Monday, September 22, 2008

The American Empire is Burning:Pull up a chair.

Although I’m sure that, like I, many of you are not at all surprised by the extent of the financial crisis we have seen to date, I’m absolutely certain that most of you are shocked by the extent government’s response.

This decline was inevitable… it was obvious and for years many have taken to writing/blogging and debating it’s various details but could anyone have ever predicted that as a result of this ugly episode the federal government would violate our economic and social system to such an extent?

I know I didn’t… I now see that I was naive.

In anticipation of the decline I had envisioned the outcome many times… Americans tightening belts, losing their jobs and then their homes, increases in crime, a “poverty effect” that would reverse most of our gains from the nineties leaving the country trapped in a vicious-circle pushing us into a long and deep recession always teetering on the brink of depression.

Yet… I suppose I should feel foolish admitting this now… I had always expected that households and firms would be largely on their own to navigate the down-side much as they had the up-side of this historic and nearly multi-decade boom.

I say “largely” because our government has, for generations, had at its disposal many well known tools for engaging tough economic times (unemployment insurance, FDIC, fed funds rate, lender of last resort etc. etc.) and although this bout looked to be fairly severe, they seemed to me to be adequate.

Never did I EVER expect that the federal government would force American taxpayers, and their many generations of descendants, to essentially be the sole bearers of this epic catastrophe.

It doesn’t matter if you were prudent, if you planned, if you resisted reckless behavior or were even thrown to the side, unable to keep up with all the mayhem.

You will now PAY for the aftermath.

And if that’s not enough, you’re not simply being drafted to defend our social system by subsidizing the failures of all the individual ignorant greater fools… you are going to be the FINAL greater fool for the WHOLE system itself.

If congress passes the proposed legislation and the president signs it into law (as is likely), all private financial institutions, even foreign institutions will clean their balance sheets of junk mortgages, credit card debt, car loans, student loans and other nearly worthless assets on the back of your labor.

I want to repeat a point that I made in a prior post.

Many of these private institutions are THE VERY SAME that lobbied hard for sweeping new bankruptcy reforms that now make it harder than ever for individuals to seek shelter during times of personal financial hardship.

If you’re late on your credit card debt, these institutions will hammer you with fees that can, under certain circumstances, eventually exceed the debt itself… if you default they will ultimately sell that debt to a collector that will stop at NOTHING to squeeze you for every last penny.

This bailout scheme will create a massive multi-generational transfer of wealth from the many average American households and firms to the very few wealthy, elite and well connected.

Let’s remember that these actions are coming at a time when our stock markets have declined less than 25% from their prior peaks and absolutely NOT in the context of a calamitous depression.

This is an absolute disgrace and I’m convinced that no other generation before us would have ever conceived of this level of cynical tyranny.

There is no liberty… you are not free… America is truly a collapsing empire with only hollow ideals and empty slogans left to remind us of our once proud ambitions. Don't believe me? Our dollar is down 6% since last Thursday vs the EURO. That is an enormous move in the currency markets. Foreigners don't like what they see, neither should you.

Tuesday, September 16, 2008

GOVT In Action: Jumbo Fixed Rates Drop

Mortgage rates dipped over the past few days as investors shunned stocks and purchased mortgage securities backed by the federal government and solid prime jumbo loans.
Borrowers with good credit and a 20% down payment today could qualify for a 30-year fixed-rate mortgage at 5.50% with a one-point fee. That’s down from 6.00% on Friday of last week.
The rate has been trending downward from 6% since the government took possession of mortgage buyers Fannie Mae and Freddie Mac on Sept. 7. Investors now feel comfortable buying those companies’ mortgage securities, and that lowers rates to consumers. The move by the US government has had the needed impact. If you can't save housing you can't save the financial system nor the economy from a financial meltdown/great depression scenario.

However, adjustable rates have improved much more. Bloomberg reports that the international rate banks charge each other for overnight loans, known as the London Interbank Offered Rate or LIBOR, more than doubled and then moved lower as the FED and European Central Bank moved to inject money moving rates to 2.95% as markets were spooked by the bankruptcy Monday of Lehman Brothers and the death rattle of AIG. The meltdown of household names is the best opportunity for people to refinance or purchase as investors want something safe/secure. Nothing is safer in this market than solid credit client's looking for a phenomenal jumbo mortgage rate.

About 6 million U.S. mortgages, including almost all subprime home loans and 41 percent of prime ARMs, are linked to LIBOR, according to First American CoreLogic, Bloomberg reported.

Friday, September 5, 2008

Avoiding the Jumbo Mortgage Man

How do you avoid paying jumbo mortgage rates on a jumbo-sized mortgage?

You avoid taking your mortgage to a Wall Street lender, that's how.

It's pretty simple when we break it down.

The word "jumbo" is a Wall Street-specific term for home loans larger than $417,000. In certain "high-cost" areas, the number is $729,750.

Lately, rates on jumbo mortgages have been terrible compared to its cousin, the conforming mortgage. Plus, jumbo mortgages carry higher loan fees.

The price disparity is even worse for so-called "Super Jumbo" mortgages. A super jumbo mortgage is similar to a jumbo mortgage, but bigger.

But the thing is, the terms "jumbo mortgage" and "super jumbo mortgage" -- these are conventions of a Wall Street-bound loan. Just because your loan size is over $417,000 doesn't mean that you have be subject to the jumbo and super-jumbo rules.

To avoid them, just make a choice avoid Wall Street mortgage lenders when your loan size exceeds your local conforming loan limits. This means bypassing your neighborhood Big Bank retail branches in favor of a niche banks that harbor no allegiance to Fannie Mae or Freddie Mac.

Finding banks like this isn't always easy, but it's worth the effort. This is because when a lender makes its own rules, its mortgage rates tend to be lower, its downpayment requirements tend to be smaller, and its underwriting process tends to be smoother.

These are all good things when your mortgage is greater than $417,000.

Consider these mortgage scenarios from a sampling of local banks. Each example carries a corresponding mortgage rate in the low-to-mid 6-percent range:

  • $700,000 mortgage with 20 percent down, primary residence

  • $1.5 million mortgage with 30 percent down, vacation home

  • $2.5 million mortgage with 30 percent down, primary residence

Now, compared to what Wall Street lenders are offering, not only are the small bank rates up to 2 percent lower, but they're not accompanied by discount points, either. And that's even giving Wall Street the benefit of the doubt -- most Big Bank lenders won't hardly touch a jumbo or super jumbo mortgage with a 10-foot pole anymore.

The irony here is that wealthiest Americans often have private banking relationships with firms like Chase, Bank of America, and Citi among others but their private banking relationship is ill-equipped to handle the mortgage needs of a high net worth client anymore.

Jumbo and super jumbo mortgage approvals are easier with local banks and lenders as opposed to national onesIn 2005, the banks performed admirably for their wealthy clients. Today, not so much.

So, the best way to avoid paying jumbo mortgage rates on a jumbo-sized loan is to get out from Big Bank mentality and get your mortgage funded from somewhere other than Wall Street.

Jumbo mortgage rates are expensive. Niche, local bank mortgage rates are not. If you're a jumbo homeowner and you have a local banking relationship, it may be wise to call your branch to get a better rate quote.

And, if you don't have a local bank to call, know that you can always call or email me. I lend in 42 states and have niche banking relationships in all of them. If you can't find low rates for yourself, I'm happy to find them for you.