JohnsBlog (articles, news, thoughts, advice)

Ok a little venting session today.  As if congress and the leading political heads in the country aren't busy enough screwing up the economy, they have managed to find time in their busy schedules to make my life a bit more difficult.

I'd like to congratulate Representatives Childers (D-MS) and Miller (R-CA) for their support in suggesting a moratorium be placed on HVCC for 18 months.  Hopefully this bill will pass with flying colors and consumers and clients will be free from the huge downside that is HVCC.  If you're reading this, please please please support this bill, as if you're looking for a loan now, or will be in the future, HVCC WILL effect you directly, and cost you money.  For more info, feel free to contact me. 

HOWEVER, with one good story comes a few bad ones.  One, there is legislation being tossed around that would ban yield spread on loans.  For those that don't know, yield spread premium (YSP) is an incentive a bank pays a broker or loan officer.  Generally (but not always) the higher the interest rate on a loan, the greater the yield spread. 

Now there have been brokers in the past that have abused yield spread by hiding fees, not disclosing YSP, or charing a lot up front AND getting a lot of YSP from the bank, in effect ripping a client off, however that is not the intention or reason YSP is available......take for example the 0 point loan.  When nothing is charged up front, how does a bank or broker get paid?  YSP!  Although the interest rate may be slightly higher, this type of loan and fee structure makes a ton of sense for a borrower looking for a short term loan, or for a home buyer that doesn't have a lot of money saved up to close on their loan.  Maybe they have a great job and salary but not a lot of savings---the slightly higher monthly payment is no hinderance to them, but the couple thousands of dollars to pay for their mortgage work very well may be...in this case YSP is great, and beneficial to the consumer!

Another example...on an FHA loan, typically 1% origination fee is allowed to be charged by a broker...on a very small loan, this 1% might not be even close to fair compensation to a broker (Example:  $30,000 loan, a loan officer gets a 50% commission split...1% is $300, loan officer gets $150 for over a months worth of work?)  If there was no YSP, many brokers and banks would turn away borrowers looking for small loan amounts, which would really hurt certain areas of the country.

Borrowers can also use YSP to pay closing costs.  On a large loan, it might make sense for a home buyer to take an interest rate .25% higher if it pays 1% YSP...on a $400,000 loan, that 1% would likely cover the majority of their closing costs!  Bottom line is YSP, when used properly is a useful tool to homeowners, home buyers, and mortgage brokers.......

The politicians who want to take it away do not and can not see this, simply because they're not in this business, and they do not have the acumen to see the benefits of something like this.

OK, point 2...Ben Bernanke, the chairman of the Fed, has talked about re-structuring how I get paid....paying me over time on loans I originate based on their performance.  First off, why is the Fed chairman even thinking he has the right or authority to determine how I get paid and do business?  Second, why am I to be held responsible for a loans performance over time?  Take the current market for example....millions upon millions of people have lost their jobs over the past year (in large part due to this very government).  If I did a loan for someone 3 years ago and they've been laid off and have therefore gone delinquent on their mortgage, I should not be paid for the work I've done?  Amazing line of thinking, really.

Consider if Mr. Bernanke was paid the same way...according to his performance....he has overseen the debacle of the American economy...he has had the oversight of fiscal policy which has caused a global recession, lost billions of dollars, and has brought about new policies which will cost taxpayers billions, straight from the pockets of our grandchildren.  HE NOR ANYONE ELSE WOULD BE PAID A DIME IF THEY WERE PAID THIS WAY.  Now you know what they say...people in glass houses sink ships (anyone get that movie reference?)  If Bernanke really considers putting this into effect, I don't think he knows the battle he'll face from the broker/banker community.  Completely unfair that they would even think of something like this.  Good gracious reading political news really makes me mad.

Rates are movin back down! : )

My overall assessment is that Obama's press conference was a fairly good one, in which he held his own, and vehemently expressed his thoughts on the need of a complete overhaul of the healthcare system.

There was, however, one large problem with it, and it was a problem that has plagued Washington for far, far too long.  The lack of a set plan of action, and the lack of clarity.  Also, don't get me started on the fact that once again, the question of "Where did TARP funds go?" was completely diverted.

If the federal government cannot tell us where all the taxpayer money that has been put out has gone, then they can also not expect us as taxpayers to give them more money in a blind hope they will use it effectively.

Instead of saying "we are cutting this..." or "we have stopped this program..." when discussing thoughts on how things will be paid for, there was a more vague set of "we could...." or "there have been discussions about..." when it comes to cutting costs and raising money for such a program.  The true story is that Washington COULD do a lot of things to raise money....they COULD remove military bases from countries where we don't need them, they COULD get rid of hundred of millions in pork spending, they COULD legalize marijuana, freeing up a ton of federal spending on criminal cases involving the drug, all while adding a new source of sin tax. 

The issue lies in the fact that while they COULD do a lot of things, cuts in spending don't happen as regularly as new spending, and cuts are held up by opponents to the cuts, which leaves us with more spending + no change in spending = higher budget deficit.  In my opinion, they need a plan of action, they need to say plan A and plan B and plan C will all be cut, they are either useless or outdated....this will free up x amount of money, and that will be used to cover the new plan.

Also vague is the type of care people would get under the plan.  They're working with a ton of hypotheticals...a trillion dollars + worth of hypotheticals, actually.  Until they have an exact plan, can outline the groundwork and how things will work for EVERYONE, this is change I don't really want to see.  While Universal healthcare would be wonderful, I dont want my taxpayer money to pay for hospital bills covering illegal immigrants, and I don't want to wait, wait, wait to see a doctor if something is seriously wrong with me.  They have not properly outlined these issues at all.

FINAL THOUGHT:  Why why oh why would you, amidst an entire conference based solely on financial concerns and the healthcare package, would you use the last question of the evening to question Obama's thoughts on the arrest of Louis Gates, Jr? Really, its a good idea to bring up what isn't even known to be a racial issue without knowing all the facts?  What a dumb question that was...almost as dumb as Obama's answer to the TARP question ; )

Im pleased to announce I'm adding AmTrust mortgage to my list of lending partners.  AmTrust is well known for some of the best customer service in the mortgage industry along with some of the best rates available, so it will be a pleasure doing business with them.

I have a history with them from back in my Stonebridge days, and look forward to continuing that relationship.  From paperless closings, to in-house underwriting, this company is always on the cutting edge, and I'm sure my clients will be very, very pleased with the results of this partnership.

After a day of seeing the stock market rise (DOW) by more than 250 points for the first day in a while, and reading numerous articles pertaining the the current markets, Im having a lot of trouble grasping the notion that things are better.

Take into account the major causes of the economic downturn, namely the mortgage meltdown, the collapse of the entire subprime banking market, the disappearance of many banks, the ripple effect of rising unemployment, the auto industry being wiped out, and consumer spending and confidence both down, down, down.

Next, take into account that home values are still dropping, foreclosures and delinquencies are still prevalent, and the printing press continues churning out dollars from thin air.  All the while, unemployment continues to rise....so what's to cheer for?

In a word....SPECULATION.  The same reason oil rises for no real reason, the same reason the bond markets ebb and flow, the same reason the DOW gains 250 one day, only to lose 300 in a day about a week later....it is one of the most overly used phrases being tossed around, but what is it really?  In my opinion, it's ridiculous and that's about all it is.

I remember the SPECULATION that Ben Bernanke made, citing that the subprime mortgage mess was a drop in the bucket and largely contained.   The SPECULATION GW Bush made in saying that he sees a slowing economy, but certainly not a recession.  The SPECULATION that a stimulus bill that was largely unread throughout congress was needed immediately or the economy would collapse.  How about the SPECULATION that one stimulus plan would be a fix?  For a really low blow, how bout the SPECULATION that Obama was going to create millions of jobs....then the SPECULATION that Obama was going to create or "save" millions of jobs.  SPECULATION of oil prices are keeping prices artificially high, and I'm talking artificial in a sense of about 200% higher than they should be, all while supertankers sit in the ocean waiting to unload to full-to-the-seams refineries where the lack of supply has completely destroyed the concept of supply and demand determining prices.

Everyone is speculating...an economic report comes in "not as bad as expected" and this is seen as a bright light that we're shooting for, an escape from the recession/depression we're in.  Market shares of commercial paper holders gain ground due to speculation that there will be bailout monies thrown towards certain banks....

BUT, when you look at the facts, consider this....consider there are many, many, many adjustable rate mortgages that are being held low due to artificial indexes creates by the fed, and many adjustable rate mortgages that have not reset yet.  Consider many of these were taken out with stated-income programs which are no longer available.  Consider that we've spent more money in a year than has been spent in our history, and remember that inflation has yet to take hold...it's only common sense that this will happen. The Fed's #1 weapon against inflation?  Raising interest rates.  When this happens and indexes rise, so do the rates on adjustable rate mortgages, along with their mortgage payments.  Yet another storm of foreclosures, another string of delinquent, cash strapped borrowers with no money to inject into the economy.  Again, homes selling much lower than face value, etc.....and all this to come in the next few years....how do people overlook this?  With current policies, there seems to be no escape from the fate we're heading towards.  There's more plans in the mix from the political croonies who think injecting cash into things is the only fix, so inflation will likely be very, very horrible. 

Until this comes, and the piper must be paid, people will continue to speculate, and some people will retain a false sense of hope while the banks tell them "the reports arent as bad as they could be!" and this is misconstrued as good news.  Just remember, that very hard times are coming, and, I may be speculating here, but I think everyone should prepare for the worst.