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.

Watch For Miscellaneous Fees i.e., Check Your HUD Statement

I mentioned in a previous post that home buyers/borrowers will need to be on their toes as lenders will be trying to maximize profits from each transaction, at least in the foreseeable short term. The only way to know what you are being charged is by carefully reviewing your HUD ["Housing and Urban Development"] statement that you receive from your escrow agent. Sometimes, questionable fees may appear. Don’t be cowed by an “Administrative Fee” when you are already paying a “Loan Origination Fee”. Ask about the validity of a “courier fee” if you suspect that all of the documents were faxed.

Ken Harney’s article in the Sunday Seattle Times is about this very subject. Surprising to me was the mention of add-on type fees by real estate companies. I have never heard of such a thing locally, but I admit that I am not familiar with the compensation arrangements for anything but traditional full service brokerages.

We make it a policy to attend every closing in person in order to review the HUD statement with our clients. If we are unable to attend in person due to a schedule conflict, we will arrange to obtain a copy of the HUD from the escrow agent prior to closing so that we can at least review it with our client over the phone before they sign closing documents.

There have been many times that we have recommended refuting some fee that was not anticipated. It is rarely a lot of money, but that is not the point. The point is that every borrower receives a GFE ["Good Faith Estimate"] from their lender in advance of closing. If there are to be any variations between a GFE and HUD, they should be thoroughly disclosed and discussed with the borrower well in advance of signing closing documents. Items (costs) that pop up a day or two prior to closing should never be accepted without a complete explanation. Statements such as “these are standard fees” or “this is the way we always do it” will not suffice if the charge was not on your GFE.

The City, The Burbs, or The Sticks: What Are the Real Costs?

Location, Location, Location. The oldest cliche in real estate. How does one determine the real costs associated with the location of a home purchase? It is one of the most common, and challenging, aspects of satisfying home buying needs.

She wants new. He wants close in. To get new means living farther from work. To get close to work means buying a house which may need repairs, or is smaller. But there is more to this decision process than how many minutes a day are spent on the road commuting and whether the house has a 2 or 3 car garage. With the increased cost of fuel, it is now imperative to consider what the commute costs in real dollars.

We have found a pretty handy commuter’s calculator that we have integrated into the PenguinHomes.com website. [Remember, if the music bothers you, click the "Off" button above our photo on the right.] The link was sent to me, unsolicited, by a very creative real estate agent located in Boulder CO. He and some talented programmers cooked up this elegant bit of software to help home buyers answer one of the most difficult decisions in real estate: what is the true cost of location?

This calculator is a little tricky to use at first. After entering the loan amounts for “House A” and “House B”, the current fuel price and your interest rate, click the ”add” button.  The next screen allows you to input your commuter details. Then click “add/edit” and you will return to the first screen where you will see that “Commuter 1″ has been added. You may add additional commuters in the same way. After entering the required information, click “calculate” to see the results.

Please let me know what you think of this utility by adding your comment(s) to this post.

Bank of America Acquisition of Countrywide

Bank of America agreed to purchase the remaining 84% it didn’t own for $4.1 Billion Dollars last week. Aside from a few regulatory hurdles it appears to be a done deal. The acquisition follows B of A’s August, 2007 investment of $2 Billion for stock in the company in an effort to stabilize Countrywide amidst looming foreclosures and credit woes. Hindsight points to B of A’s savvy decision in August to position itself for either (1) a significant stake in an important and very well run company for a bargain and (2) pre-position itself for the eventual buyout as occurred last week.

People that have experienced the mortgage process with both Countrywide and B of A may be few, but we have, on many occasions, witnessed first hand the ineptitude’s of B of A’s mortgage underwriting processes vs. Countrywide’s streamlined processing of loans on behalf of our clients. It seems that B of A rarely grasped the importance of transparency when it came to mortgages.

Borrowers, and their respective real estate agents, do not appreciate being put upon to provide pay stubs twice because the first copies were lost, or to produce the last 3 years income tax returns 5 days prior to closing on their new home. These are the types of hiccups we have commonly encountered when folks go to B of A for a residential mortgage. When we have warned clients about such pitfalls we have commonly heard the lamenting after the fact: “we wish we had listened to you. It was a mess……”

Countrywide “gets it”. They have long understood that it is not their place to add stress to what is already a stressful process, that of buying or refinancing a home. They are quite proficient at achieving the transparency that real estate agents need to effectively manage the many other issues faced by their clients in form of negotiations, contracts, contingencies, inspections, repairs, packing, school registrations, moving, job changes, etc. When a loan rep is calling every few days for another piece of paper because they didn’t know to ask for it when the client applied, it jacks up stress level, and as Countrywide has prov-en over the years, it is unnecessary in a well organized and well run entity.

In my opinion this is a good thing. Partnering the muscle of the nation’s largest bank with one of the pre-eminent mortgage processing and servicing companies should be a benefit to consumers, while at the same time bring a sense of relief to the mortgage and credit industries. But we must hope that B of A won’t mismanage Countrywide into the dysfunctional bureaucracy that is it’s own mortgage department.

Related Stories: Associated Press   Wall Street Journal Blog  Bloomberg News

Thank You Mortgage Professor!

If it hasn’t happened to you, perhaps it has happened to someone you know. While interviewing potential lenders, whether to refinance or buy a new home, it is puzzling at best to discern what the various quotes mean. For example: (1) why is an interest lock free at one lender, but costs 1/4 pt (.25%) at another?; (2) why is the interest rate quoted in the good faith estimate (“GFE”) you were given not allowed to “float down” as interest rates fall prior to your closing?; (3) how do the various lenders cook up the various combinations of interest rates and loan origination fees (“points”), and how can you possibly compare them?

The Mortgage Professor’s tool/table, which shows WHOLESALE loan trends, may not answer these questions specifically, but may allow you to go toe to toe with lenders that you think are blowing smoke. As an example, and we hear this too often, our client might obtain a “no fee lock” on their new loan 30 days prior to closing. When our client hears about falling interest rates at another lender he might ask his loan representative if his rate will go lower. Too often the answer is, “you’ve already locked in your rate, there’s nothing I can do”, or “that’s just an offer from that lender to try to get more business and they are likely making up for that rate somewhere else”. This is standard parlance for, “you are on my hook, and I would prefer that you stay there and stop wriggling around”.

The fact is, rates change every day. It is a gamble as to which direction they are headed on a daily basis, but trends are notable. For the first time, you now get a peak behind the curtain to see what the lenders see: an amalgamation of the wholesale rates offered to lenders on a daily basis.

Sunday’s Seattle Times’ syndicated columnist, Jack Guttentag, has provided us with maybe the best mortgage rate tracking tool ever offered to the public………FOR FREE! Trust me when I say this is one link you will want to bookmark. The information is provided in that little unassuming table at the center top of his home page titled:

Today’s Conforming Wholesale

Mortgage Interest Rates

To appreciate the value this information, read the accompanying Sunday Times article: “Wholesale price data used to gauge market”.

Sub-Prime Mortgage Mess Blame Game

I spotted a great article at CNN.com today which, in simple terms, defines the roles of those to blame for the current mortgage/credit problems. Borrowers, mortgage brokers, mortgage companies and banks, Wall Street, and the Federal Reserve are all named as co-conspirators. Use this link to read the article.

Mortgage Madness Follow-up

I just spent about an hour on the phone with Ron Delfs at Equity Northwest, our preferred lender [ron@equitynorthwest.com].

Ron had reviewed my previous post, so I asked him candidly what he thought about The Mortgage Professor’s article in The Times. He thought it was good, but that “down here on the ground it’s about 10,000 times worse”. Here’s the breakdown from our conversation:

1. Non-conforming loan programs are largely no longer offered i.e., the “stated income”, “low doc”, or “no doc”, or less than 20% down loans simply don’t exist. Why? Wall street is currently not interested in buying non-conforming mortgaged backed securities. They are considered high risk.

2. The above condition has cut the business, and thus income, of many mortgage lenders by as much as 80%. The figure is conjecture on our part. Nonetheless, large secondary market mortgage companies are going out of business at an alarming rate.

3. The worst part: [I always enjoy talking to Ron because I learn stuff] All the lenders that made the iffy loans to iffy borrowers that are now defaulting across the country have a major problem. Apparently it has been standard practice to include a “one year buy back provision” when the iffy loans were sold to the secondary market in case the borrower defaulted within the first year. According to Ron, there are many, many mortgage brokers that might operate with a credit limit of around $100,000,000. It sounds like a lot of money, but it can disappear in a hurry when buy-back demands start rolling in. This is what is putting lenders out of business: the “buy backs”.

4. What to do? Keep your credit score up. Make sure your lender is solvent. Lock as early as possible to get the rate/program that is most favorable to you, as choices are becoming more and more limited.

How Do You Know If You’re Getting a Fair Deal On Your Loan?

In the face of serious nationwide concern regarding lender practices I have yet to see one of the best resources available to borrowers: your real estate agent. Why? Agents don’t loans. No, but they know good people that do.

All quality lenders rely on real estate agents for referral business. Good agents are very careful about whom they refer their business to. If a lender doesn’t treat the real estate agent’s client right, two things happen:

1. the agent is unlikely to receive repeat or referral business from the client that is treated poorly by the lender and;

2. the agent will no longer refer business to that lender.

Thus it stands to reason that good agents associate with good lenders. If they both do their jobs well it is win-win-win for the agent, the lender, and the client.

Many lenders have focused on refinance business with the recent climate of low rates. Notice how many of these lenders go out of business when rates increase. They fail because they didn’t take the time to foster long term relationships with real estate agents. They also cannot charge as much when a smart agent is watching how the loan goes together. Lending slows down for the lenders that work with agents when rates increase. But there are always homes being bought and sold. For the lenders that pursue only the refi market they are out of luck, and out of business, when rates increase.

The Seattle Times real estate section had a good article about predatory lending in it’s Saturday edition this past weekend. There are some good tips there to help you know what to look for. But you could just as easily call your agent for a quality referral.

Finally, Loan Officers to be Licensed

We have warned borrowers and clients for years that loan officers are unlicensed, and that it is very important to work with someone with very strong references. Ask a relative, a friend, a colleague, for the name of someone that they have had a positive loan experience with. Even then, ask the loan officer for additional personal references, and make those calls. It might save you thousands of dollars.

Thankfully, starting January 1, 2007, all loan officers will be licensed by the State of Washington. To give you an idea of just how important that is, read this excellent (it almost hurts to say that) by Elizabeth Rhodes on the demise of Merit Financial where one of the staff mottos was, “we overcharged them because they deserved it”. Nice, huh. Loan officers went from working at Hooters one day, then writing $500,000 loans the next with a total of 2 hours of training.

If you want someone that is honest, dependable, and competitive, call Ron Delfs, owner of Equity Northwest in Redmond: 425-869-1825. You will know right away that you will be dealt with fairly, and professionally.

Reining In Mortgage Interest Write-offs

Referencing the Seattle Times article Tax-legislation Plans Bound To Surface Next Year, it is easy to at first dismiss the headline as so much typical legislative money hunting by elected officials. But upon complete review, some good points are raised by Ken Harney, syndicated columnist to The Times. Case in point: when homeowners pull more than $100,000 in equity out of their homes via refinance, then spend much of it on vacations, cars, and credit card debt, should they be allowed to write off all of the interest? Currently, they are, even though they aren’t supposed to, and the IRS doesn’t have the means to regulate the validity of such write-offs. What is being proposed is to provide the IRS with some simple tools, or flags, that will assist in identifying those that abuse refi interest.

Tools would be:

1. notification sent to the IRS by lenders for refi’s in excess of $100,000

2. notification if the mortgage interest currently reported to the IRS is for a purchase mortgage or refinance

Another tax problem is the property tax write-off. It is said there needs to be a differentiation between “property taxes” and “improvement assessments”. Taxes are taxes, and homeowners should not be taxed on taxes that are paid. However, often included in your tax statement are assessments for neighborhood improvements which significantly increase property values. The idea is to exclude such value improving assessments as tax write-offs.

Lastly, there is the “points” issue. Points collected by the lender as pre-paid interest on a mortgage are supposed to be amortized over the life of the loan. Most folks use the entire amount in the tax year that the loan was initiated. This sounds like poor IRS oversight, and should be easily remedied without legislation.

What are your thoughts on these matters? What does your legislator think?