I travelled out of Houston to write this post. Ike knocked out much of the power to the town, but my neighbors and I are alright. We have been cleaning up and enjoying life. Hope all of you are well. Until I get power back, there will be no new posts for awhile. Raise a glass to me.
Till later,
Frank
Did Obama and McCain Miss an SEO Opportunity With the News About Fannie and Freddie?
Let me state that this blog is not meant as a political forum, and I am not advocating one candidate over the other. My focus is real estate. With the government takeover of the two mortgage giants, I realized that the housing crisis has become an more of a political issue than a financial one. The markets will not determine the outcome of our situation, so we need to look to our leaders to see what that might be. Having come just at the time of an election, the situation makes for an interesting one, since the course of action will be taken by a new head of state and his appointees.
I typed in the candidates names and the takeover into a search engine to see what might come up. I thought that this would be a good opportunity for the candidates to express their views on how they would handle these firms. News stories came first, which is why I think they both may have missed out on using SEO to reach out to voters concerned about what this takeover may mean. Each candidate had something to say on the campaign trail, but I saw nothing directing me to their sites.
I went to their sites though with the hope of finding some information. Nothing dealing with how they would handle Freddie and Fannie now that they are under government control, but they do lay out the general ideas for dealing with the housing crisis. You can read McCain’s view here, and Obama’s view here.
Obama spoke of concern over the severance package of the ousted CEOs, which struck a chord with me. I could never understand how a person who was removed from a firm for doing a bad job could be rewarded for that inferior work. If you are being dismissed, you should not walk away with a generous amount of money. Otherwise, a quick glance at the news did not seem to highlight other thoughts which he may have on the future of Fannie or Freddie.
McCain called the takeover “outrageous” but he agreed with the Bush administration’s action. He did use it as an opportunity to point to a part of his plan that Fannie and Freddie should be downsized, which was clever way to emphasize his plan. To spread out the responsibilities of these firms to many other companies is not a bad idea. The failure of one or two firms would not have such a vast impact then. My concern is thinking back to the years of McCain’s hero, Ronald Reagan. That president promised us a smaller government, but delivered a government that was growing ever larger. I just cannot see the downsizing of these two giants happening any time soon.
One thing that I think that can be safely stated is that the markets will have to stabilize before any action as to the future of these firms can be determined. Such stabilization may not take place until the next president begins his second year in office. My guess is that Fannie and Freddie may reemerge as entities very similar to what they are now, but Congress will enact a law which will somehow reduce the risk that they were currently exposed to. This may mean stricter accounting rules for the firms to ensure that they have the capital on hand which they claim to have; another corporation to increase competition like what Freddie was supposed to do for Fannie; limits on their lobbying which does not really mean much; or limiting the loans that they buy in the hope to spread out the risk. We will have to wait and see.
The credit crisis and the housing crisis has now been with us for one year. We are still not officially in a recession, but more signs keep pointing that way. Maybe we should just declare it a stagflation, and be done with it. Financial institutions are failing; we are in a bear market; and we face rising costs. The current administration has made it clear than industry should be assisted, but individuals should not be, but it has been forced to help the little man. What happened to the idea of compassion which they promised?
In the midst of this climate, I was struck by a couple of articles and websites which I encountered in the past week. I could place the word “hate” in the title, but it is not quite there yet. I came across two blogs by Realtors who are using the same tactic to reach consumers. They state that they are insiders who are going to blow the cover off of the industry, and they only way that you can get to the truth is by trusting them. Looking through their sites, I found little in the way of inside information. In fact, most of the data provided is much the same as other Realtors, except that they SCREAM IT TO INDICATE IT MIGHT BE A SECRET.
On the other side, I find Realtors who take offense at any comment which they feel may blame Realtors for our current situation. I have seen many defenses of their profession, so obviously they feel under attack. What I really notice though is that the Realtors who are busy working seem to ignore such situations. They are simply too busy to care about some comments. They seem to take them for what they are, which is often not an attack of the industry. However, these Realtors are not often on the internet, so we hear the voices of those who have time to spare.
Then I read a newspaper article regarding the downfall of a title company, which lost funding from banks. Sixty employees in Houston have lost their job. Another large title company reported losses this last quarter. I think of the workers who face increased cost of living with no income. Unless they have skills compatible with the petrochemical industry, a job will be hard to come by. At the end of the article, there were comments of glee at the failure of this firm, claiming that all title companies were fraudulent. There did seem to be some misunderstanding about what a title firm does. On various blogs, I see this sentiment coming through to different degrees, but I do not think the public at large has the same feelings.
The real estate industry does have some problems in the way it operates. I recently have been dealing with a mortgage lender which seems to be trying to set up for a liability. After I declined to make statements in a report that they requested that I include, they made several requests which questioned my abilities. I am conscious of the fact that I may cause my clients to loose their loan, so I have been trying to comply while not hurting my business or my client. I think of appraisers who were faced with the same situation under pressure by lenders. The other issue should be a clear understanding of the fees involved by the various parties involved in a transaction should be openly disclosed. Most professionals will do this when asked, however, the general knowledge of the economics of a deal are not comprehended by most buyers and sellers. I think that there is room for improvement in that field.
I wonder if internet brokerages and the increasing number of foreclosures will help change the industry. The industry does have to look at itself, while finding a way to lay bare how it works.
This post is a quick thank you. I have been looking around at other blogs. I usually do not comment on many posts, because I have nothing to add to the conversation (lately I have been reading a few blogs about the internet and tech devices). During my travels I came across the rantbeast. I could sympathsize with a what he was going through, so I left a comment. I have read some of his other posts, and I liked them. I discovered that he linked to me through a post, and I wish to repay the favor.
If you get the chance, please go over and check out the rantbeast.
The City of Houston has a website which provides assistance to people who wish to own a home. The site may not be for you, but it does have useful information on it. One downloadable file has a list of affordable lenders in the Houston area. Below is a list of terminology connected with mortgage loans. I found good information on the internet about lenders and mortgages, but two sites that are worth a mention are Wikipedia and About.com. They have various articles concerning this topic. I would like to stress asking a lot of questions when obtaining a loan, so you understand what is happening. Some questions you should ask are the following:
1. What expenses will the escrow account cover, and how much will you be required to put into it each month? Your property taxes and home owner’s insurance are typically paid out of this account, but you need to know. I thought my insurance was going to be paid by one lender through this account, only to find out that I had to pay for it myself.
Lenders want to set the monthly rate for this account for more than the expenses, so they will have any changes in cost covered, but they are only allowed to keep so much money in the account for next year.
2. How much will the PMI or borrower’s insurance be? When can you stop paying it? Lenders want to insure that you will be able to make loan payments, so they require that you purchase an insurance to cover the payments if something happens to you. In most cases, this insurance benefits the lender more than you, so when you have the opportunity, you may want to cancel this cost.
3. Are their any penalties for paying off the loan early? Some lenders do not want you to pay down the principal of your loan, since this will lower their profit by lowering the interest that you will need to pay. By paying a little towards the principal each month, you will save money in the long run. Usually, your loan payments will be balanced more to paying the interest than the actual amount borrowed (the principal), when you start making payments.
Look at different lenders, and find out on what items they are willing to negotiate; you may save yourself a good deal of money. Read the section below about credit scores to understand how this number will effect your mortgage payment and your insurance cost.
Types of Mortgages
Conventional fixed-rate mortgage- allows you to make a fixed monthly payment at a fixed interest rate for the life of the loan (mortgage). This type of loan offers you stability and long-term tax advantages. Interest rates are usually higher than other loans.
Variable rate mortgage (Adjustable rate mortgage)- your payment is fixed, but your interest rate floats. This is good if the rates are high and you expect them to fall soon. The changes in the rate could possibly cause changes in the monthly payment amount, the loan term, and the principal. Some plans have rate or payment caps.
Renegotiable Rate Mortgage- your interest rate and principal payments are constant for several years, and then could be renegotiated.
Balloon Mortgage- your monthly payments are based on a usually short-term fixed interest rate. The payments may cover only the interest payments, so that the principal is due at the end of the term of the loan. Offers low monthly payments, but little or no equity in your home.
Reverse Mortgage- this is a loan for people who have paid for their homes, and they wish to use their equity in the home to give them an income, so this mortgage is not for home buyers.
Interest Only Mortgages- this is where you only pay on the interest of a loan, but not the principal. You will have no equity in the house. If you are planning to sell the house soon (or live in it for a short time), and you are not concerned with building up your equity, this loan may be good for you.
Terms
Amortization- the amount of time it will you take you to pay off the loan. The longer you pay, the lower your monthly payments will be.
Annual percentage rate (APR)- the cost of borrowing, expressed as a yearly rate.
Cap- a limit on the amount the interest rate is allowed to climb on an adjustable rate mortgage, either over the life of the loan or at each rate adjustment.
Closing costs- Fees associated with the buying and selling of property and the setting up of the mortgage. These costs can be negotiated within reason.
Escrow account- an account where money is held to pay certain expenses, such as taxes and insurance. When setting up your loan, find out what will be paid from this account, so you will be prepared for an expense not covered by this account. The down payment for a property is held in this type of account.
Loan origination fee (loan application fee)- a charge from the lender to cover costs in preparing the paperwork for the mortgage.
PITI (principal, interest, taxes, and insurance)- the four components that can be included in your mortgage payment.
Points- a charge that is designed to increase the bank’s profit on your mortgage and cover closing costs.
Title charges- a title insurance required by lenders to protect them against someone making a claim to the property.
Pre-approval/Pre-qualification- If you pre-qualify for a loan, the lender has taken a general look at your credit, and they think you might be some one they could loan too. If you pre-approve for a loan, the lender has taken a close look at your credit to determine that they will lend you the money for a home.
Private mortgage insurance (PMI)- an insurance which protects the lender if you default on the loan. After you have at least twenty percent equity in your property, you can ask your lender to cancel this insurance.
Appraisal fee- a lender can require you to pay for an appraisal of the property to determine if it is worth less than what you are asking for in the loan.
Survey fee- a lender can require that a survey of the land be prepared to determine what the title to the land includes.
Property insurance- the lender will require to see proof that your house is insured. This is to ensure that if something happens to the property, it will (or could be) repaired.
Prepaid taxes or utilities- money owed to the seller if he has paid taxes or utilities beyond the closing date.
Services charges- fees connected with connecting the property services such as phone, cable, utilities.
Attorney’s fees- if you use an attorney to help with the purchase or selling of the home, you will have to negotiate their fees. An attorney is not always involved in this process.
Real estate fees- fees paid to the broker, which is built into the price of the home.