OUR FUTURE BANKERS

Sen. Maria Cantwell

Rep. Dave Reichart

Sen. Patty Murray

Here they are, our State Representatives. “The Cop”, “The Mom in Tennis Shoes”, and “Whatever, I Need to Work Somewhere”. I’ve tried to locate the email addresses for these folks on-line to no avail. What they offer is a form on their respective pages to be filled out, along with a message, and sent into the ether with the hope that it will find the intended recipient. I don’t care type my message three times, so I will convey my thoughts here, then send them a link via their little forms.

Folks [Dave, Patty and Maria], I have some concerns. First, all of you are too nice to be effective.

Dave’s done a pretty good job of moving up the charts in the House, making it to the Ways and Means Committee. But honestly Dave, how many years of hob-knobbing do you plan to invest before you say something that matters? Are you under the impression that you have to hang around for 10+ years before anyone will listen? Sure, everyone likes a nice guy. But what the country needs right now, and especially us out here in the Northwest corner, is some backbone. I haven’t seen your name in the paper since Nov 4, 2008, and that bothers me.

Patty is working hard for the improvement of the treatment of our veterans. Nothing could be more noble. However, how much more chatting around this subject is necessary? You’re the self-proclaimed “Mom In Tennis Shoes”. I suggest you put on those shoes and move on…to anything else. The veterans issues are pretty well known, but your approach is too nice, and too timid. You have a kick-ass issue there. Get LOUD, and get the changes done. Heck, you’ve been there long enough to throw your weight around. Call Oprah for gosh sake. I bet you have a ton of stories that would quickly fill more than an hour. At least call Larry King. But get moving on this thing. Once the Iraq war is wound down, you won’t get the interest level as high again. In fact, you may have already missed the mark.

Maria, Maria, Maria. What are we to do with you? You’ve been there how many years? And you have all the punch of a loaf of white bread. Then, out of the blue, I read that you plan to vote, or have voted, in opposition to the Bush proposed, and Obama endorsed, bailout plan. Yes, there is great uncertainty there. But there is no uncertainty concerning the state of the economy. Then again Maria, are you unsure about what’s going on out here in the land of reality? Maybe you should call your Mom. Ask her how her neighbors are doing. Maybe she’ll tell you about her checker at QFC that’s been working doubles for the last six months because her husband was laid off, not to mention the five year arm that is in its last 6 months before that bomb goes off. Since the Feds have cranked up the heat on the quality of mortgage applicants, the checker doesn’t qualify to refi the house she bought 5 years ago. I really have no idea what it is that you do. But I am acutely aware that I have not heard your voice, or seen your name in type……for…..years.

Patty and Maria, [Dave's off the hook because he wasn't in the game yet] I wrote to you prior to the first vote for the first allocation of money for Bush’s war in Iraq. Check your archives. It should be around. I still have the responses you sent back. At that time I warned you that funding the war was wrong, and that it would uncategorically create financial havoc in our fragile economy. I wasn’t anti-war in the pacifist sense. I was anti-war because it was stupid and fiscally irresponsible. No WMD’s, not much Al Quaida, but we sure did a good job of shortening the life span of about 500,000 innocent people. Although the actual number may never be known. I believe that I touched on the fact that it’s only been 150 years since our own civil war, and it was unreasonable to expect the tribes of Iraq to reconcile their differences and become a democracy overnight……because we tell them to. Anyway, I have to get this off my chest: I told you so.

Now, for the matters at hand. ARE YOU DEAF AND DUMB??!!??!! You, our Washington contingent are sort of the exemplary wimps of our Federal Government. Where is the incredulity at what is occurring ON YOUR WATCH? You can’t send out a statement about your anger at the early bonuses for the Merrill-Lynch crooks? You have nothing to say about the AIG $500,000 retreat? You’re OK with the same guys running the show, both on Wall Stret, and DC, that have run us into the ground?

It was the funniest thing in the paper today. It is being considered that The Fed become the big watchdog over all financial institutions, where they now only watch over 800+ banks. This may sound crazy, but my guess is that most believed, whether it was the SEC, IRS, The Fed, or even Homeland Security, that someone was watching the store. GEEZE, it was only a few years ago that the country was about blown away by ENRON. Doesn’t anyone learn, or follow-up on stuff like this? Corporate tendancies that indicate that business is not being conducted normally? Was no one at all paying attention when WAMU reported…..FOR YEARS… that it was booking unpaid interest on its negative amortization loans as profit….year….after year……after year? And everyone shuddered for months that might fail. Anyone who knew that one aspect about that bank knew, then and there, they were done.

So now we have a bigger problem, and it’s just like 1991, only worse.  Can you remember back that far? Desert Storm and the S & L crises. Things were going pretty good. Not as crazy as 2007, but pretty good. Then a bunch of overextended, overspeculating savings and loans failed, ala Charles Keating and the like. That was not a good time to apply for a loan. Like now, with the Feds looking under every bank teller’s chair, the pendulum swung waaay too far over, suffocating legitimate businesses that had done nothing wrong, but their business lines of credit were chopped, right when they needed them most, with no more explanation that we are getting today.

Here’s the big question for all three of you: if the banks are not going to lend the taxpayers dollars you keep giving them, what’s the point? I implore all of you to get incredulous, get loud, get angry, but get that money moving out the doors of those bank recipients, or all will be for naught. Are there no conditions on those funds? The money is just handed to these knuckleheads with no accountability about how to use it? There is no time limit?

Here’s an idea: the goverment should just take over B of A. Use all of the money to refinance those that have not already lost their homes, get those credit lines going again with the hundreds of thousands of small businesses across this country. People would start to feel good again in a big hurry. Waht happens when people feel good? They spend money. As for the car companies? forget about them. As evidenced by their collective private jet junkett to DC to plead for cash, they don’t deserve anything. Their labor union needs to have a long conversation with itself. It will have the time to do that when most of them are unemployed. The workers are arrogant, and the products are uncompetitive… have been for years. Heck, I just watched “An Inconvenient Truth” for the first time about a month ago. It was uncanny how accurate Gore’s auto production charts were back then. It was dead on with what we are seeing today. How can the auto industry base its product on the price of gas today when it takes, according to them, up to five years to design and build something new? They say they can’t afford to design more efficient cars? Can they afford not to? Again, that union has to have a VERY serious conversation with itself. The concessions they have won over the years may cost them all of their jobs. Heck, I was talking with a lady the other day that was saying that her father, a retired autoworker, was worried that he wouldn’t get his free, brand new car every year. What the heck does a retired guy need with a new car every year? If they have health insurance they’re doing better than about half the country to begin with.

My big concern is that darned pendulum. It has swung too far. No bank is sure if they can write a loan for anyone. Fannie Mae and Freddie Mac raised their fees?…….NOW? That’s just outright craziness. Another wrench in the gears. Again, they mismanaged themselves, so we get to pay for it. Seriously, folks. We need a Federal Bank, and we need it now. You say the government cannot be in the banking business? Well guess what? You already are. Either you accept the fact and learn to run it, or get ready to accept the blame when this thing really crashes on your head.

The More I Learn, The Less I know…..

As if things weren’t strange enough, the subscription service that brought you Monday Morning Coffee for the last few years ceased operations in June. Since then I have been musing as to what to do for the many subscribers that have enjoyed those weekly snippets of wisdom. A dear long time friend and client jarred me back to responsibility last week asking, “what happened to Monday Morning Coffee? Did you drop us from your list?” No. I’ve just been thinking about what to say, if anything, as a replacement.
In keeping with the turmoil surrounding us in today’s real estate market, and just about everything else in our lives:

But Noooooo…..

Last week HUD announced to it’s thousands of mortgage brokers across the country that a full 3% fee would apply to all loans, all borrowers. Well, that’s about the end of that. Thanks, Uncle Sam. Instead of the carrot we were anticipating, we get beaten with the stick. Bear in mind that the same thousands of mortgage brokers paid up to $7,000 each to become FHA certified lenders, all in anticipation of FHA loans providing the needed path out of a deep hole. Now it would appear that they flushed that $7k down the toilet. No one is going to want these loans. They are now absurdly expensive.

The More I Learn, The Less I Know.

Although I’ve been at this real estate game for over 25 years, including the down markets surrounding Desert Storm, the Dot Com Bust, and 9/11, this has to be one of the weirdest periods I’ve seen yet. Suffice it to say that I learned a lot from those down markets in terms of strategy, tenacity, and faith. What I did not learn is how badly our financial systems have been in need of repair. With each of the aforementioned downturns, band-aids were applied. Small fixes that were just enough to restore confidence in what were dilapidated systems. Have you ever used “stop leak” in a failed radiator? It might get you to the repair shop, but no further. When the band-aides have been applied to our financial systems, we thought all was well, and drove right on by the repair shop.

Folks, we’re facing a bit of a perfect storm. People want to buy houses, and people want to sell houses. The only impediment to transacting business is obtaining decent loan terms.
The one entity over which the Federal Government asserts complete control is Housing and Urban Development ["HUD"], which in turn is the administrator for Federally insure home loans ["FHA"]. Since raising the FHA loan limits to a level almost relevant to to day’s prices, in the past 6 weeks HUD has vascillated wildly as to how to charge borrowers. For weeks it was stated that the insurance premium cost would be based on risk assessment of individual borrowers. Makes sense. The driver that has 3 DUI’s pays more for auto insurance than the driver that’s never had a ticket. The borrower that has never paid their bills on time should pay more for their loan than someone that has never been late.
Next on the hotsheet of not-so-good news: FNMA and FHLC, because of their own problems, just announced that they are now going to charge lenders 0.5% for loans that they buy. It has been 0.25% since, well, forever. Of course this cost will be passed on to borrowers in the form of 1.25% origination fees instead of 1%. Or the APR will simply be higher in order to preserve the 1 point fee and still pass on the added cost. That should be a big help……..to no one. Fewer loans, less volume, slower recovery.

Why is it that lenders, when the easy money stops rolling in, assert draconian fees and costs on those that are still doing business? IndyMac Bank, the California based lender that failed last month, is a case in point. Inexplicably, IndyMac announced early this year that it is their policy, on all of the second mortgages they had made, that they would NOT allow subordination of their loans for the sake of homeowners attempting to refinance their FIRST mortgages. For those with toxic first mortgages, this left them no way out. They either had to sell, or walk away. In either case, when told by their lender that their refi was dead because IndyMac had effectively blocked the process, how long do you think it took for these borrowers to decide whether or not they would continue to send payments to IndyMac? As soon as I heard this I said, “dead bank walking”. Sure enough, it’s dead.

I keep visualizing these really bads decisions being made by a very few sweaty little men in windowless rooms. All they look at is printouts ananlyzing cash flow, and then they hit the panic button. They have no faith, and they have no vision. They’re hanging on so tight the blood doesn’t get to their brains. Who put them in charge? When busines is slow at a Seven-Eleven do they turn off the lights and beer cooler to save money. No. They cut prices to entice MORE buyers, get the volume up to compensate for lower margins, and keep prices low until things improve. If they turn off the lights and the beer cooler, they may as well lock the doors. Why don’t lenders, especially that which is run by the Feds, get it?

I suggest that we all start writing to our Federal representatives. Does yours have a clue as to what is at stake?

Not to get too political:

6 years ago, before the congrssional vote was taken on whether to attack Iraq, I wrote to Patti Murray and Maria Cantwell. While it was admittedly self serving at the time, I asserted that war [unabated ego], combined with tax cuts [shameless vote buying], could bring ruin to our financial markets. When the government starts borrowing money, it depletes the pool of cash available for everything else, and drives up interest rates. Well, here we are. Money is tight, and getting tighter. Banks are failing. People are losing their homes. All for lack of liquidity because the goverment is spending more than it takes in. And people are worried that a Democrat will raise taxes, spend more? If traditional politics are to be believed, then Bill Clinton was the best Republican President we’ve ever had.

The current goverment cash burn rate is unsustainable. It won’t matter who is in charge when the bill comes due. Tax cuts were a great idea to stimulate growth, as long as the thin ice held out. How about those recent tax rebates? Not even a blip on the radar. We can’t buy our way out of this mess. We are going to have to work harder/smarter, spend less, and pay taxes commensurate with the expenses incurred. Honestly, would the Iraq war have lasted 6 years if taxes had been increased each year to pay for it?

The More I learn, The Less I know. So teach me something.

Housing Pessimism: Get Over It….

I suppose it is not fair to ask today’s prospective home buyers what all the fuss is about. Given the daily onslaught of negative media coverage of housing and the economy, it is permissible to be concerned about whether or not to take the plunge. However, I don’t understand the hand-wringing, mind warping fear that has gripped many home shoppers to the extent that they can’t make a decision. Analysis paralysis is how I reference the condition wherein folks talk themselves out of making an offer as fast as they decided to buy. There is nothing wrong with being analytical about a home purchase, but the human factor cannot be dismissed.

A home is where babies are raised to be children, puppies become dogs, we celebrate Thanksgiving, birthdays, have barbecues with neighbors and friends, plant a garden, paint a room, start a hobby, read a book. All of these things can be done in an apartment or a rental home, but they are never the same as when they take place in your own home. There is not the same feeling of permanency, of family, when life takes place in a building owned by someone else. Yes, there is some stress and work involved. But I think you will find that most homeowners wouldn’t have it any other way.

It’s accepted that no one wants to be the buyer that bought at the top of the market. Conversely, often it is the fool that sets their sights on buying at the bottom.

Buyers have more choices today in the Puget Sound Region than they have had in 5 years. The whining, the crying, and moaning that went on for those 5 years while buyers had little to choose from stands in stark contrast to the attitudes of today’s buyers that seemingly can’t make up their mind about anything. Is it because they have too many choices? Perhaps. More likely it is because they lack focus. “What are the reasons for buying home now. What will change in the future that will impact my decision today?”

Interest rates may go up……or down.

Home prices may go down……..or up.

The days of buying and selling within 2 or 3 years are well behind us. If you’re not going to stay put for at least 5 years, don’t bother. That has been the traditional standard for over 50 years. Five years is enough to absorb the inevitable dip in value along the way and still achieve enough appreciation to cover the selling costs when it is time to move on.

So if you are worried about buying, get over it. Be smart, don’t overbuy, pay for a thorough inspection, know the costs of needed repairs, get a conservative loan, then move in and get on with your life’s business of growing memories.

WaMu: From Bad To Worse…….

A few quotes from today’s Seattle Times article:

“It’s always emphasized growth over all other aspects of its business.”

“they had to reach down to a new level of the marketplace. They had to seek out a lower quality of customer than they were used to dealing with.”

“Even though there was weakness in the market, they put their foot on the accelerator, because they were losing business to Countrywide and other lenders.”

I was impressed with the Sunday article about Washington Mutual by Rami Grunbaum, wherein a former WaMu executive, and insider, revealed his thoughts about the company’s current problems. It was interesting to read what I and many of my colleagues have suspected for some time. But today’s article by Drew DeSilver blows the doors wide open. Can you imagine anything more audaciously arrogant, from a banking perspective, then counting the growing principal on negative amortization loans as PROFIT?!?  Let me explain: rather than viewing the unpaid interest on neg am loan when borrowers chose to make just the minimum payment, not enough to cover the principal and interest on a 30 year amortization schedule, WaMu literally counted the money that was not received as profit! How weird is that! From a Bank!

This is all very sad for a venerable local institution. Maybe you are old enough to remember the ads that touted Washington Mutual as, “The friend of the family”. This is sort like finding out that the friend of the family is an addicted gambler.

Left Out In The Cold?

The help that the Federal Government has pumped into the economy may take a awhile to help home-buyers and those seeking to refinance. The Sunday Seattle Times included an article by Jeff D. Opdyke and Jane J. Kim of The Wall Street Journal. Very good insights as to why we are not seeing conforming 30 year fixed rate mortgages drop to near 5% are offered. ARM’s are no bargain either because lenders are doing all they can to liquidate the ARM’s they already have on their books. This means that the ARM Jumbo you may be seeking will have a tough time being resold into a market already flooded with older ARM’s that lenders are trying to unload, thus your ARM will require a higher rate to attract buyers.

One bit of relief is the reduction in credit card and auto loan rates, as well as home equity lines of credit ["HELOC"].

Good advice is also offered regarding the importance of watching the mortgage market closely for signs of an opportunity. As the market is extremely volatile, be ready to act quickly should the product you desire suddenly drop in price.

The Mortgage Professor

Jack Guttentag, aka “The Mortgage Professor”, is  a syndicated columnist to the Seattle Times. He has often referenced his website: http://www.mtgprofessor.com/Default.htm. Today, I finally decided to pay a visit, as I am considering the alternatives available to me for refinancing my current Jumbo mortgage. There is a lot valuable information there. It is more important than ever to thoroughly research the loan process as lenders attempt to shore up cash flow based on fewer transactions. Learn about “UMB’s” and “MB’s” from the professor, then set your sights on what the best avenue is for you.

As Diana mentioned to me this morning, it is uncanny how acutely aware homeowners and home-buyers are aware of commissions paid to real estate agents, yet have little grasp of how mortgage lenders/brokers are compensated. This web site will open the eyes of would-be borrowers to the web of techniques utilized by unscrupulous lenders that seek to take advantage of borrowers, particularly when their backs are to the wall i.e., facing default on a purchase and sale agreement if they don’t close, or losing a home to foreclosure.

The lack of regulation and standardization is what created the mortgage lending crisis. It is solely up to consumers to decipher what they are getting for their money. This website will educate you to the pitfalls, give you the questions to ask your lender, and resources that you may not have considered. It takes a bit of effort to absorb, but is well worth the time invested………..for all of us. For if we, as a group, bring similar pressure to bear on the lending industry, we might just help straighten out the current crisis, as well as insure that it is not soon revisited.

Mortgage Mess: Light at the End of The Tunnel?

Jack Guttentag, aka “The Mortgage Professor”, provides some interesting insights into the mortgage market meltdown in his Sunday Seattle Times article “It’s Time To Expand Role of Mortgage Insurance”. Parts of his article are characteristically dry and difficult to read, but the essence of the message is there. If there is a bright spot in this deluge of not-so-good-news, it is that the mortgage insurance companies, those that impose an insurance policy on mortgage amounts in excess of 80% of property values, are doing OK. Why? Because they are insurance companies. As insurance companies, they have been required to “hold in reserve” i.e., save, a portion of the premiums that they collect in order to weather, without going broke, a housing downturn event. This means that they actually have the money to absorb the losses they are suffering through foreclosures and deflated property values. At least, so far.

Have you wondered how so many managed to get that zero down 100% no doc, no equity, no job loan with having to pay mortgage insurance premiums ["MIP"]? As an alternative, the mortgage bundling geniuses of Wall Street cooked up a risk assessment system that charged loan fees, interest rates and loan types based on risk factors.

“Oh, you don’t want to pay MIP with your loan every month? No problem. We have this little thing called an ARM with an artificially low start rate that is guaranteed to completely blow up your financial life in 2 or 3 years. But don’t worry, we’ll refinance you out of that in a year or so into a 30 year fixed rate loan you can live with. How do we do that? Simple! Your property simply has to appreciate to where it will appraise for 20% more than the inflated value that we are using today. Oh, did I say inflated? I meant enhanced. That’s what we say when we pack all of the exorbitant loan fees onto your loan amount. That way, you’re not just getting 100% financing, but about 103% financing. But don’t worry. The important thing is that you are in the market, and surely your property will continue to appreciate at 10-15% per year.”

The Mortgage Professor thinks that MIP is the way out of this mess. Once considered a nuisance to borrowers, it may now be a blessing as a means to refinance loans that exceed 80% of appraised property values and allow owners to keep their homes.

Rex Agreement: Avoid This Like The Plague

You would think that with the mortgage mess still unsorted, the last thing we would see is another exotic home equity product from a financial institution. The Rex Agreement has to be one of the most abusive instruments I can image. It’s just like taking your home equity to the pawn shop. According to the Sunday Seattle Times article:

1. If you have high equity in your home, and it is worth $500,000 you may borrow up to 15% of its value ($75,000)

2. You get the money immediately, free to do whatever you want with it, interest free.

3. You sell your home 5 years later for $700,000.

4. You are required to repay the original REX loan of $75,000 PLUS 1/2 of the appreciation, for a total of $175,000.

It cost $100,000 to borrow $75,000 for 5 years. Let’s think about that for a moment.

If you borrowed $75,000 with a HELOC (Home Equity Line of Credit) from Bank of America at 6% interest for five years, making 60 monthly interest only payments of $375, it would cost $22,500. Hmmmmmm……..$175,000 vs $22,500.

Make no mistake, this is a highly predatory product designed to tap into good folks’ fears. I can hear the “closers” for this one.

1. “You won’t have to sell your home, you can stay where you are.” [Note that these loans are only for people with high equity and excellent credit i.e., older folks that have been scared to death by the media over the last 6 months and think they should stuff their mattress with cash.]

2. “If your home goes down in value, we will share that loss with you.” ["Oh golly, what incredibly nice guys. How could they possibly be crooked if they are willing to accept half of the risk of my home depreciating?" Are you kidding? If they didn't know that the real estate markets across the country have already bottomed out, and are set for a steady march upward in appreciation, they never would offer this product.]

3. “You won’t pay one cent of interest for this loan.” [Gee, thanks! Over the past 30 years, single family home appreciation has averaged about 4% annually. 5 years would mean about 20% appreciation, and I only have to give you guys half? 10%? Where do I sign.]

4. “These are just standard forms.”[My favorite! Let me say this once. When it comes to lending, THERE ARE NO STANDARD FORMS!!! I think that this has been thoroughly demonstrated by the current record foreclosure rates by homeowners who thought they were signing "standard forms" when in fact they were endorsing a time bomb. If people had taken the time to read their loan docs, the entire mortgage/credit mess may have been averted.

If you know elderly homeowners who might be strapped for cash, probably so that they can pay their ridiculously high property taxes, or unforeseen medical bills, warn them against REX Agreements. It is better to explore the offerings of a bank bank based “reverse mortgage” than to succumb to the vultures that will be peddling REX Agreements. They are already advertising on the radio locally. Warn your elderly relatives and friends. They are the primary targets.

What $1 Million Buys In Homes Across The U.S. by Forbes.com

Honestly, most of the news surrounding housing has me a little depressed lately. Actually, it’s not so much the housing, but the credit debacle that has caused banks across the country to lose their collective minds as evidenced by arcane C.Y.A. policies implemented in the last week: cancelled “HELOC’s” [home equity line of credit], and second position lenders refusing to subordinate for the sake of refinancing a first [see Ken Harney's article from the Sunday Seattle Times]. So I thought it be nice to look on the lighter side of real estate this week. If you would like to see what $1,000,000 buys in other parts of the country, you will enjoy this article by Matt Woolsey at Forbes.com

More Waiting For True Jumbo Relief Required…..

Further exasperating the jumbo loan picture is the idea that Wall Street is going to segregate the new Fannie Mae and Freddie Mac loans that exceed the former conforming limits. This is going to limit the interest rate relief originally sought by the increased conforming loan limit initiative. Read this article from the Associated Press.