My New Blog

Yes, school is out for fall break and like all students, grades are temporarily ignored. Uncle Sam never has a vacation and his economic report cards are handed out every month. Our leaders tell us the recession is over, so we should be able to read the performance indicators without slapping ourselves in the forehead. The Consumer Price Index or CPI measures the increase or decrease of the things we purchase from a consumer point of view. If prices go up, but our incomes do not, that is inflation. The Producer’s Price Index or PPI is calculated from a seller’s point of view of the wholesale costs of the stuff we buy. Both of these September numbers did not reflect inflationary pressure and were considered good reviews. The Gross Domestic Product or GDP is the value of goods and services we produce. If the value goes up, our economy is growing. If it goes down, it is shrinking. The current numbers show our economy has not shriveled as much as the pundits feared. Maybe that grade should read: nice try. The Retail Sales numbers came out yesterday and the soothsayers were shocked at the uptick. They must not have children that need clothes, shoes or school supplies. After all this is America and we cannot have little Chanel or Harvard attending kindergarten in hand-me downs. And on a side note what is up with the supply costs public schools and day cares are implementing? Our kids can attend but if we do not pay for crayons and paper they are forced into a corner to chew on their fingers? Sorry, back to the report card. It looks pretty good for Uncle Sam until we get to the unemployment numbers, foreclosures and stupid credit policies. That grade is an F and you all know what that spells. That’s right, fractured. And that cannot be ignored.

FYI: The 10 year Treasuries, the benchmark for the 30 year fixed rate took a beating when Ben Bernanke stated Thursday night that the Fed would not let the era of easy money get out of hand and would consider raising rates in the future. Investors yanked their money out of the safe haven of the bonds and plowed their funds into the riskier stocks. The market rallied and mortgage interest rates went up.

By Diane Gerdes....The "Economy Cupcake"

2009 is almost the year that was. The following are a few of the top economic events:

1. The economists announced the longest recession since World War 2 ended in July with the stock market’s ongoing remarkable recovery.

2. The third quarter of 2009 our economy did not perform as poorly as everyone feared

3. The housing market has glimmers of hope in many parts of the United States with pockets of neighborhoods in Maricopa and Pinal County stabilizing

4. The stimulus plan for cash for some clunkers was a huge success for auto makers.

5. Retail Sales for the holidays is much improved over 2008

6. The top banks all showed incredible profits after being brought back to life by our government’s TARP program.

7. Our BFFs, the Chinese, came through again and purchased treasury bonds so that our mortgage interest rates stayed low (will sure miss those rates when they gone!)

8. The home buyer credit was extend to April

9. Fannie Mae and Freddie Mac have been given a blank check from the Obama administration to continue the business of making loans without the worry of nonperforming loans cluttering their bottom line.

10. Loan Modifications are getting done. (Oops! The banks forgot to tell us with a loan mod you get your credit trashed at no additional charge).

11. RESPA, ruled by the FED, made changes to the Truth in Lending with redisclosure to the borrower and wait period implemented if there are changes to the costs associated with a home loan.

12. HUD made sweeping changes to the 2010 Good Faith Estimate and determined the borrower does not need their cash to close or total payment disclosed. Silly us, why would they need that info? And the lenders determine the upfront mortgage insurance on FHA, USDA and VA? Really? HUD must live in an alternative world with Dora the Explorer since you need a cartoon map to explain the changes.

13. You would think that the FED and HUD would meet for coffee to discuss the changes since one affects the other. But noooo, like two parents that are fighting they are more concerned about their own agendas rather what would be beneficial to the people that are expected to apply it daily. (Sorry, that isn’t an event but I’m allowed one small soap box today)

14. The Home Valuation Code of Conduct is here to stay. Lenders, real estate agents, and appraisers were deemed the cause of the housing market meltdown. (Goodness, I thought it was because of lax underwriting practices from the big banks to feed Wall Street’s appetite for mortgage back securities during the boom, but what do I know)

15. Consumer Confidence is improving. 2010 will bring prosperity. No more boxed wine!

Happy New Year!

by Diane Gerdes   The "Economy Cupcake"

Need extra money to purchase those expensive Christmas presents for your friends and family? Don’t say Bah Humbug! Instead, buy a real Prada purse for your wife instead of the fake one you make her carry. Take the kids on a road trip to Sunrise. Drink a few bottles of wine not encased in cardboard. In keeping with the holiday spirit, American’s have discovered the new way to give and at the same time profit: donate your home back to the bank.

According to Brent T. White, a University of Arizona law school professor, this prudent financial planning is available to all homeowners! His strategy, as reported in his 52 page manifesto, “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis,” is to stop making house payments. According to his thesis, if you are underwater on your mortgage, you are pretty darn stupid to continue giving your hard earned cash to your lender.

His report states that the banks are greedy and clueless to today’s market conditions. They handed out home loans during the boom with nothing down, no verifiable income and permitted inflated appraisals. Today, they are not willing to redeem themselves by showing compassion for our communities.

In the Christmas Past, we were bombarded with television and radio commercials, books, and seminars to buy houses with little or no money down. And if we did have equity, the financial institutions were all to0 happy to suck it away. Our cozy homes became a plan for wealth building.

In Christmas Present , the bank’s scrooge tactics trashed suburban neighborhoods and demolished property values. Homes have depreciated 20% to 50% in many areas. A target equity breakeven point for Arizona and Nevada may be a decade away. Modifications are not working because they refuse to slash principal balances to today’s appraised value. The Ebenezer’s of the lending world refuse to eliminate the strict ratio guidelines. (Remember in the not so distance past, a majority of the properties were purchased with the lie and lie big income program promoted by mortgage lenders.)

In Christmas Future, the bank’s soul (if they have one) will be bearing heavy chains for eternity if they do not change their stingy policies. The social stigma for walking away from our homes has been lifted, possibly forever. Professor White may be the ghost that appeared to sacrifice the housing market to stimulate our economy.

by Diane Gerdes     The "Economy Cupcake"

Home builders are getting an early Christmas gift from that old jolly, generous Uncle Sam. Attached to the first time house homebuyer credit bill or the Worker, Homeownership and Business Assistance Act of 2009, is a present to big corporations to offset profits, retroactive back to 2004, and losses in 2008 and 2009. The tax windfall will be worth billions of dollars to D.R. Horton, Pulte and Standard Pacific, to name a few of the who’s who’s of beneficiaries. In the boom years, houses were built in the suburbs of Arizona: Goodyear, Buckeye, Maricopa, Queen Creek, Surprise, with a greed induced frenzy. They ignored the downturn signs although they were blaring like a neon beer sign over your local tavern. When they were stuck with a surplus supply of homes, deep discounts were offered and the building continued. Ed McMahon, senior research fellow at Urban Land Institute, a non-profit group that promotes sustainable development was quoted in USA Today stating “Places that have done the worst, real estate was the economic engine.”

The economic imposed moratorium finally slowed down construction, and home owners found their homes worth hundreds of thousands of dollars less than what their neighbors paid. With the new tax incentive, building can commence again in the areas that are waiting for the foreclosed and short sale properties to be absorbed.

But wait there is more. Another piece that contributed to the housing crash was the Builder operated mortgage companies. During the boom, they enticed buyers to use their preferred lender by offering incentives that could only be used if they originated their mortgages with them. These incentives were “paper” (We’ll give you $100,000 towards the sales price if you use our lender!).

But today it must be different, right? After all, with all of the strict RESPA changes, Builder’s wouldn’t possibly offer incentives to use one lender over another. Or tell a client that if you use their preferred mortgage company, the appraisal will not be a problem. Think again. They have gone back to 2005 and are offering enticements that can only be used by their own lenders. Buyers are swindled into thinking they are getting a “deal” by ditching their current lender and going with the builder’s mortgage company that will honor all of the incentives. And so it goes. The gift that keeps on giving.

By Diane Gerdes  The "Economy Cupcake"

Why hasn't the first time home buyer tax bill been extended? Because of the pork attached including an additional 14 weeks of unemployment in all states. Will the unemployed now qualify to purchase a home? That is so 2006. It does mean that they our hogs in the legislature are holding out for their own bacon: broaden unemployment benefits or the first time home buyer program will continue to be a mud fight.

The current version, pronounces April 30th the absolute, no matter what happens, expiration for the extension. That date stamp is for fully executed contracts with a close of escrow no later than June 30th, 2010. The soothsayers are quoted as saying that the housing market will stabilize in the spring and the credit will not be necessary going forward. And they should know: they have been right about everything else. The proposal would also expand the guidelines to allow home buyers who have lived in their prior residences for at least five years a credit of $6,500. Couples earning up to $225,000 and individuals up to $125,000 would now qualify. That's an increase from a $75,000 limit for individuals and $150,000 for couples. The families purchasing homes more than $800,000 will not be eligible.

The measure would require those receiving the tax break to remain in their new homes for three years or they would have to repay the credit.

It will become law once it is approved by the Senate, House of Representatives and signed by President Obama. Unless more muck is added to the bill.

Why hasn’t the first time home buyer tax been extended? The trick is that it is tied to the unemployment benefits adding an additional 14 weeks in all states. Does that mean the unemployed will again qualify to purchase a home? That is so 2006. It does mean that they our ghouls in the legislature are holding out for their own Reese’s Peanut Butter Cups: broaden unemployment benefits or their will be no extension on the first time home buyer program.

The current version approved in the Senate, gives the absolute, no matter what happens, drop dead date for the extension of April 30^th. That date is for fully executed contracts with a close of escrow no later than June 30^th, 2010. The soothsayers are quoted as saying that the housing market will stabilize in the spring and the credit will not be necessary. Their proposal would also expand it to allow homebuyers who have lived in their prior residences for at least five years a credit of $6,500. Now couples earning as much as $225,000 and individuals as much as $125,000 would qualify. That’s an increase from a $75,000 limit for individuals and $150,000 for couples. The families purchasing homes more than $800,000 will not be eligible.

The measure would require those receiving the tax break to remain in their new homes for three years or they would have to repay the credit.

Senate Banking Committee Chairman Christopher Dodd said the plan wouldn’t add to the government’s budget deficit because lawmakers plan to finance it by delaying a tax break for multinational companies scheduled to take effect next year.

The treat is that it will pass. It will become law once it is approved by the House of Representatives and signed by President Obama. Let’s just hope there are no more tricks.

By Diane Gerdes    The "Economy Cupcake"

President Obama’s administration is shocked, shocked at the continuing trouncing of jobs throughout the country. The stock market has entered into the promise land of the 10,000 plus, corporations from Amazon to J. P. Morgan Chase are reporting mega profits, and the top economists are confident the first recession of the 21^st century has ended. Can the economic retreat be over with anemic employment numbers? The United States job market is continuously evolving. In the 1930’s lack of employment was defined by what was not produced but could have been produced. The 1980’s technology revolution changed our way of living forever. The era of big corporations providing a lifelong umbrella to their employees abruptly stopped. Our parents tried to convince themselves only a human touch could make a difference. That was proved wrong with the skilled precision of automation. As time goes by fewer people are needed to plug into manufacturing employment slots. New abilities can be learned. Fifty years ago, universities offered limited studies in computers. Rounding up the usual suspects for careers today is a challenge because those jobs could be obsolete in 5 years: replaced by opportunities we can only imagine.

The downturn has hit the service industry hard from travel agents providing tours to North Africa to servers in restaurants. If there is any extra income, we are not eating out at expensive bistros in Casablanca. Home equity loans in Arizona are virtually nonexistent, therefore our personal ATM has been shut down. Without clients with disposal cash, doctors are giving up on tummy tucks and going back to treating swine flu. Construction workers are altering from building to remodeling.

The employment numbers do not need to improve immediately. If the day comes and they climb into double digits, there may be a different ending. But they are only a small segment of the economic movie. Consumer Confidence is the indicator of the views of the general public and their individual situation. With weak reports, corporations are not hiring and are making due with limited staff. As time goes by, we need to feel and see improvement in our very own economy. We do need to be confident that our beautiful relationships with boxed wine and discount stores may not end today or tomorrow, but soon.

FYI: The $8000 first time home buyers tax credit may be gone forever and you can thank the undeserving seventy thousand scamming individuals that have defrauded the IRS to the tune of a half of billion dollars.

By Diane Gerdes       The "Economy Cupcake"

Spending money is back in style. According to Bloomberg.com the pent up demand for luxury items increased 29% in the third quarter unleashing a buying spree for high end goods and services. Is it because of savvy investment strategies or the generous bonus structures for former hedge fund executives? Did a new book come out called How to spend it, if you don't have it? Introducing the new tool for today's financial prosperity: home foreclosure.

The Kellogg School of Management reported that when home values dip 10% below the mortgage balances, a growing number of families who can make their payments have stopped. Home values in some neighborhoods in Arizona have dropped 70%.

The modification process that began with President Obama's $75 billion Home Affordable Program last February is a maze of guidelines for structuring new mortgages but few mandates. Each lender has implemented their own procedures ranging from Nazi tactics to Laurel and Hardy bumbling. Secretary of Treasury Timothy Geithner announced October 6th that the administration had met their goal of aiding 500,000 homeowners a few weeks earlier than the October 31^st deadline. According to the comprehensive data from the second quarter 2009 OCC and OTS Mortgage Metrics Report, 30% of homeowners that modify their loans end up in foreclosure. Banks are still hesitant to significantly lower payments and few are willing to shave off principal. It is a small contingent of homeowners that are happy with the modification outcome.

Many individuals have tried to modify their home loans. But without substantial equity reduction in the states that have been hit the hardest by the housing crisis, the modification process may be precursor to future defaults. The banks are willing to sell our homes at trustee auctions for ridiculously low amounts, yet are not willing to reduce our principal balances. Do they want us to stop making payments and put our money elsewhere? Maybe it is their plan to help Prada and Tiffany's.

FYI: I haven’t shopped in Scottsdale for a couple of years but Barney’s of New York opened yesterday at the Scottsdale Fashion Mall. Unfortunately it is not a 99 cent store, so it may be a while before I can make the trip.

By Diane Gerdes       The "Economy Cupcake"

Three men walk into a saloon in Arizona and one has a gun. Is it a scene from the latest Zombie movie where man has to protect himself from the flesh eating monsters? Fact is stranger than fiction because our legislators amended the Title 13 Chapter 31 Arizona Gun law to allow concealed weapons into a bar or restaurant. That’s right boys and girls our law makers decided that our constitution’s second amendment needed to be modified to fit into our current lifestyle. It is important to remember that a gun can be brought into an establishment that serves shots of Cuervo but the person toting the firearm cannot drink. Who needs video games when you can combine guns and alcohol?

Our lawmakers must be weary of the same old dribble to have allowed this law to pass. After all, Arizona is one of the unholy five states, California, Michigan, Nevada, and Florida that have been hit the hardest by the deepest recession of the past 70 years. Passing legislation that would help our businesses would have been, well, you know boring. They must not have the phone numbers to any economists that are not on a bank’s payroll to give them guidance. Distribution of the tax burden has always been a gruesome task. In Texas, home owners bear the brunt with the average property tax on a $250,000 home around $7500. But they have earned the bragging rights of persuading corporations to move to Texas and also have one of lowest unemployment rates in the U. S. Meanwhile, Arizona is fixated on measly tax breaks for large corporations and ignoring smaller business that may want to relocate to our beautiful state.

They also don’t seem too concerned about our local resorts, conventions, golf courses and restaurants that depend on tourists. Frommer’s Travel Guide published a derogatory article in August regarding our gun toting ways. With a post-mortem mentality it is no wonder it was important to pass a law to protect us from the brain dead: our legislators.

By Diane Gerdes,  The Economy Cupcake