Searchlight Crusade

Just got a search on "state of california fsbo questions to work directly with loan officers without a agent"

This isn't a problem. Whereas it is the same license, it is two entirely separate job functions. I am one of the maybe 20% of licensees who does both, and I have no problems separating the job functions. The fact that you are or are not working with an agent has absolutely nothing to do with whether you can get a loan. In fact, if you're the seller, it's really no business of yours who the buyer gets a loan with, or where, or even whether they get a loan or pay cash. So long as you get your money, it's all the same. In fact, it is even illegal under federal law for the seller or anyone else to require that the buyer obtain their loan through any particular provider. So just know that it's not a factor keep your nose out of the buyer's business.

This is not to say that some folks who do both might not attempt to trick or pressure you into signing an agency agreement. The way to deal with that is to contact your state Department of Real Estate (here's California's). In California, they do investigate all complaints thoroughly, even if the complainer later changes their mind.

This is not to say you should be looking for real estate agent responsibilities from someone acting solely as your loan officer. This happens quite a bit; If they're not getting an agent's commission, you should not ask them to do an agent's work or assume an agent's responsibility. Asking you to sign a form that says they are acting purely as a loan officer and are not responsible for anything except the loan is reasonable. Loan officer legal responsibility is minimal to non-existent anyway; it's one of the reasons the loan business is so messed up and out of control. But asking a loan officer to do both jobs for the pay of the lesser is unacceptable. You don't do extra work for free, you don't assume extra responsibility for free. Why should you expect someone else to do so?

Now in California, we changed the law a couple of years ago so that in certain circumstances where the firm is licensed with the Department of Corporations, the loan officers do not have to be individually licensed. I've seen a lot of abuses out of such situations; the loan officer who isn't individually licensed isn't risking their individual ability to work in the profession, no matter how egregious the violation. Indeed, many firms licensed with the Department of Corporations instead of the Department of Real Estate have made a point of recruiting people new to the profession who don't know any better, and no one will tell them until they go work for a company with better practices, which most of them never do. These folks also don't know how much the company makes per loan, so they don't have to pay them as much. Best of all possible worlds from the company's view!

But so long as you only ask a loan officer to do the loan officer's job, there should be no problem with doing a loan on a For Sale By Owner property. After all, you don't need a real estate agent to refinance, do you?

Caveat Emptor

Original article here

Over at my more local area site, I'm starting a series on the neighborhoods in the areas I work. The first is Neighborhoods of La Mesa: Rolando. I'll be following it with others, probably before the end of the weekend.

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Althouse on John McCain vs Barack Obama on Iraq, and rips a partisan shill masquerading as neutral.

Senator McCain appears to be removing the kit gloves the press has been treating Senator Obama with.

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Just a little bit of bias

HT: Instapundit

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Willisms makes a point that can not be made too often about prosperity.

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World According to Nick makes a good point about defense against terrorism. It doesn't help the victims any, but it does enable the vast majority of the population to live normal lives.

The best way to make certain that proportion that gets to live normal lives is as large as possible is very simple: Cut down on the number of terrorists.

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Proof Positive that Mike Aguirre is too stupid to be allowed out without responsible adult supervision: San Diego sues Bank of America to halt foreclosures

San Diego's city attorney said on Wednesday he filed a lawsuit against Bank of America Corp and its Countrywide unit to prevent the mortgage lenders from foreclosing on homes in the city, which he aims to make a "foreclosure sanctuary."

OK, let's hypothesize that he gets what he wants. Lenders can't foreclose. What happens when the final resort of a lender to recover its money is taken away?

That's right, no new loans.

Price of housing crashes as nobody who can't pay 100% cash can buy property. Wealthy investors swoop in and buy properties that were formerly half a million dollars for maybe $30,000 each, tops. This lasts until the armed and violent uprising against city government, or the voters put in someone who may not be a great political panderer, but who does understand something of cause and effect. They then turn around and sell them for several hundred thousand with owner carrybacks (hey, I could get into earning 8% on $300,000 when I only have $20,000 in the property! It's a reasonable risk)

Meanwhile, when the problem is fixed and lenders start making loans, those properties then become worth current value plus economic appreciation in the meantime.

HT: Tigerhawk

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Obama's character seems amazingly consistent

That's not a compliment in this case.

I didn't remember the name, but it's long past time we created a Dorwin Award. And Barack Obama is the obvious first recipient if we do.

This was originally from February 2007. The situation as to what loans are available has changed quite a bit since then, but the underlying advice is and will remain sound.

Shortly after the original article, things started downhill for lenders very quickly, something I'd been predicting since before I started this website, and about as difficult to predict as gravity. This was when most would-be Wile E. Coyotes looked down, but I'd seen it coming, it was only a matter of time. The lending market having the effect it does upon the real estate market, this had the effect of removing the veneer of believability even for the gullible.

On the other hand, that was then, this is now. The one constant about the real estate market is that it changes - and it usually takes people, especially people who aren't in the industry, aren't paying attention. This market, at least where I am in San Diego, is showing all the classic signs of heating up. The chances of being able to get as good a bargain next year as you can right now are vanishingly dim.

(Sorry about this being late. My home ISP was non-functional when I got up)

Hello Mr. Melson, Let me start off by saying that I am a big fan of your "Searchlight Crusade" website. I happened upon it a while back after I had already purchased my house. I've found a lot of useful information and I try to refer my friends and family to your site when they ask me home-buying/mortgage questions.

I am emailing you because I am considering a refinance. Just a little background info: I purchased a 3bedroom/2bath 1183 sq ft home in DELETED for $323,000 in Nov 2004. I am a DELETED with a credit score of 801. My wife is a part time DELETED with a credit score of 814.

I put no money down. I have my mortgage split into two loans (80/20). My first mortgage is $259K interest only with a rate of 5.375 fixed for 5 years with a payment of $1157.42. My second loan is about $64K HELOC interest only with what seems to be a monthly adjustable rate with my payments now close to $600. Both loans do not have a prepayment penalty. I've only been paying the interest every month. We plan to stay in the home for at least another three years (we are from out of state and might move back there when my son goes to high school - he's currently in the 5th grade). There is a possibility we might stay in DELETED at which point we're likely to stay in the house.

I was thinking about refinancing my HELOC so that the rate would be fixed. I spoke with my lender and I was offered a 15 yr loan with a fixed rate of 7.5% with a payment "around $600" with a prepayment penalty before 5 years.

Based on recent sales, my house is worth about $350K. Because of this I was told I could not refinance both loans into one.

Do you think it would be worth it to refinance. If so, what type of loan should I do? Or should I figure out if I'm staying in DELETED or moving back?

Any advice would be greatly appreciated.

I would love to give you my business if you know of anything that will work in my situation.

My first reaction was that there is no way anyone should accept a HELOC with a five year pre-payment penalty such as described.

You are going to need to refinance your first in November 2009 if not sooner. When that happens, there are going to be issues with subordination which are likely to cause you to want to pay your new second off, especially as the lender you mention has a policy of no subordinations.

This is an excellent question. Truthfully, an 8.00 or 8.25 percent Home Equity Loan (usually 30 year amortization, with the balance due at the end of 15 years in a balloon payment) will likely do better for you. Now my calculator says that a 30 due in 15 at 7.5 will have a fully amortized payment of $447.50, while a 15 year payoff is $593.29. Don't accept approximate payments, even as a quote - exact numbers tell you far too much about what's really going on. Also, you are and should remain at or below 95% Comprehensive Loan to Value (CLTV), which makes a difference on rate.

Some seconds have smaller penalties, so that may modify the answer. For instance, one lender I do a fair amount of business with has a very low closing cost second with a $500 prepayment penalty, in effect for three years. The cost to buy it off? $500. Either one of these, combined with the costs they assume, is still far less than the closing costs of most comparable loans. However, the standard prepayment penalty would be 80% of six months interest, or about $1920. Assuming you refinance in exactly three years, that boosts your effective rate by one full percent.

Now I'm happy to do whatever "stand alone" seconds come my way, a "stand alone" second trust deed being one where the primary mortgage is not being refinanced at the same time, as opposed to a "piggyback" where there is both a first and a second trust deed. However, the truth is that the best source for "stand alone" second mortgages is usually a credit union. I've got a couple of internet based lenders that are very competitive for high dollar value seconds, but for stand alone seconds below $75,000, credit unions rule. It was more cost effective to do our second with my wife's credit union than to do it myself. Just has to do with the mechanics of how brokers are set up and the way that most second trust deed lenders work.

Now you do have to be able to make those payments. But what you should really be paying attention to is the total cost of the money. How much in closing costs you have to pay to get the loan done, plus how much the loan is going to cost you in interest every month. It was only a couple of years ago that most traditional lenders would charge the same closing costs for a stand alone second that they would for a primary mortgage. For a $64,000 second, that $3500 in closing costs is almost 5.5% before you get to the actual interest charge - the equivalent of a 1.8% surcharge to the rate, assuming you kept it three years. You're better off taking a 9.5% rate that carries no closing costs than you are with an 8% rate that carries traditional ones, and that's not even considering the fact that you still owe most, if not all of that extra $3500, when you go to sell your house or refinance.

The situation, luckily for borrowers, has changed. Many lenders have very low cost stand-alone second trust deed programs, whether you are looking for a fixed rate home equity loan (HEL) or a flexible Home Equity Line of Credit (HELOC). The rates are higher than first trust deed loans, but the requirements are lower. Because the rates are higher, lenders are competing for these loans, with credit unions leading the charge. If there's a first mortgage involved, things are different. Most credit unions don't really have the resources to handle first trust deeds, with dollar values having appreciated the way they have. So they partner with major commercial banks, becoming essentially dedicated brokers for first mortgages, while competing ever harder for second mortgages in their own right. Nonetheless, because lenders want second trust deed loans, the result of their competing with each other has been a drastic drop in closing costs for second trust deeds over the past few years.

Caveat Emptor

Original article here

Dear Mr. Melson,

If you sign two or more non-exclusive buyer's agent agreements in your search for a home to buy, how do you avoid putting yourself at risk for a procuring cause situation from either agent, or even the seller?

Thank you,

A Fan

The first thing I've got to say here is that I am not a lawyer, so for specific legal advice for your state and your situation, consult one. That said, here's a broad brush picture of what I've been given to understand.

I am a big fan of the non-exclusive buyers agency contract. Consumers give someone a chance to get the job done, and they have only themselves to blame if they can't. Nor does it tie consumers to one particular agent. There's no way of telling if any particular agent is any good until they've shown you some property. They could be a bozo, they could be a commission grabber, they could have any number of potential problems with a buyer's agent. Consumers who limit themselves to non-exclusive contracts can have any number of agents they want working for them, as any counting number is possible. Finally, they can fire a bad agent simply by not working with them any more. The only thing you possibly give up is the ability to buy houses they introduced you to, and if you liked any of them, you would have made offers already. Nor is even that an absolute prohibition, as we will see a little later on.

The simplest way to deal with this is to tell whomever you're working with if you've seen a property before. You tell the agent you're with before they take you out there that they're not the procuring cause. I give every client a full list of what I'm planning to show them at the start of every hunting trip - and you should insist on this anyway, for this and many other reasons. I want my clients to have ready made paper for taking notes and writing down questions they may have and answers they get, even if that answer is, "I don't know yet but I will find out." If the clients don't want to see a particular property, if they've seen it before with someone else, etcetera, they have an opportunity to say so right away. If an agent takes you to something like that knowing they're not the procuring cause, they have no grounds for complaint when they don't get the commission. The easiest way for consumers is, "Joe with the office down the street already showed us 1234 Main Street, and we're considering it. We want you to show us something better if you can." That serves notice that there is no commission there for them, and it's going to be a rare exception that bothers with that property. If they start talking it down at that point, get out of the car, and tell them that their services are no longer desired. Here they were planning to show it to you as something they thought you should seriously consider, and now they're telling you it's a bad property because someone else will get the commission? They aren't out for your best interests, and they've just told you that in terms anyone should be able to understand. Fire them immediately, without any appeal. Nonetheless, dealing with the issue in this manner is more than sufficient to stop problems before they start as well as dead simple.

Note that I said it's sufficient, which is a logician's term that means it's at least enough. It's not the minimum necessary in this case. The entire thing about "procuring cause" is that this is the agent who made you want to buy the property. Therefore, sometimes I'm willing to disregard "I've seen it before" for clients I've got a good rapport with, if they tell me that they're not interested in that property for whatever reason that seems to them good and sufficient. "Please trust me with fifteen minutes of your time, because I think I've seen something that may change your mind." The essential point is that they've given me evidence that the other agent is not the procuring cause, because they did the exact opposite of interesting them in the property - they turned them off of it. If I can turn that around because I understand something about the property and their situation that causes them to see what I see, I am the procuring cause, and I have demonstrably provided value to those clients. It's rare, but it does happen. Two elements that are always necessary before I want to show a property: That I believe it will satisfy the client's needs and there's a good chance they'll like it enough to make an offer I can sell to the owners.

I should also mention that it's bad business for agents or brokerages to sue clients for commissions. Not only is it bad publicity and a good way to scare off future clients as well as probably more money to prosecute than you'll win if you're successful and half a dozen other disasters, but I've never heard of any agent or brokerage actually winning such a case. This is one reason why the incentives are there for agents to want to tie up your business with an exclusive agreement, but from a consumer point of view, exclusive buyer's agency agreements are a disaster in progress for no gain. You're tying your ability to buy a property for the next six months to one particular agent based upon their behavior in their office? I don't think so. I wouldn't do that on a bet, and neither should you. The games that can be played when one particular agent controls the transaction are too numerous to mention. The vast majority of my clients never talk to another agent, but that's by the client's choice, because I demonstrate I've got their best interests foremost in my mind every time we talk, meet, or correspond, and that they'll be lucky if the other agent is half as good as me. The knowledge that they do have a choice is one more motivation to do the best possible job I can, and a consumer can never have too many reasons why their agents want to do their best work possible. Which do you think is likely to do better work: The agent who knows that a commission is in the bag (eventually) as soon as he's got a signature on a piece of paper, or an agent who knows that the client always has a choice to try out the competition? I put it to you that the agent who's willing to be in the latter category will not only work harder, but that they're much more likely to be a capable agent, confident of their ability to make that client happier than anyone else.

This example may be fictional, but the character portrayed has one thing in common with a good agent, or anyone who really is good at what they do: He's not afraid to be measured against the competition.

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I may not be Lancelot (he's fictional. I don't have the author writing fiats in my favor), but I'm more than happy to measure myself against the competition in the only way that counts: the actual battle to make my clients happy. This is what the non-exclusive agreement allows the consumer to do - find their Lancelot, or at least Bors or Percival, instead of being stuck with Mordred. It's easy for Mordred to talk the same game as Lancelot, which is why you need to get them out in the field to observe them at work. Non-exclusive agency agreements let you do that. They doesn't bind consumers to the first agent they meet for six months that might as well be forever, because most people aren't going to wait that long if he isn't as up to the task as he might be. Furthermore, it's a lot easier to manage than trying to get out of that exclusive contract Mordred talked you into.

Caveat Emptor

I got this question in an email, and almost blew it off, but then I realized for every person who actually asks, there are probably at least a dozen who are unclear but don't ask, and I apologize that I almost blew off the question.

This is one of those questions with a deceptively simple answer. Transactions fall out of escrow because something goes wrong with the terms of the purchase contract as negotiated. This happens in all kinds of areas, not just real estate.

In real estate, it is usually not the fault of the escrow officer. I have encountered exceptions to this rule (I had one close in May where the escrow officer tried their damnedest to sink it), but they are rare. The escrow officer is simply a hired middleman that handles the actual exchange by verifying everyone involved has in fact done everything spelled out in the contract, and assisting in certain ways those items which cannot be accomplished until close of escrow.

It is possible to fall out of escrow on a refinance, but nobody talks about it that way because the issues are a lot more limited, so usually people describe this in specific terms, such as "Couldn't qualify for the loan," or "The appraisal came in too low." These apply to purchase escrows as well, but the phrase "fall out of escrow" enables agents to avoid finger-pointing, and agents never know when the target you point at today is going to be someone whose good opinion you want tomorrow. Ergo, the commonality of the phrase. It may make it seem like escrow is the bad guy, but that is only rarely the case. There isn't some group of Nazgul masquerading as escrow officers going around and doing evil things to your real estate transaction. It's mostly a way of avoiding any unnecessary bad feelings from a broken transaction.

The most common way a transaction falls out of escrow is the buyer fails to qualify for the requisite loan. For the buyer, this can be avoided by making certain ahead of time that you're going to qualify, staying within budget, and - the step that many are neglecting right now - following the market while you're shopping. For sellers, it's more complex because you can't steer business, but it is doable.

The next most common way transactions fall out of escrow is that the inspection reveals something that wasn't anticipated in the purchase contract, and the seller and buyer can't agree on what's going to be done about it. This is one of the reasons why I'm so fixated on finding all the issues I can before we make an offer. Sure the inspector is probably going to find other stuff, but if it's all trivial, normal wear and tear, we don't have a threat to the transaction. Put those on the table during initial negotiations, and you've already got agreement before you've invested days to weeks and hundreds of dollars into a transaction. You would not believe how much this changes your outcome for the better without trying it.

Even if you don't catch everything ahead of time, be reasonable in negotiations after you find the problem. You can't force the other side to be reasonable, but if you control what you can control, chances are better that you'll come to a mutually satisfactory amendment. Remember, you wanted this deal in the first place. For the buyer or the seller, trying to sweeten it unreasonably because of a new fact is going to lose that transaction. Furthermore, the buyer has the inspection contingency to protect them, while they can decide to carry through on the sale on the previously negotiated contract even if the seller won't deal at all. Both buyer and seller jointly have the ability to decide whether the seller is going to fix it, give the buyer an allowance (usually a small amount larger than cost of fixing to make up for having to be the one to hassle with fixing it), or whatever else strikes them both as reasonable.

As you can see, neither one of these is the escrow officer's fault, and they shouldn't be blamed for something that's not their fault. It's not due to this (sarcasm) scary mysterious (end sarcasm) process called escrow - it's that there really was an issue endemic to the situation that the principals and the agents could not resolve in a satisfactory manner. There are any number of possible issues that the escrow process is intended to prevent: Title, unpermitted additions, you name it, it probably happens and agents deal with these issues regularly. The process of escrow is intended, in large part, to shake these problems out so that the buyer doesn't have nasty surprises later, and the seller really does get the money they're due for their property. Without escrow, the incidence of real estate problems would rise dramatically, as would the cost for dealing with them. If you understand escrow, you know that the reason for it, and why it's usually a consumer's best overall protection from bad transactions.

Caveat Emptor

Carnival of Real Estate

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Last week, the New York Times accepted an editorial from Barack Obama. I linked it so you could read directly, and tore it apart.

Today, they refused an editorial from John McCain on the same point. They made noises like it's an editorial change they're looking for; the truth is that it doesn't fit their narrative, which at this point is to bury the good stuff that's happening over there with all the minutiae and troubles of the returning troops. At roughly 150,000 troops per year, mostly young and all with normal human foibles, it would be a miracle if they couldn't find enough examples of trouble to distract the public.

The New York Times is entitled to control the contents of their editorial page, even more so than others, as an argument might be made that this is their official position. Nor do I want to bring back the "Fairness Doctrine" in any way shape or form. The only gripe I have with this situation is the the New York Times does everything they can to aid Barack Obama while pretending to be neutral, which they are not. I'm fine with them supporting Barack Obama. People have the right to support the presidential candidate of their choice. That's just a small (if critical) part of the First Amendment, and it protects you, me, and everyone else as well. What ticks me off is them pretending they are balanced, fair, neutral arbiters, when in point of fact they are the furthest thing from it.

You can read the editorial at The Drudge Report, but Senator McCain's critical points:

But I have also said that any draw-downs must be based on a realistic assessment of conditions on the ground, not on an artificial timetable crafted for domestic political reasons. This is the crux of my disagreement with Senator Obama.

and

I am also dismayed that he never talks about winning the war�only of ending it. But if we don�t win the war, our enemies will. A triumph for the terrorists would be a disaster for us. That is something I will not allow to happen as president.

I can give at least 4125 American reasons (and roughly 150,000 Iraqi ones) why Senator McCain is right and Senator Obama is wrong.

Hot Air has the text of the rejection from the Times. Obama's editorial didn't have several of the alleged requirements.

More people are catching on to this sort of double standard. Rasmussen: Belief Growing That Reporters are Trying to Help Obama Win

Ya think?

The latest Rasmussen Reports telephone survey, taken just before the new controversy involving the Times erupted, found that 49% of voters believe most reporters will try to help the Democrat with their coverage, up from 44% a month ago.

Just 14% believe most reporters will try to help McCain win, little changed from 13% a month ago. Just one voter in four (24%) believes that most reporters will try to offer unbiased coverage.

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This should have been done a long time ago: Bush law chief seeks new Qaeda war declaration

Congress should explicitly declare war against al Qaeda to make clear the United States can detain suspected members as long as the conflict lasts, U.S. Attorney General Michael Mukasey said on Monday.

The Democrats are saying they don't want to cooperate while Bush is still in office. Gee, you might think it was political or something.

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Buyer Beware: The Many Ways Retailers Can Trick You

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It's not news, it's Scrappleface: Sen. McCain Announces Late White House Bid

But like all good satire, there's quite an element of truth in it.

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Inartful Dodd-ger

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Faster, Washington! Drill, drill!

One option, we were told, was to make gas artificially expensive, forcing our ignorant, energy-gobbling neighbors to alter their destructive habits.

Well, here we are. At $4 a gallon for gas, we already have a flailing economy. Isn't it glorious? And isn't it exactly what many environmentalists desired?

and

Don't worry, though, congressional Democrats have a bold plan. Hold on for 10 or 15 years and they'll have a bounty of energy options. They promise. But no oil shale. No clean coal. No nuclear power. And definitely no more oil.

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A consequence of illegal alien "sanctuaries"

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How reliable is DNA evidence?

Encouraged, Barlow subpoenaed a new search of the Arizona database. Among about 65,000 felons, there were 122 pairs that matched at nine of 13 loci. Twenty pairs matched at 10 loci. One matched at 11 and one at 12, though both later proved to belong to relatives.

Barlow was stunned. At the time, such matches were almost unheard of.

That same year, Fred Bieber, a Harvard professor and expert in forensic DNA, testified in an unrelated criminal case that just once had he seen a pair of profiles matching at nine of 13 markers, and they belonged to brothers. He had heard of a 10-locus match between two men, but it was the result of incest -- a man whose father was also his older brother.

Dear Mr. Melson:

My husband and I are great fans of your Searchlight Crusade essays. Excellent work!

In today's mortgage-mess market, will lenders reject loan applications from average buyers (not investors) wanting to purchase acreage with a teardown outside the city limits, with the intent of building a new home? Obviously, preservationists and neighborhood associations who might object to interference with the "character" of the area wouldn't be a major factor in this kind of decision.

Would the mortgage needed for such a purchase have to be a combo "jumbo" loan, or what? We are in DELETED and would be using a VA loan.

Okay, let's deal with the peripheral stuff quickly. The "jumbo" and "conforming" labels don't apply to VA loans. They're for conventional A paper financing only, and VA loans having a government guarantee attached as well as the ability to go up to 103% of purchase price with no PMI, there's no need to split the loan amount or to pay PMI at all with a VA loan. I know of at least one lender who'll do VA loans up to $1.5 million.

Now as to the main question: Buying teardown property.

All residential real estate loans require two things: 1) an interest in land, and 2) a permanently attached residence where people can live. Condos and PUDs qualify, because they do have an interest in land held in common, as well as the residence itself. But bare land does not qualify for standard residential financing, because it has no residence.

So the essential question here is: Is the building actually condemned? If it is, what you have isn't a residence at all, but bare land that it's going to cost you money to scrape clean. If you hear an agent talking about "land less demolition and haul away", this is the type of situation you're in. You can't get a residential loan on it because you can't live there. You have to go to one of the other loan types, which means higher down payment and usually higher rates, as well. You've still got the utility hook ups, and you might be able to use the original foundation, so you're not starting from nothing, but property with a condemned building on it is generally less valuable than bare land, because you've got the expense of getting rid of the condemned building. Condemned buildings also have the virtue of short-circuiting most concerns of historical preservation - not always, but most of the time. If the City of Philadelphia were to condemn Liberty Hall as unsafe, I'm pretty certain that wouldn't be the end of the matter. On the other end of the scale, there's a house on the same block I grew up designated historical because it was built in 1895 and by the time anyone in the City of La Mesa looked around, it was one of the oldest buildings remaining in the City. But it wasn't really anything special at the time, so if it was ever certified unsafe, I imagine there wouldn't be much fuss about actually tearing it down.

If the building is not actually condemned, however, you do have the ability to get a residential loan on the property, but you also have to be careful it's not designated historical in any way, shape or form - and that there's no one with any interest in designating it so. Once designated historical, it's like the labors of Sisyphus to try and get permission to get rid of it, and even the attempt to designate it as historical (whatever that attempt may be motivated by) can cost years and many thousands of dollars in expenses. Just because it's outside city limits doesn't mean that nobody has an axe to grind.

People do want to tear down existing buildings for other reasons than condemnation. They want to do something else with the land, or they just don't like what's there. In the meantime, they can still buy with a regular residential loan, until they're actually ready to tear it down. In such a situation, your lender would probably have the right to call the loan, so your destruction and construction financing should take cognizance of this fact. Even if your state law and loan contract do not give the lender the right to call the loan, one should be very careful that you're not misrepresenting your intentions in any way. In other words, if you're buying with intent to demolish, don't hide it from the lender. That's FRAUD. If you refinance out of the loan before destruction begins, it shouldn't be a problem. But if you sign loan documents today, and tomorrow the bulldozers start flattening, a reasonable person is going to see it as deception.

There are also the permits to consider. No matter where it is or what you want to do, it's going to require building permits. This is often a paper trail for preservationists of whatever stripe, as well as for the lender who wants to show fraud. You told the lender by signing the loan documents that everything was hunky-dory on the 15th, but you had applied for demolition and construction permits on the 14th. That's what is called a "smoking gun." Permits for single residence construction are both costly and byzantine, and often so contorted that the only practical way to get them is to commit an illegality. Poor civil servants, how else are they going to live in ten bedroom mansions and take a dozen foreign trips yearly?

There are a couple of commonly used alternatives. The first is to leave one or more walls standing. When you do that, it's not new construction, it's reconstruction - the same as after a fire or earthquake - and the permit process is far more streamlined, but you're still going to watch it as far as the original financing goes. Check with experts in your particular area as to the ins and outs. The other is to retain the old residence while you build a new one, then demolish the original structure after you've moved into the new. The advantage there is you can definitely keep the original financing in place during construction and only worry about the money you need for actual construction, but the disadvantage is that you've got to deal with zoning issues, as well as being unable to use the original site for the replacement residence - so you have to pour a new foundation and clone the utility hookups, and quite often, the lot is just too small to have a second site available that meets setback requirements, etcetera.

Destruction of an existing building and construction of a new one are both difficult tasks, fraught with landmines, if you want to do it legally. One of the things many folks just never quite understand is that those costly hurdles and roadblocks they want to throw in the way of "commercial developers" apply just as strongly to the individual property owner as they do to that corporation. In fact, what the corporation may accept as a cost of doing business, thereby passing that cost along to its customers, as well as economies of scale and everything else, that corporation is much more likely to be able to afford to navigate the process than any but the wealthiest of individual homeowners. Furthermore, by artificially limiting the supply of housing, this has the effect of raising the point at which supply and demand are in equilibrium (i.e. market price) quite significantly. I've seen recent estimates for San Diego County that this cost of getting permits raises the cost of single family detached housing by anywhere from $130,000 to $200,000 over what it would otherwise be. Incidentally, for the developer who goes through the process for several hundred units, the economies of scale reduce the price of the permits to roughly $20,000 per unit. They make a profit off the situation, while the poor guy who wants to build their own property may end up spending hundreds of thousands of dollars just to get the little pieces of paper that say it's okay for them to actually start construction. So be careful, and plan ahead, and make certain that it's going to be possible within your means in the area you want to buy before you sign on any dotted lines.

Caveat Emptor

When I'm driving, and get to busy main streets, I hate turning left onto major streets unless there's a light there. Traffic is coming hard both ways, usually at high speeds, and with only intermittent breaks in each direction. If you're turning left, you've got to wait for those intermittent breaks to happen from both directions simultaneously. So for at least the past twenty years, I've employed an alternate tactic. Instead of sitting there waiting to turn left, hoping the deities of traffic are kind or risking an accident by pulling into traffic and stopping, I'll turn right instead, go down a block, and shoot a U turn. At least nine times out of ten, the person who was there ahead of me waiting to turn left will still be sitting there when I go by, already on my way despite having gotten there later than him.

Real estate can be a lot like that. Sometimes the best way to get what you really want isn't the direct and obvious one. Sometimes, taking what looks like a detour can help you.

This can take various forms. Every once in a while, a question hits my sight like "Lenders who do 100% financing with a 520 credit score." Three words: Not. Gonna. Happen. But there are alternatives. Seller carry-back or raise your credit score are the first two that come to mind. Given the market right now, a seller carry-back can be the little detour that gets both of you to where you want to be, if the seller has the option of doing it, which a good agent can find out. You'll pay a more than you might have with a good credit score and 100% lender financing, but it can be done. Raising your credit score is also surprisingly easy in many cases. I've gotten people's credit score up to 660 or even 680 in a couple of months. Pay your bills on time, know how to get rid of old derogatory items, a few other tricks. It takes some time and a surprisingly small amount of cash.

Those are comparatively easy. There's a much harder hurdle: "I can't afford anything I want!" The obvious - and deadly wrong - solution is an unsustainable loan like a Negative Amortization Loan or another unsustainable loan. What those have in common is that they are short term patches to a longer term problem. There are several better alternatives.

You can make your stuff last longer. No $600 car payments or $400 per month credit card obligations means that you can afford more for a house. Pay them off and keep the cars running and don't charge up any more. Assuming a 45% debt to income ratio, I've just added back as much into your housing budget as getting a $2250 per month raise - $27,000 per year. People who keep buying SUVs as opposed to compacts must want them more than they do a better dwelling place - and if they do want to drive an new SUV instead of an older compact more than they want to own a house, they are making the correct choice. But I'd rather buy an appreciating asset than a depreciating one.

First time buyer programs such as the Mortgage Credit Certificate and Locally based loan assistance can help you stretch what you can afford. Between the two, it can make a difference of as much as twenty or possibly even twenty-five percent of your budget. They cost a little money and you have to jump through their hoops, which can include where and when you buy, but they make about the same real difference as choosing some of the more dangerous loans - and instead of a risky gamble, they turn it into something sustainable when combined with a more sensible loan.

You can find a partner. Sure, you can only afford $275,000 by yourself - which might be enough for a two bedroom condominium. Put two people who can afford $275,000 together, though, and that's a $550,000 house. That's an above average 4 bedroom house with money to spare in a lot of areas. Put three of you together, and you've got an $825,000 mini mansion big enough for the three of you to rattle around in. It takes some legal preparation to protect the partnership from a bad partner, but it's not that difficult or that expensive. And it needn't be permanent. Let's say two of you buy that $550,000 house with zero down payment, instead of saving for a down payment at $500 per month each. If you were to save that money, earning 10% tax free for five years, you'd each have just over $40,000 each, or about $81,000 grand total. If the house appreciates at 5% per year (low for this area by historical computations) and you make regular amortized payments, the home is worth $702,000, you owe $515,000 if you never paid an extra cent, and net of the cost of selling, you're splitting $137,000 two ways, or not quite $69,000 each. That $425,000 3 bedroom house you really wanted to yourself has appreciated to about $542,500, but now you have a $70,000 down payment. Assuming you got annual salary increases of 3%, it's 7% more affordable now, instead of only 1% - equivalent to boosting your monthly savings to $850 - and it's unlikely you'll make 10% tax free, which that assumes. If you last ten years in the partnership, you come away with $183,000 each instead of $112,000 by investing your $500 per month tax free at 10% and the house you really want is seventeen percent more affordable instead of only five.

Another way of putting leverage to work for you is to buy what you can afford, now. If you can only afford a two bedroom condominium, better you should buy that and the kids have to share a bedroom in a property you can afford, than that you buy something you cannot afford. My uncle raised a family of four in an 762 square foot two bedroom place - and he had my grandmother living there also when his daughters were teenagers. Most two bedroom condos are bigger than that now. If he could do it for twenty years, you can do it for five. This is why, for example, certain Asian and African immigrants are doing very well despite being only a few years from having nothing and living in an apartment. It certainly beats the alternative. $69,000 and change net proceeds from the sale in five years, and once again you've got that 7% affordability increase after five years, and seventeen after ten - without saving one extra penny.

When you buy with a sustainable loan, you place your cost of housing forever under your own control. You step off the escalator of rising rents, and rising housing costs. The math in my examples assumes marriage, but it's more strongly in favor of ownership if you are single because the standard federal tax deduction is lower.

You can rent a storage closet for the stuff you don't use every day.

You can drive a couple miles further.

You can rent out a room.

You can take a second job, and use the difference to save money. It'll also leave you less likely to buy stuff you don't need.

You can invest some time and money and effort in improving your value to prospective employers.

What may be most difficult, you can adjust your expectations. In San Diego and other high demand areas, the price just isn't going to come down any further.

I am well aware that "settling" is not attractive to most folks. I'm also aware that some neighborhoods are less desirable, and others are considerably more so, some living conditions less desirable and others more. We live in a culture accustomed to instant total gratification. Nonetheless, if by accepting some delays and some costs you get what you want and end up in a better situation, isn't that something to consider, as opposed to crying that you can't have everything you want right now and so you're not going to do anything?

Doing nothing means that you miss out completely because the situation isn't perfect. How does that help the situation improve? Do you just wait and hope that housing values crash further? What is likely to cause such an event? Interest rates rising drastically is the only thing I can think of, but then the loans and their payments get commensurately more expensive. Instead of being unable to afford it when it costs $425,000, now you can't afford it even though it only costs $225,000. It also leaves your future subject to factors beyond your control. Suppose housing prices don't crash? Already the lenders have removed the "declining market" label. Lest you be unaware, this is a trailing indicator, not leading. We're almost thirty percent down, locally, depending upon the neighborhood. Suppose that's all the further down prices go? We've got an ongoing and increasing scarcity problem - not building enough new housing to cover the population increase. Even if rational growth policies took over all the planning commissions and departments tomorrow, do you think the environmentalists and NIMBYs are just going to roll over and play dead in court? I can hope, but that's not the way to bet.

I hope this gives all of you some you some useful alternatives to consider. There is usually more than one way to get something that you want. Sometimes it means that you have to go a bit out of your way, or do something that isn't quite as satisfying for a while. And if you're not willing to do a little bit extra, but expect it handed to you, then either you don't want it very badly, or you are extremely likely to get burned by people who put you into a situation that you were trying to avoid. I know people who've been wanting to buy real estate, waiting for affordability to increase, since the mid 1980s. It's gotten much less affordable since then, and it's not likely to get better than where it is today. You can take steps to make it happen, or you can sit on the sidelines and dream that affordability will some day be there. Which do you think is more likely to get you where you want to be, and more quickly than most people probably think?

You can usually get what you want. Sometimes it just takes intelligent planning, and a step or two in between.

Caveat Emptor

Original here

Just got home from running a couple of errands, and when we got back, Mellon was dead.

She was fifteen years old, and not in good health, so I'm not all that surprised, but it is like losing a family member. This has not been a good year for me, in any way, shape or form.

She was a pureblood dachshund, black and tan with a silver grey dapple on her. Her name was out of Tolkien elvish, "Friend" it meant, and she was. No champion dog she, but one of the most eye-catching dogs you ever saw, and she loved attention. I knew when I bought her that her hips were bad, but she was such a sweet little dog her whole life that everyone loved her, even though she started losing her mobility before she was five. All she wanted out of life were regular meals and a little affection. I did my best to provide those, and in return, she loved everybody. She never so much as growled at either of the kids, or anyone else for that matter (except Julia, who I felt guilty about introducing into the family with her so old and hampered).

She may have started losing her mobility early, but until recently you could always tell when she was happy. She would run little circles of joy when something good happened - special treat, mommy and daddy paying attention to her, or even just mealtime. She'd go round and round, hips pumping despite how damaged they were. She wasn't in pain, she just couldn't move as easily as most dogs any longer. When she lost the ability to run in circles, we bought her a little canine wheelchair that she hated because she couldn't get under the couch to take shelter from Julia. She couldn't run and play like the puppy, so the girls started ignoring her, but she was still happy with whatever anyone would give her in the way of affection.

Like every other dapple dachshund I've ever seen, she started losing patches of fur quite early. She was such a pretty dog when she was young, but even my wife (whom I met when Mellon was about three) had never seen her with all of her fur, and all of my pictures of her when she was younger (the way I want to remember her) are in storage. Luckily, she lived in San Diego, and she had a sliding glass door her whole life that got good sun in the afternoon. You always knew where you'd find Mellon in the afternoon - right there in that sunny spot.

Goodbye sweetie. Whereever dogs go, may you always have a warm sunny spot and as much food and affection as you need, without any young puppies who don't understand that you're old and can't play like that. You helped me in a very bad time of my life, and I will miss you badly.

what is a underwriter final "sign off" on the conditions

First off, it needs to be mentioned that a good loan officer gathers information and puts a full package, with all of the information an underwriter should need, before submitting the package to the underwriter. That's how you get loans through quick and clean. Give the underwriters all of the information you know they're going to need right up front.

Some clients (and a large proportion of loan officers) don't understand this. They want to hang back and see if the basic loan will be approved before they do "all of this work." This is a good way to have to work much harder on the loan. Give it all to them in one shot, and they only look at your file once. You get a nice clean approval. The issue is that every time that underwriter looks at your file, there is a chance they will find something else that they want documented, some little piece of the picture they are uncomfortable with. The underwriter can always add more conditions. The cleaner the package, however, the less likely it is that they will.

There are some matters it's okay and routine to bring in later. Appraisal is probably the most universal of these. Title commitment (aka Preliminary Report) is probably second most common. These are completely independent of borrower qualification, and when they come in later, will generally not cause the underwriter to re-examine the whole file. But you want to submit the borrower's package as complete as possible, right up front. If the borrowers pay stubs show up later, the underwriter will look at the file, and if the income they document is even one penny less than the initial survey of the file, they will underwrite the whole thing again. A good loan officer submits complete packages, so the file only gets looked at once.

But every loan officer gets asked for additional conditions from time to time. With the best will in the world, sometimes they are going to miss something that the underwriter is going to want to see in this particular instance.

Loan conditions fall into two kinds: "Prior to documents" and "prior to funding". "Prior to docs" conditions are related to "Do you qualify for the loan" type stuff. Income documentation, property taxes, existing insurance for refinances, verification of mortgage, rents, employment, deposits, all of that good sort of stuff. Also appraisal, title commitment, etcetera. If there's something missing in the loan package, it should be a "prior to docs" condition. These conditions should be taken care of between the loan officer and the underwriter. The underwriter tells the loan officer what needs to be produced in order to approve the loan, and the loan officer goes and gets it. If the loan officer can't produce it, there is no loan.

This is not to say that a good loan officer can't necessarily think of another way to get the loan approved. Indeed, that's a significant part of being a good loan officer, almost as big as knowing what loans won't be approved, and not submitting a loan that won't be approved. This is a big game with many loan providers, by the way. They get you to sign up with quotes they know you won't qualify for, but when the loan is turned down (or, more commonly, the conditional commitment asks for something that the situation can't qualify for), they then tell you about the loan they should have told you about in the first place. Pretty sneaky, huh?

Getting back to the underwriter's conditions, a good loan officer knows how to work with alternatives. But at the bottom line, the loan officer has to come up with something that the underwriter will approve. It is the underwriter who has final authority. They write the loan commitment, which is the only thing that commits the money. In fact, most loan commitments are conditional upon additional requirements. The only universal to getting these conditions signed off is that the underwriter has to agree they have been met. As the underwriter agrees that the conditions have been met, one by one, the loan gets closer to final approval.

When the last prior to docs condition is satisfied, the loan officer orders loan documents. This is also when many of the less ethical of them actually lock the loan quote in with the lender. An ironclad rule is that if it isn't locked with the lender, it's not real, but that doesn't stop many loan officers from letting the rate float in hopes of the rates going down so they make more money for the same loan. Of course, if the rates go up, guess who gets stuck with the increase? It's not likely to be the loan provider.

When the loan documents arrive, the borrowers sign them with a notary and that's when the rescission clock begins. There is no federal right of rescission on investment property, and none on purchases, but on owner occupied refinancing, there is (Some states may expand on the federal minimums).

Now there will be "prior to funding" conditions to deal with. "Prior to funding" should be reserved almost exclusively for procedural matters, and should be taken care of primarily between the escrow officer and loan funder. There are always going to be procedural conditions here, but many lenders are now moving more and more conditions to "prior to funding" as opposed to "prior to docs". Why? Because once you sign documents, you're more heavily committed. Psychologically, once most people sign loan documents they think they're all done. This is not, in fact, the case. Legally, once the right of rescission, if any, expires, you are locked in with that lender unless/until they decide your loan cannot be funded. Once rescission expires, you no longer have the ability to call the whole thing off. You are stuck.

This is not to say that an occasional condition can't be moved to "prior to funding." Especially on subordinations. I've saved my clients a lot of money on Rate lock extensions by getting subordination conditions moved to prior to funding so the rescission clock will expire in a timely fashion to fund the loan within the lock period.

This is all well and good if the lender told you about everything and actually deliver the loan they said they would, without snags. On the other hand, I have stories. One guy I used to work with had the capper, and the reason he got into the business was he was certain he could do better. He signed documents on a purchase, and a week later - all the while he's expecting to be called with congratulations on a successful purchase any second - they called and told him he had to come up with $10,000 additional money within twenty-four hours, or lose the loan, the property, and the deposit, and be liable for all of the fees. His father had to overnight him cash, which he then took into the bank for a cashier's check.

He is only the most extreme example. The loan is not done until the documents are recorded with the county. Until that happens, the money does not have to come, and even if it does, the lender can pull it back. One procedural thing that happens with literally every loan is a last minute credit check and last minute call to the employer to be certain you still work there. If the borrower has been fired, quit, or has retired, no loan. If the borrower's credit score dropped below underwriting standards, no loan. If the borrower has taken out more credit, the lender will then send the file back to the underwriter to see if they still qualify for the loan with the increased payments. So like I tell folks, until those documents are recorded, don't change anything about your life.

The many less than ethical loan officers don't help matters any. I was selling a property a while back, and the buyer signed documents on Tuesday. If I had been doing the loan, the loan would have funded and the documents recorded the next day. Unfortunately, I wasn't doing the loan. This guy's loan officer had quoted him a loan he couldn't qualify for, and ten days after he signed documents, I got a call saying he could only qualify if I knocked $20,000 off the purchase price. I kept the deposit and went looking for another buyer. This guy learned an expensive lesson. When you sign loan documents, require your loan officer to produce a copy of all outstanding loan conditions. Don't sign until and unless you get it. This guy had signed, and was now locked in with a lender who couldn't fund the loan on conditions he could meet. I had even warned his agent about the problems I saw in the situation (I accepted the offer because I was willing to sell at that price, so I wanted the transaction to go through), but hadn't been believed. So both of us ended up unhappy.

If they give you a copy of all outstanding loan conditions, you should know if you can meet them. If you can't meet them or aren't certain, don't sign. Don't hesitate to ask for explanations. Some of this stuff gets pretty technical, but a good explanation should be easily understandable in plain English. It may be complicated, but there just isn't anything that can't be explained in plain English. If the explanation you get is gobbledygook, you've probably been lied to all along, and I hope you have a good back up loan ready.

Caveat Emptor

Original here

I just went into the email for the Consumer Focused Carnival of Real Estate. Everything submitted with had errors too big to ignore or was basically vapid spam, chumming for a link. Therefore, consumer focused Carnival of Real Estate will be delayed by two weeks, and henceforth is reduced to monthly.

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Obama's latest ad: More of the same. Vague platitudes, overstatement of accomplishment, no taking of positions.

More airbrushing of history.

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Classical Values makes several good points about the oil supply.

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People Unclear on the Concept Department: Joseph Heller sued the District of Columbia over its handgun ban. He went all the way to the Supreme Court and won. His application for a handgun permit was denied.

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President Bush can't catch a break.

President Bush kills the Executive Order prohibiting drilling. Oil prices recede 10% within three days. Part of it was a smallish supply windfall, but the largest part was some optimism on behalf of futures markets that the regulatory equation may be changing.

There's still the Congressional ban, of course, and Ms. Pelosi has said there will be no drilling so long as she is speaker, which is one more reason why rational Americans should vote for Republican candidates. Unlike most such issues, however, it's so easily understood that a good number of our less rational Americans may follow us. If she doesn't moderate her opposition, she could find her Democratic congressional cohorts pulling a "Gingrich" on her, and for far better reasons.

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Israel makes arrests in alleged plot against Bush

Israel's Shin Bet counter-intelligence agency said one of the suspects had used his mobile phone to film helicopters at a sports stadium in Jerusalem that was used as a landing site for Bush's delegation.

The suspect then posted queries on Web sites frequented by al Qaeda operatives, asking for guidance on how to shoot down the helicopters, the agency said in a statement.

Of course, to many on the political left, it's just performance art!

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Finally got the dang tooth taken out on Wednesday, and feeling much better, even though my sleep cycle is completely messed up. Should be back to normal by the end of the weekend. I'm thinking I'll likely have mostly normal article schedule next week.

A while ago I did an article entitled Debt Consolidation Refinance - Doing it Wrong vs. Doing it Right. It's a good article, if I do say so myself. Nonetheless, I think there's more to say on the subject, not just from a point of view of cranking some numbers, but on a meta level as well.

The most concrete lure of debt consolidation refinance is cash flow. Specifically, lower payments. The trap is that you are spreading principal payments over a much longer time. You refinance your home to pay off your car loan. Instead of paying the car off over three or five years, now you're paying it off over thirty. Instead of having it paid off when you go to buy another car, you still owe most of what you borrowed, and unless you saved the cash in the meantime, now you're layering more debt on top of what you already owe. So instead of having a paid off $25,000 automobile that's still worth $10,000 and no debt, you now have the forgoing plus $20,000 of debt that you still owe, and you are still paying interest on, on a car that you aren't going to get any more use out of. The fact that the security is your home rather than the vehicle changes nothing except the exact terms of the loan. You added $25,000 to your balance and $20,000 of it is still there, you're still making payments on it, and you are still paying interest on it.

Low payment is one of the best ways to sucker people into doing stupid things that I know of. Maybe that explains why I'm not rich; I want to figure out whether I'm actually helping the situation, and by the time I've worked it through, the folks are off calling the guy who's selling them the Option ARM who doesn't mention downsides or what is really important. As far as I can tell, low payment is the entire advantage of renting, for crying out loud. People think in terms of cash flow while flushing their financial future down the toilet in the name of lower payments.

There is a reason why that Statement of Cash Flow is the least important of the financial statements corporations are required to file, and Wall Street only discusses cash flow when there's something wrong with a company. Unless they've got a large proportion of clients that don't pay their bills, the Income Statement is a lot more important. Corporations don't think of their facilities only in terms of the payments on their loans. Neither should you.

When you pay off a loan, of whatever nature, you are essentially transferring money from one pocket to another. Furthermore, once you have paid it off, you are no longer paying interest - the real cost of the money - on the balance. It's only the interest charge that you are really paying and that is costing you money. Paying off principal is paying yourself. Stretching the loan term from three years to thirty does not alter the amount of principal you pay, but it does greatly increase the amount of interest you pay. Even if you cut the interest rate from 10% to 6% and get a tax deduction to boot. Paying attention to payments is for suckers. You have to be able to make your payment, as I've said before, but so long as the payment is one you can make, concentrate on the real cost of the money - interest rate - and the cost of the loan, or how much you have to spend in order to get the loan funded. Weigh this against the benefits and how long those benefits last.

If all you are paying attention to is cash flow, and you consolidate your debt because it lowers your payment so that you can spend more money, don't be surprised if you find yourself in the same situation a little while down the line. This is a real world illustration of the law of diminishing returns. Each time you do it, you dig yourself in deeper, and there is less additional spending needed to get you to the point where you have to consolidate again. You consolidate your $1500 house payment and $40,000 in debt, and your new payment is $1800. Then you consolidate that and $30,000 in debt, and your new payment is $2100. Then you consolidate that and $20,000, and your new payment is $2400. What do you do when you can't consolidate any more, and you can't afford the payments, either?

If, on the other hand, you consolidate because it lowers your cost of interest and gets you a tax break and you still keep making the same payments as before, then you're miles ahead. If you're using debt consolidation to lower your payment, you are doing it wrong. If your choices are bankruptcy or debt consolidation, well, if you've got a nice stable home loan that you're not going to need to refinance for a couple of years, I might actually consider bankruptcy, particularly if I only need to shed one or two lines of credit. Obviously, talk to bankruptcy attorney first, but once you've rolled it into your home loan, those higher costs are a part of your life for as long as you own the property and haven't paid the loan off. If you can't afford them and you're a serial consolidator, eventually you're going to get to point where you lose the property.

If you consolidate in order to cut your interest costs, and you don't roll excessive loan fees in to your balance, and you keep making the same payment as before and don't take on any more debt until the balance on your home loan is at least as low as it was before you consolidated, then you come out ahead. Way ahead. You're a little bit ahead due to the lowered costs of interest, and you're a little bit further ahead due to the tax break from interest on home loans, and after you get to the point where you were before, every payment you make without adding new debt pays off much more of your balance. In my original Debt Consolidation Refinance article, I used the example of rolling $75,000 debt into a preexisting $300,000 mortgage. It raised the minimum payment by about $400 and cut the overall minimum payment by $1100. If that minimum payment is the reason you did it, you just hosed yourself. But if you cut your overall cost of interest, and kept making the same payments, you've accelerated your payoff schedule. Make the same payments as before, and you're even in less time than it would have taken to pay the consumer credit down. Keep making those same payments after you've brought yourself even, and it can pay the entire debt load off in half the time or less that your home loan would have taken. Even if you don't make it all the way to zero before you need another car, debt consolidation can set you years ahead in just a few short months - but only after you have paid your balance down to where it was before. If you don't get your balance down farther than that before you refinance again, you're cutting your own throat.

In short, debt consolidation refinance is not some magic wand to get out of debt free. There are pitfalls into which the overwhelming majority of people fall, because they consolidate debt for the wrong reasons, and afterwards, they keep doing it again and again until some disaster happens and they lose the property. However, correctly handled, it can significantly enhance your financial situation. Whether it helps or hurts you depends upon how you handle it.

Caveat Emptor

Original here

A while ago, another agent in my office got an offer and brought it to me for feedback. The listing was range priced over a $30k range, and priced correctly, so there was a lot of activity on it. The offer was for $30k beneath the bottom of the range, with a note saying that this was for a single dad with three kids, and that was all they could afford, but they really loved the property, and were so excited that that they were each going to get their own room, and so on, gushing for several paragraphs.

In logic circles, this is called the appeal to pity. "Please take pity on me." However, we had every reason to believe that we would be seeing better offers on the property very soon - it hadn't even hit its first weekend on the market, and there had been roughly 15 viewings and six phone calls from agents whose clients had seen the property.

I advised them to counter hard at the high end of the range pricing. It's no concern of current owners what that buyer can and cannot afford. The first two things that ran through my mind were the large amount of activity at an early date, and the likelihood that this was a low-ball flipper's offer. It's not like there's any criminal penalties for creative fiction accompanying an offer. The next two thoughts were if they like the property that much, come talk to me about ways to stretch what you can afford. Two ideas: Mortgage Credit Certificate and Municipality based assistance programs, and both could have been applied to this property, as in it was eligible, there was available money in the program budgets, and each of them stretched the buyer's ability to pay by at least enough, let alone if applied for together. If both were already accounted for, bid on something less expensive; it's not like there is any shortage of properties for sale. Maybe somebody has to share a room; maybe there are fewer amenities, maybe they just don't love it quite as much. None of these is the current owner's problem.

Yes, I'm always looking for hidden bargains, but this time I was on the side of the owner, or rather, the owner's agent, and furthermore, the property was correctly priced and seeing strong activity. Neither of those are characteristic of hidden bargains. Furthermore, appeal to pity is a bad negotiating tool.

So here's the situation: Somebody comes up to you and asks you to sell your property for far less than you can get, because they are so deserving, and you want this underdog to succeed against the odds. "Help me, I'm really in need." The appeal is no different at the root than a pan-handler's pitch.

I've given money to panhandlers in my time, too, and doubtless will again. I'm a complete sucker for the ones with kids. But that's maybe $5 or $10, possibly even $20 at the most. Panhandlers are not effectively asking for $40,000 or so out of my pocket, much less my client's pocket. My client has neither a Red Cross nor a Salvation Army Shield on their door. They are not obligated to settle for much less than they could get for a valuable property. In this case, the difference was for something like 70% of their actual net equity, and it is a violation of the fiduciary trust that my client has placed in me, and I have accepted, not to point this out. If it were several months on, and this was looking like it might be the best offer the property would get, that would be one thing. But it was a brand new listing with strong enough activity that there was even hope of a little bit of a bidding war. It's not like the prospective buyer was homeless, and even if they were, there are more logical things to do first than buy a four bedroom detached home, not to mention it would be tough getting verification of rent, which all lenders are going to want.

But I also counseled the other agent not to reject the offer completely, and not to counter until the third day. The high counter signals, in no uncertain terms, that the owner's bargaining position is very strong. It's even a good idea to explain why it's very strong. But in this market, especially, you get buyers looking for a bargain because they might be able to get one. My buyers do it. Why not others? By the third day, there might be another offer on the table. Not that the absence of other offers stops some agents from pretending that there are other offers, but I've always found that the best policy is not to lie when the truth will do, and the truth will always do, because you should tailor your response to what the truth is. This may sound strange coming from a member of the profession that describes condemned buildings as "needing a little TLC", but if you want to do well in negotiations, never overplay your hand (and tell the buyer that the building is condemned. Condemnation is a recorded instrument, so it's not like you can plead ignorance). Real estate is almost entirely public information. If there is a dissonance between how you act, what you say, and what the public information says, good agents will pick up on it. This is not poker. The other side can see most of your cards, and has the option of getting up and walking away from the table at any time, and good agents will counsel their clients to do exactly that if the situation calls for it. The idea is a willing buyer and a willing seller coming to a mutually beneficial arrangement.

So the other agent took the offer to the client, and jointly they decided to mostly follow my advice. The prospective buyer walked away, they got two more offers before the third day. And a couple days later, well, remember that first group of two thoughts I had? Well, we found out that that particular prospective buyer was buying with intent to flip; he had flipped at least four properties in the previous year or so. His low offer and all the histrionics surrounding it was simply a ploy for more profit. You'd be amazed how often that happens. And had the owners reached an agreement with the person, they would have been bound by it even if they discovered the misrepresentation in time, as none of that is part of the contract.

Caveat Emptor

Original here

A couple of weeks ago, I got an email asking Save For A Down Payment or Buy Now?, and I wrote a two part article on the subject. Part 2 of Save For A Down Payment or Buy Now? gave an alternative strategy to make affordability accelerate faster. But there was an obvious, related concern that I let go because it was a very complex calculation, and that was, "What's the effect of waiting to buy on my financial situation later in life?"

This wasn't an easy problem to program, even in a spreadsheet. I'm decent with spreadsheets, but for a lot of the calculations I had to do it by brute force repetition, as the calculations are what mathematicians call a convolution (really). Had I been able to do certain functions on spreadsheets that I used to do with matrices back in the really dim times, it would have been far easier, but the area I ended up using was three sheets totaling about 60,000 cells. Most of it was change one thing, copy and paste a row or column segment, then change another. It wasn't that hard mentally, but the finished product certainly makes a microprocessor work for a living!

I also had to make some simplifications to the problem. In order to make the problem manageable, I had to assume that you hold onto your home, once you have bought, at least until the end of the scenario, and also that you never refinance. I had to program it with smooth inflation, smooth appreciation, smooth increases in federal income tax standard deductions, and smooth increases in auxiliary prices. Anyone over the age of thirty ought to know how ridiculous those assumptions are. But in the statistical aggregate, it's a reasonable approximation, and adding those random elements made the problem beyond the scope of what I could realistically do. I also had to postulate no major changes in income or property tax law, and I had to ignore the effects of state income taxes. Besides, the idea was to isolate the effects of the variable under consideration, how waiting to buy a home influences your financial situation down the line. I also had to choose a set period to terminate at, and arbitrarily chose 30 years. It's not that the benefits (or costs) stop accruing at that point, it's just that I did not have the time to make the simulation open-ended.

Actually, this is two discrete problems when you really look at it, and they really are disjoint, and no matter how much the folks who sell Reverse Annuity Mortgages might try to link them, they are separate cases. What happens if you keep living there at simulation end, versus what happens if you decide to sell and move somewhere else when you retire.

Nonetheless, the following simulations are all as representative as I can make them. Except for the effects of state income tax, they are in line with current and historical California computations. Actually, they are considerably less rewarding than actual historical figures to people who buy property earlier rather than later, as even with the bubble pop we're still looking at more than seven percent per year long term historical rise in values over the previous forty years, as opposed to the lower programmed assumptions.

Example 1: Suppose you're talking about a San Diego Condo. $300,000 present purchase price, no down payment but you can save $500 per month for a down payment in the future if you don't buy now, and this amount increases proportional to salary increases. The property continues to appreciate at 4.5% whether you buy or not, association dues are $250 per month and general inflation is 4%, and you can get 7.2% return, net of taxes (10% minus an assumed marginal tax rate of 28%), on the money you save for a down payment. Whenever you buy, you can get a 6% first mortgage, and a 9% second if you need it. I'm also going to assume that in order to see any financial benefit, you're going to have to sell at a cost of seven percent of value. Furthermore, you're stable in your profession, seeing a 3% compounded annual raise in income, and equivalent rent is $1400 per month currently.

Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

purchase price $300,000.00 $313,500.00 $327,607.50 $342,349.84 $357,755.58 $373,854.58 $390,678.04 $408,258.55 $426,630.18 $445,828.54 $465,890.83 $486,855.91 $508,764.43 $531,658.83 $555,583.48 $580,584.73 $606,711.05 $634,013.04 $662,543.63 $692,358.09 $723,514.21 $756,072.35 $790,095.60 $825,649.90 $862,804.15 $901,630.34 $942,203.70 $984,602.87 $1,028,910.00 $1,075,210.95 $1,123,595.44

still owe * $24,489.73 $46,429.89 $67,745.37 $88,445.34 $108,534.07 $128,010.82 $146,869.63 $165,099.15 $182,682.37 $200,029.06 $217,296.63 $233,893.12 $249,747.93 $264,783.31 $278,913.68 $292,045.12 $304,074.62 $314,889.39 $324,366.10 $332,370.01 $338,754.10 $343,358.06 $346,007.30 $346,511.78 $344,664.85 $340,241.87 $332,998.90 $322,671.15 $308,971.35 $291,299.48

housing* $1,354.26 $1,514.40 $1,659.59 $1,801.37 $1,939.80 $2,074.91 $2,206.72 $2,335.19 $2,460.26 $2,581.85 $2,702.41 $2,822.91 $2,939.80 $3,052.67 $3,161.06 $3,264.47 $3,362.35 $3,454.09 $3,539.04 $3,616.45 $3,685.54 $3,745.43 $3,795.18 $3,833.75 $3,860.02 $3,872.76 $3,870.64 $3,852.21 $3,815.90 $3,760.00 $3,680.93

waiting $0.00 $160.15 $305.33 $447.11 $585.54 $720.66 $852.46 $980.93 $1,106.01 $1,227.59 $1,348.16 $1,468.65 $1,585.54 $1,698.41 $1,806.80 $1,910.21 $2,008.09 $2,099.84 $2,184.78 $2,262.19 $2,331.28 $2,391.17 $2,440.92 $2,479.49 $2,505.76 $2,518.50 $2,516.39 $2,497.96 $2,461.65 $2,405.75 $2,326.67

savings* $3,186.50 $3,026.35 $2,881.16 $2,739.39 $2,600.96 $2,465.84 $2,334.04 $2,205.57 $2,080.49 $1,958.91 $1,838.34 $1,717.85 $1,600.96 $1,488.09 $1,379.70 $1,276.29 $1,178.41 $1,086.66 $1,001.72 $924.31 $855.22 $795.33 $745.58 $707.01 $680.74 $667.99 $670.11 $688.54 $724.85 $780.75 $859.82

*Still owe 1 final payment after thirty years if you buy today. "Housing" is how much your costs of housing will be in 30 years if you bought at the indicated time is, and assumes you refinance for zero cost into the same rate you have now. Waiting cost is as opposed to buying now. Finally, the savings column has to do with how much you are saving per month over what the equivalent rent will be in 30 years, namely $4540.76 in this case.

Please keep in mind that the table is the net result 30 years out; the only time variable in the equation is precisely when you bought the exact same condo. Now there is some mildly strange stuff that goes on. For instance, starting 25 years out, there's a period where, under the stated assumptions, your saving for a down payment actually starts to increase in value faster than the property. This is mostly due to the nature of the simulation - I had to choose a set ending period in order to program it. But by that point, you've missed the optimum time to buy by, well, 25 years. Keep in mind that money will be worth less than a third of what it is today in thirty years ($1 then will be worth 30.8 cents now under stated assumptions), but you are still saving significant amounts of money on your future housing payments by buying as soon as practical.

Now let's look at the situation if you decide to sell your home at the end of the simulation and go live somewhere else:

Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

purchase price $300,000.00 $313,500.00 $327,607.50 $342,349.84 $357,755.58 $373,854.58 $390,678.04 $408,258.55 $426,630.18 $445,828.54 $465,890.83 $486,855.91 $508,764.43 $531,658.83 $555,583.48 $580,584.73 $606,711.05 $634,013.04 $662,543.63 $692,358.09 $723,514.21 $756,072.35 $790,095.60 $825,649.90 $862,804.15 $901,630.34 $942,203.70 $984,602.87 $1,028,910.00 $1,075,210.95 $1,123,595.44

net equity $1,043,032.82 $1,020,454.03 $998,513.87 $977,198.39 $956,498.42 $936,409.69 $916,932.94 $898,074.13 $879,844.61 $862,261.39 $844,914.70 $827,647.13 $811,050.64 $795,195.83 $780,160.45 $766,030.08 $752,898.64 $740,869.14 $730,054.37 $720,577.66 $712,573.75 $706,189.66 $701,585.70 $698,936.46 $698,431.98 $700,278.91 $704,701.89 $711,944.85 $722,272.61 $735,972.41 $753,644.28

liquidation $7,079.98 $6,926.72 $6,777.79 $6,633.11 $6,492.60 $6,356.24 $6,224.03 $6,096.02 $5,972.28 $5,852.93 $5,735.18 $5,617.97 $5,505.32 $5,397.70 $5,295.64 $5,199.72 $5,110.59 $5,028.93 $4,955.52 $4,891.20 $4,836.87 $4,793.53 $4,762.28 $4,744.30 $4,740.87 $4,753.41 $4,783.43 $4,832.60 $4,902.70 $4,995.69 $5,115.65

net benefit $594,459.84 $531,782.24 $526,736.25 $495,140.59 $448,046.96 $435,547.19 $407,644.83 $380,733.08 $354,624.01 $329,944.53 $301,836.93 $269,957.25 $239,420.18 $210,196.49 $182,428.96 $155,944.29 $130,741.38 $106,921.94 $84,296.01 $63,087.55 $43,073.74 $24,442.68 $7,100.56 ($8,932.23) ($23,548.85) ($36,736.02) ($48,455.14) ($58,627.44) ($67,101.14) ($73,746.48) ($78,651.68)

waiting cost $0.00 $22,578.79 $44,518.95 $65,834.43 $86,534.39 $106,623.13 $126,099.88 $144,958.69 $163,188.21 $180,771.43 $198,118.12 $215,385.69 $231,982.17 $247,836.99 $262,872.36 $277,002.74 $290,134.18 $302,163.67 $312,978.45 $322,455.16 $330,459.07 $336,843.15 $341,447.12 $344,096.36 $344,600.84 $342,753.90 $338,330.93 $331,087.96 $320,760.21 $307,060.41 $289,388.54

Net equity is what you have left after 7% costs of selling, liquidation assumes that you are taking out 360 equal monthly payments based upon the same return I assumed your money could earn before you bought. Net benefit is the number of dollars difference it makes to your financial position in the future 30 years from now if you buy at the indicated time. Notice that starting 25 years out, it actually hurts you to buy from then on out, as opposed to just letting the investments you were saving for a down payment run. Waiting cost is how much it hurt your future financial position to delay purchase by that much, so if you wait five years, you end up with over $100,000 less in your pocket.

Now let's do a second example: Still in San Diego, but you're going to buy a starter single family residence that would cost $450,000 today. Nudge assumed appreciation up to 5.5%, cut association dues out but raise property taxes and insurance costs appropriately. Oh, and the equivalent rent now starts at $2000, and general inflation I'm going to assume to be 3.5%. Actually, based upon the past seventy years, everything that has happened has been, over time, more favorable to home ownership than this.

Once again, let's look at the situation if you keep living in the property after 30 years first.

Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

purchase price $450,000.00 $474,750.00 $500,861.25 $528,408.62 $557,471.09 $588,132.00 $620,479.26 $654,605.62 $690,608.93 $728,592.42 $768,665.01 $810,941.58 $855,543.37 $902,598.25 $952,241.16 $1,004,614.42 $1,059,868.21 $1,118,160.97 $1,179,659.82 $1,244,541.11 $1,312,990.87 $1,385,205.37 $1,461,391.66 $1,541,768.21 $1,626,565.46 $1,716,026.56 $1,810,408.02 $1,909,980.46 $2,015,029.38 $2,125,856.00 $2,242,778.08

still owe * $37,403.63 $72,247.27 $107,464.64 $143,121.84 $179,283.73 $216,014.10 $253,375.62 $291,429.94 $330,237.68 $369,858.41 $410,350.66 $451,771.89 $494,178.40 $537,625.32 $582,166.43 $627,908.86 $675,787.71 $724,872.44 $775,183.89 $826,740.19 $879,556.33 $933,643.75 $989,009.82 $1,045,657.39 $1,103,584.13 $1,162,781.95 $1,223,236.28 $1,284,925.33 $1,347,819.27 $1,410,482.12

monthly $1,151.93 $1,404.15 $1,641.99 $1,883.05 $2,127.79 $2,376.60 $2,629.93 $2,888.18 $3,151.75 $3,421.06 $3,696.50 $3,978.46 $4,267.34 $4,563.52 $4,867.37 $5,179.28 $5,499.92 $5,834.96 $6,178.89 $6,531.86 $6,894.07 $7,265.65 $7,646.73 $8,037.44 $8,437.84 $8,847.99 $9,267.92 $9,697.62 $10,137.03 $10,586.05 $11,036.15

Wait cost $0.00 $252.22 $490.06 $731.13 $975.86 $1,224.68 $1,478.00 $1,736.25 $1,973.99 $2,178.71 $2,388.07 $2,602.37 $2,821.91 $3,046.98 $3,277.86 $3,514.85 $3,758.46 $4,013.04 $4,274.35 $4,542.51 $4,817.67 $5,099.93 $5,389.39 $5,686.13 $5,990.21 $6,301.66 $6,620.52 $6,946.75 $7,280.32 $7,621.14 $7,962.68

savings $4,461.66 $4,209.44 $3,971.60 $3,730.53 $3,485.80 $3,236.98 $2,983.66 $2,725.41 $2,461.84 $2,192.53 $1,917.09 $1,635.12 $1,346.24 $1,050.07 $746.21 $434.31 $113.67 ($221.38) ($565.30) ($918.28) ($1,280.48) ($1,652.06) ($2,033.15) ($2,423.85) ($2,824.25) ($3,234.40) ($3,654.34) ($4,084.03) ($4,523.44) ($4,972.46) ($5,422.56)

Equivalent rent would be $5613.59. Once again, the last three columns are all monthly streams, and they do have a steady worsening the entire time, mostly because your saving for a down payment does not start to catch up to the increase in property values during the simulation period. In other words, the longer you wait, the worse it gets. Indeed, affordability is monotonically decreasing the entire time. That's math geek for "Quit waiting, it only gets worse." Even though a dollar then is only worth 35.6 cents now, wouldn't you like as many 35.6 cents in your pocket as possible?

Now let's examine if you decide to sell this starter home in retirement, and go live somewhere else.

Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

purchase price $450,000.00 $474,750.00 $500,861.25 $528,408.62 $557,471.09 $588,132.00 $620,479.26 $654,605.62 $690,608.93 $728,592.42 $768,665.01 $810,941.58 $855,543.37 $902,598.25 $952,241.16 $1,004,614.42 $1,059,868.21 $1,118,160.97 $1,179,659.82 $1,244,541.11 $1,312,990.87 $1,385,205.37 $1,461,391.66 $1,541,768.21 $1,626,565.46 $1,716,026.56 $1,810,408.02 $1,909,980.46 $2,015,029.38 $2,125,856.00 $2,242,778.08

net equity $2,082,917.20 $2,048,379.98 $2,013,536.35 $1,978,318.97 $1,942,661.78 $1,906,499.88 $1,869,769.52 $1,832,407.99 $1,794,353.67 $1,755,545.93 $1,715,925.21 $1,675,432.96 $1,634,011.73 $1,591,605.21 $1,548,158.29 $1,503,617.18 $1,457,874.75 $1,409,995.90 $1,360,911.17 $1,310,599.72 $1,259,043.42 $1,206,227.28 $1,152,139.87 $1,096,773.79 $1,040,126.22 $982,199.48 $923,001.67 $862,547.34 $800,858.28 $737,964.35 $675,301.50

liquidation $14,138.60 $13,904.16 $13,667.65 $13,428.60 $13,186.56 $12,941.10 $12,691.78 $12,438.17 $12,179.86 $11,916.44 $11,647.50 $11,372.64 $11,091.48 $10,803.63 $10,508.72 $10,206.38 $9,895.88 $9,570.89 $9,237.70 $8,896.20 $8,546.24 $8,187.73 $7,820.59 $7,444.77 $7,060.25 $6,667.05 $6,265.23 $5,854.87 $5,436.13 $5,009.21 $4,583.87

net benefit $1,681,408.70 $1,527,603.06 $1,482,514.85 $1,390,228.98 $1,262,990.98 $1,218,788.65 $1,139,516.49 $1,064,002.28 $991,242.90 $921,953.98 $854,914.46 $790,327.87 $728,045.15 $667,919.78 $609,807.59 $553,566.46 $498,733.07 $440,202.91 $383,770.99 $329,344.94 $276,837.21 $226,165.09 $177,250.78 $130,021.48 $84,409.45 $40,352.17 ($2,207.48) ($43,321.12) ($83,034.61) ($121,387.80) ($156,994.47)

wait cost $0.00 $34,537.22 $69,380.85 $104,598.23 $140,255.42 $176,417.32 $213,147.68 $250,509.21 $288,563.53 $327,371.27 $366,991.99 $407,484.25 $448,905.47 $491,311.99 $534,758.91 $579,300.02 $625,042.45 $672,921.30 $722,006.03 $772,317.48 $823,873.78 $876,689.92 $930,777.33 $986,143.41 $1,042,790.98 $1,100,717.72 $1,159,915.53 $1,220,369.86 $1,282,058.92 $1,344,952.85 $1,407,615.70

Now it is to be noted, as we saw under the first table, a point in time exists starting 26 years out where you will be better off just keeping your down payment money socked away in alternative investments, as opposed to actually using it to buy your home. Once again, this is mostly due to the closed end definite endpoint way I had to program this.

I'm planning to start using this sheet with prospects, under assumptions they can set - If they think inflation is going to average 7%, or appreciation only 3%, the sheet can accommodate that. I've played with the sheet over a few dozen simulations, and due to leverage, the numbers appear quite powerfully in favor of buying the best home that you can actually afford, right now. Interestingly enough, however, these number also strongly suggest that as close to 100% financing as you can manage initially will outperform larger down payments, and that's something that seems quite counter-intuitive to the usual run of financial planning. Instead of using it for your down payment, financing 100% of your purchase if you can seems to make your money work harder. Well, I can put a lot of caveats on that, because metaphorical bumps in the road happen, and nobody knows exactly when or how these disasters will strike. If you do, you can plan for it, and could you please drop me an email in warning? When you're just looking at the raw numbers, however, the advice they give is quite strongly to buy the best property you can afford as soon as you can, putting down as little of a down payment as you can, and making the minimum payments while salting away the rest for a rainy day. But be very careful not to stretch too far, because one thing you can count on, even in Southern California, is that it will rain sometimes.

These numbers represent middle of the road, statistical average type results, given the assumptions listed in each problem. In point of historical fact, in neither of the two problems did I choose assumptions as favorable to the property owner as the historical numbers we in California have experienced. Furthermore, with the market driven well below historical average pricing trends in terms of affordability, those who buy before everybody realizes the market has turned are likely to eventually realize quite a significant adjustment due to the market returning to long term levels of macroeconomic affordability.

Caveat Emptor

Original here

Or,

If a Recession will not come to the US, the Democrats will send the US to the Recession.

Why did IndyMac Bank fail? Charles Schumer wrote a letter saying it was going to, and then published that letter, resulting in a 1.3 Billion dollar run on deposits over a two week period.

I don't know any lender that could remain solvent in the face of that.

From the Office of Thrift Supervision

The immediate cause of the closing was a deposit run that began and continued after the public release of a June 26 letter to the OTS and the FDIC from Senator Charles Schumer of New York. The letter expressed concerns about IndyMac's viability. In the following 11 business days, depositors withdrew more than $1.3 billion from their accounts.

"This institution failed today due to a liquidity crisis," OTS Director John Reich said. "Although this institution was already in distress, I am troubled by any interference in the regulatory process."

Some are asking: Did Senator Chuck Schumer Cause Indymac Bank Failure?

The answer is, not by himself. He didn't force them out on a limb by making risky mortgages. But he certainly chopped off the branch they were sitting on. Many institutions in worse shape have survived to become profitable again.

Now if I knew one of my neighbors was struggling to survive, and hanging on but with decent to good prospects of making it back to health, I wouldn't go administering the coup-de-grace while there was that chance. But I'm not a Democratic politician trying to convince people that the economy is in trouble.

The Democrats want a recession so badly that they're willing to create one. Anticipated direct costs to the taxpayer of IndyMac's failure? Four to eight billion dollars. So that people will be mad at the President and vote in Democratic candidates..

More evidence:

Bloomberg: IndyMac Seized by U.S. Regulators; Schumer Blamed for Failure

seeking alpha:

Schumer's letter served no purpose because the FDIC and OTS were already closely monitoring IMB. The letter was only for public consumption, to create publicity for Schumer. The New York Times "Regulators Seize Mortgage Lender" reports Reich saying IMB's deposits were actually increasing before the letter was published, after which withdraws averaging $100M a day started ($1.3B total).

Jerry Bowyer: How Chuck Schumer Caused the Second Largest Bank Failure in US History

Indymac has been under attack from the hard left. The Center for Responsible Lending issued an attack on Indymac within a few days of Schumer's letter. CRL is part of a small army of left of center 'research' groups, community organizers, and public interest law firms who make their living accusing home lenders of racial redlining and predatory lending. On June 20th the Center accused Indymac of unfair practices regarding minority borrowers.