Posts Tagged Congress

It’s the jobs, stupid

Reading the Delinquencies and Foreclosure Starts Decrease in Latest MBA National Delinquency Survey posted on the Mortgage Bankers Association website on August 26, 2010, one statement stood out at me:

The causes are likely two-fold.  First, 30-day delinquencies are very closely tied to first-time claims for unemployment insurance.  The number of first-time claims fell through most of 2009 but leveled off in 2010 and have started to rise again.  This increase in unemployment directly impacts mortgage delinquencies.  Second, some percentage of the loans modified over the last several years have become delinquent again because those borrowers, by definition, have weak credit.

“Ultimately the housing story, whether it is delinquencies, homes sales or housing starts, is an employment story.  Only when we see a consistent increase in employment will we see an increase in sales and starts, and a sustained improvement in the delinquency numbers.  Until we see the increase in the number of households that comes with an increase in the number of paychecks, all measures of the health of the housing industry will continue to be weak,” Brinkmann said (the MBA’s Chief Economist)

This echos what I said in a November 7, 2008 post on this blog:

…the number one reason for the mortgage and credit crisis is not Adjustable Rate Mortgages (ARM) resetting, or loans being made to lower FICO score borrowers (I don’t think anyone buys a primary residence with the intention of not making payments and having to move again in a year), it’s the loss of jobs that has caused the current problems.

Why has it taken this long for people to admit this?  There has been so much finger-pointing by our government, banks, regulators, GSE’s (Fannie Mae and Freddie Mac) and HUD, and most of those fingers pointing at the loan officers that took people’s loan applications.

Here’s the low-down as I see it:  Jobs traditionally held by the middle or working-class (which make-up 95% of the U.S. adult population) have been “outsourced” to cheaper labor countries as CEO’s of large corporations look to increase profits by a few percentage points and thus justify their annual bonuses which are 400% more than the annual income of of the workers they laid-off.

95% of the U.S. makes less than $150,000 a year.  80% of the U.S. makes less than $85,000 a year.  Let’s face it, the richest 5% of Americans can’t buy 100% of the cars, houses, TV’s, clothes, ATV’s, boats, fishing poles, etc.  Until middle and working-class residents of the United States start making money again, the economy will remain stagnant and the default and foreclosure rates aren’t going to change.

I read an interesting article recently drawing comparisons between 1928 right before The Great Depression and 2007, right before The Great Repression.  Here is the Reader’s Digest version of it:

In 1928 the richest 1% of Americans earned 23.9% of the nation’s total income.  In 2007 the richest 1% of Americans earned 23.5% of the nation’s income.  During the most prosperous era of America’s history, from right after WWII through the late 1970’s when households lived well with just one wage earner in the home, the richest 1% of Americans earned just 8% to 9% of the nation’s total income.  As it said in the article:

Each of America’s two biggest economic crashes occurred in the year immediately following these twin peaks—in 1929 and 2008. This is no mere coincidence. When most of the gains from economic growth go to a small sliver of Americans at the top, the rest don’t have enough purchasing power to buy what the economy is capable of producing.

The real question is how are we going to get our government (who has allowed and even rewarded companies for sending our jobs overseas) and the large corporations who profit from sending our jobs overseas to change this?  Until We the People stand-up to them and say “enough is enough” nothing is going to change, no matter what politicians say and promise us.  We the People need to take it into our own hands and fix the problem ourselves.  There’s 310 million people in the United States and only 535 Congressmen. 95% of the United States are being negatively affected by the decisions of 5% of the population.  Where does the power really lie?

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Congress restores funding to USDA Rural Housing

On Thursday Congress restored funding to the USDA Rural Housing program which has been on pause since May.  This is great news for Utahans since much of Utah sans the Wasatch Front (Salt Lake County, Utah County, Weber County and Davis County) is considered “rural” and homes in rural areas are eligible for 100% financing.  Areas such as Eagle Mountain and Stansbury Park are in these rural areas.

So if you are thinking of buying a home and are short on down payment funds, think USDA Rural Housing and have your Realtor show you homes in qualifying areas.

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Financial reform means changes for the consumer, but business as usual for Wall Street

With the Senate passing another bill on Thursday that none of them have ever read and was drafted by the congressional staffers the question raised is “How is this going to affect my ability to refinance or buy a home?”  Well, below is a great summarized version of the bill via Mortgage News Daily via Mortgage Bankers Association (I know, it’s the long way around but it’s the best summary of 2,000 pages of wasted paper I could find).

In reality it doesn’t do anything the industry isn’t already doing to police itself. But, Congress makes it sound revolutionary.  There are some areas that are left rather vague though, and are open to interpretation. One being how a loan officer is compensated. The real issue here is that this bill addresses how mortgage broker‘s are compensated but does not address how loan officers at banks are compensated, which is the same way just with different terminology.

Right now an independent mortgage loan officer has to disclose all his or her compensation and how they arrived at that figure. The loan officer at a bank or credit union does not.  So be very careful when comparing the Good Faith Estimates between sources when shopping. They are all the same in theory, but how they are presented are different and actually makes it look like the broker isn’t being competitive when in reality the broker may be a better deal.  Being a small businessman, independent loan officers need to be competitive to feed their families.

Another issue at hand is with the vague wording of the bill regarding Yield Spread Premium (YSP): the “gross profit” or spread between par rate and the rate you are being quoted. To understand YSP think of the price Best Buy pays for a camera and then the price they sell you, the difference being what Best Buy makes. The lender or bank has a built in profit margin for each 0.125% increase in interest rate between the par rate and the rate you are being given, and this profit is higher for selling a higher rate up to a point, usually 3% max.

By the way, loan officers at banks have this also, internally they just call it by different names and the financial reform bill doesn’t address it.

Some would say (as Congress has) that this causes the loan officer to sell the borrower on a higher interest rate, and it could, but then if the borrower was shopping around the loan officer wouldn’t be competitive and the borrower would go with someone with a lower rate. Just like if you were buying a camera and F.Y.E. had a lower price than Best Buy, you’d buy it from F.Y.E.

But YSP doesn’t always mean more compensation for the loan officer. Many times the loan officer uses the YSP to cover some or all of the borrower’s closing costs, such as in the case of “no cost refinances”. Or when surprises come-up at closing on your new home or refinancing the loan officer issues a “borrower credit” to cover those surprises so the borrower doesn’t have to come-up with money out of pocket that they didn’t expect.

And this is an important point. With the new RESPA rules (Real Estate Settlement Protection Act) and Good Faith Estimate, what you are quoted is pretty much what it is.

So the possible elimination of YSP could in fact cost you more money because it would also eliminate “no cost refinances” as well as you, the borrower, will have to pay for those little surprises at closing. I know, some of you are saying “I’ve never had any little surprises at closing”, but believe me there were, they were just taken care of from your loan officer’s compensation behind the scenes and you never even knew about them.

And those of you who have had surprises you had to pay for, I’ll be that loan officer is now out of the industry. Just like any business, those that deal honestly retain customers and survive and those that don’t eventually run-out of people to burn.

In short, in my opinion the reform bill does a lot of nothing to really help the consumer while it will be business as usual on Wall Street on Monday. Of course, being drafted by shills for Wall Street (Dodd, Franks) and pitched by many of the same players that got us into this mess (Timothy Geithner who crafted the big bank bail-outs under Bush, Gary Gensler the former Goldman Sachs executive, Larry Summers the former hedge fund executive, and Jack Lew, former Citigroup executive) you can see why nothing really changed that could prevent such a meltdown in the future.

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