U2 – Pride/City Of Blinding Lights Live 1/18/09 Obama Celebration
U2 Sings Pride and City of Blinding Lights to Obama and Biden
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Category Archives: News
Paradigm Shift: Changing the Human Experience
What will be the tipping point that creates the paradigm shift that is needed in the Real Estate Industry?
To begin, I would like to quote a small portion of “Productive Workplaces Revisited” noted in the second link above. “He put into…context, the age old struggle between authority and dependency”…In so doing he found an audience hungry to find alternatives to bureaucracy, authoritarianism, alienation…not simple ideology…an expression of life’s purpose – affirming diginity in every person, finding meaning in valued work, achieving community through mutual support and accomplishment.”
The above is from a book titled “PRODUCTIVE WORKPLACES REVISITED” – Dignity, Meaning and Community in the 21st Century” by Marvin Weisbord in 1987. That link provides information regarding Mr. Weisbord’s many books. For the purpose of this blog post, I am simply borrowing the above excerpt which I have modified to fit most any Real Estate Office in the Country, and a movement that is afoot.
The Paradigm Shift is also referred to as “A Mental Revolution” elsewhere in that publication, (use the search feature and put in paradigm shift for more info on that.)
The problem as I see it, in the structure of the Real Estate Industry, may simply be the old “Too many chiefs and not enough Indians”. What the Real Estate Industry, and every Real Estate Company in the Industry, and every Real Estate Office in every Real Estate Company, has not answered correctly is quite simply this:
WHO IS THE CUSTOMER?
In most realities, the customer of the Brokerage is the Agent. That is something that most buyers and sellers of real estate do not get to see. The inside of a real estate office is about the customer…the customer being the Agent. The Agent is paying the Broker. The Broker cannot survive unless it adequately serves its customers…the agents, not the buyers and sellers of homes.
Take a look at the photo below:
Meeting of Professionals
If the people gathered around that table were Doctors, you might hear talk such as: “I have a patient…I have tried this and that…has anyone had a similar… Yes, I have found X to work for many of my patients, here is a study on X I found the other day…” The talk around that table, would be about better treatment for the patient.
If the people gathered around that table were lawyers and paralegals, you might hear talk such as “I have a case where the defendent is…I haven’t found adequate support for this client’s…. Try X vs. X, I’ll go get it for you. Is there any other way we might tackle this in Court to show that our client…” The talk around that table, would be about helping this client win this case.”
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Rarely, if ever, do you find a room full of real estate agents discussing ways to find a better answer for a particular buyer or seller.
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The reality is that most times a Broker will set up meetings that help agents sell more houses. Rarely is the discussion about the buyers and sellers of homes. If an agent has a problem selling a home, then agents will filter ideas that ultimately do help the seller. But when the client/customer is a buyer, the conversation all too often revolves around helping the agent “sell a house TO” that buyer.
There are many discussions with regard to “Real Estate ProfessIonals“. Some of us equate ourselves to doctors and lawyers. Many more view themselves as (merely) salespeople, and then complain when “real estate agent” comes up on a list next to “used car salesman” on consumer confidence and trust lists.
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The Tipping Point that will create the needed Paradigm Shift is A Mental Revolution with this Call to Arms:
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TO BROKERS:
1) TAKE DOWN ALL OF THE “SALES” BOARDS AND STOP HAVING SALES CONTESTS.
2) STOP TALKING ABOUT “MORE LEADS” AND INSTEAD ASK YOUR AGENTS IF THEY NEED ANY HELP MEETING THE NEEDS OF THEIR EXISTING CLIENTS.
3) HAVE AT LEAST ONE MEETING A WEEK WHERE THE AGENTS MEET TO DISCUSS THE NEEDS OF THEIR BUYER AND SELLER CLIENTS, AND NEVER TALK ABOUT THEIR NEED TO “CLOSE” A PERSON IN THAT MEETING. CONSUMER-CENTRIC VS. AGENT-CENTRIC MEETING.
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TO AGENTS:
1) TRY NOT USING THE WORD “I” FOR 21 DAYS.
2) WHEN YOU APPROACH SOMEONE FOR ASSISTANCE, MAKE SURE THAT ASSISTANCE IS FOR YOUR CLIENT AND NOT YOURSELF
3) FIGHT FOR ANYTHING YOU “NEED” TO HELP “THEM” AND NOT YOU.
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TO THE GOVERNOR OF THE STATE OF WASHINGTON (& possibly other States, as well)
RECOGNIZE THE DISCONNECT BETWEEN YOUR AGENCY LAW THAT HOLDS REAL ESTATE LICENSEES TO THE STANDARD OF “REPRESENTATION OF PEOPLE”…AND THEN GIVES THEM A “SALESPERSON” LICENSE.
There are many, many real estate agents who aspire to assist their clients well. There are many, many real estate agents who “hung(er for) alternatives to bureaucracy, authoritarianism, alienation…not simple ideology…an expression of life’s purpose – affirming diginity in every person, finding meaning in valued work, achieving community through mutual support and accomplishment.
Lending Woes: A Deeper Consumer Analysis
This may seem like an odd analogy, but I remember this story about my Mom when she was having her 7th baby. She was in “a ward” with only curtains drawn around each bed. She overheard some people telling the lady in the bed next to her that she should have “her tubes tied”. They were explaining the procedure to her. My Mom jumped out of bed, ripped open the curtain of the woman next to her and yelled “I want one of those!!!” The people were embarassed and said, “I’m sorry but we’re only allowed to offer these to single women on welfare having their third child. You weren’t supposed to hear that.”
Yes…I’m suggesting that to some extent The Information Age is in part responsible for the Subprime Crisis. Subprime loans did not come into being in late 2003. 2003 is the year more people said “I want one of those!!!”
Couple that with the fact that the World as it IS has come to the conclusion that spinning words (like Death Tax vs. Estate Tax) is a persuasion tool. We used to say, “You can’t get a good loan, but we can find you a BAD loan, if that’s what you want.” Most people said, “No, thank you…we’ll wait.” Loans had letters that were easy to understand. A Paper = most lenders. B through D Paper was a different lender for buyers with one or a few correctable issues over the short term. Z Paper was basically the Mob with a license to lend.
People understood the alphabet, and they knew that a C-Mortgage was not as good as an A-Mortgage. Life was more Transparent back then. The need for Transparency today is largely due to the fact that professionals hide truth behind more persuasive language. Don’t get me started on Listing Agent vs. Agent for the Seller. Everytime I hear a buyer say “The listing agent was MY agent, looking out for me (and I heard it twice in the last 4 days) I want to scream. How the heck can you believe that “the agent for the seller” is looking out for you, the buyer? Maybe because they use the words “listing agent” for that reason. But that’s a different, though related, subject.
Couple that with small businesses (who only offered Sub-Prime loans) getting gobbled up by larger “one stop shops”. All of a sudden the lender could give you an A Paper loan or a C Paper loan without a loan denial in between. When there was a loan denial in between, the buyer had a legal out with the Finance Contingency. When the approval came…but it was for “a bad loan”, the buyer was locked into the transaction with no legal out.
Couple that with Real Estate Agents only caring if the buyer could get a loan, period…without caring on what basis. Couple all of THAT with the fact that many Finance Contingencies did not give a buyer “a legal out” if they could not get a conservative “A Paper” loan, but could qualify for a SubPrime loan.
There are many factors that contributed to this mess. Perhaps a fuller understanding of how the world changing in many and small ways led do the catostrophic consequence, will help all people who played a small part in the Country’s demise, change their small part in The Crime of the Decade. In the end it was mostly No victims; no villains, just a lot of small tweaks and changes that snowballed into a Crisis Situation.
Let’s go back to the world as it was for a minute.
1) Conventional Loan = 20% downpayment, 28% of gross income for housing payment, 36% of gross income for total recurring debt including the housing payment. An 8% spread for debt payments. If debt payments equalled 10%, then the housing portion was reduced to 26%. There were no Credit Scores. All credit issues were underwritten by hand and each and every negative item was explained by the buyer, in writing. A separate letter for each negative item.
2) FHA Loan = slightly more lenient terms and dramatically reduced downpayment requirement. The biggest reason to use FHA vs. Convential being the downpayment requirement, not the looser standards as to ratio and credit issues. Almost no downpayment – 3% vs. 20% at the time.
The first change was a long time ago! It started as a quiet whisper, like the people talking behind the curtain in the next bed from my Mom. Some people were getting loans with only 5% downpayment, conventional. When I started in real estate in 1990, most people’s perception was that they needed 20% downpayment or FHA. Few knew that they could get a 5% down conventional.
The beginning of all of these problems goes all the way back to there. Conventional lending guidelines made FHA less desirable. The primary purpose of FHA was low downpayment…no longer a big spread between the two.
THEN in the early 90s, the lenders started stretching ratios from 28% to 33% of gross income on “the front end” BUT the back end was only stretched to 38%, at first. Stretched ratios entered the scene ONLY for people with little or no debt payments (just like tubal ligations being only for single women on welfare). It had a stated and targeted “appropriate” audience.
When cars started costing more, lenders had to start figuring out a way for people to buy a house who already owned a car. In many cases in the early nineties (before car leasing became popular, and probably why car leasing became popular) most young couples who each owned a car, could not buy a house. The two car payments sucked up their whole back end ratio and subtracted from their front end ratio. “I thought we could get a mortgage for 28% of our gross income or 33% of our gross income?” “Well, yes…but the combined value of your two new cars is almost as much as the house you are trying to purchase!”
Everyone agreed that people needed both cars and houses…so ratios grew and grew and grew. So, Sniglet, the changes in FHA are NOT fascinating at all. In fact FHA hasn’t changed all that much. What’s happening is that lending standards on the Conventional side are creeping back to “The Way We Were”, putting the spotlight back on FHA, which is closer to the way IT was IF you cut out “automated” approvals.
Before you even think about buying a house, get your “other debt” issues down to no more than 10% of your gross income. If you make $45,000 a year and your wife makes $25,000 a year, and you each have a car with a $400 monthly payment, you are spending 14% of your gross income on car payments!
Of course this Rise and Fall story would clearly fill a book. But until everyone understands that a bailout or bandaid in ONE area only (or two) is not going to fix what ails this Country, we cannot have HOPE…and HOPE is what we need more than bailouts and fixes.
As I said in one of my previous posts: “2009 will not be a year of great change. It will be a year of Great Hope for Change, one small step at a time, via you and me acting the best we can in each moment.” Falsely creating hope with “Talking Points” and “Good News” articles is NOT the solution. Expecting any one source to be the Messiah, is NOT the solution. Every single person doing their part to improve the situation…is the only long term solution. That means YOU!
Stop looking for someone else to come up with an answer. Get out your teacup, and start emptying out your own little piece of the ocean.
I kissed a girl once. I was almost 50 years old and was in the middle of a divorce from a 20 year marriage. I just wanted to make sure before I started over again, that I wasn’t starting out on a faulty premise that had been “fed” to me. 2009 is the year to test your foundations…so that when “The Rocovery” does come…it isn’t the old mess wrapped up in a bright shiny red bow.
FOMC Cuts Discount Rate by 0.75%
From the FOMC press release:
“The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent….
As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities.
…In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 1/2 percent.”
Mortgage rates should continue to improve with the purchase of MBS. This is why you need to do as Kenneth Harney recommends in this Sunday’s paper:
“Ask your broker or loan officer whether you can lock in today’s rate but still have the ability to move down should cheaper money become available to you.
Not all lenders can accommodate such requests. Some brokers offer 60-day locks with that option; others may charge you”.
Vive Tanta
A blogger larger than life has died after a two year battle with ovarian cancer. We will miss you, Tanta.
Tanta, who blogged at Calculated Risk, taught me quite a bit about the other side of mortgage lending; securitization, the secondary market, auditing, and mortgage humor. I asked Tanta once if I could distribute something she wrote to my students. She gave me carte blanche to distribute anything she had written, for educational purposes. Tanta was widely read and quoted by people such as Dr. Paul Krugman and the Federal Reserve. From CR:
Even researchers at the Federal Reserve referenced Tanta’s work: From Adam Ashcraft and Til Schuermann: Understanding the Securitization of Subprime Mortgage Credit, credit on page 13:
Several point raised in this section were first raised in a 20 February 2007 post on the blog http://calculatedrisk.blogspot.com/ entitled “Mortgage Servicing for Ubernerds.
Don't Pay Off Bad Credit
Step three in the “Should I Buy a House Now” series is somewhat of a sidetrack. In Step 1 people learned the difference in calculating your current gross income, especially if any part of your income is not guaranteed “salary”. In Step 2 you were sent off on a long project of accounting for your past practices of spending that gross income. By finding the money you wasted, and taking steps to waste less of your earnings, you were able to find additional monies to put towards housing payments.
Step 3) Start Improving Your Credit Rating This can take a long time, as does Step 2. I am suggesting you do these simultaneously. Don’t think that because you pay your bills on time, that you have good credit. Paying your bills on time only accounts for 30% to 35% of your credit standing.
Get all copies of your credit history. Generally there are three sources (or more) and you don’t want to get your credit score, you want full copies of your credit report. Go through the reports and make sure the history pertains to you. The more comon your name, the more likely you will have something of someone else’s on your report. If you are divorced, you want to remove things that you are no longer legally responsible for by divorce decree, even if the item has a high rating.
Let’s assume you have at least one item that you didn’t pay well. Don’t pay it off! This is the biggest mistake I see people making. You need to turn bad credit into good credit. Paying it off does not remove it from your credit history, so paying it off simply locks in a bad credit item. You want to “pay it as agreed”. Sometimes you do that by agreeing to a new payment schedule and then paying the new payments on time for a year. Sometimes you pay off the balance, but leave the card open, and charge one small item every month and pay that item off every month. I’m not a credit expert for sure, but this issue goes back long before scoring was used. All too often people pay off the balance on a bad credit item thinking they made it good. No. You locked in the bad long term.
Here’s a story from back when I was 25ish. My Mom needed me to co-sign on a house. I had a bad charge card at a department store that was charging me 3% of the balance due until it reached near the max, and then wanted 20% of the now higher balance each month. There was no way on my income that I could pay 20% of the balance, so it got behind. It was a ding that was potentially going to cause my Mom to not get the house and everyone panicked.
I went to the store with the full balance due in my hand, and after a lengthy conversation with the credit manager, I was very angry and said I hated the store and would never buy anything there again. The Manager said to me, “You can’t hate us. In fact you have to buy from us. You can’t just pay off the balance to restore your credit. If you never buy from us again, that bad rating will sit on your report for years. The only way for you to improve your credit is to buy more from us and pay off that more well.” That made me angrier and I started to leave when a lightbulb went on. I turned around and said, “Are you telling me that I can go downstairs right now and buy something on this card? He said absolutely, please do. I said can you give me a letter to that effect. He said sure. I took that letter to the mortgage company and said how can you deny my Mom a mortgage based on a bad credit item, when the bad credit item doesn’t think it’s so bad, in fact they invite me to continue shopping there on credit. I handed them the letter from the Credit Manager on the store letterhead, they agreed and my Mom got the house.
Lesson learned: Turning Bad credit into Good credit involves not simply paying off balances, but continuing to charge and pay as agreed until the credit rating for that item improves. Then you can close it after it has a good rating.
I have to meet someone at a house shortly, so I’m going to end here though this post could be a 20 page short story, if I highlighted all the ways to good credit. The point is EARLY in the process, here at Step 3, know your credit score, review your credit history from 3 credit bureaus, and improve as needed. Even if your score is high, go through the detail and make sure you correct anything that needs correcting. It takes a long time for the credit bureaus to reflect change…so don’t wait until the last minute to work on this step in the series.
"Should I buy a house now?"
Q: Should I buy a house now?
A: NO!
Q: Why?
A: Because you should never buy a house when you are not sure that is what you want to do, and you should never let someone else make that decision for you. Don’t EVER give anyone that much power over your life.
As part of our exuberant expectation of CHANGE, I will be starting a series called “First Hundred Days”. It’s not enough to vote for change and then sit around waiting for change to come from someone else. If each of us does something different every day for the next hundred days, that produces a change for the better…then change will happen.
I will tag all posts “First Hundred Days” and I will do my best to include all of the tools and skills you should employ to make your own decision about buying a home. We hear so much about “the stupidity” of people in trouble. Instead of criticizing, let’s do our best to help the future buyers of homes make better decisions and choices by providing meatier, education oriented, instructional blog posts.
The first step in the home buying process does not start at the lender or the real estate agent. It starts with you sitting in your own home working through some numbers.
1) Calculate your gross income. If you are salaried, you have the number. If you are commission based or hourly, add the last 12 months income to the previous 12 month income and divide by two. Now double check it by taking the last 3 months income and multiplying it by 4.
Let’s say you are hourly or salary plus commission/bonus. Note these are not lender guidelines. These are old-fashioned and proven standards for responsible decision making and so will likely be more conservative than lender guidelines.
Non-salaried income Last 12 months: $75,000
Non-salaried income previous 12 months $60,000
Current annual income for home buying purposes = $75,000 plus $60,000 divided by two or $67,500.
Now the double check.
Total income for the last 3 months = $14,000 (boss gave you fewer hours)
$14,000 times 4 (12 months) = $56,000.
The double check system suggests that you should not think about buying a home in the near future based on an income of more than $56,000 a year, and you should not buy a home until you are certain that the cut back in hours is not leading to no job at all or even fewer hours. Stabilize your income situation before buying a home.
If the last 3 months income is $20,000 times 4 or $80,000, you still use $67,500 as your annual income and not $80,000, for homebuying purposes.
You use the average two year income or 4 x your latest 3 month income, whichever is LOWER.
I’ll stop here and see if people have questions before going to the next post in the “First Hundred Days” series. When you buy a house…if it is the wrong decision…you can blame lots of people, but you will be left holding the bag. So let’s work together over the next hundred days to make sure you can answer the question for yourself without heavily relying on the opinion of others.
Treat the series like a workbook, get a notepad, and calculate your numbers. Questions? Ask them in the comments section.
Follow President-Elect Obama's Journey
Follow the amazing journey of how this man came to where he is today using Google Maps. This should be every school child’s assignment to day when they go to history class. Then for bonus points they should look up their home in Google Maps Street View, since they added Seattle as of yesterday!
Google Maps – Barak Obama’s Journey
Barack Obama's Journey
President Barack Obama
The Fed drops the Funds Rate to 1.5%
This morning, the FOMC cut the Fed Funds rate 0.5% to 1.5% in a globally coordinated move in advance of the scheduled FOMC meeting October 28-29, 2008. Another rate cut at the scheduled meeting is not out of the cards.
From the Press Release:
“Inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices. Inflation expectations are diminishing and remain anchored to price stability. The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability.
Some easing of global monetary conditions is therefore warranted. Accordingly, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, Sveriges Riksbank, and the Swiss National Bank are today announcing reductions in policy interest rates. The Bank of Japan expresses its strong support of these policy actions….
Incoming economic data suggest that the pace of economic activity has slowed markedly in recent months. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.”
The FOMC does not directly control mortgage interest rates, which are based on mortgage backed securities (bonds). Actions of the Fed does influence mortgage interest ratesas traders/markets will react accordingly. HELOCs based on the Prime Rate (which follows the Fed Funds Rates) will enjoy a lower rate from this move (if the rate is unfixed).
Mortgage interest rates are for the most part unchanged…but the day is young! The markets continue to be very volatile. The DOW is currently down over 200. Treasury Secretary Paulson will be speaking later this afternoon…which may impact markets.
I’ll be posting a rate update tomorrow at Rain City Guide…if you can’t wait, then check out my live rate quotes.