Again we're going to be fighting over down payment shenanigans in Washington, it seems. One of the few bright spots — maybe the only bright spot — of last month's housing bill (H.R. 3221) was the fact that it did away with down-payment assistance programs (often called DPAs or DAPs) indirectly funded by the seller of the home.
To my mind, DAPs are flat-out nasty. They're just a shiny way to launder money. What they produce, in effect, are sellers bumping up their sales prices to cover (1) their own "down-payment gift" to the buyer, and (2) the fees paid to the nonprofit charity (ahem) who funnels this money from seller to buyer.
In these cases, since the buyer comes to the table with zero funds of his own, the mortgaging bank is effectively loaning one hundred percent of the sales price. The buyer has no "skin in the game," as it were. So when times get hard for Mr. Homebuyer and the mortgage payment starts to seem a little too burdensome ... well, you know where it goes from here. You've watched the news.
So seller-funded DAPs got the legislative axe last month, as mentioned above. Within moments, it seems, a few Congressfolk got together and popped the cork on H.R. 6694. Which, as you might guess, seeks to reinstate DAPs. And now we get this website:
Cute, ain't it? Oh, they're all about home ownership, they are. They suggest that you and I — all of us who value the Dream of American Homeownership — contact our Senators to let them know we want them to support H.R. 6694. Here's a grand snippet from their "Why?" page:
DPA Program Is Specifically Designed to Meet FHA Borrower Needs - Charitable DPAs programs aid borrowers who have sufficient credit to qualify for government-backed loans but have insufficient capital to meet the three percent downpayment requirement for an FHA loan. Charitable DPAs bridge the gap by providing this downpayment as a gift to the buyer, helping those who otherwise could not become homebuyers. The DPA program was developed and designed to work with FHA’s specific mortgage requirements to expand homeownership opportunities and serve the population of homebuyers that it is FHA’s mission to serve - minority, low-income, and working families with limited access to capital.
Why, indeed. Look — I don't care if a borrower's FICO is 849 and his wallet's crammed full of Amex Black cards. If he can't scrounge up three percent of a home's sales price FROM HIS OWN SAVINGS to put toward the purchase of said home, then he shouldn't be buying that home. And the bank has no business lending him the money to do it — especially when Joe Taxpayer seems to be the patsy at the other, far end of the "Who gets to eat this?" deal. Am I so completely off-base with this?
Some people are simply not ready to be homeowners.
Since the website above doesn't clearly make its ownership known, a few kind souls at Ticker Forum got involved in a discussion and went digging a bit. Turns out ownership belongs to the Genesis Foundation of Valparaiso, Indiana ...
... who just happens to pop in this Fort Worth Weeklyarticle (hat tip Etz3l):
But what is making Dauphinot maddest is the increased use of “down payment assistance” programs that give mostly first-time buyers a “charitable” gift of the down payment money needed to close the loan under Federal Housing Administration loan rules.
Here is how it worked on a recent loan deal, coincidentally, just down the street from Felipe Garcia’s house in Edgecliff Village. According to documents sent to the buyer and obtained by the Weekly, the asking price on the home was $85,000. But the proposed buyer had bad credit, and the lender wanted a hefty down payment. So the Genesis Foundation, based in Indiana, was brought in to “give” the buyer the $7,200 down payment in return for a $595 fee that was rolled into the loan. In return, the company selling the house gave Genesis a tax-deductible “gift” of equal value and paid Genesis a $750 transaction fee.
It’s illegal for a home seller to give down payment money to a buyer, under federal lending rules. But in this case, the down payment technically came from a charity. In reality, it was just a way to move the money from one pocket to another. The new purchase price for the house was $93,000. So, in the end, the FHA (which requires at least a 3 percent down payment) was backing a higher loan with no real down payment. And instead of an $85,000 loan, the buyer now had a $93,000 loan.
“When these loans don’t get paid, the taxpayers are going to have to cover them,” said Dauphinot, who has been in the business for 30 years. “Everyone likes to portray these foundations as groups that are helping out the poor and getting them into home ownership. But it is all about getting around laws and inflating prices in the market. That house went from $85,000 to $93,000. The borrower now has a bigger loan to cover. That’s not helping the poor.”
Sums it up ever so nicely, doesn't it?
I'd be pumping H.R. 6694 if I were them, too.
But I'm not. I'm just a guy who somehow managed, with his wife, to piece together a three percent down payment on our first home way back when we were earning in the low- to mid-$20k range per year.
And a guy who knows dumbassery when he sees it.
So I believe I'll be better served if I simply write to my Congressfolk and indicate my complete and utter disdain for DAPs and, in particular, H.R. 6694.
Author Jay MacDonald gives us a list of twelve items which, he says, current American society deems "necessities." As he writes:
However, modern life has created a host of "new necessities" that many people swear they cannot live without -- a daily latte, premium cable, a weekly manicure, a new leased automobile and cell phones for the family.
In reality, there's a more accurate word for those pricey add-ons: entitlements.
Just for kicks 'n' giggles, I wanted to take a look at Jay's twelve "necessities that aren't" and see where I stand on each one. So here goes.
Daily Latte My wife and I love good coffee just as much as the next couple, but you'll see us standing in line at Starbucks maybe once per month. I do occasionally order coffee beans over the 'net, and I most certainly do brew my java at home (as in, every morning). But you'd never find me spending $4 or $5 per day on coffee. Not a chance.
Cable TV Guilty as charged. We do have cable TV, complete with a host of premium channels (HBO, Showtime, etc.) and HD programming. If times became tough, I could easily give up the premium channels. The rest of it? Tougher. But it could be done.
Manicure/Pedicure Uhhh ... whatever. Not an issue for my wife or myself.
Botox Seriously? This is a necessity for WHO outside Hollywood?
Bottled Water I drink my share of this stuff. But the article seems to imply that folks invest in home-delivery services for water, and I'm not in that league by any stretch. A big ol' tray of Aquafina bottled water costs me less than $4 at Sam's Club. And even then, we reuse the bottles with water from our Brita filter pitcher (and at my work, the Ozarka service).
Second Car Sort of depends on the household, doesn't it? Ours is certainly a two-car family (well, three cars, if you count the rarely-driven '67 Mustang in our garage). My '95 Nissan truck's long since paid for, and our '06 Accord will be likewise in a few months. If dire financial times came along, could we become a one-vehicle family? Could carpooling become a household task?
Some consideration of the idea suggests that my work schedule, and our kid's school schedule, would make this somewhat challenging. But since Lisa (my wife) is a SAHM, it could be done.
How much money might be saved this way? For us, with both vehicles paid for, the financial benefits are negligible at best.
Cell Phone I have one (partially paid by my employer), and Lisa has one. In a pinch, I'd sooner give up our home phone service.
Lawn Service Guilty as charged (again). Lawn service (the weed n' feed kind) cost us $205 this year for the annual plan; that's about $17 per month. I'd give it up in a heartbeat if conditions warranted.
I do mow and edge my own lawn, thank you very much, which is the sort of "lawn service" that the article was actually discussing:
The average cost for weekly mowing, hedge trimming and leaf blowing is $65 to $90. It's hardly a savings to shell out $260 to $360 a month, is it? Mow your own and save the dough.
Clothes Everybody needs 'em. And if you have growing-up kids, you need 'em constantly. Sure feels like it, anyway. So far this year, our three-person household has spent just a shade under $1,200 on clothing. So yeah, this is an appreciable expense, and one we could slice considerably. But I wonder about this comment from the article:
"I think most Americans could easily go for one year without buying any new clothes," Yeager says.
No new socks? No new undies? Surely he jests.
Private School As concerned parents who are getting our first glimpse of the public-school system in about twenty years, Lisa and I have considered this. The monthly private-school dues are stout, indeed, and the recommended school in our area is WAY across town. Yecch.
I can't say whether private school is in our daughter's future or not, but I can say this: It is not a necessity in any circumstance I can envision.
Childhood Parties No extravagance on our part here — not yet, anyway. Birthdays at home or at McDonald's have been just fine to this point.
I can't see how anyone not about to end up on Oprah or Dr. Phil could possibly consider this to be a necessity.
Pet Grooming/Walking We have two cats, for cryin' out loud. As pets go, we might as well have named them "Low" and "Maintenance."
Stuff I'd Add to the List
I'm good with most all of the expenses on MacDonald's list. But what about:
Eating Out Especially at lunchtime and during working hours. Most of the people I know couldn't imagine bringing their own lunches each day. Sacrilege!
Broadband Internet I'd sooner give up cable TV than my cable internet. A LOT sooner.
What else am I missing? What sort of stuff is out there now that folks consider to be "necessities," but in reality are just "niceties?"
A previous Quicken post prompted this question from a reader:
I have a Quicken (2006) question for you: I just started entering information yesterday, and when uploading my CC info, it says my limit is 0 and I can't figure out how to change it. I have looked all over the manual, and I can't find this addressed anywhere. Do you have any tips for me, a novice?
I haven't used Quicken 2006 in a while, but I think the way you set up credit limits on each of your credit cards is still pretty much the same as it's always been.
In the Account List, find the credit-card account you wish to edit. Right-click it, and in the pop-up window that appears, select EDIT ACCOUNT. You should then see a window similar to this:
Change your Credit Limit in the designated box, and you should be all set!
My last post talked a bit about Quicken 2008 Deluxe and why I think it's the best Quicken yet.
I don't want to give the impression, however, that there's nothing "useful" left for the Intuit folks to implement in Quicken. (We all know how adept they are at implementing features of negligible day-to-day value.) If they asked (and they haven't), I'd suggest that they look into...
Subaccounts!
Eventually, the complexity of the small-biz side of my financial life prompted me to drop Quicken 2006 Home & Business in favor Quickbooks 2007.
One thing which Quickbooks allows — and Quicken does not — is the creation of subaccounts. For instance, at one point last month, my Quickbooks sidebar displayed this:
Notice that my ING "Orange for Business" savings account (account #103 in Quickbooks) is split into two separate subaccounts. One (103b) is for holding my accrued estimated taxes, and the other (103a) is for ... well, for whatever's left over.
This is an awfully nice feature to have, I think. I'd love to see it implemented in Quicken — and in a manner which allows the subaccounts to show up on Quicken's desktop (namely, in the "Accounts" sidebar). But for whatever reason, the kids at Intuit haven't seen fit to grant my wish.
Over the years, I've seen a pretty fair amount of requests for this particular feature. The fact that Intuit programmers still haven't implemented it makes me wonder if there's something about Quicken's software engine that makes it super difficult, if not impossible, to pull off.
Here's what I think: This version of Quicken is easily the best I've yet used.
Oh, sure, the flickering screen is pretty annoying. But I've learned to deal with it. I prefer to focus on the two features that stand out:
The Cash Flow Tab
Finally Quicken has a pseudo-budgeting feature that I can applaud. It's called the Cash Flow tab...
...the focus of which is right here:
Once I got Quicken's "Cash Flow" account group set up the way I wanted, and made sure all my "Scheduled Bills and Deposits" were listed as such, then this sweet little Cash Flow tab made my use of a monthly Spending Plan spreadsheet go bye-bye. I'd been using this spreadsheet for years, mind you.
The Cash Flow tab, in all its sapphire-and-white glory, tells me where I stand at all times.
Jeez, Intuit: Where has this thing been my whole life?
The "Tagging" Feature
The ability to "Tag" transactions came along in the 2007 version of Quicken, I believe. But since I never purchased that version, I personally will count tagging as another big step forward for Quicken 2008 Deluxe.
What's tagging? Well, being able to categorize your inflows and expenditures has always been a huge feature of Quicken. Now you can tag them as well — which basically gives you a way to stretch a single transaction across more than one category.
For example, let's say you pick up a six-pack of Boulevard Unfiltered Wheat Beer (yummy) at your favorite local establishment. In Quicken, you might categorize this purchase in your "Food:Groceries" category. In addition, you could give it a Tag of "Nonessential." (Hopefully you're not engaging in self-delusion with the use of this particular Tag.)
The power of "tagging" rests in this characteristic: Tags can span across categories. So the "Nonessential" tag you use in the beer purchase can also be used for purchases in any other Category. It could easily apply to your Clothing category ...
(Face it: You didn't need that new pair of $160 Nike Air Spasms.)
... or your Household Items category ...
(Sure, that new GE solar-powered microwave was cool. But was it necessary?)
Just as it does for Categories, Quicken allows you to build reports based on Tags and your use of them.
Which, in my opinion, means Tags are a most, most excellent addition to Quicken.
Download Transactions? Nope.
Because I've devoted a decent amount of space to discussing Quicken on this site, I occasionally get emails from folks who are fire-breathing pissed at some aspect of Quicken's transaction-download feature. You kids should email Intuit, not me.
Entering transactions by hand means my household's expenditures are more "tangible" to me; and
I've received enough emails from fire-breathing pissed, transaction-downloading Quicken users to know that there's a decent likelihood that said feature blows chunks.
Anybody else use Quicken 2008? Are you as happy with it as I am?
Are you a personal-finance dork? Do Saturday nights with Suze Orman and weekday afternoons with Dave Ramsey leave you wanting still more?
Well, CNBC now offers us "On the Money," a new financial program hosted by Carmen Wong Ulrich (profile). It began Monday (8/4/08) and runs directly opposite the time slot (7pm CST) held down by Dave Ramsey on the Fox Business Network.
I didn't get to watch the initial episode, but my wife and I did make it a point to sit down and view last night's showing. Overall, I'm impressed — well, as impressed as a guy who's watched only one episode can be.
I was interested to see that "On the Money" isn't a solo act for Ms. Ulrich. Rather, substantial camera time was doled out to three other personal-finance experts who were apparently sharing TV-studio space. Viewer questions tended to end up in their laps once Ms. Ulrich got the ground-level framework moving (introducing callers, collecting the necessary info from them, prepping the callers on various personal-finance basics, and so on).
Here's a link to a nine-minute video chunk of last night's "On the Money." Fans of the "something for nothing" movement will want to pay particular attention to "Martin in Minnesota," the caller who meanders in at about the 4:40 mark:
Our pal Martin has $70k in credit-card debt — now delinquent, fortunately enough — and is working through a plan with a debt-management company. He's apparently been told that the card companies will settle with him and reduce his balances provided he sticks to the $1,600-per-month paydown plan. Lucky him, though: He recently came into a $100k inheritance.
Most respectable folks would fall to their knees and thank the heavens for such a Pass-Go-And-Get-This-Debt-Gone-Today occurrence. But not this dips*#t. No, instead, he's concerned that the "found money" inheritance might jeopardize his chances to "walk away" from as much of his debt as possible.
My question is this: I don't want to compromise my settlement chances with my credit-card companies just because I received an inheritance. How can I strategize myself so that — if they find out that I have this money, then they're gonna say, "Darn it, we're not gonna settle with you anymore because we know that you received this inheritance."
Thankfully, Carmen and her merry team of debt experts don't put up with this crap. They heartily suggested that Martin SUCK IT UP and PAY WHAT HE OWES. Score one for the good guys. At one point, she cuts him off, telling him:
Listen, Martin. People go into settlement because they're unable to pay their debts. It sounds like you are able to pay your debt, which is your responsibility. And you'll even have money left over.
Although, to be fair, my knowledge of human nature chimes in here: If Martin had any intention at all of doing the right thing, then he'd have never made the call to "On the Money" to start with. His payoff plan would already be in place and ready for ignition. (This assumes, of course, that "Martin" wasn't a purely fictional persona with a sufficiently-hot-button and purely fictional issue created specifically to garner audience attention and admiration for Carmen and her cohorts. No, I'm not cynical or anything.)
I was also pleasantly surprised (in another segment) to see that Ms. Ulrich's feature advice for Kenny and Valerie (w/video) included a nice pie-chart breakdown of the couple's income and expenses ... with concrete figures.
So often, personal-finance shows like this don't give money-dork audience members like myself the nitty gritty dollar figures which comprise a family's true money situation. We got that here (at the 1:10 mark), which, to be honest, makes me giddy. I might've been happier to see Ms. Ulrich and her experts lay down the cold, hard truth to Kenny and Valerie — that the couple flat-out cannot afford their "primary goals" of $1,200/month private schooling for the kids, as well as SAHM-dom and an interest-only mortgage that's due to reset in a few years. This segment, though, is still worth a watch.
So yeah, I'm looking forward to catching more episodes of "On the Money." Right now it's listed as a Monday-through-Friday thing on CNBC, but that network tends to be awfully trigger-happy with shows like this. A couple weeks of so-so ratings, and Carmen's TV show is toast.
And male readers would likely agree with me on this: If we're gonna spend an hour looking at a personal-finance guru's mug on the TV screen, we'll take Carmen over Suze or Dave every single time.
It's been a while since I created a post which reviewed my household's monthly expenses in any sort of detail. So let's get this out of the way, but pronto:
Those aren't all our expenses — not even close. The house payment's not in there, nor is the soon-to-be-gone car payment. But the chart does at least show some of the larger and more common household expenses, I think.
Keep in mind that our family consists of two adults, one five-year-old daughter, and two uber-lazy cats.
And there, friends, is your glimpse inside our spending for the period of February through July of 2008.
Not but a few days after I make a stand regarding the necessity for homeowner downpayments (real ones, not the fake "downpayment assistance" kind) we get this jewel:
The buyers of the property in question paid $625,000 in January '08 for a house that might fetch $60k or $70k where I live. And I'm probably being generous with that assessment. However, the only way the bank (Wells Fargo) would make the loan was with a $125k downpayment from the buyers. Or someone.
Did the buyers have that kind of money available? Of course not.
So the seller simply took the original sales price of $500k, marked it up to $625k, and "provided" the $125k as "downpayment assistance." That, at least, is what's implied, and what I'd tend to believe.
On Jan. 15, Praslin signed the deed selling the property to the Gomezes. Mario Gomez said he was surprised when it came time to sign the papers.
"They lied to us," he said of the sellers. "They said the house was really $500,000, but when I bought it, the papers said $625,000."
Gomez said someone else — he's not sure exactly who — paid the $125,000 down payment.
Documents examined by the Register, including papers in the Gomezes' loan packet, did not show who paid the down payment.
Emily Ralles, who served as escrow officer in the sale, said she didn't know or care who paid the down payment — as long as the check was good and the parties agreed to the terms of the deal.
Neat. Every party in the transaction seems to think these shenanigans are pretty much okay. Even the dubious appraisal gets a wink-wink-nudge-nudge stamp of approval later in the article.
No, really. Bailouts for this sort of crap are precisely where I want our tax dollars to go.
... and you feed him for a day. Give a man a house, and he uses it as collateral for a $450k loan for a failed business. And ends up facing foreclosure.
There was an article Tuesday, July 22, in the Washington Post which discussed how DAPs (downpayment assistance programs) might be nixed with the passage of the current housing bailout bill:
Before we get started here, let me state this clearly: I am a rotten bastard, and do not believe that everyone should (or can) be a homeowner.
Oh, sure, in a perfect and risk-free world then perhaps down payments would be unnecessary. But our world isn't perfect, and it certainly isn't risk-free. (As recent news so clearly suggests.)
Anyhow, in the above article, I was nearly ushered into full-rant mode by a few of the quotes used in the story.
But supporters of this kind of [down payment] assistance said it meshes with the FHA's mission to serve low- to moderate-income people. While the system may have its problems, they say, it should be fixed, not abandoned, so that people like Tanika Warrior are not shut out of the market.
Warrior and her husband, Jimmy Hicks, suffered housing sticker shock when they moved to the Washington area from Arkansas a few years ago.
The couple, recent college graduates, had depleted their savings on tuition and care for their newborn son. But they had steady jobs and did not want to keep sinking money into rent, Warrior said. They also did not want to put off buying a home because they were not convinced that their finances would be stronger in a few years.
"We don't want to throw money in a hole," said Warrior, 24, a federal patent examiner. "My thing is, we pay our rent every month and we've never been late, not once in five years. If we can pay our rent every month, we can pay our mortgage every month."
Yeah, see, what this college grad and recent dad doesn't yet grasp is a thing called risk. As a guy who's been rabidly watching the housing bubble go bye-bye these last few years, I will state here that "paying rent" and "paying the mortgage" are alike only insofar as they both involve forking over money to someone else on a regular basis.
That's where the similarities stop.
Let's pretend Mr. Hicks stops paying his rent. What happens? Give it a few weeks, or months, and his landlord comes along and plays the eviction card. Mr. Hicks takes the proverbial hike. Mr. Landlord (who already owned the place) cleans the place up, maybe, puts an ad in the paper, and soon (probably) finds a new tenant to shack up and take on the rent.
Landlord's Risk: Probably not too much, in terms of time and/or income. If the renter scoots one day, well, hopefully Mr. Landlord was wise enough to collect a month's rent or more upfront. Just in case.
Renter's Risk: Little to none. When something breaks or repairs are needed, he calls the landlord. When it's time to ditch the place, he loses his initial deposit. Maybe.
Now let's say Mr. Hicks stops paying the mortgage on the Dream Home he and his wife so luckily qualified for thanks to scams like "down-payment assistance." There really is no down payment (read: borrower "skin in the game") in such cases, mind you; the money simply comes from the seller via an inflated sales price and a circuitous money-laundering route. Think high appraisals and dodgy "non-profit" assistance companies, for starters.
Lender's Risk: High. When things go bad, the lender must resort to foreclosure (costly), property upkeep (costly) on a place he never wanted to own anyway, and (oh yeah) risk the loss of tens or hundreds of thousands of dollars of value (watch the news much?) when he finally unloads the property on the market.
Buyer's Risk: Significant to high. For starters, who ya gonna call when the roof springs a leak? That's right: MasterCard. Whose credit rating hangs in the balance when the Buyer's checking account runs short? Who's on the hook for property taxes, upkeep and maintenance, and dodging annoying neighbors? If you answered "buyer," you're a winner. Of course, if housing prices ever went a direction other than UP, then you could throw "price risk" in here, too. But since we know THAT never happens...
Anyway, what Mr. Hicks is missing entirely is this: From the "buyer side" of the transaction, "paying rent" and "paying the mortgage" don't look all that different. Both require the obligatory once-a-month check. From the landlord/lender side of the table, though, there's this thing called risk. And it's a huge consideration. Or should be. (It wasn't the last few years, thanks to bubbledom. Which is why words like "subprime," "Alt-A," "walking away," and "billions in write-offs" splatter so many headlines these days.)
There's a reason the standard mortgage down payment used to be twenty percent. Twenty percent means the borrower has significant "skin in the game" and won't take her responsibility as homeowner lightly. Twenty percent means the lender has significant cushion against falling home values should the borrower default at some point.
Additionally, "twenty percent down" means that borrowers don't go buying homes that are light-years above their means. In contrast, the Washington Post gives us the Shermans:
Salmineo Sherman Sr., who recently used seller assistance to buy his first home, is not tuned in to the horse trading on Capitol Hill.
But yesterday, he said he felt lucky that he bought his seven-bedroom house in Clinton this month. Without seller assistance, he and his wife would not have been able to close the deal. They have six children, two of them grown.
"I do not see myself as any risk at all because I'm not stretching with this house," Sherman said. "We can afford the monthly payments. . .. We're staying put, right in this house."
Hmmm. Let's see:
Six kids, including two grown.
Seven bedrooms.
Picturesque home.
Decked-out kitchen (note the article's slideshow).
And not enough savings for a minimum down payment on any of it.
Not stretching, huh? Someone — anyone — please show me where requiring "seller assistance" to purchase a seven-bedroom McMansion equals "not stretching."
Call me crazy, but no matter how bulletproof Mr. Sherman believes his American Dream is right now, something tells me the dreaminess of it all will quickly dissipate the minute ol' Murphy strikes. And Murphy will strike.
We're told that Mr. Sherman's been "affording the payment" in this "first home" all of one month — if that. And since he apparently couldn't come to the table with a requisite down payment of his own, we can be fairly assured that his household's ability to actually save cash is ... well, iffy. At best. (And with six kids, who's surprised?)
From where I sit, it takes more than one month of living in a place to have any idea of what it's really gonna take to "stay put."
But Who Has 20% of $400k to Put Down?
Yeah, I know. Realistically, what Joe Sixpack can come up with $80k as a down payment on, say, a $400k house?
One who can truly afford that house. That's who.
Note that this Joe Sixpack probably isn't a first-time homebuyer, nor is he a single dad with three live-in kids and a Yorkie.
Which is exactly as it should be.
But $400k Won't Even Get Me a Shanty Where I Live!
Then prices need to come down. Way down. Which, I've heard, is happening as we speak. Lucky you. Of course, you could also move.
But that would be hard.
Just like saving.
So You Want to See Minimum 20% Down Again?
Nope, though who knows how lending will evolve from this point. When my wife and I bought our home, it was our first, and we had to put only 3 percent down. At the time, that was something just over $2k. If I recall, our household income was in the low- to mid-$20s. We saved the $2k and made it happen. (I reiterate here that it's awfully nice to reside in a low-cost-of-living state.)
Unlike some folks, apparently, I don't believe that banks' requiring minimum down payments WITHOUT some sort of DAP involvement is just another way for "The Man" to "Keep You Down." That's crap, and I'm tired of the implication of it from various outlets.
Having some sort of significant down payment — and yes, that can be as little as 3 percent of the purchase price, provided the funds are the borrower's — shows that you have at least some control of your money, and at least some capacity for thinking ahead and saving. I like to think of having good credit and a stable work- and bill-paying history as "being qualified" to enter the American Homeownership Ball. But just being "qualified" doesn't get you in the door.
For that, you also need a decent down payment. Somehow, some way, you have to prove that you can control your money, and having a savings stash is as good as any.
As a 12-year homeowner, I can assure you: That ability to save will come in real handy when homeownership risk rears its ugly head.
Over the weekend I was tipped-off to a couple of economy-related videos — both of which, I believe, are certainly worth watching. They're courtesy of PBS' Bill Moyers Journal. You'll want to set aside roughly an hour, as each video runs for approximately thirty minutes:
I suspect that many readers may be sick to death of hearing about the "mortgage mess." It's right up there with gasprices where 10pm news topics are concerned, yes?
In my part of the country (Oklahoma), however, I've not encountered much evidence at all that the general "dimwitted public" (a term coined in the second video above) has clued in at all to the larger implications of all this banking- and mortgage-related tomfoolery. I definitely get the impression that folks here feel very much insulated from ... well, from everything except the high fuel prices.
I'm not sure that being comfortably numb to economics at large is a particularly prudent path to take.
It was just about a year ago that I wrote about our two-day vacation trip and the lodging expenses incurred therein. Since the Wife, daughter, and I just returned from this summer's Two-Day Getaway, I figure it's worth sitting down to see how the money flows came out this year.
Quicken and Excel tell the story like so:
This Summer 2008 trip took us from our home base in Norman, Oklahoma, up northeast to Tulsa via I-44. We left Saturday (noonish), and returned Monday at around 5pm. Lodging consisted of two nights in a Holiday Inn Express. Activities included visiting the Philbrook Museum of Art, the Oklahoma Aquarium, a bit of geocaching ... all topped off by a somewhat scenic return via Route 66 and a hunger-busting visit to Pops Gas & Grille.
Yup, vacationing away from home is still pricey — though it's not the gas that drained our wallets. Short of camping outdoors or sleeping in your car — neither of which appeal to me all that much — I'm not sure how much one can really slice the lodging expenses. Priceline discounts tend to average $8 to $15 per night, which ain't bad ... but it's not bargain-basement, either. (Much like last year, we booked straight through Holiday Inn.)
On the other hand, food and dining expenses can be mitigated. Take-along lunches and sandwich picnics could've zapped a decent chunk of the $159 we spent over Saturday/Sunday/Monday. We elected not to do this, however, as our household budget has been (thankfully) flexible lately. And since I take sandwich lunches to work two or three days per week ... well, practicing the same discipline during a mini-vacation isn't a task I relish.
Over on the right sidebar of this blog, you'll see a little graph showing my progress toward a couple of financial goals. As of today, it looks like this:
The debt you see there is what's remaining on our 3.95% auto loan on our '06 Accord. My goal is to have that loan gone, and thus be debt free (except for the mortgage) again, by December of this year at the latest. If I can accomplish this, I will have paid off the five-year note in just under three years.
In reality, though, I'm shooting for a Debt-Free October. Or sooner.
I'm pretty sure I can make it happen — especially given the fact that we've not yet received our snail-mailed $1,500 economic stimulus check. I've already earmarked that check for auto-loan debt paydown. Much to the chagrin of Congressmen and -women ... and guys named George W., I'm sure.
But perhaps the question begs: We have more in liquid funds than we have in debt. So why not pay the debt off now?
There's Value in Comfort
Personal experience has taught me that I don't do well when my bank accounts are sparse. That's why I could conceivably wipe out our car loan tomorrow, if I wished.
But I don't.
The thing is, you see, that I'm a worrier. When I know there's not much in our savings, my mind runs with the "what-if" ideas full-tilt and 24-7. I wonder what emergency's about to crop up that will require the money I just spent on something else (debt payoff).
Alternator on my truck comes apart?
Major home-roof leak?
Laptop decides to power down ... for eternity?
All could happen. So in times like this, for my own personal sanity, I choose liquidity. But it will still allow me to reach my paydown goals. I'm basically paying a bit of interest (the difference between my car loan @ 3.95 percent, and our savings @ 3 percent) in return for a bit of mental peace.
NORTH POLE (Staff) — Locals who said the housing downturn couldn't reach this far north were partially correct: Property values in the icy northernmost reaches have been relatively stable for decades. But analysts now believe that outside investments undertaken by the two most-popular North Pole residents have come back to haunt the couple.
"They [the Clauses] weren't going to get rich from their primary residence, that's for sure," said Tom Dewmar, owner of Frozen Tundra Assets, a property-management and marketing firm based in Ontario.
Dewmar, who is also the editor of the Great White North Properties Newsletter, says he's seen it all before.
"There's just not much of a market for a thirty-acre homestead that far north,” he says. “Zero demand means zero appreciation. If you're the Clauses, and you have to keep up with inflation, you're forced to look elsewhere for return on capital."
That's exactly where the problems began, sources close to the Clauses report. Records of various counties show that Mr. and Mrs. Claus purchased a double-digit string of properties in the United States in recent years. Rates were low and credit was easy, and the Clauses plunged in by the sled-full. They bought ten of their twelve properties in either 2005 or 2006, while an eleventh — a now-defunct condo project in east Miami — came along in early 2007.
"You're looking at a family investment portfolio that will suffer staggering losses," says Mary Fornster, a Morgan Stanley analyst who follows investment trends of the world's elite. "If anyone thought the Kringles were immune to zero-down, teaser-rate, the-gains-are-permanent temptation, they were mistaken. It's pretty sad, really.”
Fornster, who stresses that her firm has never had any financial relationship with the Kringle family, points to misguided investment advice and reckless loan underwriting as primary causes for this financial Nightmare Before Christmas.
“Had we been asked,” she says, “our advisors certainly would have steered the Kringles away from real-property assets at that time. The fundamentals were shaky. Then, as now, we continue to recommend silver and gold."
Other experts suggest that the Clauses/Kringles, like so many of their American and European counterparts, could remain uninterested bystanders in real estate for only so long. Property values skyrocketed month after month in places like California, Florida, Nevada, and Arizona. The lure of twenty-five percent annualized gains proved too much for them, and countless others, to ignore.
“Oh, their portfolio was diversified, all right,” Fornster says. “Right now, their estate basically has three classes of real property: ‘bad,’ ‘worse,’ and ‘monumentally horrific.’”
“Certainly we all appreciate everything the Kringles have done through the years,” she adds. “Airlifting bags-full of toys and gadgets across the globe in a single night – the logistics are nightmarish. But reality is what it is. The Kringles are bagholders of a different sort now.”
A Family Member Speaks Out Emma Nelle Barnes has seen her share of struggles. At ninety-one years old, she remembers the days of her childhood — sepia-toned times when her cousin Kristopher could offset his then-modest holiday business expenses simply by holding off-season bake sales and publishing cookbooks full of cherished family recipes. As recently as 1983, Santa’s hardbacked Chewy is Good: A Celebration of Venison Throughout the Year (published under a pen name) reached bestseller status. Revenues were substantial. Reviews were glowing.
Beloved everywhere, and with such a prestigious reputation as their tailwind, Kringle business profits seemed a given. The family bank accounts were always at least stable, but most often growing. Previous market slumps — both stock-market-related and otherwise — dotted the past decades, but left little mark on the Kringle fortune. Even during the Great Depression, Ms. Barnes remembers, the belt-tightening was significant, but not earth-shattering.
But this downturn reaches deeper.
“Chaos visits them from all sides now, dearie,” says Barnes in hushed tones. She speaks with her famous cousins at least twice a month via telephone. “I know they’re worried sick. Fuel prices are high. Grain prices are high. Insurance and union costs for the elves are astronomical, and rising. Creditors call every hour. If the Grinch had really wanted to steal Christmas, this is how he should have done it.”
Ms. Barnes sums it up succinctly:
“And now, to top it off, you have this. This housing bubble. I just don’t know how it got this bad. But I can read the statements and the mail and the news. My family’s investments are in the shitter, dearie.”
No Remorse From Sellers Darlene and Stewie Richards bought their Elk Grove, California home in the mid-1990s for a few hundred thousand dollars. It was a quiet neighborhood, warm and green and blooming with hydrangeas. The four-bed, two-bath, two-tone stucco (with pool) seemed a perfect place to put down roots.
And during the housing- and credit-explosion of the mid-2000s, untold swarms of property buyers thought so, too. Darlene recalls that during the first few days their home was on the market, her realtor took bids from more than 300 interested — and more importantly, prequalified — parties. When the smoke cleared, it was a sight-unseen investor who had turned in the highest bid.
A charming old gentleman going by the name of “K. Creengel.”
“I knew who he was right off,” Stewie Richards says as he clicks the doorlocks on his late-model Escalade. “No mistaking him. Corncob pipe. Button nose. I don’t mind saying it was more than a little odd, seeing that familiar face across the table from us at closing. I mean ... that beard. Never mind the two elves that came with him. It’s not every day you have to sit and wait for fancy-pants elves to go over all the contracts.”
He shakes his head, seemingly in disbelief of it all. “Who even makes three-piece suits that small? Jesus.”
Records show that Kringle’s family trust paid the Richards a total of just over $1.1 million for the home in 2006. It is currently for sale again, with a listing price of $720,000. It has been on the market for over one hundred weeks. The listing price has been reduced seven times.
“When I was a little girl, I wanted a pony,” Darlene Richards states. “I always asked Santa for a pony. Did I ever get my Christmas pony? No. Do you know that it took me forty-two years, two husbands, three sunroom renovations, and four granite-and-stainless-steel kitchen updates just to get that pony? I used the money from that home, plus a chunk of a cash-out refi on our rental place in Alabaster, and I bought us a pony farm in Missouri. Shetlands.”
If the Elk Grove home were to sell at its current listing price, the Kringles would be absorbing a loss of well more than $380,000. But Mr. and Mrs. Richards, who no longer live on the west coast, are not apologetic.
“I was a pretty good kid,” Darlene explains. “I kept my room clean, mostly. I helped with dishes at dinnertime. I carried a B-average in school. But still no pony from Santa. Every year — disappointment. Heartbreak. Well, that’s changed, hasn’t it? In a weird way, Santa finally gave me that pony. I just had to take things into my own hands.”
She shrugs and lights another Pall Mall.
“It’s capitalism. We won. He lost.”
The Old Man Loves Vegas It crushes Emma Nelle to see what’s happening to her cousins up north. Put simply, the money is running out.
“The old man loves Vegas, surely he does,” she says as she steps out the back door into her cutting garden in Sioux Falls. “Until last year, Kris and his wife would visit the desert two or three times a year. They enjoyed the shows, sure. Blue Man Group was his favorite. But you’d be surprised. Mr. Kringle isn’t a bad Texas hold’em player in his own right.”
Such getaway visits led, as one might imagine, to the almost-inevitable purchase of two pieces of Las Vegas real estate. The Kringles’ timing could not have been worse.
“She [Mrs. Claus] tells me they’re down forty percent already,” Emma Nelle says. “Both properties. The whole subdivision’s in shambles. News crews down there day and night. The few neighbors still there just want to be left alone.” Emma’s face deepens, the sadness creeping in. “The things people are doing to the vacant houses — it’s just horrible. Signs glued to the windows. Signs stuck in the yards. ‘Whocoodanode,’ one of the signs said. Bright red letters.”
She looks up again, squinting. “What the hell’s that mean, anyway?”
Deck the Halls (with Neg-Am Loans) Inside sources indicate that the financial precariousness which the Kringles now face can be traced, in no small part, to a mortgage-underwriting world which mispriced risk at every turn. And did so, it appears, at absurdly profitable levels.
“The guys who originated these loans made a pile of jack,” says Mr. Z, a mortgage insider with ties to Wackoverya Home Loans as well as several other real-estate entities. Mr. Z, whose business dealings still skirt the outer limits of the mortgage industry, prefers to remain anonymous. “I can tell you this much: Our man Santa got hosed on these deals, for sure. These are never-neverland sorts of loans. Pick-a-Payment ... Pick-my-Butt ... same difference. Fa-la-freakin’-la.”
Such high-risk loans were the norm in a credit world gone wild — a world where the idea of falling property values was as unacceptable as a dog-turd sandwich at the 41st Avenue Bistro in Sacramento.
“With prices where they are, our man in the red suit is buried like a baby penguin in polar-bear poop,” Mr. Z states. “God only knows what stinky deals these lenders would’ve thrown at the poor Easter bunny.”
Government officials are now turning an interested ear to the Kringles’ dilemma.
“I’m just not sure what we can do about it,” says Congresswoman Winifred Mandible, herself a proclaimed victim of six separate instances of predatory mortgage lending within the last four years. Like the Kringles, she too is facing the prospects of having several homes foreclosed and/or bulldozed by various lenders.
“What we’re seeing, at this time, is a need for more direct taxpayer-funded stimulus,” she told reporters at a mortgage-lenders conference last week. Mandible, who heads various subcommittees and chairs the Building and Urban Lenders League for Creative Responses And Proposals (BULLCRAP), says that plans to assist investors like the Kringles simply must take a back seat to other, more-urgent plans to aid first-, second-, third-, fourth-, fifth-, and sixth-time primary-residence homeowners such as herself.
“The American taxpayers’ pockets are deep and generous, I’m happy to say,” she told conference attendees. “But we must ask ourselves: Where are our efforts best directed? Where will long-term benefits best accrue? I believe we must take care of the American multi-homeowner, first and foremost, just as soon as we’ve taken care of our banks. And, of course, public servants like myself.”
So it becomes apparent that the Kringles, while so obviously in need of public-sector assistance, must simply take a number. And wait.
And children around the world must hope that his holiday season, though still six months away, brings the North Pole’s two most beloved residents more than just mistletoe, holly, and the moldy, stale fruitcake of home loans gone bad.
As is dictated by widely-held Man Laws, I enjoy sports. But usually I don't find much at ESPN.com that stokes my financial interest. This column by Rick Reilly, though, is fun:
Well, as "fun" as financial meltdown can be, I guess. As Reilly tells us:
Filing for bankruptcy is a long-standing tradition for NBA players, 60% of whom, according to the Toronto Star, are broke five years after they retire.
I did a minimum of research and discovered that what makes this "60% go broke" stat so particularly nifty is that, according to InsideHoops, the NBA's minimum salary for the 2008-09 season will be roughly $442k. Not exactly bread-n-water money.
But let's be truthful here: How many guys who make the leap into the NBA (or the NFL, or MLBA, or whatever) were good with money before they got there? Instinct tells me very few. If you've sucked with money all your young life, and then come into a lot of it ... well, not much changes. You just have more money to suck with.
Once these pro athletes step up to the financial 3-point line, there's an entire world of agents, marketers, and family members just waiting to drain every dime from the athlete's (admittedly sizeable) pockets.
Not exactly a system which guarantees success, is it?
Yesterday evening I was perusing a message-board discussion of Starbucks' recent plans to close hundreds of stores. Amidst the penetrating, insightful analysis I found this gem:
Starbucks has surpassed MCDs as the world's favorite public restroom. They should get subsidies from governments around the world for their efficient building and maintaining of these needed facilities. Emdeplam, message board poster
Yep. For whatever reason, that one earned an LOL from me.
Odd to think, ain't it, that $6 cups of coffee might not generate Glorious Unending Growth in a world doing its best to digest $4 gallons of gas. Go figure.
No, I don't mean "How long does it take for you to fill your car's tank?"
I mean, "How many hours do you have to work to fill your car's tank?"
There's a calculator at CNN/Money that's supposed to answer this question. But it seems a bit too optimistic — it doesn't appear to factor for taxes, for one thing. Or any other paycheck deductions. Those are pretty serious items to leave out, methinks.
(Heck, it told me I only had to work 1.3 hours to fill up our Accord's tank. No way can that be correct.)
So I built my own Excel spreadsheet to (hopefully) answer the question more realistically:
There. I'm much more confident of that figure. In our case, at least 2.69 hours of work would be required to top off the Accord. And with my Nissan truck, which has a slightly smaller capacity, it'd take a bit over 2.3 hours of work.
Pricing by "Hours Worked"
Figuring out any item's price in terms of "hours worked to purchase it" is a pretty good metric. (Joe Dominguez' tremendous book Your Money or Your Life (review) was the first to introduce me to this idea.) In the case of fuel prices, it's a good "hardship metric." Gas priced at $4 per gallon would generally be much more of a hardship for someone earning $10 per hour than it would for someone whose time is valued at $25 per hour. Of course, if that $10/hour person is debt-free, but the $25/hour person is leveraged to the gills ... well, that can change things a wee bit, can't it?
And yes, take-home pay matters much more than does gross income, which is what the CNN/Money calculator appears to use. I don't know about you, but I talk to very few souls who get to use their gross income to pay at the pump.
This is a simple "public service linkage" post — as good as any for a Saturday, I suppose.
Allrecipes.com is a site from which my wife (an exceptional cook in her own right) seems to get great use. A few days ago she forwarded me a link to their "Cooking on a Budget" section, and it seemed appropriate to mention it here. Who among us isn't at least a little more budget-conscious when it comes to food these days?
Traders, talking over the Morgan meeting, failed to remember any previous occasion on which a stock market conference had been called while a trading session was still in progress. They did recall, however, that in 1907, with call money at 125%, Secretary of the Treasury Cortelyou conferred with J. P. Morgan, put $25,000,000 of Government funds into Manhattan banks, halted the Panic. They remembered too the Northern Pacific crash of 1901 when, after Northern Pacific stock had gone overnight from $150 to $1,000 a share, the House of Morgan, representing the late great James J. Hill and the House of Kuhn, Loeb, representing the late great Edward H. Harriman, compromised at $150 a share, saved from ruin many a short. Then there was the U. S.-England war scare of 1895 when, with money at 80%, J. P. Morgan offered money at 6%, averted a threatened crash. Thus bankers have for a long time recognized their responsibilities as panic-preventers, and when the glass house of speculation has cracked and splintered, it has most often been the strong House of Morgan that has assumed the responsibility of fame and brought order out of confusion.
Thinking back to the Bear Stearns debacle in March 2008: Once more we saw the Federal Reserve, when caught in a bind, turning to J.P. Morgan (Chase) for assistance.
Best of pals, those two.
So history doesn't always repeat. But it surely does rhyme.
Thanks to CR at Calculated Risk for finding this video. Which, it seems to me, displays Amerititlement (that's "American entitlement") at its finest:
It occurs to me that upon watching that guy (nice wristbands, by the way) trash what is now, for all intents and purposes, the bank's house ... well, it seems that some folks simply are not mature enough to be homeowners.
Let alone be three-home-owners.
My daughter's five years old, and she's thrown her share of "I want it!" tantrums. But they typically last five or ten minutes, tops. After that she comes to grips with reality and goes right back to Green Eggs and Ham or her "My Little Pony" ponies, or whatever. Pre-K life, admittedly, packs its own set of challenges.
As does homeownership. There are obstacles to be met, important decisions to be made, and head-slapping gaffes to be dealt with — hopefully in an adult manner. But not so with this gentleman.
No, the world owes him flip-tastic returns on his housing investments. But since he's now got no shot in hell at those great returns — since he has now, in fact, been severely owned by his naiveté and greed — he's gonna be a Big Man and take it out on on the house. And by extension, the bank. And by a likely extension of that extension, the U.S. taxpayer. (Oh, and his neighbors. Can't forget his neighbors.)
Yeah. He's gonna show them.
You know, it'd be just marvelous if this video could somehow follow Mr. HouseTrasher around for the rest of his life. As in, it ends up on his boss' monitor at work. In his girlfriend's email inbox. On his parents AOL homepage. And certainly embedded in every single credit app he ever fills out for the rest of his days. Sadly, that won't happen.
Some readers might say, "Well, you don't really know his situation, do you?" And they'd be right: I don't. But what I'm fairly certain of is that this guy's a tool. Life just kicked his ass, and he has no idea how to correctly respond. He's exhibiting all the maturity of a below-average toddler, and he's carrying it out via a tantrum of extraordinary degree.
Congratulations, Mr. HouseTrasher.
I'm sure your life will only get better from here.
