an offer withing thirty days, not only is something wrong but it's cost you some serious cash in the form of lowered selling price. Showing instructions are easy to fix. "Just go!" is absolutely the best, but (unless you're an international supermodel), prospective buyers don't want to catch you in the shower or in bed any more than you want to be caught there. One bad experience in this area is all any agent needs, and I've had mine (believe me, you don't want details). Asking for a few minutes notice so you can evacuate is reasonable. Telling prospective buyers to avoid a time slot is also reasonable. But the more restrictions you put on showing, the more likely it will be that you've raised the cost for viewing your property too high. Asking for four hour notice - let alone 24 - is almost guaranteed to prevent prospective buyers from viewing your property. And if someone does ask that far in advance, for crying out loud get back with them and be as accommodating as you possibly can. I actually laid out a trip "day before" last week, and of the seven people who wanted advance notice, precisely one got back to me. That gives me quite a bit of information as to how interested they really were in selling the property, which is to say, not very.

2. Price: I really hope you weren't expecting this to be number one. Buyers choose properties to look at based upon asking price. They choose which property to make an offer on based upon how well your property compares to others of similar asking price. If your property is clearly outclassed by properties of equivalent asking price, you're doomed. It is to be noted that just about every sin in the list is forgivable if the price is low enough, but the more sins there are, and the worse the violation, the lower the sales price is going to be, and most of the rational world wants the highest possible net from the sale. Trying to make believe that any problems that exist aren't there will only prevent the property from selling at all.

1. The Agent Plain and simple, you've chosen a bad one. Either they don't market the property effectively, they don't explain how things work to you, they make it difficult for other agents to show the property, they discourage offers represented by other agents, they don't return phone calls, they evidence a bad attitude, they're using your property to troll for buyer clients and don't want it to actually sell - the list goes ever on and on. They're effectively raising the price to make an offer on your property. Just because you've signed a listing agreement doesn't mean you're on cruise control. You need to monitor agent performance. At least, if you want to know whether they are performing or not. Are they forwarding all offers? Are they discouraging people from making offers because that offer might mean they don't get a kickback? All of these sins and many others really do happen.

Bonus Super Deluxe Reason. Homeowner Attitude About sixty percent of all listings I read leave me with one very strongly negative conclusion: That the owner of this property does not really want to sell. Maybe it's the agent's fault in some cases, but if you won't find - or pay attention to - an agent who won't tell you unpleasant truths, you're hurting only yourself. I tell my buyer clients that there is no such thing as a perfect property, but the same warning is equally important to sellers. There is no such thing as a perfect property, and acting like you own one is a great way to drive buyers and their agents off. You are not doing buyers a favor by putting your property on the market. You have real estate, the most illiquid investment there is, you want the cash those buyers have, and you're not going to get it by giving them reasons why you're too difficult to do business with. If you didn't want what buyers have (cash), you wouldn't have the property on the market. Buyers, their agents, anybody who comes to look at that property is helping you get what you want. I believe that people who look at the property you're trying to sell are doing you a favor. Even if they just want to look at it, in the middle of the best seller's market there has ever been. If the property doesn't show, you won't get offers - guaranteed. If you don't get offers, you are highly unlikely to consummate a successful sale. The property is only worth what someone is willing to offer for it - end of discussion. If the most you can get someone to offer is thirty-nine cents, that's what it's worth. You can choose to sell, or not to sell, for that price, but trying to tell yourself or anyone else that the property is "worth $400,000" when nobody is making offers that high is a waste of energy, and quite likely, of a buyer and an offer that really are offering the best you're likely to get.

Caveat Emptor

Article UPDATED here

Carnival of Real Estate

Carnival of Personal Finance

San Diego Special Edition

Fannie Mae scraps higher downpayment requirements

The government-sponsored mortgage finance company said Friday it will require minimum down payments of between 3 percent and 5 percent for all loans that it guarantees. That replaces a December policy that required a higher minimum if the loan was for a home in a zip code with declining real estate prices.

This was a comparatively minor factor, as the problems aren't primarily with Fannie and Freddie but rather individual lender policy, but is still good news.

The Myth of the RINO (and DINO).

Note how the voting records of the three remaining candidates sit during all of the polarizing movement.

(Personally, I think John McCain is the closest thing to a conservative candidate that the Republicans will have nominated since Ronald Reagan, but considering the predecessors - Dole and the two Bushes - that hardly makes him a right winger. Obama, on the other hand, has the most left-wing record in the US Senate)

Our current president gets one right: Bush says he won't back bill that bails out lenders

"Laws shouldn't bail out lenders," Bush said after getting an economic update from Treasury Secretary Henry Paulson. "Laws shouldn't help speculators. The government ought to be helping creditworthy people stay in their homes."

President Bush been a disaster for the federal budget (a major reason I do not consider him anything like a conservative), but it's good to know there are some limits as to how far he will go.

Obama's campaign makes an appeal to pity. Willisms debunks it thoroughly.

neo-neocon on Obama's thin skin.

Private Papers on the Obama Double Standard.

Ever since he started this campaign, he's been telling people he's something special. What he seems to mean is that he wants special consideration, special immunities, and special opportunities for attack. I'm getting real tired of Obama's thin skin, and his, "Play nice while I take choice opportunities to get nasty" schtick. I imagine a lot more people will be before the campaign is settled.

Geez, at least communists and fascists waited until they were in power to suppress dissent.

I wrote the above Friday. Another example today: Obama tells seniors McCain would threaten Social Security;

Democrat Barack Obama told seniors Sunday that Republican John McCain would threaten the Social Security that they and millions like them depend on because he supports privatizing the program.

Gratuitous attack? check. Scare tactics? Check. Blaming McCain for something he's been among the potential reformers trying to save? Check. Tell me, Senator, how is this any different from what you got all indignant about a few days ago when President Bush talked about appeasers without mentioning your name? Where a reasonable reading of the transcript says he's talking about the general concept of appeasement, (in the Knesset of Israel, in the context of events leading up to Israel's founding). Then you jumped up and cried about how he meant you when he was really talking about events that happened before you were born?

But while we're on this subject, Senator Obama, if you dig into the actuarial reality of the referenced programs, the only way to save Social Security at all is a radical change like privatization. Social Security and Medicare are headed for financial disaster too severe to save them from (I'm seeing estimates of $65 trillion of unfunded, uncovered liability under the two programs, and growing. That's every single dollar the US economy produces in five years.) So what's it going to be, Senator? Do something so that these programs are going to be there in some form, or stand athwart history yelling "Stop!" Okay, so you've already made it clear what your choice is: Pretend those two trains heading for each other on the same track are somehow not going to hit. Now go rearrange deck chairs on the Titanic. The adults have work to do.

Another example Monday Obama tells Tenn.'s GOP: 'Lay off my wife'

Obama, his party's presidential front-runner, and his wife, Michelle, were asked in an interview aired Monday on ABC's "Good Morning America" about an online video last week by the state's GOP taking her to task for a comment some considered unpatriotic.

"The GOP, should I be the nominee, can say whatever they want to say about me, my track record," Obama said. "If they think that they're going to try to make Michelle an issue in this campaign, they should be careful because that I find unacceptable, the notion that you start attacking my wife or my family."

The video repeats what his wife said speaking at a campaign even on his behalf. here's a clip containing it (I haven't watched the whole clip in this instance, just enough to see that it had what Michelle Obama was being taken to task for)

Dear Senator Glass House: If you are using someone to campaign for you, they are a fair target. What they say while campaigning for you is a particularly fair target. Let's contrast this with "how Democrats treat Republicans." For instance, Dick Cheney's daughter didn't campaign for him, but she became a campaign issue. Jenna and Barbara Bush became campaign issues when one of them had an underage drink (I don't remember which), but President Bush didn't complain about that because he had used them for youth outreach. Colin Powell decided not to run for President because of what would happen to his family. You decided to run for President in what should have been full awareness of the consequences, and if you didn't, that's hardly a recommendation in your favor - it's not like it's not common knowledge. None of the criticism of Michelle is old or irrelevant. The criticisms of Michelle Obama I've seen have fresh stuff, from campaign appearances she made on your behalf, speaking for you. Even if she were speaking solely on her own behalf, I think it's pretty relevant what your wife thinks and what her values are. Common values are one of the main supports of a viable marriage - her values are a reflection of yours. Otherwise, you wouldn't still be married. For someone who tried a few days ago to bring Cindy McCain's wealth just a few days ago (which has been held separate from her husband's money for their entire 28 year marriage), this shows a lot of gall.

We got behind on house pymts & it was sent to an attorney for foreclosure.? The attorney has printed a notice in our paper on Oct 9 that it will go up for public action on Nov.16th. We found out we could get financial help on friday. Can we stop this action now without it going up for auction?

This never ceases to amaze me. People have a contract they can't meet, and they don't call the other party to see if anything can be done.

the lenders do NOT want to foreclose on any more properties right now. Actually, this is pretty much a constant of the real estate market.

To be truthful, you should have called the lender and explained your situation as soon as you knew you were going to be late with a payment. Lenders will always work with anyone to a reasonable extent, but now they're bending over backwards. Foreclosures are 1) bad publicity, 2) bad for their relationship with the secondary loan market, and 3) almost certain to lose them a blortload of money.

Call them this instant (or as soon as they open on Monday) and ask for Loss Mitigation. They will not be as forgiving as if you'd called them right away, but they're still likely to be willing to work something out. Just about anything is better than losing it through foreclosure, I might add, so you be willing to give as much as you can to encourage them. Foreclosures hit them in ways beyond the cash they immediately lose. They don't want to foreclose.

Now, the downsides:

First off, you've waited until you are "in extremis", long past the best time to call the lender. They're quite likely to see your belated request to talk as a last ditch method to delay the inevitable. Lots of folks do precisely this. Had you called earlier and been working with them all along, made agreements and kept them, they'd have evidence you're really doing your best to get them their money. You're not a criminal, but this is the same sort of behavior judges see with convicted criminals at sentencing, faking penitence to avoid jail - then they go right out and do the same thing again.

Payment modifications aren't some kind of magical "make it all better" The lender wants their money, and they're not going to settle for a situation that doesn't turn the loan into what they call a "performing asset." If you borrowed more money than you could really afford, and you aren't able to make at least the interest payments on it at real rates, as many people with negative amortization loans did, then the best modification they'll agree to really isn't going to help you, and you're better off selling the property ASAP, even if you don't get enough for the property to cover what you owe ("short sales").

Bottom line: Please call and ask them. It never hurts to ask. But be mentally prepared if such a modification doesn't really solve your problem.

Caveat Emptor

Article UPDATED here

Right now, due to the problems we had with unsustainable loans, nobody wants to consider anything but a thirty year fixed rate loan. I understand why, especially as I've been preaching the dangers of things like short term adjustable interest only loans and negative amortization loans here for almost five years now. The trick is one of balance. The negative amortization loan not only has a higher interest rate than other loans (aka cost of money) but you're adding to the balance you owe every month. This has compound interest working against you. If this were not the case, you could afford a better loan (there are no worse ones). For such things as an interest only 2/28, once again you're setting yourself up with a loan that you cannot afford and a short time during which you need to be able to refinance. The balance of that interest only 2/28 may not be growing, but it isn't going down much either. In only two years, you're going to not only need to refinance it, but almost certainly roll a bunch of closing costs into your balance as well. Suppose rates are higher? Suppose prices are lower? These twin facts describe the situation lots of folks are in right now, and my article on Refinancing When You Owe More Than The Home Is Worth is one of my most popular pieces of search engine bait, despite the fact that it is very much in the way of hoping you can make something a little less bad out of a horrible situation. Two years in real estate is fairly short term. Considering a two year window, I'm more certain today than at any time in the last ten years that property values (at least local to me) will be significantly higher two years from now (at least 10%), but confidence in that prediction is only in the 90 to 95% range. Two years just isn't enough time. Like when I was a financial advisor. The market is up in about 72% of all 1 year periods, and a higher percentage of two year periods (I remember 85%, but I'm not certain of that). But over a ten year period, it was a practically sure bet, historically, that the market would be up, and up significantly. The same thing applies to real estate. "Time in" is so much more important than "timing" that they don't even play in the same league.

When you get out to five years, I'm as certain as possible that my local market, at least, is going to be up and up significantly. Considering the state of most markets, this is a very reasonable bet. For that matter, it's pretty reasonable at any time, as five years is enough for sentiment of the moment to be outweighed by fundamental facts of the market. Furthermore, most people get at least one substantial raise (or a series of smaller ones) over a five year period, increasing what they can afford. More importantly, in five years with a fully amortized loan, you'll chop some significant money off the balance (about 7% for most mortgages out there), just by making the regular minimum payments. My point is this: you have a smaller balance on a property that is worth more. Your equity situation has improved, and by enough that unless you take significant cash out in one way or another, you're in a strictly improved situation.

What are you giving up by accepting a 5/1 instead of a thirty year fixed rate loan? The answer is twenty five years worth of insurance that your rate won't change at the end of your loan, which most borrowers never use anyway. The median time to refinance or sell a property was about 28 months last time I checked (for a while it was down to sixteen months). That's fifty percent above, fifty below. Add another 28 months, and before five years is up, at least seventy five percent of everybody has refinanced or sold. Question: How much good did that extra 25 years of insurance that the rate wouldn't change do these people? Answer: Absolutely none. They let the lender off the hook before that part of the guarantee began.

Let's look at some numbers that were available today. Full documentation, A paper loans, rate/term refinance between 75 and 80% loan to value ratio, with a credit score of 720 (national median).

Now the loan request that started this all off was a $600,000 loan. Here in San Diego, that's less than the temporary Conforming limits (aka Jumbo Conforming, a phrase that makes about as much sense as plastic glass),

(Making certain I emphasize once again the tradeoff between rate and cost for real estate loans)

So, for less than the cost of a 30 year fixed at 5.875%, these clients have had a 5/1 ARM at 5.25%. For a $600,000 loan - almost to what was called Super Jumbo territory a few months ago. the 30 year fixed costs roughly $14,500 in total costs, the payment is $3635, and interest is about $3009 the first month, assuming all costs are rolled into the loan. The 5/1 costs about $12,700 grand total, the payment is $3386 ($250 less!) and interest is $2686 ($325 less!). You pay the balance down to $556,000 over 5 years if you just make the minimum payment on the 5/1, as opposed to $570,000 if you make that higher minimum payment on the 30 year fixed rate loan. And if you happen to be the sort who makes that payment they could make on the thirty year fixed rate loan, but chose the 5/1 instead, your balance will be down to $547,000. Under such circumstances, even if you refinanced that 5/1 at the same cost, you'll be over $10,000 better off than some hypothetical twin brother who chose the 30 year fixed, even if he didn't refinance which the odds are at least 3:1 against. Given consumer habits in this country, that thirty year fixed looks like a losing bet to me at the usual rate differential between the two loans.

The same numbers apply just as strongly at conforming rates:

The difference between the thirty year fixed and the 5/1 narrows appreciably at the lower cost end of the spectrum. But it's a far cry from the days of last year when sometimes that thirty year fixed rate loan was actually less expensive for the same rate.

Some people are likely to ask about varying periods of ARM. What about a 3/1, for an even lower rate? Ladies and gentlemen, those were actually more expensive than 5/1s today, and even when rates are more normal, the differential is usually less than an eighth of a percent, while you're cutting off 40% of your fixed period guarantee - the period that lets you make all that lovely profit? As for the 7/1 and 10/1, they were actually more expensive than the thirty year fixed today, and even when rates are more normal, there's typically more difference between them and the 5/1 than there is between 3/1 and 5/1 - plus you're getting well past the territory where reasonable fractions of the populace keep their loans without refinancing. You're paying for insurance you're extremely unlikely to need, and hybrid ARM rates are much more stable than rates for thirty year fixed rate loans.

Hybrid ARMs aren't for everyone. If you're going to obsess about your expiring fixed term every night for five years, the difference in daily interest works out to about $10 per night, even for our example with the $600,000 mortgage. My family being able to sleep well is worth $10 per night to me, and I presume it is to you, as well. There is an element of risk here, and there's no pretending there isn't. A very small risk that real estate and loan markets go completely weird in violation of all historical precedent for the next five years, and those choosing the 5/1 are somehow stuck with needing to refinance in a worse situation than when they started in. But I've been saving myself lots of money with the 5/1 for fifteen years now, in all sorts of markets. Why shouldn't I mention it to other people, including my clients?

Caveat Emptor

Article UPDATED here

Volokh Conspiracy on why we here in California need to vote against Proposition 99.

The great danger posed by Proposition 99 is that nonexpert voters will understandably assume that it really does protect property owners, without realizing that it will actually undermine their rights by 1) offering no real protection and 2) blocking implementation of Proposition 98, a ballot proposal that really would give property owners protection against the kinds of takings authorized by the Supreme Court Kelo v. City of New London.

Red Cross: Up to 128,000 may have died in Myanmar

And a lot more people at risk:

The Red Cross estimated the number of people needing help after cyclone surged over the low-lying delta on May 3 at between 1.64 million and 2.51 million.

Meanwhile, the Thai Prime Minister is saying that the junta doesn't want help

But Thailand's prime minister said Wednesday that the junta believes it is in control of the relief operations, AP reported.

Samak Sundaravej, back from a visit to Yangon, said the military had guaranteed him that there were no disease outbreaks or starvation among the survivors.

China's earthquake victims 'eat bitterness'

Congratulations and a hearty well done to Patti from Soldier's Angels, who was chosen America's Favorite Mom, and is donating her prize money to Soldier's Angels.

Obama says Bush falsely accused him of appeasement

Barack Obama accused President Bush of "a false political attack" Thursday after Bush warned in Israel against appeasing terrorists - early salvos in a general election campaign that's already blazing even as the Democratic front-runner tries to sew up his party's nomination.

Supposedly, it's traditional for a president to eschew partisan politics on foreign soil, not that that stopped Clinton. Nor Nancy Pelosi, who's a member of the legislative branch, and not charged with foreign policy at all, as she embraced the Syrian Ba'athists and blasted George Bush. When it comes to partisanship, anything George Bush has done falls well short of these and other Democratic tricks. For all the disagreements I have with him, I have to admit that George Bush is fundamentally a decent man.

Did Bush accuse Obama, or some unnamed presidential candidate, or even Democrats in general? I'm not seeing it in the transcript. Here's the most relevant paragraph:

Some seem to believe that we should negotiate with the terrorists and radicals, as if some ingenious argument will persuade them they have been wrong all along. We have heard this foolish delusion before. As Nazi tanks crossed into Poland in 1939, an American senator declared: "Lord, if I could only have talked to Hitler, all this might have been avoided." We have an obligation to call this what it is -- the false comfort of appeasement, which has been repeatedly discredited by history.

Looks directed at appeasers everywhere, if you ask me. It may have come to your attention. It's Obama volunteering the fact that the shoe fits, which has nothing to do with George Bush and everything to do with Obama. Obama wants to keep the nutroots and other BDS sufferers emotionally committed to him so they don't stop and think, therefore he slams George Bush every chance he gets. It's just that this time, he managed to insert both feet into his mouth.

Instupundit says all of this more pithily: "MEMO TO THE OBAMA CAMPAIGN: When somebody condemns appeasement, it doesn't help things to jump up and yell "Hey, he's talking about me!""

Volokh Conspiracy on the California Supreme Court tossing out the anti-gay marriage law.

I personally voted against that law. Unfortunately, my side of the question ended up with fewer votes. The law forbidding gay marriage is on the same level as the ones the Supreme Court used to toss it, and spoke to the specific issue. This is supposed to be carving a specific exception out of the general rules. Unfortunately for the people of California, the state Supreme Soviet Court has decided they just aren't important. I may not like this law in particular, but every time the courts overturn the will of the voters thus, it's a blow against democracy.

I'm going to vote against the state Constitutional Amendment proposed on this issue, assuming It makes it onto the ballot and that I'm not hit by a bus in the meantime. For that matter, I consider marriage a fundamentally religious concept that the state probably shouldn't be involved in at all. But I consider myself and the rest of us bound by the results of the ballot box, whether we like it or not. The process is critical, not just the results, and if we simply ignore things mandated by the voters, it's a lot closer than most people realize to having a popular President who refuses to step down after two terms. Or who hands power over to the party nominee, despite the fact that someone else won the election. Then they swear in 535 Congresscritters, all of the President's party. Get the picture?

More at Pajamas Media from the author of Gay Patriot.

Instapundit on Congressional energy policy: "Are these guys on the Saudi payroll, or what?"

Some unfortunately not-so-Common Sense

As with anything you find on the internet, the critical thing to keep in mind with internet real estate is that it is subject to input control. In plain English, you only see what they want you to see. If they don't want you to see it, it's not going to be put into the internet so that you can see it there. The vast majority of the time, there is no check upon this simple fact of life. If the owner or listing agent don't want you to see something, it's not going to be available to you on the internet. You're going to have to get out and look at the actual property.

What is put onto the internet is a representation. It could be a good accurate representation or it could be an intentionally distorted representation. The online information is never all there is to see. Kind of like a facade - front facade, back facade, and now, internet facade. Online pictures, home for sale websites, virtual tours - they're all subject to any number of tricks that alter how the property is perceived.

You should never put an offer in without having looked at the property in person. I'm very good at what I do as a buyer's agent. Nonetheless, it is most disconcerting on those rare occasions when someone sounds like they might be intending to put an offer in without looking at it themselves in the flesh. To date nobody has done so through me, but I have had to talk a couple people out of it. There is no such thing as a perfect property, and it's very difficult to point out all of the things I believe buyers need to be aware of when they're not there to see me point.

A lot of the most important things are never online. Even if there is a floor plan (rare), it's very difficult for people who are only looking on-line to get a good grasp of internal sightlines. It's also very hard to convey the full sense of the external environment. What can you see? What do you hear? Are there other environmental distractions? Do airplanes fly right over the house on departure when the wind changes? What's the neighborhood like, are there any obviously disturbed neighbors, what are traffic patterns like, how close and how good is freeway access, where is (are) your grocery store(s), and anything else that might be important to you? How accessible is the neighborhood via public transport? Note that some of these questions are double edged swords by definition. Public transport means your friends who don't have a car can get there, as well as making any public transport excursions you may have need far more bearable - but it can also be a conduit for undesirable visitors.

Nor can you really only visit one or two properties. The key to relative value is how the various properties on the market compare to each other, and that includes that whole list in the previous paragraph. No matter how much you make, if you figure you're going to visit an absolute minimum of ten properties before you put in any offers, the probability is pretty much 100 percent you'll end up glad you did.

The internet can profitably be used to narrow your search, by throwing out all of the obviously unsuitable properties. Doesn't have what you need? Asking price way too high? From the pictures, there's no way your family could live there? There's no reason to waste time and gas going to see those properties. You still need to go out and look at not only the properties that are left, but enough properties to give them context. I don't know how often I've heard from people who only wanted to view one property, but in such cases it always seems to be a property I wouldn't buy if the owners paid me to take it off their hands.

The internet can also make it easy to find properties to look at. It certainly beats driving around all the neighborhoods you might like to live in trying to find "For Sale" signs. But it cannot replace physically going to look at properties that might fit the bill. If you're short on time, might I suggest a buyer's agent, or several? That time is their job, the mileage is a business expense, and nothing is so precious as the time people give us to look at property. It's quite likely that a good buyer's agent will narrow your search a lot more, because going out and looking at property gives a lot more information than the internet, and we do it constantly. Getting a good buyer's agent first will make more difference than anything else to how happy you end up (Here's how to find a good buyer's agent)

Property always needs to be evaluated in the context of the area it's in. A lot of what might sell for $500,000 in my area might be less than $100,000 in other locales. This doesn't mean San Diego is overpriced. It means that there's a lot of people who want to live here very badly, these people make comparatively large amounts of money, it's hard to get permission to build, and the prices for the area reflect those factors. If you've decided you want to live in a particular neighborhood you're going to have to pay about the prevailing prices if you want housing. A good buyer's agent can make a big difference, but nobody can find you something that doesn't exist, and in order to really understand what a good bargain is, you've got to go and actually look at some properties that aren't bargains before you understand what a bargain looks like.

Caveat Emptor

Article UPDATED here

When it comes to mortgage loans, people get distracted by the darnedest things.

Let's look at Wal-Mart. You think they got to be the largest retailer in the world by making less money than their competition? I assure you that is not the case. In fact, they're legendary in manufacturing circles for using their size as an inducement to get the lowest possible price out of their suppliers. With that leverage - the fact that whether or not Wal-Mart stocks your item will be a significant predictor of your success manufacturing consumer goods - they can get outrageously low prices out of their suppliers. To this, they add all of the economies of scale and function consolidation that they can possibly come up with, to the point where Wal-Mart makes more on the same item than almost any other retailer, let alone the mom and pop store that everyone complains Wal-Mart has driven out of business. How the heck do you think they can afford to build dozens if not hundreds of new "Super Centers" worldwide every year?

Their main attractiveness to consumers is one thing. Price. They deliver whatever it is, from breakfast cereal to makeup to cell phones to automotive supplies at the lowest final price to the consumer. They've also got a huge selection of merchandise so you've only got to make one stop (thereby saving on gas, if you don't count the three gallons you waste getting in and out of the parking lot), but that's not why most consumers go there. They go for price. I may hate the thought of going to stores that are even in the physical vicinity of a Wal-Mart, but you've got to give them respect for what they accomplish.

People don't shop Wal-Mart because Wal-Mart doesn't make anything on the transaction. If that were the case, we'd all be shopping government stores. No, people shop Wal-Mart because the total cost, aka purchase price, is lower there even thought they may be making more money per transaction than the Mom and Pop store that used to be a couple blocks over. Lest anyone not understand, this is a good and rational thing, not just for Wal-Mart but (as far as it goes) for society as well.

The same thing should apply to loans. Shop loans by the lowest total cost of money . To know what that is, or even make a reasonable estimate, you've got to have some idea how long you intend to keep the loan. There is always a trade-off between rate and cost, because lenders have to work with the secondary markets, and that's the way the secondary markets are built. Know for a fact you're going to sell the property in two years? Then look at the costs of that loan over a two year period. In such a case, it probably doesn't make sense to choose anything with a fixed period longer than three years, and lowering the closing costs is likely to be more important than getting a lower rate, even if the payment is lower on a lower rate. That's pretty much a textbook case example of higher rate being better because it's got a lower closing cost.

If you're certain that you're going to stay in this property forever, and never ever refinance again, a thirty year fixed rate loan where you spend several discount points buying the rate down will verifiably save you money - if you're right. If you're wrong, and six months from now you're looking to sell and move to the French Riviera, all that money you spent on points and closing costs was essentially wasted. You're not going to get it back - it's a sunk cost, used to pay the people who do all the work to make a loan happen, and to pay the rich folks who work the secondary mortgage market to give you a lower rate than you could have gotten otherwise. It's not their fault you chose to let them off the hook from that contract you negotiated. You're essentially betting a lot of money upfront that future events will happen the way you believe they will, and if you're right, you reap quite a reward. However, most folks lose this bet, which is why the (rarely followed) admonishment not to pay points for a loan gets repeated so often. That's also why people hedge their bets most of the time, by choosing an alternative that costs less, and therefore risks less, while covering a lot of future possibilities in a decent manner, if not quite perfectly.

All of this is good information to have. But there is one piece of information required of brokers but not direct lenders that distracts consumers from what is really important: How much they're making for this loan. I think it's good information to have out there providing the consumer knows enough not to give it more weight than it deserves. And it really isn't important information, because it does not impact the bottom line to you, the consumer. It's really no more important than knowing where the airplane for your flight just flew in from. The point is that it's going to cost you $99 to get on that plane to where you're going, just like the important thing for consumers about their mortgage loans is that it's going to cost them $X total to get the loan done, and they're going to have an interest rate of Y% that they're going to have to pay for as long as they keep that loan. But if it's important for brokers to disclose how much they're going to make, why isn't the equivalent disclosure required of direct lenders?

The Federal Trade Commission prepared a report, The Effect of Mortgage Broker Compensation Disclosures on Consumers and Competition: A Controlled Experiment. The upshot? Consumers will choose the loan where the company providing it makes less money, or, even more strongly, choose the loan where the company's compensation isn't disclosed at all. I think it's reasonable information for someone to want to know, but if it's important to know the information when you're dealing with a broker, and the government therefore mandates such disclosure, then why isn't it required for direct lenders? (The answer is politics, to put brokers at even more of a psychological disadvantage as far as the average person is concerned. Lenders make a lot more money than brokers, so they have a lot more money to bribe politicians contribute to campaigns). To quote from the report:

If consumers notice and read the compensation disclosure, the resulting consumer confusion and mistaken loan choices will lead a significant proportion of borrowers to pay more for their loans than they would otherwise. The bias against mortgage brokers will put brokers at a competitive disadvantage relative to direct lenders and possibly lead to less competition and higher costs for all mortgage customers.

Focusing upon what the provider makes actually hurts you. If you just focus upon how much the loan officer makes, there's no incentive for them to shop around looking for a better loan. As I've written before, if I can find a better lender for that loan, I can both make more money and offer a better loan. But if you're just going to shop by how much I make, there's no incentive to do that. I make my $X, regardless of whether you get a 30 year fixed at 5% without a prepayment penalty or a 2/28 at 8% with a three year prepayment penalty. There usually isn't that much difference, but the principle is the same. You want your loan person motivated to find you a better loan, which shopping only by how much someone makes frustrates. And if you choose a loan at a higher rate of interest and higher cost just because the company offering it is not legally required to disclose what they make, it doesn't take a genius to figure out that you're doing nothing except hurting yourself. It's the equivalent of passing up the store with the lowest price because the law requires that store (but not their competition) to hang a big sticker on it that says, "The store makes $12.98 if you buy this toaster oven." Me, I like it when people make money from my custom, especially when the bottom line cost is as good or better. It means they're motivated to work hard and do a good job so they get my business again next time I'm in the market. The principal is the same whether it's a big box retailer, a mechanic shop, or a real estate loan.

Caveat Emptor

Article UPDATED here

Carnival of Personal Finance

Carnival of Real Estate

Death toll in China earthquake up to nearly 9,000

Xinhua said 80 percent of the buildings had collapsed in Sichuan province's Beichuan county after the quake, raising fears that the overall death toll could increase sharply.

Fare thee well Irena Sendler. You will be missed.

Saved thousands of children from the Warsaw Ghetto, was caught and tortured by the Nazis, and still believed she should have done more?

People like her show you precisely how small one's own accomplishments are.

Army Corps says Condition of many levees a mystery

And it's not just a problem along the Mississippi and Missouri, either. The Sacramento River delta probably has more people at risk than any other per square mile.

Obama defends his patriotism, quarrels with McCain

"At a time when we're facing the largest homecoming since the Second World War," Obama said of veterans returning from Iraq and Afghanistan, "the true test of our patriotism is whether we will serve our returning heroes as well as they've served us."

Talk about ignoring the elephant in the phone booth! Yes, I'd like to see veteran's benefits augmented, but when Obama's "pull the troops out right away" encourages our enemies to stay in the game a little longer so they can win when we leave after he's elected, he's getting our troops killed. Good news, Ms. Soldier's Widow! Your husband would be eligible for increased benefits if he was alive! Great news, Johnny and Jenny Orphan! Your daddy would get better care, if I hadn't caused him to get killed! (end sarcasm). President Bush still meets with families of service members killed in action. How many have you met, Mr. "Give the military benefits with one hand while getting them killed with the other"? Oh, and how about stop trying to tie funding for the troops to all sorts of unrelated projects, Mr. Earmark? Finally, the VA regs and bureaucracy as as bad as they are because that's the way Congress wrote the law. You want to tame the VA bureaucracy? You have the ability to introduce such a bill, Mr. Obama. By the way, you might talk with someone about how closely our enemies do pay attention to US Politics. You might learn something.

Oh, and by the way, he's not correct about McCain failing to back improved veteran's benefits, either:

McCain's campaign said the Arizona senator backs a Republican alternative that is better because it enhances benefits for those who stay longer in the military, thereby encouraging recruitment and retention of troops.

They say familiarity breeds contempt. The more familiar I am with Barack Obama, the more I think he's a case in point. I still think he'd be a great guy to chat with - so long as I keep my hand on my wallet. Because every time he says something, he reminds me of the old lawyer's game of straining at flies and swallowing camels.

Technology Gets Cocky Department: MIT students show power of open cell phone systems

A Yemeni journalist

Thank you very much for this campaign, which comes in the context of the overall values that we believe, and they punish us when we believe those values and adopt them. I do not want to talk about myself, but rather the environment that we live in and suffering we endure from the inconsistency between what the authorities announce about democracy and freedoms, and what happens when we believe in those same things, democracy and freedoms.

They want us to practice our rights as they understand them, but we do it ideally. The regime said that democracy is the way of ruling, but when we try to practice our rights within this concept, criticizing the way that the regime governs and how they act, then they deal with us in a way that has no relation to democracy. They deal with us as outlaws. They use all of the state's resources to attack anyone who has any opinions not corresponding with their opinions, and to attack those who even discuss their way of ruling.

What I am suffering and facing is part of the price I and many others pay for the democracy and freedom we hope to achieve in the future. At least we are preparing for a healthy environment that we want the next generation to live in. We believe that democracy and freedom have an expensive price, and this is a part of that price.

However that doesn't mean we will keep silent and bend, as it is the price. We will refuse injustice peacefully. Solidarity is a way to enhance new civil values which support the democracy we will make with our sacrifice and with the support of others. We pay the price of the freedom for ourselves and for the generations after us. Again, thank you very much for your help and support.

Abdulkarim al-Khaiwani
10/5/08
Sana'a, Yemen

Armies of Liberation has a petition to save his life. They want to sentence him to death for criticizing Yemen's dung-ball of a president. It can't do any harm to take thirty seconds to sign.

We in the United States are obscenely wealthy not just economically, but politically. Let's help others get rich too!

Depressing: Gag on 2nd Amendment Is City's Aim in Guns Suit

The general public may not understand this, but the most critical parts of a listing agent's job all take place before the property hits the market.

The most important responsibility of an agent who wants to successfully list property is one of those. No, it isn't the pricing discussion, although it's closely related and usually done at the same time. It's educating the owner as to what a good offer for their property would be.

The weaker the overall market, the more important this is. In a strong seller's market, if you blow off a good offer, you're likely to get another almost as good. In a buyer's market like most of the country today, telling a good offer to get lost is a great way to lose money. I'm paid on commission. Believe me folks, I'd like to be able to get two million dollars for a not particularly attractive five hundred square foot condo in "the 'Hood" . The fact is that buyers look for the best property at the lowest price. You can try to sell a property for more than it's worth, but it's not going to happen, and trying is the best way I know of to fail to sell at all, or to be forced to sell for a lot less than you could have gotten, and have to pay the carrying costs for the property for a much longer time than if you know a good offer when you see it.

You can't really have the pricing discussion until the owner understands what a good offer would be. The correct asking price is central to a successful transaction. People look at properties based upon asking price, and you are competing with other properties of roughly the same asking price. If you ask too much, your property will be competing out of its league. The people who are looking for something in that price range will have superior alternatives. If the choice is your property or, for the same asking price, a freshly remodeled house with an extra bedroom and bathroom and a lot that's twice as big in a better location, which do you think the average buyer is going to make an offer on? Ladies and Gentlemen, even if your own mother is looking for a property and knows you need to sell, that's going to be a hard sale for your property. On the other side, if you're not asking enough, people will line up to buy, but then you (and your agent) end up with less money in your pocket, and that's not going to make anyone happy except the buyer.

Furthermore, you've got to understand the market you're trying to sell in. In a strong seller's market, you can probably afford blow off offers below a certain threshold. In a strong buyer's market, you need to try and work with anything even vaguely in the right ballpark, to see if you can talk them into something more in line with reality.

Some agents won't do this. They'll either accept whatever the owner wants to ask or even actually inflate the asking price. This is called "buying a listing," because owners who don't know any better get dollar signs in their eyes and sign up with that agent. It isn't really "buying" anything - it's more like a candidate's insincere campaign promises to repeal laws of economics. Anybody old enough to vote should know better than to believe this, but it works, for the same reason Nigerian 419 scamsters are driving around in Ferraris: People want to believe in easy money. In point of fact, as I have written before, this actually sabotages any chance of actually getting the best possible price. Your time of highest interest is right when it hits the market, and the longer the property is on the market, the lower the sales price is likely to be, and when you over-price real estate, you're not only going to end up getting less money in the end, but you'll have to pay carrying costs for the property for a longer period of time. In short, this approach reliably costs sellers money. Large amounts of money. There is no reason but greed and ignorance to do this, but many rotten agents make a very good living conning people who don't know any better. One of the reasons why bargains are hard to find is that the definite majority of the listings out there have been the victim of such an agent. The property isn't going to sell for that price, or anything like that price, but by over-promising on the listing price, they get a signed listing contract, and when all these properties eventually sell for tens of thousands less than they really could have gotten, that agent even looks like a "top producer."

Waiting until the property is on the market is too late. Everybody has already seen that initial asking price. Not to mention the owner still believes the nonsense they've been sold in the above paragraph. Waiting until you have an offer is definitely too late. The agent has been telling them up until this very moment to expect tens of thousands of dollars more, and now the agent is going to try to talk them into accepting what really is a good offer? Not likely to work, and not good for the relationship even if it does. Furthermore, one of the things you learn in this business is that the first offer you get is more likely than not to be the best. Oh, it's not rare or even that uncommon for a better offer to come later, but the most typical pattern is for each subsequent offer to be successively lower. And now you've lost what is likely to be the best offer you're going to get because your agent couldn't explain to you what a good offer was? Run that one by me again: Why are agents supposedly getting paid? I get paid for listings because I really do know how to sell them more quickly and for a higher price than any "for sale by owner". But why in the world would you want to pay someone who doesn't do that, and makes the sale take longer and causes you to have to settle for a lower price? I understand why it happens. I just can't understand why people would want to, other than a combination of ignorance, laziness and greed. Somebody once said, "Too bad ignorance isn't painful." Ignorance is painful, but it's financial pain, and the kind most of those burned by it never realize they felt, because they couldn't recognize the symptoms, and they have no idea how much better they could have done.

For a successful listing that's going to fetch an optimum sale, understanding what a good offer looks like, so the owners know how to react when they get it, and setting the correct asking price so that you do get such an offer, is critical. Failing to do so will put you in that group of people who don't get what they could have for the property, and since you don't understand how and why the problem happened, you're likely to repeat it every time you decide to sell a property. When the market rises rapidly for many years, as the San Diego area among many others did, you can even delude yourself into believing that you were "successful." But when the market returns to something more closely approximating normality, believe me when I tell you you that you'll find out in a hurry that you weren't as successful as you thought.

Caveat Emptor

Article UPDATED here

Myanmar seizes UN aid supplies, 'not ready' to let in US

Myanmar's military leaders seized aid shipments headed for cyclone survivors and told the top U.S. diplomat there Friday that they're not ready to let in American aid workers despite warnings the country is on the verge of a medical catastrophe.

The country is already flooded, and they're expecting another 4 inches of rain this week. Millions are without basic supplies, and putrefying corpses are going to spread disease. What wonderful people. Oh, and the chinese government shares the blame for propping the junta up.

US official: 1 shipment to be allowed to Myanmar

The governing military junta in Myanmar has agreed to allow a single U.S. cargo aircraft to bring in relief supplies for victims of a devastating cyclone, the Bush administration said Friday.

One planeload is better than nothing, but a single C-130 load of food isn't going to make much of a difference. Oh, it'll stop a few hundred from starving for a few days, but when you're talking about potentially millions of cyclone victims, that's not going to go very far. (the sixty to a hundred thousand you hear about are the ones that are missing or known to be dead. That doesn't count the far larger number of people cut off from food and water)

As a swordfighting duel, it's slapstick at best, but the video of these two gymnasts with lightsabers is cool.

How Oil Lubricates Our Enemies

It's not reality, it's Scrappleface. But humor sometimes conceals a deeper truth.

Neville Chamberlain, without the umbrella

Obama pwned

Via Instapundit, Meet the New Trough, Same as the Old Trough

There's an old literary tradition that cautions the reader to "Be careful what you ask for. You may get it."

Many real estate purchase offers are good illustrations of that principle.

The rule followed by good agents is, "Never make an offer that you wouldn't be pleased to have accepted, exactly like it is." An Offer is a legal term. You're making an offer to fulfill these terms if the seller will. By simply signing the offer in acceptance, the other side can create a binding document with legal force, and at least potentially sue for specific performance. Specific performance is more often used by buyers than sellers, but it is available to both. An offered and accepted purchase contract is roughly equivalent to creating both a "call" for the buyer and a "put" for the seller in options trading. The seller has a right to insist the buyer buy, and the buyer has a right to insist that the seller sell, on these specific terms.

Usually, there are things discovered about the property while in escrow. It just isn't cost effective for prospective buyers to perform an inspection prior to obtaining a contract, and sellers should be mindful of the fact that subsequent discovery can void the purchase contract with an inspection contingency. On the other hand, I can't imagine a buyer insane enough not to build an inspection contingency into the contract. No matter how great a deal they may think they're getting at first, the whole contract is subject to a revaluation if the inspection uncovers major defects. I'd prefer to negotiate repairs or compensation rather than flush the transaction, whether I'm a buyer's agent or listing agent, but if the other side isn't going to be reasonable, sometimes it's necessary to walk. On the other hand, if the sellers have developed remorse and aren't reasonable but the buyer wants to proceed, the buyers can force the sellers to perform by being willing to accept the original contract, as written.

The buyer usually has protection from the various contingencies in the contract - loan, appraisal, inspection, disclosures. But these have a specific limited duration, the sellers (via their agent) can insist the contingencies be removed in a timely fashion, and once they are gone, that buyer is as naked as the seller. Indeed, one of the marks of a good listing agent is being on the ball about contingency removals. Usually, it's the deposit rather than specific performance that the seller goes after because the reason the buyer wants out is it turns out they can't qualify for the necessary loan. Suing for specific performance in such instances is like demanding that men gestate and birth fifty percent of all babies. It's a physical impossibility that isn't going to happen. Sorry ladies, and sellers also. But the deposit money, and any other money in escrow, can be at risk.

Nor is that the limit of the seller's recourse. I'm not a lawyer, so talk to one, but damages certainly seem possible. Many lender owned addenda demand them if certain conditions are met.

The ultimate risk of a poorly written purchase offer, however, is that it leaves the buyer with a property that isn't worth what they paid for it.

It happens, particularly with large deposits. Buyers get into situations where they have a choice of buying or losing that cash deposit they worked so hard for. Even when the latter is clearly the least bad situation, many people, understanding the value of the cash they worked to save rather more clearly than the value of the payments they haven't made yet, will choose to consummate the transaction. They end up with an unmarketable property where they are obligated to make the payments on the loan, property taxes, and insurance. Since most folks are extremely happy to get a 2 percent deposit, this obligates you to 50 times that much by paying attention to immediate cash rather than the overall situation. Plus interest on the loan and property taxes. Ouch. Not a situation you want to be in.

There is a reason for each of the standard contingencies in a sale contract, and you can ask for others in the initial negotiations if you have a specific reason to be concerned. I just closed one where we negotiated an engineering report contingency because I had real concerns about the stability of the property (It was fine. But better my client spends $600 up front than spends half a million dollars for a property that's in danger of falling over). Standard contingencies can also be waived, creating a stronger, more definite offer. I'd be very careful about waiving them, and I always make certain the client understands the implications in writing. There are valid reasons to waive each and every one of the standard contingencies, but it is always a risk, and it can bite. The way I explain it is that it will bite, if you do enough of them - only nobody knows how many "enough" is.

If a buyer is giving up something that the standard contract gives them, there should always be something they're getting in return. If the seller isn't willing to do that, we're obviously making an offer on the wrong property. The same applies the other way around to sellers. One more way agents with good market knowledge serve their clients interests. "Yes, that model match sold for $X last month. But that seller gave the buyer 6% for loan costs, paid all the closing costs, and a twenty percent carryback as well. My client has a twenty percent down payment, doesn't need anything for loan costs, and is offering to pay half of all closing costs. When was the last time you saw all of that?" Every single one of those differences means money in that seller's pocket - money that should mean corresponding money my buyer doesn't have to pay in the form of purchase price.

Purchase price translates into property taxes for the buyer, and can mean exceeding statutory exclusions for the seller (i.e. they end up owing income tax, or at least having to pay an accountant to prove that they don't). The bottom line is that because the seller is getting things of value that the other seller didn't, they should be willing to give up something in the way of purchase price. If they're not, we're talking to the wrong seller and they're talking to the wrong prospective buyer. We want someone who's willing to see reason, he wants that prospective buyer who needs all that extra money from them to make the transaction happen (maybe). I think such a seller is barking mad, but that's their prerogative. It's a free country. They're entitled to lose their potential transaction.

Another thing that a poorly written offer can do is "poison the well." The other side gets so angry about the offer (usually the price part of the offer) that when the prospective buyer comes back with something better, they aren't interested. Happens. Sometimes it's justified, sometimes it isn't. If you're not emotionally attached to the property, no big deal. If it's the one you've got your heart set upon, prepare to make major amends in the form of concessions in order to bring them to the table. Hair shirts and heartfelt apologies are not likely to work. You've set a warning flag in the owner's mind or the listing agent's, and they're going to want something extra to deal with you because they're expecting a repeat of the behavior.

A poorly written offer can also leave you stuck doing something you don't want to, or can't. Suppose you need a contingency for sale of your own property, but neglected to include one in your offer. Bad news. Now you're looking at the transaction falling out, with consequences for the deposit, or renegotiation, and that seller is going to want a goodie of their own for giving you what you need. Renegotiation is also subject to issues from deterioration of mutual trust, as the other side starts wondering precisely how much of the contract you intend to live up to. It should be expected that the inspections are going to raise some negotiation issues, even in "as is" sales. That's life with asymmetrical information - which is basically every real estate transaction. But try to avoid anything else as a reason to renegotiate.

This is by no means an exhaustive list of the dangers. With real estate, the answer to the question "What can go wrong?" is usually, "The mind boggles."* Purchase offers are probably the most noteworthy example of that principle. A poorly written, or poorly considered purchase offer can mean you're stuck with a situation you can't carry through on, and it can cost you anything up to the full purchase price of the property, and perhaps more than that.

Caveat Emptor

Article UPDATED here

*Thanks to Robert Lynn Aspirin and Aahz

FYI: Fannie and Freddie have changed things a bit, and now the temporary Jumbo Conforming Loan rates have dropped like a rock, to the point where there's only a quarter to a half point difference in cost between them and regular conforming at the same rate. Now that will make a difference for full doc borrowers. Stated Income is non-conforming, and those rates are still significantly higher. I've said all along that Jumbo borrowers were suffering by association with stated income, due to the fact that both traditionally used the same rate table for A paper borrowers. Now that Jumbo Conforming loans have broken that association, the rates (up to the new limit) have dropped. This is about as surprising as gravity.

Rudy Giuliani interviewed about the differences between John McCain and Barack Obama's likely judicial appointments. I agree with Mr. Giuliani on all counts, and that's why I'd rather have John McCain's Supreme Court picks than Barack Obama's.

Cindy McCain says she'll never release her tax returns

Sen. McCain is routinely is ranked among the richest lawmakers in Congress, but he and his wife have kept their finances separate throughout their marriage. A prenuptial agreement left much of the family's assets in Cindy McCain's name.

Translation into English: It's not his money, but hers. She isn't running for office. First Lady is not an elected position. She will appear nowhere on the ballot. It's his decision-making, not hers, that we're voting on.

This isn't a recent phenomenon, for the election. This has been the status quo for 28 years. It's not his money.

Any hopes of a Russian democracy or republic are officially dead: Putin takes Yeltsin's pen _ and much of the president's power _ to new job as Russian premier

Burma has refused US Aid for the Cyclone victims

Pentagon not warm to idea of Myanmar aid drop

Asked if it would not be helpful to victims for the U.S. to drop supplies, Mullen said: "We could. Typically, though, it's sovereign airspace and you'd need their permission to fly in that airspace."

"It's all tied to sovereignty, which we respect whether it's on the ground or in the air," Mullen said.

Entering the airspace of a sovereign country makes the aircraft liable to be shot down, should the Burmese junta so desire. I don't think they would - the international outcry that would result might be the one thing that shames the Chinese government into stopping their support - but legally, they could. The status of our air crews would be "invaders", and I don't think this falls under the heading of what they signed up for. It would be one thing if we had the desire to use force to overthrow the junta, if Congress had declared war, etcetera, but that is not the case.

Two more casualties of the drug war: a documentary about the case of Cory Maye

I've dealt with this subject before. I'm sorry for Officer Jones and his family. The fact remains that he messed up, and lost his life to a citizen protecting himself from what he had every reason to believe was a home invasion.

Volokh Conspiracy on the Duke Rape Hoax and the behavior of the "Group of 88" professors.

If they can't simply face the truth, they should put down their shovels and stop digging.

Damning.

Every once in a while, the subject of assumable loans comes up. An assumable loan is one where the owner of a property has the ability to pass the loan along with the property in a sale. In other words, if they sell a property with a $200,000 assumable loan on it, by assuming the loan, the buyer only has to come up with the difference between that $200,000 and the purchase price. The $200,000 loan is a constant of the situation.

About the only loan that generally has an assumption feature is the VA loan. There are other loans out there that are assumable, but it's a matter of company policy of the lender funding the loan.

Just because a loan is assumable does not mean that any person is acceptable to assume such a loan. The lender has the right to approve or disapprove a loan assumption. The way to bet is that any prospective borrower is going to have to qualify under loan guidelines at least as stringent as the original loan. Mind you, if the rate is higher than the current market, the lender is likely to be somewhat forgiving, but if the rate is lower than current market, the lender has an incentive not to approve the assumption. They may approve it anyway, if the rate still beats the active return on the secondary market. But given the latitude to make their own decision, it's not exactly amazing how often everyone will usually follow their economic best interest.

Even after an assumption gets approved, the original borrower is not off the hook. I don't think I've ever heard of an assumption where there was no recourse to the original borrower. The VA loan has full recourse to the original borrower (and their VA guarantee) for a minimum of two years. This means that those original borrowers aren't going to be able to get another VA loan for at least two years, or at least that they're limited by the amount of their overall VA limit tied up in the assumed loan.

Other than VA loans, loans where there is an assumable option are generally a little higher than the non-assumable competition in terms of the tradeoff between loan rate and costs. This is because assumability is a feature with value. They're giving you something that has value the competition does not - they want some value in return. It's generally not a huge difference, but in the absence of someone asking for an assumable loan, I generally presume lower rate/cost tradeoff is more important to my clients, and I can't remember the last time a wholesaler with assumable loans won that battle.

Now there is a concrete value to having an assumable loan. Particularly in markets like today in much of the country, they are one more way to get the property sold, and sold at a better price. After all, you have a feature that few other sellers have. The offer to allow someone to assume your loan can help certain kinds of buyers who may not be able to qualify otherwise, It's a narrow niche, but it does exist, and the ability to have any niche of potential buyers to yourself is valuable in a slow market. This doesn't say you can ask for way more than the property is worth, it says that you have a tool to lure certain types of buyer, and have a tool to move negotiations in the direction you'd like them to go once there is an offer.

Caveat Emptor

Article UPDATED here

I'm a lot less happy about this one than the one two weeks ago. On the one hand, nothing that came in was so obviously inappropriate that I had to ridicule it in the SPAM section. On the other hand, only four entries came in where the information they contained actually outweighed the nonsense and just plain bad information, and several were link chumming. This is pathetic.

The guidelines for this carnival.

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

STRONGLY RECOMMENDED

There were no strongly recommended entries this time.

RECOMMENDED

Tallahassee Real Estate Blog The "No Brainer" Investment. I do question some of the numbers and assumptions, and they just wouldn't work in many areas of the country, but it's a worthwhile idea.

Why Buyers Should Avoid Short Sales

MET GUIDELINES

50 Year Mortgages - A Compound Interest Nightmare. I agree about the fifty year mortgage, However, sacrificing other investments to pay the property off in 15 years (or 10) isn't very smart either. Haul out a calculator and or spreadsheet and do the math.

How to Make Sure this is your Dream Home: 7 Practical Tips The numbers in tip number four are flat out wrong, at least for the US, but it's still a good point.

SPAM AND OTHER RIDICULOUS SUBMISSIONS

Blessedly, there were none of these submissions this week, although one submission praising Negative Amortization loans almost got the super-special treatment. I've written many times about the downsides of the Negative Amortization loan, and it's extremely difficult to construct a scenario where it actually benefits a prospective borrower.

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

Consumer Focused Carnival of Real Estate will return in two weeks (May 21st, 2008), here at Searchlight Crusade, unless someone else wants to host. Deadline for submissions will be May 19th.

I forgot to submit to any carnivals this week but Real Estate Undressed was kind enough to pick two of my articles for best of April.

And of course, Consumer Focused Carnival of Real Estate will be here tomorrow

Hugo Chavez busted: Via Instapundit, Interpol confirms authenticity of Raúl Reyes's computer files

Gateway Pundit has a list of other stuff that was found by the raid.

Armies of Liberation:

If Saudi Arabia pardoned 9/11 highjacker Mohammed Atta while imprisoning a completely innocent journalist on terrorism charges, the US would be in an uproar. But that's exactly what is going on in Yemen. The USS Cole bombers are free. My good friend, the journalist al-Khaiwani, is on trial in terrorism court. Sentencing is May 21.

Who should MDs let die in a pandemic? Report offers answers

Feel good, happy answers. And people are complaining that this report is too hard, too cruel?

Wikipedia on the last pandemic, the Spanish flu

The Spanish flu lasted from March 1918 to June 1920,[1] spreading even to the Arctic and remote Pacific islands. It is estimated that anywhere from 20 to 100 million people were killed worldwide,[2][3] more than double the number killed in World War I.[4] This extraordinary toll resulted from the extremely high infection rate of up to 50% and the extreme severity of the symptoms, suspected to be caused by cytokine storms.

and

The global mortality rate from the 1918/1919 pandemic is not known, but is estimated at 2.5 to 5% of the human population, with 20% or more of the world population suffering from the disease to some extent. Influenza may have killed as many as 25 million in its first 25 weeks (in contrast, AIDS killed 25 million in its first 25 years). Older estimates say it killed 40-50 million people[8] while current estimates say 50 million to 100 million people worldwide were killed.[9] This pandemic has been described as "the greatest medical holocaust in history" and may have killed more people than the Black Death.[10]

San Diego County has 3 million people now. 20% is 600,000 in this county alone. Roughly seven and a half million sick people in California, sixty million in the United States, 1.3 billionworldwide. If it's anything like past epidemics, the medical professions will be among the hardest hit. And they're proposing to limit triage to

"_People older than 85.

_Those with severe trauma, which could include critical injuries from car crashes and shootings.

_Severely burned patients older than 60.

_Those with severe mental impairment, which could include advanced Alzheimer's disease.

_Those with a severe chronic disease, such as advanced heart failure, lung disease or poorly controlled diabetes.

Furthermore, the closer packed and more mobile a population is, the faster such a disease will spread. Maybe such tactics would be effective if an immediate quarantine clamped down on all travel and all shipments, but in these days of the global economy, I'm more than a little skeptical of that happening. My guess is that by the time quarantines are ordered, the reach of any such disease will already be global, and humanitarian impulses will insure that it goes global if our leaders do react in time.

You tell me if such measures are likely to be enough in such a case. Remember, it would probably hit basically everywhere at once, which means there isn't anywhere with resources to spare to help other areas.

Public health law expert Lawrence Gostin of Georgetown University called the report an important initiative but also "a political minefield and a legal minefield."

Yep. I imagine the medical profession in the US will be greatly reviled in the aftermath. It won't be just, and it won't be fair, but the (remaining) lawyers would clean up in that aftermath. But I would like for there to be an aftermath, something that's far less likely if our medical professionals and political class aren't mentally ready for what is only a matter of time. The Spanish Flu was a fairly weak pandemic, despite having killed at least twice as many people as World War I. Black Death of the 1340s killed at least thirty percent, and was far slower to spread. I don't think our society could withstand 25% losses basically, and even 15 percent would be questionable.

McCain castigates Obama on judges

Republican John McCain criticized Democratic rival Barack Obama for voting against John Roberts as U.S. chief justice

This is a good way to campaign against Obama: on his record. Things that he has done. Not as good as campaigning on the good things John McCain has done and intends to do, but who are we kidding? There hasn't been a Presidential campaign in my lifetime that didn't go negative. Given that it's going negative (and Obama has previously launched salvos at John McCain) I'd like for the negative stuff to be focused on what the opponent has actually done.

The AP article says that this is reaching out to the Christian Right. Maybe so, but I'm emphatically not a Christian, and I approve of Chief Justice Roberts, and Samuel Alito as well. I'd much rather have another justice in the mold of those two than a Ginsberg or Stevens, and the next presidential term is probably going to see three new justices selected. Were Obama elected, I expect that his choices would be disastrous for the economy, as a Ginsberg would be about the least harmful he might nominate.

The USA Today article on the same speech is a little more neutral:

The Republican presidential candidate said Roberts and Alito would be his models for judicial nominations, contrasting them with "activist judges" who would rather make laws than interpret them.

"With a presumption that would have amazed the framers of our Constitution, and legal reasoning that would have mystified them, federal judges today issue rulings and opinions on policy questions that should be decided democratically," McCain said during a speech in Winston-Salem, N.C.

While I'm on an elections kick, Wizbang has an article on Obama's associates, and his judgment (or lack thereof) in choosing them.

I am not making this up: Study shows breast-fed children are smarter

Zimbabwe observers question presidential results

The opposition says Tsvangirai won the election outright and has ended Mugabe's 28 year rule over the once prosperous country whose economy is now in ruins.

ZESN accused ruling party members of beating observers and called on police to stop the attacks.

Mugabe wants to fabricate the need for a run off, which will give him the opportunity to fabricate enough supporters (and intimidate enough opponents) to stay in power.

Official results confirm Bolivian province's autonomy win

With 34 percent of ballots counted Monday, the autonomy statute claimed the support of 84.1 percent of voters, while 15.7 percent opposed it, Santa Cruz's electoral court announced. Exit polls released Sunday night showed the autonomy statute winning as much as 85 percent of the province's nearly 570,000 valid votes.

Eighty-five percent?! That's right at the limits for believability.

Shows if you want your people united, act like a communist nutjob and befriend other communist nutjobs. Works every time. Unfortunately for your agenda, it works against you.

This article is for sellers who want to put their property on the market priced too high "just to see if we can get it."

I know where sellers get it. A lot of people are out there hyping the notion that getting a higher price is a function of patience. It isn't. It's a matter of being worth a higher price. The higher priced your property, the lower the percentage of the population that can afford your property and therefore, it takes longer to sell higher end properties. But the notion that getting a better price for your property is a matter of patience is wishful thinking.

I keep telling people, if you want to be a successful seller, think like a buyer (The opposite also applies).

Here's what buyers do: They look for the most attractive property that best suits their individual needs at the lowest possible price.

Buyers are quite conscious of the fact that there are other buyers out there, and they want - very strongly - to harness the collective brain-power of those other buyers. As I had quite forcefully driven home to me recently, one of the things that buyers want out of listing services is "days on market." It wasn't a surprise to me, but the vehemence of the feeling certainly reinforced my understanding. I've written many times about the selling your property quickly and for the best possible price, and the effects of not adhering to that strategy. Buyers don't want to "waste" their time with picked over remains that nobody else liked, hence their rather strong focus on the variable of "time on market". It's incorrect, but that's the way the average buyer sees it. Kind of like the produce and meat sections of the supermarket at closing time. I cannot recall the last time a gateway client sent me an email about a property that had been on the market as much as two weeks - and at least 90% (maybe 99%) of them came onto the market within the last day or two.

So what happens when you put your property on the market over-priced? You might get showings, but when your buyers look at competing properties, they get a better deal - more of what they need and want for the same price - by buying those other properties. Therefore, they will make offers on those other properties - not yours.

Within a short period of time - usually a month or less - the showings will trail off. That pesky "time on market" counter. Buyers aren't interested in what's been picked over and rejected - they want fresh offerings, just like at the supermarket. There are any number of methods of gaming the time "time on market" counter to fool the buyers. Let me ask you: Would all these methods even exist if it wasn't important to buyers? Heck, no! (Enforcement of measures against that gaming is getting stronger, by the way).

Once your property is on the market, it's effectively a depreciating asset, thanks to that "days on market" counter. It may not be as time critical as the fresh seafood counter, but it's a matter of how quickly it loses how much of its value, not whether it does. I'm typing this on May 5 - it you're looking at a fridge full of milk cartons, would you be looking for the one that expires May 7th, May 12th, or May 17th? People are so used to doing this that they don't even realize they're doing it or that it may not be appropriate in this context. But right, wrong, or indifferent, they do this. Pretending otherwise doesn't make it so.

There is one way to refresh that interest in your property, and it's the same way that the grocery store does it. What's the feature of the "day old bread" table that people remember? Sometimes a grocer will have a place for meat or fish that's older than ideal as well, and they use exactly the same principle: lower the price.

At this stage, you've got to lower your price to compete with the other "day old bread," and to get a successful sale at this point, you've got to be priced like day old bread. This means significantly less than you could have gotten in the first place. Nobody buys day old English Muffins for a dollar when there's fresh ones sitting right next to them for that dollar, and it's not like people can't tell they're day old. So in order to sell those day old English Muffins, the store marks them down to fifty cents. The same principle will work to sell a property that's been on the market too long. Even though the discount isn't as steep, proportionally speaking, it's still cost you a large amount of money to put your property on the market overpriced. People still buy day old bread - just not for the same price as the stuff the driver delivered fresh this morning. Not to mention those carrying costs for a property. The fact is, putting your property on the market over-priced costs you thousands to tens of thousands of dollars. The longer it takes you to see the light, the worse it gets.

I've been writing all of this as if asking price was implicitly equivalent to sales price, which is not the case, but the relationship between the two is beyond the scope of this article (or any other article I'm likely to write here). Suffice to say that asking price is a representation by the seller of a sales price they would be pleased to accept.

But the buyer's perception of value diminishes with time on market, regardless of whether or not there is any merit to that viewpoint. In general, there is not, but it's kind of like believing in communism or social security or single payer health care, to construct a "Christmas Carol Ghost" parallel (disaster past, disaster present, and disaster yet to come). Doesn't matter how much nonsense it is - if enough people believe in it, it's going to be the law of the land until enough people change their mind or the whole system falls apart. Since the time between adoption and abolishment is longer than most property owners can hold onto that property, this means you might as well treat it as a fact of life, because from the point of view of a seller, it is.

You can avoid this issue by pricing the property correctly in the first place, and correct pricing should be a difficult discussion if your prospective listing agent is any good. If the pricing discussion isn't difficult, were I in your shoes I'd take that as a strong warning sign and tell that agent that their services are not desired.

Caveat Emptor

Article UPDATED here

Value of college tuition is called into question

The US ranks first in expenditure per student, and dead last in percentage of students completing their degree. I'd say that's prima facie evidence that the taxpayer is getting rooked. Even when I was first in college, it was very difficult for students to get the required courses to graduate in the presumptive time (four years), and it's getting worse.

Dude, Where's My Recession?

Before you declare a recession, as many economic pundits have, shouldn't the economy, well, actually recess a bit--if only for a quarter?

Fear and panic grab attention and sell news. Furthermore, making people believe there is a recession is as good electorally for the party out of power (that would be the Democrats, which constitute over 90% of all media related personnel), as an actual recession. In 1996, AP and the New York Times were favoring Bill Clinton, and trumpeting worse numbers than today's as being very good.

I have this mental image of your least favorite Democratic candidate intoning in a Marvin the Martian style whine: "The media promised me a recession. There should have been a large economy shattering recession."

Can't seem to find the relevant scene online, but here's a .wav file of the relevant phrase.

But case in point: Employers cut fewer jobs in April, jobless rate falls

Employers cut far fewer jobs in April than in recent months and the unemployment rate dropped to 5 percent, a better-than-expected showing that nonetheless reveals strains in the nation's labor market.

When I took economics in college, we called this "expansion" or "growth" instead of "It's not as bad as we told you it was."

The unemployment rate, derived from a different statistical survey than the payroll figures, fell to 5 percent from 5.1 percent in March. That survey showed more people finding employment than those who didn't.

Translation: This good news helps people we don't want to help in the election, so watch us pull all the caveats we can out of our, er, hat!

buried way down in the article, more good news:

In other economic news, the Commerce Department reported that orders to U.S. factories rose a bigger-than-expected 1.4 percent in March, after two straight months of declines.

and

On the jobs front, construction companies slashed 61,000 positions in April. Manufacturers cut 46,000 and retailers got rid of 27,000. Those losses were eclipsed by job gains in education and health care, professional and business services, the government and elsewhere.

And then they close with all the insinuating rhetoric they can saying that things are awful. Textbook hit piece.

My opinion? The Fed should have held fast rather than cutting rates this week, and it's pretty likely that the need for rate cuts is past. Just try not raising things too far and too fast when it become obvious the economy has turned.

Yeah, Wright

So, was Obama sincere? Did he spent 20 years as an intimate of Wright and a parishioner of his church without ever having an inkling that the guy is a wacko hatemonger?

If so, can you think of anything more terrifying than sending such a naïf to the White House while there's a war on?

Read The Whole Thing

Why white Zimbabwean farmers plan to stay in Nigeria

Quite a commentary on Robert Mugabe and Zimbabwe's failure, as well as a cautionary tale for would-be wealth confiscators here and elsewhere.

Getting to Know John McCain

More here.

HT Don Surber

Question from an e-mail:

Hi, I have a question about mortgages. My boyfriend and I are looking to buy a home, and since I have recently quit my job he would be the primary applicant. He makes $44k and we are looking at houses about $150k. We both have very good credit although I have some debt. I am wondering though what kind of rate we are going to get since he recently graduated and just started his job about a month ago. Is that going to affect the rate of the mortgage or how much he can qualify for, and by how much? Also, I have a small business that has been running for about a year and a half - it made a good bit of money last year, about $55k, and is still making some (albeit less now than it was last year.) Would it be worth it for me to co-apply, based on that income, since I don't have a salaried job currently? If I am not on the mortgage, I will sign a lease to him. We are going to put about $10,000 down. Thanks!

First off, let me briefly explain that unless someone has either truly putrid credit or large monthly payments that kill the debt to income ratio, there just isn't a reason to leave someone off a loan. So what if John is a househusband or Jane is a housewife with no income? They're still part of that marriage partnership, and the same applies (minus the word marriage) if the folks involved aren't married. Gays with civil unions and cohabiting straights are exactly the same as married folks except that I have to put them on separate applications instead of applying on the same sheet of paper, and if they're committed to each other, well isn't that what being a committed partner is all about - sharing benefits as well as responsibilities? In other words, ownership of the property and indebtedness for the loan.

Depending upon your situation, however, if you sign the lease it may actually help the boyfriend qualify more than your income would if you were on the loan. Leases that fulfill lender requirements generally aren't scrutinized for the ability of the lessee to pay, where if you were on the loan, the money that the lender would believe you could contribute might not pass scrutiny.

Now, let's look at the individual situations.

You are the more clear cut candidate. You have no current salaried income from employment, but you do have a side business with historic, documentable income. If you'd been doing it for two years, you'd have two years in current line of work and the ability to use that income all in one fell swoop. The way that is measured is monthly income averaged over the previous two years, as reported on your federal income tax forms. However, at this point all you have is one year. Still, it's worth submitting, because $4150 per month over one year isn't chicken feed. If you can show some income in the business for 2006, and evidence of when you started, they're likely to average it over the full two years leaving you with a minimum of about $2100 per month to add into the gross income kitty. After all, it's a going concern, you're still doing it and nobody fires owners.

Furthermore, if you can get a job and a paystub in your previous field of employment before you apply for that loan, now you're employed over two years in the same line of work, simply with a gap in employment. When they average that out, it'll be a bit of a hit, but you'll still get substantial credit for your employment income.

Your boyfriend is a bit less cut and dried. If he's in the profession for which he was was granted the degree (for instance, a doctor or nurse when he was studying medicine), then it's a lot easier to get credit for the time in line of work. He was in medicine, he just wasn't getting paid until recently. It isn't written into A paper guidelines that I'm aware of, so it's a matter of lender guidelines and often what an individual underwriter will sign off on, but probably the majority of lenders will buy off on something like this.

If the boyfriend is in an profession unrelated to the course of study, he's just going to have to wait until he has his two years in. There's no history of involvement, and people get jobs in various fields all the time that it turns out they can't - or won't - continue in. For example, sales. That's fine, but the lenders don't want to get caught by default when they leave the field and can't make mortgage payments.

So I can see possible situations arising out of what you describe that could have either one of you primary on the loan, or completely unable to do the loan without resorting to subprime financing. Each individual situation can turn upon some very fine points, kind of like theology or law.

Caveat Emptor

Article UPDATED here