When I was younger I was conditioned to think more highly of those people around me that other people liked. Those traits thought to be most important when you are 18 only stick around for a couple years. What people look like, how popular they are, how much money they have (I think most people never grow out of this one), or where they are from. Hopefully those are replaced as you grow older with things more important. I've come to appreciate these lately.
I've got a good friend who most would not consider the best looking guy in the world. He's not the best in social situations. He usually says what he wants. There's not many unknowns with him. The one quality about him I will always look up to is his gravity towards truth and honesty. Time and time again he impresses me with his outward disapproval of anything dishonest. His other traits that seem less socially acceptable fade into nothingness as I consider his value as a friend and someone I can trust. These traits will be something I will remember far longer than the money he has or looks he doesn't. Because of these traits I am sure we will always be friends. I know I can trust him, no matter what.
Monday, October 19, 2009
Wednesday, September 23, 2009
Sometimes You Gotta Do It Yourself
I've been working in a small company for the past two years, serving in various roles. During my experience, I have learned numerous lessons of running and operating a small business. One of these is applicable in small business, enterprise companies, and life itself.
The majority of people in the world are followers. I think the 80/20 rule applies here. All of us have been followers in one area of our lives at some point. I am a follower of a specific religion. I follow fashion, to a point. I follow sports teams. I follow a couple hundred people on twitter. All these people and things I follow are telling me something. Some tell me how to dress. Some try to tell me how to think. Others tell me who to start in my fantasy football league. We all need people to tell us what to do at some point or another.
There's another part of life this leader and follower model fits as well; the workplace. Small businesses are a great way to get to know people. You learn who are the talkers, the walkers, and everyone in between. You meet people's kids, you know what they're doing on the weekend, and you learn about their eating habits. Some of this is unnecessary, while some is very revealing.
A number of years ago, while I was still in school, I worked as a sales rep for Apple Computer, Inc. I pretty much got the job because my older brother already worked there. While there he told me to pay attention to an observation he made when moved into management. He said most people have to be told what to do on a daily basis. Explaining further he described how most employees needed specific direction on how to perform specific tasks, how to get to work, when to arrive and leave, what their goals should be, and endless other instructions on how to do their job. He then described another group, which is much different.
The second group is composed of the leaders, the doers. They need very little instruction. In fact, if they are given too much instruction they feel smothered and their production is hampered. This is the small business owner and successful manager, in a small, mid, or enterprise size company alike.
I've progressed during my last two years, and have found that progression to come only as a result of the effort I put forward, which nobody else asked of me. I initiated it. I planned it. I executed it. I may have had a great idea but in the end it is likely to fall by the wayside unless I execute it. Sometimes you just gotta do it yourself.
The majority of people in the world are followers. I think the 80/20 rule applies here. All of us have been followers in one area of our lives at some point. I am a follower of a specific religion. I follow fashion, to a point. I follow sports teams. I follow a couple hundred people on twitter. All these people and things I follow are telling me something. Some tell me how to dress. Some try to tell me how to think. Others tell me who to start in my fantasy football league. We all need people to tell us what to do at some point or another.
There's another part of life this leader and follower model fits as well; the workplace. Small businesses are a great way to get to know people. You learn who are the talkers, the walkers, and everyone in between. You meet people's kids, you know what they're doing on the weekend, and you learn about their eating habits. Some of this is unnecessary, while some is very revealing.
A number of years ago, while I was still in school, I worked as a sales rep for Apple Computer, Inc. I pretty much got the job because my older brother already worked there. While there he told me to pay attention to an observation he made when moved into management. He said most people have to be told what to do on a daily basis. Explaining further he described how most employees needed specific direction on how to perform specific tasks, how to get to work, when to arrive and leave, what their goals should be, and endless other instructions on how to do their job. He then described another group, which is much different.
The second group is composed of the leaders, the doers. They need very little instruction. In fact, if they are given too much instruction they feel smothered and their production is hampered. This is the small business owner and successful manager, in a small, mid, or enterprise size company alike.
I've progressed during my last two years, and have found that progression to come only as a result of the effort I put forward, which nobody else asked of me. I initiated it. I planned it. I executed it. I may have had a great idea but in the end it is likely to fall by the wayside unless I execute it. Sometimes you just gotta do it yourself.
Thursday, September 17, 2009
Trust Is Natural
Four months ago I had the most beautiful gift in the world delivered to me, my daughter Aspen. She is amazing. It's been such a learning experience watching her grow and develop as a human and individual. One recent observation I had was so simple, yet so profound. She trusts everyone.
She unconditionally and lovingly trusts me and everyone around her. She knows no different. She has never been lied to, deceived, misunderstood, manipulated, or exploited. She has no fear of getting hurt, being burned, falling from heights, or drowning. She has perfect trust.
I can't help but think how this applies to my own life. I don't trust everyone. Sometimes I don't trust myself. It's refreshing to know we are all born trusting and loving everyone equal. Lack of trust, hate, racism, prejudice and deception are all learned traits. They are not natural for us to act upon. They are not natural for us to consider. No wonder Christ prompted us to be more like children.
Matthew 18:2-6
"...came the disciples unto Jesus, saying, Who is the agreatest in the kingdom of heaven? And Jesus called a little child unto him, and set him in the midst of them, And said, Verily I say unto you, Except ye be converted, and become as little children, ye shall not enter into the kingdom of heaven. Whosoever therefore shall humble himself as this little child, the same is greatest in the kingdom of heaven."
She unconditionally and lovingly trusts me and everyone around her. She knows no different. She has never been lied to, deceived, misunderstood, manipulated, or exploited. She has no fear of getting hurt, being burned, falling from heights, or drowning. She has perfect trust.
I can't help but think how this applies to my own life. I don't trust everyone. Sometimes I don't trust myself. It's refreshing to know we are all born trusting and loving everyone equal. Lack of trust, hate, racism, prejudice and deception are all learned traits. They are not natural for us to act upon. They are not natural for us to consider. No wonder Christ prompted us to be more like children.
Matthew 18:2-6
"...came the disciples unto Jesus, saying, Who is the agreatest in the kingdom of heaven? And Jesus called a little child unto him, and set him in the midst of them, And said, Verily I say unto you, Except ye be converted, and become as little children, ye shall not enter into the kingdom of heaven. Whosoever therefore shall humble himself as this little child, the same is greatest in the kingdom of heaven."
Monday, September 14, 2009
VMA Awards
I don't usually watch things like Award shows, especially if they are on MTV, so I missed the Kanye West debacle last night. Apparently he thought it would be a good idea to interrupt a sweetheart like Taylor Swift to voice his opinion that Beyonce should have won the award, right in the middle of her acceptance speech. What an idiot.
Not that I care all that much, or respect him in the first place due to his racist, biased, and selfish point of view on most everything in life, but this man is a role model to millions of kids weather he realizes it or not. MTV should ban him from all future events and stop playing his videos on air.
Not that I care all that much, or respect him in the first place due to his racist, biased, and selfish point of view on most everything in life, but this man is a role model to millions of kids weather he realizes it or not. MTV should ban him from all future events and stop playing his videos on air.
Friday, September 11, 2009
Remembering September 11, 2001
On the 8th anniversary of the attacks on the US, it's difficult to not remember those events and what I was doing that day. I was sitting at home in California, having just moved home from a two year religious mission in Ohio. It was my first morning home. I flipped on the TV for the first time in two years and found the same stunning news on every channel. I couldn't believe my eyes as I watched people's existence change before me on national TV. Only in retrospect can I, from my perspective thousands of miles away, really consider the significance of what took place that day. The real horror experienced by millions. The first hand recount of what people felt, saw, survived, and didn't survive. It's amazing to consider what so many people went through that day.
I also remember the effect that day had on what seemed the entire world. It didn't seem like such a big place anymore. People pulled together and offered whatever they could. The guy at the stop light next to me seemed to be a little more patient. We weren't afraid to mention deity in our routine conversations. God was closer than ever to all of us. It's sad that our society has to endure such a horrific experience to return us to a religious perspective.
Someday I am sure I will be relating my thoughts of this experience to my daughter as she grows older and learns about September 11, 2001 in history books. I'm thankful for her and the family I have. I'm fortunate enough to say I didn't lose anybody close to me that day. For all those that did, my heart goes out to you. Let us not forget.
Thursday, September 10, 2009
My baby is Four Months Old!!!
She's gettin big, to me at least. Four months old today. She's more and more fun every day.
Are we really getting government health care?
I didn't watch Obama's speech last night. I have to admit, I kind of wish I would have. Turns out there was a little old school rebellion going on from inside the capital hill chamber. I think it's been a long time since a President has experienced something like Obama did last night. Rep. Wilson's lie yell sparked something of an interest with me. I don't necessarialy agree with someone interruupting the President in the middle of the speech to call him a liar, but this is a little more of what this country needs. This is what the President himself has been asking for. This is why we are a democratic society.
I don't know how many times I have been at home listening to the President speek and felt so strongly for, or against, one of his tennents that I vocalized it as if the TV would listen. How many people in America would have done something similar if they had the chance? I appreciate it because I think that one act represents what America is really about. In many countries throughout the world Rep. Wilson would have been put in prision and shot today for his contempt in the presence of the ruling authority. All he really had to do today was say he was sorry, which he did, and we are on our way. I appreciate that about our society.
So are we really getting government sponsored healthcare? I fear this. When the government regulated the airlines, or any other industry, we learned the hard way that too much government created problems that almost killed all the players in the industry. I agree some type of reform is needed, but let's not get to over zealous about it. The more hands off the better.
I don't know how many times I have been at home listening to the President speek and felt so strongly for, or against, one of his tennents that I vocalized it as if the TV would listen. How many people in America would have done something similar if they had the chance? I appreciate it because I think that one act represents what America is really about. In many countries throughout the world Rep. Wilson would have been put in prision and shot today for his contempt in the presence of the ruling authority. All he really had to do today was say he was sorry, which he did, and we are on our way. I appreciate that about our society.
So are we really getting government sponsored healthcare? I fear this. When the government regulated the airlines, or any other industry, we learned the hard way that too much government created problems that almost killed all the players in the industry. I agree some type of reform is needed, but let's not get to over zealous about it. The more hands off the better.
Wednesday, September 9, 2009
Vegas for 30
Went to Vegas for Labor Day weekend. Always lots of different kinds of people in Vegas. Thanks to those who came to celebrate with me. Thanks to BYU for beating the Sooners. That was a nice present. Now it's back to work, real life, and making money the easy way.
Saturday, August 22, 2009
Tuesday, July 7, 2009
Tuesday, June 2, 2009
Financial Schemes in Utah
I first came to Utah back in 2003. Growing up in Southern California, I noticed a few differences between the ocean backdrop culture of LA and the mountain backdrop culture of the Wasatch Front.
First, the overwhelming population of Latter Day Saints provides for a strong Christian and Mormon Religious culture in everyday life not found in any other place in the United States. Some aspects of this life are funny, some are annoying, some are completely infuriating. Being part of a society that embraces a religion so tightly creates many differences in respect to a liberal culture of a place like Southern California. Even though I am a Latter Day Saint myself, I still prefer the open air of California to the bubble of Utah County.
Second, the change of the seasons creates so much of a lifestyle difference compared to the endless summer of California. Winter gets old fast. Summer is not long enough. The Lakes and mountains are an easy and fast escape from every day life and daily grind.
Lastly, it seems everyone in Utah is somehow involved in a new multi-level marketing company or financial scheme. I personally know around 20 people who are participating in a multi-level, relationship marketing type company. Why is Utah such a hotbed for these companies. The economics of such businesses only work for those at the top. So many people get sucked into these deals on the dreams of a better life, more money, financial freedom.
The most recent scheme to break involves a well known Utah company by the name of Franklin Squire, LLC. Their owner, Rick Koerber, has just been indicted on three federal court charges; Wire Fraud, Mail Fraud, and Tax Evasion. If found guilty, Rick could find himself in prison for up to 45 years and fined up to $750,000.
Over two years ago I had multiple conversations with individuals directly employed by Rick Koerber. Their promise was to yield up to 5% montly on any money invested with the company. They had a process titled an "Equity Mill" professing huge returns by using cashed out equity from homes and cars to provide high yield bridge loans to needy investors. Since then all I've heard is story after story of individuals losing tens, hundreds, even millions of dollars in connection with this scheme. So why does Utah seem so succeptible to such schemes?
I don't have a direct answer to this quesiton. I think it may have something to do with the Mormon culture of being trusting and accepting of others. It may have something to do with the dream of people to find a quick way out and be financially free without having to really work hard for it. Maybe it has something to do with the Mormon culture having such a strong belief against things like gambleing, lotteries, etc. Maybe this is the Mormon lottery. Very few get rich at the expense of many. In Koerber's case, he got rich, others lost money, others went to prison, and now it looks like it's his turn.
First, the overwhelming population of Latter Day Saints provides for a strong Christian and Mormon Religious culture in everyday life not found in any other place in the United States. Some aspects of this life are funny, some are annoying, some are completely infuriating. Being part of a society that embraces a religion so tightly creates many differences in respect to a liberal culture of a place like Southern California. Even though I am a Latter Day Saint myself, I still prefer the open air of California to the bubble of Utah County.
Second, the change of the seasons creates so much of a lifestyle difference compared to the endless summer of California. Winter gets old fast. Summer is not long enough. The Lakes and mountains are an easy and fast escape from every day life and daily grind.
Lastly, it seems everyone in Utah is somehow involved in a new multi-level marketing company or financial scheme. I personally know around 20 people who are participating in a multi-level, relationship marketing type company. Why is Utah such a hotbed for these companies. The economics of such businesses only work for those at the top. So many people get sucked into these deals on the dreams of a better life, more money, financial freedom.
The most recent scheme to break involves a well known Utah company by the name of Franklin Squire, LLC. Their owner, Rick Koerber, has just been indicted on three federal court charges; Wire Fraud, Mail Fraud, and Tax Evasion. If found guilty, Rick could find himself in prison for up to 45 years and fined up to $750,000.
Over two years ago I had multiple conversations with individuals directly employed by Rick Koerber. Their promise was to yield up to 5% montly on any money invested with the company. They had a process titled an "Equity Mill" professing huge returns by using cashed out equity from homes and cars to provide high yield bridge loans to needy investors. Since then all I've heard is story after story of individuals losing tens, hundreds, even millions of dollars in connection with this scheme. So why does Utah seem so succeptible to such schemes?
I don't have a direct answer to this quesiton. I think it may have something to do with the Mormon culture of being trusting and accepting of others. It may have something to do with the dream of people to find a quick way out and be financially free without having to really work hard for it. Maybe it has something to do with the Mormon culture having such a strong belief against things like gambleing, lotteries, etc. Maybe this is the Mormon lottery. Very few get rich at the expense of many. In Koerber's case, he got rich, others lost money, others went to prison, and now it looks like it's his turn.
Friday, May 8, 2009
Thursday, March 19, 2009
Do Vitamins Work?
I've been thinking about vitamins this morning. I take one every day and haven't been sick in about a year and a half. Although correlation does not equal causation, I feel somewhat vindicated in my vitamin intake. With some doubt, I decided to do some research.
I simply searched Google for articles related to the benefits, or drawbacks, to taking vitamins. I found some interesting information.
An article written by Katherine Hobson for USNews.com outlines this subject fairly well. There's a link here. She talks about how multivitamins, like I take every day are a good insurance policy and potential catch all for supplementing nutrients people may be lacking in their every day diet.
The point I found the most useful was that people who take vitamins tend to be they type that exercise, eat more healthy, and avoid unhealthy behavior to begin with. I make an attempt at all the above. The cause of the health may have more to do with lifestyle than popping a pill every morning. Just as "researchers" concluded, I feel the same. Lifestyle has more to do with health, especially long term, than simply taking a multivitamin.
I simply searched Google for articles related to the benefits, or drawbacks, to taking vitamins. I found some interesting information.
An article written by Katherine Hobson for USNews.com outlines this subject fairly well. There's a link here. She talks about how multivitamins, like I take every day are a good insurance policy and potential catch all for supplementing nutrients people may be lacking in their every day diet.
The point I found the most useful was that people who take vitamins tend to be they type that exercise, eat more healthy, and avoid unhealthy behavior to begin with. I make an attempt at all the above. The cause of the health may have more to do with lifestyle than popping a pill every morning. Just as "researchers" concluded, I feel the same. Lifestyle has more to do with health, especially long term, than simply taking a multivitamin.
Friday, March 13, 2009
How Much Time Does Madoff Deserve?
I've been thinking about this for a while too. How do you equivocate a $50 Billion dollar scheme into other crimes that happen everyday? I don't think white collar crimes are looked at heavily enough. Consider this viewpoint from Scott Burns in a recent article he wrote:
We may soon have a financial "equivalency" for murder. People feel it isn't right a man can get five or 10 years in prison for robbing a 7-Eleven, when a white-collar crime can be more devastating to more people, but get a lighter sentence. As reader G.C. wrote: "You can kill someone in one of three ways: physically, emotionally, or financially. But only one is punishable by death."We'll be a long time figuring out the equivalences, but if employers can talk in terms of "full-time equivalents" for jobs, it isn't far-fetched to imagine that white-collar crime may soon be seen as a new form of mass murder.
Some will think this is an extreme statement, so let me explain. The highest figure I could find for the value of a human life was the average amount paid to families that suffered a loss from the 9/11 terrorist attacks, $3.1 million. Yet even using this gigantic figure, the $50 billion fraud is the financial equivalent of destroying 16,100 lives.
Thoughts on How to Fix Our EconomyI
I've thought a lot about our new President recently. You've gotta give it to the guy. He assumed his office in the middle of the worst economic crisis in a long, long time. He has taken immediate action to attempt an economic rescue of unprecedented magnitude. He's got vision. He isn't afraid of work. You have got to give it to him for that. But, with all the billions and billions being spent, I can't help but wonder if it's going to the right places. I wonder how much of a difference it will actually make.
The first bailout plan mounted a whopping $700 Billion. Soon after the plan was released I heard critics from all over the place trying to help people understand exactly how much $700 Billion actually is. For most of us that amount of money is far beyond our comprehension. Then Obama added another $787 Billion. What in the world does our government plan on doing with an extra $1.487 Trillion?!? Let's do some math.
According to a count by the Census Bureau in July of 2008, there are an estimated 303,824,640 People in the United States. Simple math tells us the combined debt the US Government just gave every single American, including men, women, children, mounts to $4,894.27. Think about that for a second. If McDonalds apple pies are two for a dollar, that's 9,788 apple pies for every single American. It's more than $247 for every person in the entire world. I can't fathom what our government could possibly be doing with that kind of money.
Wherever it is going, it's obvious there are very few programs in the bill aimed at directly helping to cure the problem at hand. Where did it start? The cure to the problem must circle back to where it started. Sub-prime mortgages. Bad lending practices. Banks lending money they should have never give out. Now that the banks are in trouble, because of their own decisions, they punish everyone else. They reduce the amount of credit granted to upstanding and dependable businesses and individuals. Credit has become and integral part of our society. Many businesses and people can't function without it.
So banks reduce their lending. They reduce existing credit lines. They deny applications today that would have been approved six months ago. Why? Because they are strapped for cash. Why don't they have cash? Because they approved loans years ago they shouldn't have. They made decisions to give people money who claimed to be able to pay it back on word alone. As a business, this is what they do. They get deposits from bank accounts. They take that money and lend it out. That's what a bank does. They make money on our deposits. The problems started when they made bad choices with the money you and I deposited into their vaults. Now they are punishing everyone for their decisions.
I don't know about you, but I would rather have almost $5,000 more in my pocket than letting the government all but socialize another company. It's a joke to think AIG will ever re-pay the US Government all the money they have been given. To date, they have been give $180 Billion "capital infusion." In 2006, a great year for banking, AIG posted a record $14 Billion Net Income. At this rate, it would take AIG almost 13 years to repay the government. Granted a lot of the cash has been given in exchange for ownership and shares, but you get the picture.
In the end, I'd rather have the cash in hand. What about you?
The first bailout plan mounted a whopping $700 Billion. Soon after the plan was released I heard critics from all over the place trying to help people understand exactly how much $700 Billion actually is. For most of us that amount of money is far beyond our comprehension. Then Obama added another $787 Billion. What in the world does our government plan on doing with an extra $1.487 Trillion?!? Let's do some math.
According to a count by the Census Bureau in July of 2008, there are an estimated 303,824,640 People in the United States. Simple math tells us the combined debt the US Government just gave every single American, including men, women, children, mounts to $4,894.27. Think about that for a second. If McDonalds apple pies are two for a dollar, that's 9,788 apple pies for every single American. It's more than $247 for every person in the entire world. I can't fathom what our government could possibly be doing with that kind of money.
Wherever it is going, it's obvious there are very few programs in the bill aimed at directly helping to cure the problem at hand. Where did it start? The cure to the problem must circle back to where it started. Sub-prime mortgages. Bad lending practices. Banks lending money they should have never give out. Now that the banks are in trouble, because of their own decisions, they punish everyone else. They reduce the amount of credit granted to upstanding and dependable businesses and individuals. Credit has become and integral part of our society. Many businesses and people can't function without it.
So banks reduce their lending. They reduce existing credit lines. They deny applications today that would have been approved six months ago. Why? Because they are strapped for cash. Why don't they have cash? Because they approved loans years ago they shouldn't have. They made decisions to give people money who claimed to be able to pay it back on word alone. As a business, this is what they do. They get deposits from bank accounts. They take that money and lend it out. That's what a bank does. They make money on our deposits. The problems started when they made bad choices with the money you and I deposited into their vaults. Now they are punishing everyone for their decisions.
I don't know about you, but I would rather have almost $5,000 more in my pocket than letting the government all but socialize another company. It's a joke to think AIG will ever re-pay the US Government all the money they have been given. To date, they have been give $180 Billion "capital infusion." In 2006, a great year for banking, AIG posted a record $14 Billion Net Income. At this rate, it would take AIG almost 13 years to repay the government. Granted a lot of the cash has been given in exchange for ownership and shares, but you get the picture.
In the end, I'd rather have the cash in hand. What about you?
Thursday, March 5, 2009
Economic Issues - Part III
Current Conditions
Current market conditions can be described by a fairly simple demonstration of supply and demand. Supply (the number of homes on the market) conditions are being influenced by the increasing amount of foreclosures and defaults, new construction, natural home sales (not attributed to default), and a slowing purchasing rate.
Demand factors (the number of buyers consuming the supply) include low interest rates, home price depreciation, a borrower’s ability to obtain a loan, unemployment rates, income levels, and perception of market conditions.
Low interest rates typically increase demand. The Fed has been consistently dropping its target rate since September 2007. Although rates are low and money is cheap, this is having very little effect on demand due to liquidity problems. Banks are simply unwilling to take on risk by lending out cash. Banks are utilizing all the liquidity they can get their hands on to cover losses from poor lending decisions in the past. This increases the gap between the target fed funds rate and the actual lending rates. As banks are forced to raise their lending standards the pool of qualified buyers significantly decreases, further decreasing demand. The same problem exists with decline in home prices. Other macroeconomic factors such as unemployment and perception further decrease the pool of potential borrowers.
Foreclosures from sub-prime and option ARM borrowers are flooding the housing market with new inventory every day. Just a small amount of new home construction contributes to building inventories, currently at a seasonally adjusted rate of just 625,000. This indicator is at its lowest level since the US Census Bureau started tracking it in 1959. Inventories are building as demand continues to plummet.
The problem continues to grow. The current situation is bad. Adding in the potential $600 billion, or more, defaults yet to come has the potential to throw our economy into the worst depression it has ever seen.
Buyers and sellers are failing to come together in a way that makes the home purchasing transaction possible. Sellers can’t afford to take the loss of making up the difference between a realistic selling price and the value of their home, so they walk away and let the bank take care of it. Potential buyers can’t qualify for a loan because banks are simply unwilling to take more than a small risk in lending. Although the prospect for a resolution seems minute, there is a solution.
Monday, March 2, 2009
My View On Today's Economic Issues - Part II
A minimum payment of $1,666.26 on a $500,000 mortgage does not even cover the interest. Every month the interest is capitalized into the amount of the loan. With this loan borrowers would be deferring over $850 in interest every month, which is capitalized to the amount of the loan. If at any point, as defined in the fine print, the balance of the loan became more than a certain amount the loan would automatically reset. Even worse, most option ARM loans have a condition in the fine print known as an early payoff penalty. If a borrower chooses to refinance before the early payoff term expires they face fees in the range of $10-20k, on top of additional broker and bank fees for the refinance.
With mortgage brokers heavily commissioned on these loans, they made a lot of money marketing and selling option ARMs. Borrowers already locked into a 5.25% fixed were lured into a 5/1 option ARM with a teaser rate of 1%, but the teaser rate only lasts so long. The rate always resets during the first repayment period to a higher adjustable rate.
Many borrowers who refinanced into these loans found themselves paying an adjustable rate higher than their original loan, which they refinanced out of, only a year earlier. Unable to afford to pay all the fees to refinance again, they either squeeze their budgets or foreclose before the first term even expires.
The second time bomb in these loans depended on an upward swinging market to keep a borrowers head above water. In a market decline, as we have seen over the past 36 months, the loan balance is growing while home values are dropping. In 2005 we saw the first wave of option ARMs reset. Millions of homeowners realized they could no longer afford to live in the home they had been paying on for the past few years. They put their homes up for sale at record rates. The lucky ones got out early and even cashed out at the top of the market. Those that couldn’t sell started to foreclose, at record rates.
According to Fitch Ratings, up to 45% of option ARM borrowers whom originated their loans from 2004-2007 are expected to default. The worst is yet to come. Business Week magazine estimates the sum of these loans resetting during the next one to four years to be as much as $500 billion. If these loans default at the rate estimated by Fitch Ratings, we will see another $225 billion in defaults from these products alone. Piling another $225 billion of defaulted properties and write downs into the market, on top of existing unsold inventory and foreclosures from non option ARM products, will be catastrophic.
Prime loans are the next wave of defaults to hit the market. According to a NY Times article the prime loan market accounts for approximately $12 trillion in assets. The latest figures put the increasing default rate for prime loans at 2.7 percent, or $324 billion. Sum the Option ARM, Alt-A, and prime defaults together and we are likely to see an additional $600 billion in mortgage defaults in the next two to three years.
With mortgage brokers heavily commissioned on these loans, they made a lot of money marketing and selling option ARMs. Borrowers already locked into a 5.25% fixed were lured into a 5/1 option ARM with a teaser rate of 1%, but the teaser rate only lasts so long. The rate always resets during the first repayment period to a higher adjustable rate.
Many borrowers who refinanced into these loans found themselves paying an adjustable rate higher than their original loan, which they refinanced out of, only a year earlier. Unable to afford to pay all the fees to refinance again, they either squeeze their budgets or foreclose before the first term even expires.
The second time bomb in these loans depended on an upward swinging market to keep a borrowers head above water. In a market decline, as we have seen over the past 36 months, the loan balance is growing while home values are dropping. In 2005 we saw the first wave of option ARMs reset. Millions of homeowners realized they could no longer afford to live in the home they had been paying on for the past few years. They put their homes up for sale at record rates. The lucky ones got out early and even cashed out at the top of the market. Those that couldn’t sell started to foreclose, at record rates.
According to Fitch Ratings, up to 45% of option ARM borrowers whom originated their loans from 2004-2007 are expected to default. The worst is yet to come. Business Week magazine estimates the sum of these loans resetting during the next one to four years to be as much as $500 billion. If these loans default at the rate estimated by Fitch Ratings, we will see another $225 billion in defaults from these products alone. Piling another $225 billion of defaulted properties and write downs into the market, on top of existing unsold inventory and foreclosures from non option ARM products, will be catastrophic.
Prime loans are the next wave of defaults to hit the market. According to a NY Times article the prime loan market accounts for approximately $12 trillion in assets. The latest figures put the increasing default rate for prime loans at 2.7 percent, or $324 billion. Sum the Option ARM, Alt-A, and prime defaults together and we are likely to see an additional $600 billion in mortgage defaults in the next two to three years.
Thursday, February 26, 2009
My View on Today's Econimic Issues - Part I
The Problem
In 1981 the mortgage industry created a new product called the Option ARM. The option ARM is a unique product, which introduced a new product to an industry that had been fairly uniform for half a century. The concept behind the option ARM is buyers generally have two periods of repayment. The first is anywhere between one to ten years with very low payments. The second period consists of the remaining balance of a 30 year total term with higher payments.
During the first period of repayment homeowners have the option to pay one of four amounts. The first option, or minimum payment, represents a negative amortization amount. A recent study by Fitch Ratings reported up to 80% of all option ARM borrowers make only the minimum payment. A negative amortization payment capitalizes the unpaid interest into the balance of the loan, which increases the loan balance every month.
The second payment option represents an interest only option. Homeowners selecting to pay this amount retain the same balance on their loan through the entire first period. No principal is ever paid down with this option.
The last two payment amounts represent a more conventional option. The third payment option represents a 30 year fully amortized payment. The fourth payment option represents a 15 year fully amortized payment.
At the end of the first repayment period the mortgage resets to a conventional type loan with the balance amortized over the remainder of the loan term. Due to severly relaxed lending standards borrowers were not required to show they were qualified for the loan during the second repayment period.
Many borrowers who qualified for option ARM’s from 2001 to 2005 cannot afford, and would not be qualified for, a fully amortized payment on a loan of the same amount over a 20-25 year term. Eighty percent of these loans reset to a rate higher than market, on a balance larger than the original, with a shorter term. All these factors can significantly drive up a borrower’s monthly payment. Homeowners often find themselves in financial trouble when these loans reset.
Until about 2001 the Option ARM was reserved for well qualified buyers. The events surrounding 9/11 dealt a blow to the economy and the US was headed for another recession. Looking for a way to create new business mortgage brokers and banks marketed this loan as an affordable option for the masses. During a time with very little regulation in the industry, these loans were easy to come by. No proof of income was required. Brokers advertised teaser rates as low as 1%. Many people were sucked in by this to good to be true marketing message.
Both potential homeowners and existing homeowners saw this as a dream come true. Brokers advertised a $500,000 loan with monthly payments of only $1,666.26. This would save a homeowner in the ballpark of $14,000 a year in mortgage payments. What brokers didn’t do was educate the consumer and read them the fine print.
Tuesday, February 24, 2009
Mac or PC?
Due to my job, I am required to use a PC during the day. I'm one of those that uses a PC at work, and goes home and uses nothing but a Mac. I love my Mac. If I could use it during the course of my day, everyday, I would. There are advantages to both, yet I find myself always gravitating to my Mac.
Friday, February 20, 2009
Is It The Right Time To Buy?
I've been looking around at houses lately. I'm a first time buyer in the Real Estate world but have been around it for a long time. There are many deals out there right now. The one thing that scares me is the trend. Home prices have been dropping for a while now. How much longer will this continue? I know I can get a great deal, but if I wait 12 months, will I get a much better deal? Or is this about where the market will be until recovery?
What I've concluded is that if I get a good deal today, it's going to be a good deal next year as well. We all know the market will turn around at some point, and the important thing is to be comfortable with the deal I get, no matter how much farther down the market goes.
What I've concluded is that if I get a good deal today, it's going to be a good deal next year as well. We all know the market will turn around at some point, and the important thing is to be comfortable with the deal I get, no matter how much farther down the market goes.
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