As we’ve pointed out on numerous occasions here and on “The Money Show”, the root cause of the mortgage meltdown/crisis/fiasco was a combination of 1) mortgage lenders basically throwing their core underwriting standards out the window (thus giving loans to countless homebuyers who could not afford their mortgage payments, and thus, the home they were buying), and 2) the packaging of these loans into all manner of investment products that were bought and sold on Wall Street with far too little regard for the possible risks these investment products held. The interesting – perhaps the better word is, frightening – part of the story is that, this mortgage phenomenon has happened numerous times before in U.S. history.
As Burton Frierson of Reuters points out in his excellent article, “Lenders should heed lessons” (published in the Boston Herald on August 15th):
…[M]uch of today’s problems aren’t new at all.
America actually faced six mortgage meltdowns between 1870 and World War II.
All taught the same lesson: Some loans should never be made.
“Apparently no single person on Wall Street knew about these six earlier blowups,” said Robert Wright, financial historian at New York University…
“If they had, they would have held back (on making reckless loans).”
Wright [added that] today’s mortgage-market woes and all six previous meltdowns “all happened for the same reason. [Mortgage] [o]riginators had incentives to make many mortgages as quickly as possible and not to really care about the borrowers’ long-term ability to pay.”
[While Frierson doesn’t mention this in his article, it seems quite apparent that most of those in the mortgage industry weren’t familiar with philosopher George Santayana’s famous statement: “Those who cannot remember the past, are condemned to repeat it,” which, appropriately enough, was first written by Santayana in a book entitled Reason in Common Sense, something far too many in the mortgage industry have lacked over the last number of years.]
Frierson’s article also illustrates that “securitization” – the packaging and selling of loan products – is also not a new phenomenon. Such mortgage securitization occurred six times between 1870 and 1940. And, like the present mortgage meltdown:
[E]ach [of these previous six] times, the market for mortgage-backed securities grew rapidly for a few years – then suddenly collapsed.
Additionally, Frierson’s article points out that, although not all experts agree, many feel that because of this tendency of lenders not to stick to proper underwriting standards during housing booms, laws need to be put in place that regulate and maintain mortgage underwriting standards, thus avoiding overheated real estate markets which, in virtually all cases, ultimately lead to real estate market busts, such as that which we’re seeing today.
Tuesday, August 26, 2008
Sunday, August 17, 2008
“IF IT SOUNDS TOO GOOD TO BE TRUE…” (POSTED 8/17/08)
Time and again on “The Money Show”, we’ve warned that, when it comes to virtually everything – and certainly, virtually everything having to do with money – the old saying “If it sounds to good to be true, it usually is,” applies. That’s especially true when it comes to the plethora of get rich quick and/or ‘money/tax saving’ schemes that are always floating around (and seem to grow in number during difficult economic times like these).
What’s worse, in addition to the financial harm these schemes can cause, (sometime, a waste of money on the seminar, tape and/or literature fees charged, sometimes, a loss of major investments) some of these schemes can also get you into legally hot (very hot) water.
One recent case in point – as reported in the Boston Herald last month, a federal judge recently sentenced two local “get rich quick” artists to 2 ½ years in jail and 3 years of probation, respectively, as a result of one of these schemes.
The two former Leominster, MA residents – Daniel Anderson and Dwayne Robare – helped run the “Institute for Global Prosperity” (or “IGP”), which ran and sold tax related get rich quick seminars and tapes. The information IGP was ‘teaching’ included tips on how people could avoid paying taxes by using offshore trusts and offshore bank accounts.
Again, as we’ve mentioned many times before, the Internal Revenue Service is especially touchy about people trying to conceal income and avoid paying taxes on it. IGP reportedly sold $45 million worth of its seminars and tapes. Here’s the kicker (or, perhaps, poetic justice) – Anderson and Robare unsuccessfully tried to use the ‘advice’ given in the IGP seminars and tapes to conceal income they made ‘teaching’ this same advice to others on how to avoid paying taxes. Bottom line – Robare ended up pleading guilty to tax evasion and Anderson admitted to the charge of conspiracy to defraud the U.S.
Nine other people have also been convicted of or pleaded guilty to similar charges in connection to IGP.
So, once again, we remind you, when it comes to any ‘get rich quick’, ‘fantastic money saving’ ‘opportunities’ or the like, remember, if it sounds too good to be true, IT VIRTUALLY ALWAYS IS.
What’s worse, in addition to the financial harm these schemes can cause, (sometime, a waste of money on the seminar, tape and/or literature fees charged, sometimes, a loss of major investments) some of these schemes can also get you into legally hot (very hot) water.
One recent case in point – as reported in the Boston Herald last month, a federal judge recently sentenced two local “get rich quick” artists to 2 ½ years in jail and 3 years of probation, respectively, as a result of one of these schemes.
The two former Leominster, MA residents – Daniel Anderson and Dwayne Robare – helped run the “Institute for Global Prosperity” (or “IGP”), which ran and sold tax related get rich quick seminars and tapes. The information IGP was ‘teaching’ included tips on how people could avoid paying taxes by using offshore trusts and offshore bank accounts.
Again, as we’ve mentioned many times before, the Internal Revenue Service is especially touchy about people trying to conceal income and avoid paying taxes on it. IGP reportedly sold $45 million worth of its seminars and tapes. Here’s the kicker (or, perhaps, poetic justice) – Anderson and Robare unsuccessfully tried to use the ‘advice’ given in the IGP seminars and tapes to conceal income they made ‘teaching’ this same advice to others on how to avoid paying taxes. Bottom line – Robare ended up pleading guilty to tax evasion and Anderson admitted to the charge of conspiracy to defraud the U.S.
Nine other people have also been convicted of or pleaded guilty to similar charges in connection to IGP.
So, once again, we remind you, when it comes to any ‘get rich quick’, ‘fantastic money saving’ ‘opportunities’ or the like, remember, if it sounds too good to be true, IT VIRTUALLY ALWAYS IS.
Sunday, August 10, 2008
HOME FOR THE BRAVE –POSTED (8-10-08)
Tom Gleason said it best: “They put their lives on the line to take care of us. It’s an honor to be able to do something for them.”
OK. Who’s Tom Gleason, and what’s he talking about? Gleason is the Executive Director of MassHousing, the state’s quasi-public/quasi private first time home-buyer’s agency. The “they” he’s referring to are Massachusetts veterans, and the “something” he’s referring to is a new mortgage program recently introduced by MassHousing called “Home for the Brave” (“HFTB”, for short.)
This new program makes no-downpayment mortgages available to Massachusetts:
§ Veterans of the U.S. Armed Services
§ Active-duty military, and
§ Spouses of members of the military killed while on active duty
Moreover, the program is being offered in conjunction with the U.S. Veterans Administration, so that disabled veterans can also get grants to upgrade the home they buy so that it is handicapped accessible
Like all MassHousing loans, Home For the Brave loans are available through approved community banks and other Massachusetts lenders approved by MassHousing. Unlike most MassHousing loans however, borrowers need not be first time homebuyers. Additionally, HFTB loans offer MassHousing’s “MI Plus program”, which covers a borrower’s principal mortgage payments for up to six months if they become unemployed, or in the case of their military deployment.
While the Home For the Brave loans do have income restrictions, these restrictions are fairly lax (135% of the median income in the city/town in which the borrower is purchasing a home, up to $111,240 annually). Additionally, to qualify for an HFTB loan, borrowers must:
· Purchase a primary residence.
· Demonstrate they have good credit.
· Have a total housing debt ratio of less than 38% and a total monthly debt ratio of less than 45%.
· Take and complete a home buyers counseling course if the borrower is seeking a no downpayment loan.
· Borrowers may also purchase 2, 3 and 4 family homes using the Home For the Brave program, but additional restrictions do apply on such loans.
Given how much they do for all of us, it truly is a shame that we, as a society, don’t do more for our veterans. Thankfully, MassHousing’s Home For the Brave mortgage program is, at least, a step in the right direction. So, in conclusion, these two points. First, we at “The Money Show” and WTKK join MassHousing in thanking all veterans their for your service to our country. Second, if you’re a Massachusetts veteran looking to buy a home, be sure to explore the possibility of qualifying for a MassHousing Home For the Brave loan. For more information, check out the “Quick Links” section of MassHousing’s website, at www.MassHousing.com .[In the interest of full disclosure, we should let you know that MassHousing is a sponsor of the BestMoneyinfo website (to access the site, go to www.969WTKK.com homepage and click on the “Best Money Info” icon)].
OK. Who’s Tom Gleason, and what’s he talking about? Gleason is the Executive Director of MassHousing, the state’s quasi-public/quasi private first time home-buyer’s agency. The “they” he’s referring to are Massachusetts veterans, and the “something” he’s referring to is a new mortgage program recently introduced by MassHousing called “Home for the Brave” (“HFTB”, for short.)
This new program makes no-downpayment mortgages available to Massachusetts:
§ Veterans of the U.S. Armed Services
§ Active-duty military, and
§ Spouses of members of the military killed while on active duty
Moreover, the program is being offered in conjunction with the U.S. Veterans Administration, so that disabled veterans can also get grants to upgrade the home they buy so that it is handicapped accessible
Like all MassHousing loans, Home For the Brave loans are available through approved community banks and other Massachusetts lenders approved by MassHousing. Unlike most MassHousing loans however, borrowers need not be first time homebuyers. Additionally, HFTB loans offer MassHousing’s “MI Plus program”, which covers a borrower’s principal mortgage payments for up to six months if they become unemployed, or in the case of their military deployment.
While the Home For the Brave loans do have income restrictions, these restrictions are fairly lax (135% of the median income in the city/town in which the borrower is purchasing a home, up to $111,240 annually). Additionally, to qualify for an HFTB loan, borrowers must:
· Purchase a primary residence.
· Demonstrate they have good credit.
· Have a total housing debt ratio of less than 38% and a total monthly debt ratio of less than 45%.
· Take and complete a home buyers counseling course if the borrower is seeking a no downpayment loan.
· Borrowers may also purchase 2, 3 and 4 family homes using the Home For the Brave program, but additional restrictions do apply on such loans.
Given how much they do for all of us, it truly is a shame that we, as a society, don’t do more for our veterans. Thankfully, MassHousing’s Home For the Brave mortgage program is, at least, a step in the right direction. So, in conclusion, these two points. First, we at “The Money Show” and WTKK join MassHousing in thanking all veterans their for your service to our country. Second, if you’re a Massachusetts veteran looking to buy a home, be sure to explore the possibility of qualifying for a MassHousing Home For the Brave loan. For more information, check out the “Quick Links” section of MassHousing’s website, at www.MassHousing.com .[In the interest of full disclosure, we should let you know that MassHousing is a sponsor of the BestMoneyinfo website (to access the site, go to www.969WTKK.com homepage and click on the “Best Money Info” icon)].
Monday, August 4, 2008
TIMES ARE TOUGH -- BUT NOWHERE NEAR AS TOUGH AS MANY WOULD HAVE YOU BELIEVE -- (POSTED 8-4-08)
FDR once famously stated, “The only thing we have to fear is fear itself.” Many people interpreted that to mean that there were no problems we need be concerned about. Of course, that’s not what he meant. Rather, what FDR meant was that, while the world is filled with problems we need be very concerned about, if we deal with them calmly and rationally, without fear, than we can deal with and solve them.
Unfortunately, today, Americans aren’t heeding FDR’s words. Rather, Americans, in growing numbers, seem to be afraid of everything, not only those problems we need to be concerned with, but also “problems” that either are easily fixed, or don’t exist at all. This is especially true of the country’s current economic troubles, and the blame for this lies largely at the feet of the mass media.
Yes, the economy is struggling. Yes, many people are having trouble making ends meet. Yes, while we may not currently be in a recession statistically, most would agree we certainly are in a “de facto” one. But, over the past couple of years, rather than trying to rationally report the situation, the mass media has fallen all over itself sensationalizing and blowing its reporting of these problems totally out of proportion and giving these reports virtually no perspective nearly every chance they get.
Fortunately, at least a few observers ‘get it.’ One excellent case in point: a column recently written by Jeff Jacoby and published on the Op-Ed page of the Boston Globe (Tuesday, 7-22-08).
In his column, entitled “Cheer up – these are the good old days”, Jacoby touches on the sensationalizaton of the economy’s problems by the media. Jacoby then goes on to put these problems in their proper perspective. For example, Jacoby writes:
Voices of reason keep trying to point out that conditions are not nearly as bad as they were the last time consumers were this despondent. That was in May, 1980, during the final year of the “misery index” – the sum of the inflation and unemployment rates – hit an excruciating 21.9. Inflation was then at 14.4 percent; unemployment was 7.5 percent. The numbers today are 5 and 5.5 [percent] respectively.
But more importantly, Jacoby goes further, offering the perspective of two other very rational observers – Federal Reserve Bank of Dallas members W. Michael Cox and Richard Alm. In their recent article (entitled “How Are We Doing” and published in the current edition of The American magazine), Jacoby notes that Cox and Alm point out:
The nation’s present troubles [Cox and Alm] argue, … “will turn out to be mere footnotes in a longer-term march of progress.” The US economy, “a $14 trillion behemoth” remains without equal as an engine of growth and prosperity. However impolitic it may be to say so, when you take a long view it is clear that we have never had it so good.
Moreover, as Jacoby further notes, Cox and Alm point to a number of reassuring trends to back up their long-range optimism:
Americans on average work far less than they used to. Annual hours devoted to the job have fallen from 1,903 in 1950 to just 1,531 today. We start working later in life, retire earlier, and live much longer. Even including household labor, [Cox an Alm] write, “only about a quarter of our working hours are consumed with work, down from 45 percent in 1950.”
[Additionally, the] material progress of recent decades has been extraordinary – at all income levels. Forty percent of poor families own their own homes. For many goods (kitchen appliances, color TV’s, air conditioners) ownership rates are higher among poor Americans today than they were among the general population in 1970...
…Short-term troubles notwithstanding, Cox and Alm observe, the “data points add up to steady and continuing progress for average Americans.”
As Jacoby (echoing a point we continuously try to get across on “The Money Show") concludes:
So, no, everything is not [as much of the media would have us believe] spinning out of control. Alarmist headlines notwithstanding, we’re doing all right…
Unfortunately, today, Americans aren’t heeding FDR’s words. Rather, Americans, in growing numbers, seem to be afraid of everything, not only those problems we need to be concerned with, but also “problems” that either are easily fixed, or don’t exist at all. This is especially true of the country’s current economic troubles, and the blame for this lies largely at the feet of the mass media.
Yes, the economy is struggling. Yes, many people are having trouble making ends meet. Yes, while we may not currently be in a recession statistically, most would agree we certainly are in a “de facto” one. But, over the past couple of years, rather than trying to rationally report the situation, the mass media has fallen all over itself sensationalizing and blowing its reporting of these problems totally out of proportion and giving these reports virtually no perspective nearly every chance they get.
Fortunately, at least a few observers ‘get it.’ One excellent case in point: a column recently written by Jeff Jacoby and published on the Op-Ed page of the Boston Globe (Tuesday, 7-22-08).
In his column, entitled “Cheer up – these are the good old days”, Jacoby touches on the sensationalizaton of the economy’s problems by the media. Jacoby then goes on to put these problems in their proper perspective. For example, Jacoby writes:
Voices of reason keep trying to point out that conditions are not nearly as bad as they were the last time consumers were this despondent. That was in May, 1980, during the final year of the “misery index” – the sum of the inflation and unemployment rates – hit an excruciating 21.9. Inflation was then at 14.4 percent; unemployment was 7.5 percent. The numbers today are 5 and 5.5 [percent] respectively.
But more importantly, Jacoby goes further, offering the perspective of two other very rational observers – Federal Reserve Bank of Dallas members W. Michael Cox and Richard Alm. In their recent article (entitled “How Are We Doing” and published in the current edition of The American magazine), Jacoby notes that Cox and Alm point out:
The nation’s present troubles [Cox and Alm] argue, … “will turn out to be mere footnotes in a longer-term march of progress.” The US economy, “a $14 trillion behemoth” remains without equal as an engine of growth and prosperity. However impolitic it may be to say so, when you take a long view it is clear that we have never had it so good.
Moreover, as Jacoby further notes, Cox and Alm point to a number of reassuring trends to back up their long-range optimism:
Americans on average work far less than they used to. Annual hours devoted to the job have fallen from 1,903 in 1950 to just 1,531 today. We start working later in life, retire earlier, and live much longer. Even including household labor, [Cox an Alm] write, “only about a quarter of our working hours are consumed with work, down from 45 percent in 1950.”
[Additionally, the] material progress of recent decades has been extraordinary – at all income levels. Forty percent of poor families own their own homes. For many goods (kitchen appliances, color TV’s, air conditioners) ownership rates are higher among poor Americans today than they were among the general population in 1970...
…Short-term troubles notwithstanding, Cox and Alm observe, the “data points add up to steady and continuing progress for average Americans.”
As Jacoby (echoing a point we continuously try to get across on “The Money Show") concludes:
So, no, everything is not [as much of the media would have us believe] spinning out of control. Alarmist headlines notwithstanding, we’re doing all right…
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