Stay The Course - Housing Market Continues to Need Government Intervention...

The Housing Market is not ready to float on it's own right now. As for the past two or three years, it still needs a life preserver in order to survive.

Without Fannie, Freddie or Ginnie, the housing market would come to a complete stop. The private market is not ready to take the reins from the GSE's. If Fannie and Freddie were released from government care, the housing market would become as slow as molasses runs during winter.

Prior to the new Congress being elected, there was political talk that suggested Fannie & Freddie should not be ran by the government, and should be returned as private companies. Now that the new members have been elected, and power has shifted in the House, it appears there are second thoughts about dissolving the relationship between the government and the GSE's. At least for the near future.

And that's a good thing...

According to the article written by The Atlantic online website (Daniel Indiviglio), the new majority in the House are reconsidering their mantra of government cutting ties with Fannie and Freddie.

And with good timing, because the housing market still has a way to go before it stops bleeding. Fannie and Freddie are currently propping up the market, providing much needed life support to a severely wounded sector of the U.S. economy.

If the government cuts ties with Fannie and Freddie anytime soon, the housing market will lose the much needed support, and will be DOA...

Let's hope Congress continues to realize this, and dedicates itself to stay the course to legislate a economic road to recovery - not a road to disaster...

Appraiser Independance - A Must Have For The American Economic Recovery...

I was thinking a bit about the phasing out of HVCC and how that is going to positively impact the real estate industry specifically and the economy as a whole. We sure do not need any more silly legislation that stops any of us from doing are jobs as efficiently as possible. Then I started thinking about what for sure was the central reason why HVCC was written and enacted as a rule in the first place - The Undue Pressure and "Force" applied to appraisers to get the value. This pressure caused a lot of strife, and helped to drive the whole real estate industry into the ditch. It has got to stop, for good...

Let Appraisers Be Independent

All of us - Mortgage Brokers, consumers, Realtor, Real Estate Agents, Builders, Loan Officers, Lenders, must let appraisers be independent and not unduly influenced. We have got to let these people do their jobs with confidence. Confidence in knowing there is not going to be retribution if that value is not correct. Assurance that they can give their opinion of value freely, and not be penalized because they do so in the market place by loan officers, brokers and lenders that seek their business.

I have had the privilege of working with two very fine appraisers in the last seven years. I would submit my Request for Appraisal to the appraiser. He would let me know his schedule, and would take a quick look at the comps, PRIOR to performing the appraisal. Since I have my real estate license as well, I could see a lot of the same comps that he did, so I knew what the comps looked like before I submitted my request.

But I could not see EVERYTHING that he could see. If things were going to be o.k., I did not hear from him at all, he would just perform the appraisal, and send it to me when it was completed. Sometimes it was higher than expected. Sometimes it was lower.

However - when there was a problem, a $20,000 problem - let's say, he would let me know immediately, prior to him submitting the completed appraisal to me. And I would alert the borrowers and agents that there could be a potential problem with the value and they had better start figuring out the solution right away.

Even though appraisal are opinions of value, they are based on facts. Actual market conditions. Actual comparable sales within a certain time frame. Real adjustments based on standard appraisal practices. The facts are the facts. Based on market conditions, comps and standard adjustments, the value is "X". Ever noticed how you can contact two appraisers that do not know each other and the tell you nearly the same estimate of value ? That's because it's based on factual, obtainable data that appraisers have access to...

NOW, I am not talking about fraudulent behavior. False comps, False adjustments and False opinions of value. Those people are criminals. And they belong in jail.

I am talking about an honest, open, fluid relationship between the client and the appraiser.

If we do not allow appraisers to do their jobs honestly, comfortably and with dignity, then some body is going to invent another HVCC type fiasco and set us back at least another two or three years, again...

Heard It Through the Broker Vine Vol. 1 - No More HVCC ?

I heard something the other day through what I call the "broker vine" that was very interesting.

First, let me tell you what the "broker vine" is - it's a mortgage broker "huff & puff" fest that generally happens once or twice a month.

Here's how it works - some loan officer or broker hears some "news" from some inside or unknown source and begins having these "impromptu" meetings all over the office about some good or bad legislation or law that's coming down the road real soon (whether real or imagined).

These sessions are almost always followed by a series of hoots and hollers and high fives for good news, and a lot of fist clenching, teeth gnashing and swearing at the ceiling at bad news.

Huff & Puff. Get it ?

You want to know EXACTLY what I mean. Visit tbws.com. These guys are the huffiest, puffiest mortgage guys on the internet, period. Watch one of their daily videos. You'll see what I mean...

Alright - Back to the Point.

I was told the other day that the Home Valuation Code of Conduct, or HVCC, is going to be nixed within the next 90 days. Apparently, President Obama just signed The Death of HVCC with the signing of the Dodd-Frank Act. It must be true, because news sources all over are stating that is for real. But still - Like I said, it's "huff & puff".

The HVCC bill came about from an agreement New York Attorney General Andrew Cuomo made with Fannie Mae and Freddie Mac on requiring new rules and standards over appraisals. It seems the New York Attorney General, in a short period of time, turned himself into a "real estate appraiser guru", and decided he knew what was best. For ALL of US. I like Andrew Cuomo. But. Dude. Bad Idea. Really.

Why HVCC Does Not, and Will Not Work

This is a true story. Borrowers are going to use Lender A to finance their new home purchase. Lender A orders appraisal for the property through Appraisal Management Company A. Appraisal cost equal $400, paid by borrower. Appraisal equals the sales price of the home on the Purchase and Sale Agreement. Lender A cannot close the loan for the borrowers. Per Lender A, borrowers do not qualify.

Borrowers leave Lender A and make a loan application with Lender B, while still under contract to purchase the home. Lender B approves loan. However, because of HVCC rules, Lender B cannot transfer the appraisal from Lender A. Lender B orders new appraisal from Appraisal Management Company B. Appraisal cost an additional $500 ($400 plus $100 "rush fee". Trying to still go to closing on time). Appraisal comes back from appraiser $20,000 short. And the appraisal was just completed by AMC A about 30 days ago. There are negotiations between the AMC and the appraiser, but he will not re-consider the value.

All of a sudden, the appraiser becomes GOD. All parties of the transaction are willing to do whatever it takes to get the deal done. BUT, the appraiser is NOW GOD, and GOD SAYS NO.

The appraiser unduly influences the transaction. And he is protected by HVCC. Not by his Appraisal Management Company mind you, because they opted to negotiate with the appraiser on behalf of the buyers. It did not work.

Lender B orders another appraisal through AMC B. This is appraisal number three. And that will be another $400 please. This appraisal comes in low as well. But it's $10,000 lower than the original appraisal - not $20,000. This number is much more reasonable, and it is negotiated between the buyer and seller. Deal Done. Transaction closes.

Here's the problem - Besides the borrower spending $1,300 on appraisals. Besides the HVCC rule that basically does not allow transference of appraisals from one AMC to another (in some cases it works, but from what I have seen and heard, it's rare). In the story above, Appraisal Management Company A & B are THE SAME COMPANY.

The AMC managed to bilk $1,300 from the borrower with 3 appraisals, and were not able to transfer the original appraisal so that the borrower could use it with the new lender. It seems that there is some rule that once you generate a transaction number for one appraisal, you cannot change it to another lender. And there is no way you can transfer a Conventional appraisal into an FHA appraisal. Before HVCC, the appraiser had to do some additional work, but as long as he was a Certified FHA Appraiser, he could definitely change a Conventional appraisal into a FHA appraisal. No Big Deal.

So, going back to the "old way" of doing business is going to be a welcome change to what we are currently muddling through. It's time to get the ball rolling again. I believe the real estate industry is the bedrock of the U.S. economy. If we can get all of the inventory sold, new housing starts rising, and real estate sales to begin to tick up again, maybe we can get America back to work and on it's feet. HVCC was as sure-fire way to make sure an economic recovery was going to be a long, drawn out ordeal, for sure.

The phasing out of HVCC couldn't come any sooner. Hopefully this barrier to the real estate industry will be put to bed forever, never to return...

My New Real Estate Hero - Jean Gregoire Sagbo, First Black Politician in Russia

I have never heard of Jean Gregoire Sagbo, until I read the article today from Associated Press and Yahoo! World News titled "A Russian Milestone..."

He negotiates Real Estate sales in Russia. He has lived in Russia since 1982, is married and has two children. Sounds Normal, right ?

But Apparently, He in anything BUT normal. He is special. He is a member of the Town Council, and is not paid for his services. He is heavily civic minded. He cares about the people and his community, and the townspeople of Novozavidovo, Russia know it. So, in what has been the called the town's first fair and honest election, Mr. Sagbo was elected as a Councilor.

Mr. Sagbo is also African. He is the first Black person to ever be elected to a Russian political office. EVER.

He has what it takes to cross the color lines, and make people color blind. The people of Novozavidovo do not see race or color when they think of Mr. Sagbo. They just see a fellow Russian who cares about his community in a way that is necessary and welcomed. However, he does not like being compared to President Obama. He believes his situation is very different than the current U.S. President's, and who can argue with him ?

The world needs more people like Jean Gregoire Sagbo. My goodness, DO WE. Congratulations Mr. Sagbo. You are MY HERO for the day...

Photo of Mr. Sagbo from Associated Press via Yahoo! News

DEATH of a MORTGAGE BROKER...Loss of YSP to Remove Brokers from Mortgage Market...

Well, they have went and done it now. If you read my posts regularly, you know I am a staunch advocate for Mortgage Brokers and Yield Spread Premium.

I have worked with different mortgage brokerages for the last 7 years, and have seen the benefits of being a broker versus being a lender or a bank.

Mortgage brokers have built-in flexibility in the way they do their business. They can move fluidly from one lender to another, and the borrower does not have all of the hassle of making multiple applications and credit report pulls from different banks or lenders. And that's the simple part.

Mortgage Brokers are the kings of the low interest rate. I do not care what bank or lender you walk into off the street and that institution offers you an interest rate - the mortgage broker is almost always going to be able to beat the rate you just received. FROM THE SAME BANK OR LENDER.

Why ? You guessed it - Yield Spread Premium. Lets call it "YSP", for short. YSP, or the percentage a bank or lender will pay to a broker for a certain interest rate sold to a borrower, RULES.

The lender will offer YSP as an incentive for mortgage brokers to send them their borrowers. It's a great way for lenders and banks to supplement their mortgage loan pipeline. Quite often, banks and lenders offer better rates to mortgage brokers (wholesale) than they offer on their own websites or in their branches (retail). With retail interest rates, the bank is rolling all of the costs of the bricks and mortar into the interest rate. Somebody has got to pay the light bill. Might as well be the customer...

Ultimately with YSP - The BORROWER is the winner. How - You may ask ? Well, the mortgage broker can give some relief to closing costs by switching some of the burden to YSP. That way, the seller's contribution on a purchase can be used to help pay more than just the closing costs - now money can be extended to the escrow account, etc...Everybody Wins...

Banks do have interest rate YSP as well, but it is not disclosed. So what do you think will happen if you do not have to disclose YSP and there is not competition from mortgage brokers ? Artificially higher interest rates. The banks make a killing. Guess What ? You lose, Mr. & Ms. Borrower...

You would think the U.S. Congress would understand the way this works. Apparently they don't. Or they do and do not care. Or, they are just trying to give more business to banks. Who knows what their motivation is to legislate pure, unadulterated garbage ?

Enter the Game Changer:

The Financial Regulatory Reform Bill, or H.R. 1728, is going to change everything - or make the mortgage industry a good bit different than it has been for quite some time. According to the National Association of Mortgage Brokers, borrowers will have two choices - 1) Pay all closing costs out of pocket, or 2) put ALL closing costs into their interest rate. Now, that is not going to have that much of an effect on refinances (most refi's roll the total closing costs and escrows into the new refinance loan), but it is going to have an adverse affect on purchases. Go to the NAMB site and read their press release concerning Bill HR 1728. If you are so inclined to read more about Bill H.R. 1728, Save yourself some time - go to the Bill H.R. 1728 Summary site to get a snapshot of what we are dealing with here.

When purchases are negotiated, there is usually money contributed by the seller, and the borrower can use these funds to help pay for closing costs, prepaids, etc...But what if the seller has little to no funds available to contribute to the transaction ? Here comes the mortgage broker to the rescue. The loan officer can lower or eliminate the closing costs by utilizing YSP, and allow the borrower the flexibility to pay less or pay zero closing costs at closing, AND keep a decent interest rate.

The interest rate staying low is in the best interest of the borrower and the lender. The borrower can remain qualified with their debt-to-income ratio and payment, and the lender has a better chance of getting the monthly payment from the homeowner because they can afford to pay the mortgage payment. Well, guess what just destroyed THAT practice ?

If the borrower must roll all of his closing costs into the interest rate, then they may not qualify. Either go buy a cheaper home or forget it. In the Metro Atlanta area, that can be quite easy to do. In Charleston, West Virginia, well - Good Luck ! Or, they lose the house because they cannot DTI, nor do they have the additional funds to pay ALL of the Closing Costs. Lose/Lose...

Mortgage Brokers are not the only losers with the new legislation. Lenders who use brokers for their pipeline are going to lose as well. The lenders I currently work with count on me and other mortgage loan originators to feed them fresh, highly qualified borrowers to keep their businesses viable and solvent. If a lender does not have retail outlets to handle customers, and borrowers have never heard of them so they will not consistently receive internet traffic, then what are they going to do ? Collateral Damage is at play here. The Winners ? The Big Banks. Hmmm...Aren't they the ones that got us into this big mess in the first place ?

You may ask about the rampant fraud in the mortgage industry, some of it due to mortgage brokers doing a lot of illegal activities just to get a deal done. Well, in some cases the lenders own employees where steering a lot of mortgage brokers into doing a lot of "shady" things so they could get things done. The income margins for some lenders employees was so low during the housing boom, employees where doing whatever they could to make more income. But that is not excuse for bad behavior.

Bottom line is this - fraud was rampant in the mortgage industry. Builders, Real Estate Agents, Closing Attorneys, Mortgage Brokers, Lenders, Banks, Buyers, Sellers, Appraisers, Borrowers, Home Inspectors, ANYONE involved with a real estate transaction - ALL sectors of the real estate industry were committing mortgage fraud.

Hence the regulatory changes to common practices we have seen in all sectors of the real estate industry. Some of the changes are good. For instance, I do not particularly like HVCC (it gets in the way of getting things done - not everybody is a crook, for gosh sakes), but I think it serves it's purpose. And the Mortgage Disclosure Improvement Act of 2008 portion of the Truth In Lending Act (TILA or Regulation Z) requirement surely offers protections for borrowers by not allowing them to go hastily to closing.

But this new legislation if just plain bad. Misplaced, Misunderstood, Misjudged, Misaligned - It just Misses, Know What I Mean ? It's like a $4 bill. Just wrong...

Borrowers for purchases and refinances are going to be the Ultimate Losers. And when the borrowers lose, WE ALL LOSE.

Vacation House Swapping - The Modern Day Way to Get Away...

So, I am reading this article on YahooFinance! about the kid that, through a series of trades on Craigslist - started trading an outdated cell phone and ended up with Porsche.

Nice...!! I like cars, so naturally I am going to read the article. Kudos to the kid for having so much business prowess at such a young age.

But, that's not really what caught my eye. The article goes on to mention something very interesting:

Vacation House Swapping.

It is becoming more and more popular since the economy has basically tanked. Instead of people booking a hotel for vacation, they are swapping homes with others in their destination city.

I do not know how simple this would be for me, but I think a lot of families would really reap the benefit of savings from the cost of hotel accommodations versus house swapping.

Go to this website for instructions on how to swap vacation homes using CraigsList. The rules appear to be simple. Look for someone who wants to swap. Get to know that person beyond email. Talk to them on the phone. Remove valuables, ask neighbors to watch, then SWAP !

Now, that was easy...

Isn't This Living ? 89 Square Feet Per Person...

For the past few years, all homebuyers in the area I live in have been interested in one thing and one thing only - Square Footage.

"I want the biggest house my money can buy", was their motto. Somehow, we equate Square Footage with prestige. If you have a big house, everyone will think You have Made IT - You have arrived.

What a myth !! Now, I must admit I live in a 1-1/2 story traditional frame home, with about 1,900 square feet. It's roomy enough, especially for two people. As I get older, I am beginning to not like the floor plan. Maybe I need to knock down some walls or something. Haven't figured it out yet...

Sorry for the interruption - To get back to my reason for writing this blog: I think the accesses of the 80's and 90's ingrained in our brains that we needed to have more - better cars - hence the rise of BMW, better clothes - the rise of designer jeans (I guess, I don't know much about clothing. I like t-shirts, shorts and jogging shoes. That's it), and all of the other excessive purchases that really proved that we had arrived.

No wonder when the interest rates dropped beginning in 2003, and the lenders invented the "liar loans", everyone decided - "I need a bigger house too. This will accentuate my portfolio of wretched excessiveness".

Remember growing up in the home with you parents and your brother and sister in a 1,200 square foot home. It had a living room, dining room, kitchen, 3 bedrooms and a basement. And that's it.

Ahhh...But we are better than that. We have arrived - We need a room for our exercise equipment, and another one for the television. And so went the housing boom.

Well, it's bust time now. A lot of people have lost their t.v. and exercise rooms to foreclosure. Some are looking to downsize, but cannot sell their behemoth McMansions.

We all are re-thinking what it means to own a home. And how big does it need to be ?

And THEN, there's this guy. Meet Jay Shafer. Jay has this whole Square Footage thing figured out. I recently had a three person family purchase a home with over 5,000 Square Feet. Absolutely Ridiculous. By Jay's measurements, they would be good with about 267 Square Feet. Which is the size of their den. The downstairs den.

With all of that extra space, they have to have a excessive use of cooling in summer and heating in winter. No wonder we use up to 25% of the worlds energy resources. BIG HOUSES with no one living in them (or not enough people, I guess I should say).

Jay - My hat is off to you and those like you. Maybe we all need to get our own version of "Tumbleweed". I actually would be interested in a tiny home, but I am almost finished buying the home I currently live in. Yes - I have been here that long. Oh well - Maybe it could be a Second home ?

Here is Jay's video. Enjoy...

Part II - Why Homeowners Need to Understand that Ownership Is Not a Business...

I wrote a blog the other day rebuking the idea that a Strategic Default was, and is a "Business Decision".

In my opinion, that's the furthest idea from the truth. Now I have ammunition to back it up.

An article written by US News reporter Luke Landis, "5 Homeownership Myths To Avoid" suggests that buying and living in a home is almost exactly the opposite of running a business:

Your home is a good investment. A business relies on ROI (Return on Investment) and P/E (Price to Earnings) ratios in order to stay relevant and viable. Maybe that's part of the problem we are in today. Some people are looking at the numbers and deciding it's not a good way to invest. It's your home, you moron. It protects you and your family from the rain. If you want to invest, buy gold. If you want to gamble, go to Vegas.

Taxes breaks. Easily offset by the homeowner having to buy a new furnace. Or water heater. Or lawn mower. Whatever.

Renting. Renting can be cheaper than owning because of the upkeep issues associated with owning a home. And it makes the renter much more flexible when it comes time to move.

Forced Savings. That's funny. Forced SPENDING is more like it. Ever heard of the Home Depot ?

Your home is not a good investment. In fact, here's an article with that title "Your House is Not a Good Investment". Hmmm...I wonder what the article is about ?

I understand that during the past 5 years, everyone wanted to be a "real estate investor". People would sell their old home and move into a bigger, better house in that brand spanking new neighborhood. And keep the old property as an "investment".

But there is a significant difference between an actual investor and a "forced" investor. The real investor has knowledge. Expertise. Understanding of the market place. They are professionals. It's their job. It's a BUSINESS.

In my opinion, these "forced investors" should have sold their homes before moving into new ones. Or else stayed put. If it was a new job or requirement to move for one reason or another, that's understandable. But I would almost bet they were not. People moved because "everyone was doing it". And now a lot of these so called "investment" properties set on the foreclosure rolls of the banks and other financial institutions.

Others would take advantage of the newly available "liar loans" and go out and buy five or ten investment properties with Interest Only loans, thinking that real estate would continue to appreciate in perpetuity. These activities were the drivers of the housing boom. And they were also the same activities that drove the housing market into the ditch.

The myth that your home was a good investment has led to society thinking that owning a home was also "good business". Your home has nothing to do with business.

Your home is where you raise your children, grow your tomatoes, play with your dog, get married, cut the grass and paint the walls. Where you work is business.

If you are a homeowner, your home is simply where you LIVE.

What ever happened to just living ?

In Memory of PFC Jacob A. Dennis, 22, of Powder Springs, Georgia...

I did not know Pfc. Jacob A. Dennis, 22, of Powder Springs, Georgia.

But I am deeply saddened he is not here anymore. War on Terror News reports the following:

"Pfc. Jacob A. Dennis, 22, of Powder Springs, Ga., died July 3 at Landstuhl Regional Medical Center, Landstuhl, Germany, of injuries sustained June 30 in a weapons system accident at Forward Operating Base Lane, Afghanistan (Zabul province)."

I never knew the kid even existed. But I am from Powder Springs, Georgia. I have been a resident her for the past 19 years. And I have a son that is 23 years old, and a Step Son who is 21. All of these boys would have been in High School together. Hearing the death of PFC Dennis reminds me of how much anguish I would feel if one of my boys were gone. I do not know what I would do with myself...

My heart goes out to his family. I wish there were never wars where we have to send our children into harms way. As parents, we try so hard to protect them as they grow up. When they become adults, they are free to do and be as they wish.

I did not know you PFC Dennis, but I honor you and respect you for serving your country, and for protecting my rights to say what I feel, think what I want, and do as I wish...

May God Bless Your Soul Forever. Rest in Peace, My son...

Strategic Default - A Business Decision. Really ?

I have heard quite a few conversations lately in which people have decided to call the act of Strategic Default a "business decision", so I decided to take a look at the meaning of the phrase "business" "decision".

The Free Dictionary Online site defines the word "business" in the following ways:

busi·ness

1.

a. The occupation, work, or trade in which a person is engaged: the wholesale food business.

b. A specific occupation or pursuit: the best designer in the business.

2. Commercial, industrial, or professional dealings: new systems now being used in business.

3. A commercial enterprise or establishment: bought his uncle's business.

4. Volume or amount of commercial trade: Business had fallen off.

5. Commercial dealings; patronage: took her business to a trustworthy salesperson.

6.
a. One's rightful or proper concern or interest: "The business of America is business(Calvin Coolidge).

b. Something involving one personally: It's none of my business.

It's not until you get to definition# 6 that it actually becomes personal. There are five other more relevant definitions that describe the word business. That's a lot. So using the word "business" as a personal description of an action, or DECISION, is weak at best.

Here is the dictionary's definitions for the word "decision":

de·ci·sion

1. The passing of judgment on an issue under consideration.

2. The act of reaching a conclusion or making up one's mind.

3. A conclusion or judgment reached or pronounced; a verdict.

4. Firmness of character or action; determination.

5. Sports A victory won on points in boxing when no knockout has occurred or in wrestling when no fall has occurred.

6. Baseball A win or loss accorded to a pitcher: has four wins in six decisions.

However - the use of the word "decision" does make sense. People are deciding to default on their loans. But this has nothing to do with business. It's a personal decision.

Using the phrase "Business Decision" sounds much better than "default decision" or "foreclosure decision" or "failure to pay your contractual obligation decision". We do this to lessen the blow, to ease the mental picture of shirking responsibility, and to allow ourselves to do what we know is not right.

Throughout human history, man has used alternative words or phrases to ease his mind of guilt, and to allow the unthinkable or the absurd to take place, simply because they changed what the act was called.

Calling Strategic Default a "business decision" is no different.

Unless you are in the business of buying and selling homes, commonly known as an "investor", your primary dwelling is not part of a business. A person does not buy their home with the idea they are going to treat it like a business, at least not normally. Buyers purchase homes out of sheer passion, or emotion. That's why people who have a family which consist of a father, a mother and one child will purchase a 5,000 square foot home, even though a 1,500 square foot home would serve all of their needs. Unless their building and selling furniture out of their garage, the house purchase has nothing to do with business.

I personally have lost at least 30% in equity in my own home. And I am one of the lucky ones, because I still have 25% or 30% in equity remaining. The reason: I have lived in my current home for the past 17 years. Think of my neighbors that purchased in my area in 2005. They are drowning.

There are currently 3 - 5 foreclosures in my subdivision of 200+ homes. I can't keep up with how many there are, because it seems to change almost every day.

My point is this - if 30% of the defaults are strategic "business decisions", then 1 or 2 of the current foreclosures in my subdivision is due to some homeowner just walking away. Does that hurt ? You darn right it does. Instead of the appraiser having to go outside of my neighborhood to get a more decent comp, he's going to count that strategic default and it's going to keep my appraised value down. It's going to hurt...

People are going to say what they want to say and do what they want to do, and that is their right, it's their prerogative. This is America. But that does not change the fact that when you perform an act such as a Strategic Default, it damages the bank that lent you the money, your neighbors, your community, your state and your country.

And calling it another name does not lessen the infliction of pain we all are feeling now...

The Re-Forestation of America - The Foreclosures for Forest Initiative...

It now looks as though there is a real plan to make the massive amounts of foreclosures to serve some common public good for the general population - Foreclosure properties for parks, recreation and re-forestation.

A Fortune Magazine article written by Nin-Hai Tseng reports there is a movement towards returning foreclosed properties back into usable green space for the public.

To me, this is extremely ironic. And is shows how incredibly inefficient things can be when the top priority is your financial statement.

Woodlands, forest, pastureland, farms, lakes, streams, what have you - have all been razed across the country simply to build tract homes, subdivisions and neighborhoods. I am almost certain the level of real estate development in the U.S. for the past decade out-paced development in any other decade, hands down.

Billions and billions of dollars have been spent developing land for new homes. And wasted. Within a five mile radius of my home, there are at least 10 incomplete subdivisions that all the land has been cleared, but there is not one house on the land. Just poles sticking out of the ground. Everything came to a screeching halt in late 2008 after the banks froze lending to developers. And the land just sits there. Empty.

Now the land is full of grasses and small shrubbery. All of the beautiful hardwoods, naturally occurring Dogwoods, and other native plants and shrubbery are gone. What a waste.

The Non-Profit organization Trust for Public Land has been helping state & local governments & private citizens transform their otherwise unusable land and properties into usable space, with a focus on conservation for decades. That's good to know, but it would have been nice if the areas had not been destroyed in the first place.

There is hope, however. TPL also has been known to take vacant, foreclosed properties in good shape and turn the properties into affordable housing. There are a lot of properties that have been completed but never occupied in my area as well. They are an eyesore, as the roads are not finished, the ac units are missing, and many windows or doors are boarded up.

Hopefully the Trust for Public Land, which is now beginning to work with banks and their foreclosed portfolios, and others like them, can help the U.S. transition into a state of stability in the housing market by transforming the foreclosed properties, land and homes into something meaningful and useful, one tract at a time...

Wall Street Wishes and Reform Dreams...

Every since the financial crisis began, I have been waiting to see what response would be rendered by Congress and the White House.

Reform is eminent ! I said to myself. The taxpayer and the individual should be given some kind of protection against the greed machine that is Wall Street.

I watched for years as my money in my mutual funds would creep up ever so slowly for years, and then once worth something - would lose half the value in three months. Enough I said. I took my money out and paid bills with it. Was I losing money because I had the wrong funds in my portfolio, or was it due to fees ? I used to think it was because my ignorance. Nope. Fees. Wall Street greed.

So, our government had a REAL chance of making a difference in how our financial institutions operate. I was looking for a return to the Glass-Steagall days, when the government actually governed.

Well, it looks like they blew it. Again. The two most important issues, banks to stop trading with their own money, and the requirement to move derivative operations to separate companies - appear to have been squashed.

Shahien Nasiripour with the Huffington Post reports that the nation's largest banks now appear to have MORE capital available for speculation under the new reform bill. I would say the House and Senate negotiators should have went home and got some sleep instead of voting in favor of the reform garbage compromises at 5:40 AM that for sure will lead us to another financial crisis in the future.

Wow. My question is - "who runs this country - the citizens or the businesses that hold their money ?"

I am afraid I know the answer, as I am sure you do as well, dear reader.

Now we just have to sit back and wait to see what the next financial disaster is going to look like...

Silent Death - The Gulf Oil Spill Effect No One is Talking About...

As I watched the major TV News Networks discuss the tragedy of the British Petroleum Oil Spill in the Gulf of Mexico, something dawned on me - The Residential Real Estate market in the Gulf States is toast for at least 10 to 15 years...

According to Wikipedia, there remains 26,000 gallons of crude in the sand and soil from the Exxon Valdez Oil Spill from 1989. That was more than 20 Years Ago !!

I have heard estimates in the news that the BP Oil Spill in the Gulf is more than 8 times larger than the Exxon Valdez spill, so is it going to take 8 times as long for the Gulf to recover to the level that Alaska is today? As large globs of oil wash ashore on the beaches along the Gulf Coast, and news spreads about the dangers of the dispersants used to clean up the oil - the question remains: Will people want to buy condos or vacation properties along the Gulf, knowing the dangers to themselves and their families ?

The commercial property owners along the Gulf Coast States have already begun assessing the effects of the spill on their businesses. Sure, in the immediate term, not many people will want to rent hotels or condos and vacation in the Gulf.

But how long will it be until people actually want to purchase vacation properties there? Current Gulf Coast property owners are concerned about loss of value, and are looking for compensation from insurers or BP. But that's a short term solution to the problem at hand. The long term, and unknown effect - will show it's ugly head when it's time to sell. Sellers could be hit with Short Sale like prices long after the rest of the country has recovered from the current real estate/economic crisis.

We could be looking at the Death of Gulf Coast Residential Real Estate for at least a decade or more...

Deepwater Horizon Oil Spill (BP Oil Spill)
from space by NASA's Terra Satellite

In Defense of Mortgage Brokers and Yield Spread Premium...

Today, I am cruising around the web just reading various articles, poking my nose in here and there, just snooping around as usual.

All of a sudden, I come across a blog written by a person who once was treated poorly by a mortgage broker. He felt that he was taken advantage of, so he decides to start a blog "exposing" the dark secrets of mortgage brokers, and discussing why they are evil.

Go ahead - take a look at the site. Read the blog, it's sort of interesting. In a twisted way, I guess.

Now, to be fair, I have a somewhat biased opinion about mortgage brokers - I have been a mortgage consultant with a mortgage brokerage for the past 7 years. I think brokers offer a legitimate service to borrowers, and a much needed alternative to going to a bank. A broker can save a borrower both time and money, because instead of paying multiple application fees to each bank, he can just pay the application fee once, and let the broker shop around for him. Immediate savings. OR, if the borrower works with someone such as myself - there is no application fee. No credit report fee. No upfront fees, whatsoever. Enough about me - this blog entry is not about me, anyway.

Needless to say - It ticked me off. It's another dishonest cover up that confuses the public.

So let's do some REAL mortgage loan exposure. The mortgage broker can provide the same interest rate or better than the average borrower can find at the neighborhood bank. How ? Because the bank offers incentives to mortgage brokers and correspondent lenders to provide them with a steady stream of new borrowers, because a banks job is to lend money. This incentive is the Yield Spread Premium, or the amount the bank is willing to pay the party who provides them with a new, qualified buyer.

Usually the mortgage broker can offer a better interest for the borrower rate from the same lending institution, than the borrower can receive from walking into a bank and applying for the same loan. How do I know ? I do this all of the time.

This is the wholesale versus retail aspect of mortgage interest rates. Why the difference ? The higher bank interest rate is derived from overhead - they have to pay the light bill, rent, the loan officer's salary, etc...The borrower's interest rate in intrinsically connected to this.

The largest banks have stopped doing business with mortgage brokers altogether. They began phasing out their mortgage broker relationships in 2007. I think they new something was in the water. I think the large banks are behind an unnamed, unidentified scheme to get rid of the mortgage broker. That way, they can charge whatever they want in interest rates, and there is no competition.

Funny thing is this - our friend the mortgage broker hater has mortgage interest rate ads from big banks and lenders DIRECTLY CONNECTED TO HIS SITE. Complete the "Real Mortgage Rates" info and select click on "submit". You will see what I am saying. I am an actual mortgage broker, and I do not advertise any rates on my site, other than the average weekly Freddie Mac rates, that are publicly available on the Freddie Mac Website (I believe the borrower should have a good starting point on the rate they are being offered). What is this guys motivation ? Who's side is he REALLY on ?

Every mortgage broker must reveal the Yield Spread Premium to the borrower. It is stated up front on the Good Faith Estimate, and is shown on the Settlement Statement at closing. Banks are not required to show how much they make on charging a borrower a certain interest rate. They are allowed to "hide" the true amount of money they make on charging the interest rate the borrower has been offered.

Here's another truth - banks sell their loans to the secondary market (Fannie, Freddie & Ginnie) and receive a Service Release Premium, or payment from the GSE's when the bank sells the loan. This is on top of any income they may have received for charging the borrower a certain interest rate.

Needless say, I continued to prod around and found an excellent article about this subject, "Why Oh Why YSP? Why Mortgage Brokers Can Price Better". It verifies everything I am expressing here...It is recommended reading for those who want to have a good understanding of how yield spread actually works.

There is a lot of truth out there in the blogosphere, but there is also a good bit of fallacy. People are being bombarded with all kinds of information, and it is hard to discern what is truth, what is fiction and that gray area in between.

I am sorry the blogger was given a raw deal by a mortgage broker. There are bad apples everywhere. But one bad apple should not destroy the reputation of an entire industry, especially when it provides a legitimate, viable service to the public.

I am going to tell things as I see them, and point out any information that seems not quite right. And this blogger is not telling the whole story...

Strategic Default Retribution ?

Well, it appears the Mortgage Banker's Association has conjured up a way of penalizing the homeowners who have decided to just walk away from their properties, utilizing the now infamous "Strategic Default" mortgage scheme.

A Strategic Default results when property owners just literally "walk away" from their properties for no apparent reason - other than they don't want to pay the mortgage any more.

The MBA apparently has decided to punish this group of people by requiring theme to wait up to 8 years before allowing them to enter the mortgage financing arena again.

If this is a scare tactic, as I have heard it may be, than I think it's a waste of energy. It may be that the MBA would like to slow down the strategic default rate, but people are smart. If they don't put teeth to it, it will not work. You need the GSE's (Fannie & Freddie) to come out and support the idea of punishment. Otherwise, the initial scare will go away, and the strategic default rate will continue to rise.

However, I do think this is fair, as long as it is genuine. If the MBA is going to use it's influence and choose to punish the Strategic Defaulters, it must be fair and not try to conjure up it's own "default" scheme of another name, whatever that may be. Check out today's TBWSDaily.com video. There is a suggestion that the MBA may have used the ol' Short Sale scheme themselves...

Everyone seems to be taking advantage of the distressed real estate market these days. It's sad, because we all are paying dearly for it as well...

More HOA Woes...

My mother-in-law recently ran into a problem with her Home Owner's Association. Again. This time, it was not an increase in fees or decrease in services or whatever. It was a lack of communication from the HOA to the property owners.

The HOA never paid the bill for the trash disposal service. They were not required to pay, so they didn't. However, instead of informing the property owners that they would have to pay for the disposal service themselves, they just kept silent. No invoices were sent. No mail notifications. Nothing.

So what happened ? She put her recycle bin and trash bin out to be emptied one day, and the the disposal service TOOK HER BINS...

She had to find out the hard way to whom and where to send the check to pay for the service, just so she could get her trash receptacles back and empty her trash.

Now this is pretty benign, but I wondered why HOA's are so notorious for being uncooperative. Maybe it's a power trip. Maybe it's because the property owners are just bad, and the HOA is just tired of dealing with them. All property owners and tenants can't be that bad, can they ?

Problem is, HOA property management companies seem to all to be the same - awful. Why is that ?

Well, I have not found the definitive answer to the question, but I did come across an article written online by Yahoo! Finance about the "10 Things a Homeowners Association Won't Tell You". It's horrifying.

I just thought I would forward the article to those who have clients that are purchasing properties with Home Owner Associations - pass this information on to them. It's good for the homeowner to know what kind of difficulties they could run across with their HOA in the future.

I will continue my quest to find the answers, but in the meantime - Home Owner Beware...

GA DBF Allows MLO's to work until July 31st Unlicensed

The Georgia Dept. of Banking and Finance has a press release today that states the Dept. will allow Mortgage Loan Originators (MLO's) to continue working unlicensed until end of business July 31, 2010.

That's a relief, because this will allow those MLO's that may have one or another issue concerning license approval a bit of extra time to get things straightened out before the deadline. I was told by more than one party that the deadline was June 30. The extra 30 days should be good news to all MLO's.

If you are a MLO who is currently working with a Georgia licensed bank (non FDIC) or mortgage broker but you did not meet the April 16, 2010 MLO application deadline, the Georgia DBF will process your application on a First Come, First Served basis. This could be a potential problem, because after July 31st, you will not be able to originate until your licensed is approved...

Moral of this blog - Get your MLO applications in as soon as possible !! There appears to be a little more time available to get it done, without a lapse in employment and compensation.

Otherwise your going to have to allow others with licenses to originate your deals...

Strategic Default

Unfortunately, the public and homeowners are being bombarded with all kinds of conflicting information, as well as disinformation.

Along with the 60 Minutes segment on Strategic Default, Roger Lowenstein, a New York Times Magazine contributor, wrote an article for the magazine that was published on January 10, 2010 titled "Walk Away From Your Mortgage!".

I do not know how many subscribers the NY Times magazine has, but you can bet millions of people have read this article.

Until there is consensus throughout our society on what should be done and how to handle the current housing/foreclosure/financial crisis - mass confusion will continue at every level. Foreclosures have moved from a homeowner/bank problem to a social problem...

You can view the 60 Minutes segment on Strategic Default right here:


Watch CBS News Videos Online

O'Brien Versus Leno

Welcome...

This is my first stab at web logging or, in today's terms "blogging". Never done this before. I thought I would start off with something benign and easy.

Then I watched the Conan O'Brien 60 minutes interview. And I am not happy about what's happened. I like Jay Leno. I have spent hours watching "Jay Leno's Garage" videos on YouTube. He's a car guy's car guy, and I love cars. But I do think Mr. O'Brien being forced out of his job as the "Tonight's Show" host because of Leno's ego is just wrong. I think O'Brien just got the bad end of the deal, if you know what I mean.

It's just that it seems the small guy is always getting crushed, or tossed, or is forced into obscurity (although Conan's $30+ million settlement deal to leave is nothing to sneeze at).

With the current financial crisis, it just seems that the "big guys" always win, whether they are going gang busters and making record breaking profits, or totally trash their business, just so the little guy (tax payers) can bail them out.

The little guy (tax payers) is being crushed when things are good (where do you think the profits come from ?) and being used as a safety net when things are bad.

I see the O'Brien/Leno debacle as a metaphor of what looms very large in American Society today. And I don't particularly care for it...

What do you think ?