My New Blog

The Canadians winning the gold for hockey was a pleasure to watch. Two great teams but with only one winner in an exciting overtime finish. With all of the jokes over their beer and intelligence, the Canadians not only won at hockey, they are winning at the global economic game.

Canada’s economy is the 10^th largest in the world. It is the only G7 country that did not need to bail out their monetary system. According to a recent World Economic forum, their banks are rated the soundest on our globe.

So, how were they able to avert a monetary meltdown?

First, the Canadian banks did not play high stake gambling with their own people’s money. Their country averted the credit crisis by sitting on the benches watching the rest of the economies play Russian Roulette with credit default swaps and derivatives. Second, they held on to over 75% of their mortgages keeping them in house and not selling to the outside market. In comparison U. S. lenders sold over 70% of mortgages to outside investors.

In 2007 Communist China baited the Canadian bankers by calling them too cautious about capitalism. Roger Martin, dean of the Rotman School of Business at the University of Toronto stated the following “The US banks were pursuing their own happiness.” Canadian banks are conservative, boring and manage risk, not take risks.

With legislative measures, our administration is trying to get our banks to “manage risk, not take risks.” But the American banks are having a temper tantrum and President Obama’s BFF is Jamie Dimon, CEO of Chase. They do not want to go back to the regulations of pre-1998. Playing roulette with our money is just too darn exciting.

FYI: The Academy Awards are tomorrow night. Who will win best picture? If you have not seen Hurt Locker or Inglorious Bastards, please rent them. Both are great movies. Hurt Locker is suspenseful from the opening frame, mixing the gritty reality of war and providing an insight to the need of adrenaline junkies. Inglorious Bastards is a testimonial to great acting. Except for the Americans that play the Bastards the actors are all from other countries, speaking a variety of languages. Ahh, but the film that has my heart is Avatar. For pure joy in film making, it is the Wizard of Oz for our time. A movie for the ages and for any generation to enjoy.

This past week the administration serenaded the American housing market with the same old songs and repetitive lyrics.

The HAMP loan modification program or the banks refuse to reduce the principal balance program because it would hurt their bottom line plan is blowing in the wind by reporting a much lower percentage of modifications than expected. Also, the rigid guidelines for income qualifications are kicking a lot of candidates into foreclosure.

The unveiling of the much anticipated new short sale assistance program HAFA, was presented in a cross country conference call Tuesday. It included Wells Fargo, Bank of America and Freddie Mac. They charged per line if you wanted to listen in. Because the banks can’t give information for free. That would be, well, fair. And if you want fair go to a fairground, not a bank. The participation was massive. And after the call if you were scratching your head in a purple haze, you’re not alone.

The speakers mentioned “portfolio” and “investor” several times during the conversation but did not take the time to define. Portfolio loans are mortgages kept in house, or on their own shelf, so to speak. But the majority of loans are mortgagees purchased by various investors from the bank on the secondary market. Investor approval is required before any short sale or modification can be implemented. Therefore, the massive delays in receiving answers. Portfolio loans are much easier to process because the approval comes directly from inside the bank.

CNN reported the whispers of a secret program. It would target states that are severely underwater: Arizona, California, Nevada, Michigan and Florida. This initiative would throw a few billion dollars at homeowners to help make their payments if they lost their jobs. (Although Arizona may be carved out of this plan because the unemployment rate is 9.2 under the national average of 9.7)

The London based FT Times reported that the number of people giving up their homes to foreclosure strictly for financial satisfaction is growing exponentially. Home owners in negative equity positions, capable of making their payments, are making the business decision to walk away.

The Obama administration is dancing in the dark by ignoring the brutal signs of a diminishing housing market. Money can’t buy you love or a housing recovery.

FYI: Before a client can be eligible for the new HAFA program, they are required to go through the HAMP program first for a loan modification. (see above) Also, investors do not qualify for this program.

by: Diane Gerdes ..the "Economy Cupcake"

The American Economy should take lessons from our 2010 Olympic champions. The American athletes are playing with injuries that would put the rest of us in a hospital for an extended stay. Or you would find our battered bodies sequestered in our hot tubs (or in my case, a warm bath), easing the throbbing with our favorite adult beverage.

Lindsey Vonn, the first American female gold medalist for the downhill, skied with a severe bruised shin. It was rumored just days before the opening ceremony that she may not compete. In December Seth Wescott jammed his femur into his pelvic bone (everyone say eeww!), only to forge ahead winning the gold for the men’s snowboard cross. Evan Lysacek surprised the world winning the gold in men’s figure skating, although a past foot fracture left him unable to perform the quadruple jump. (Contrary to the reports on ESPN, watching figure skating does not compromise the man gene). And Shaun White has no injuries that I know of but, wow, his wings must be invisible. How else could anyone fly and twist at that height? His performance was awe-inspiring.

Our economy has been sick and diseased, leaving a trail of broken limbs and bruised egos. It is slowly getting better in spite of the housing market and anemic employment. The signs of improvement, although small, are in all aspects of business, from manufacturing to retail sales. We should be determined to work through our own financial injuries (some self-inflicted) enduring the pain as we move forward. For true inspiration we should mirror our Olympians for continued motivation so that we keep improving and changing as needed.

FYI: The Global markets feigned surprise yesterday when the Fed raised the rate charged to banks for direct loans by a quarter of a point, the first increase since June, 2006. Hand wringing and wailing is not necessary because the Fed is sending a baby signal that they are trying to get back to business as usual. It is the first step to wean the financial industry off of the historically cheap money.

By Diane Gerdes    The "Economy Cupcake"

The new moon next week (no, not the one with beautiful blood sucking teenagers or ripped hairy guys) begins the Chinese New Year celebration of the Year of the Tiger. Fireworks are a tradition: a call for the Dragon to come ward off evil spirits. But the recent sparks between China and the United States are not from colorful explosives.

Our government has been feeding the big panda’s appetite for American investments with 10 year treasury notes. The notes are the benchmark for our 30 year fixed mortgage rates. B.C., before the Chinese, when the economy slowed, investors purchased more notes sending the yields lower and therefore the mortgage rates went down. During strong economic growth investors would place their money in higher return investments, say the stock market, slowing down the enthusiasm for our bonds and effectively raising the interest rates. Until…. China began acquiring our treasuries in bulk in 2004. Their buying spree is one of the reasons the rates for mortgage loans were historically low during the boom of 2005 and 2006. As of November, 2009 China owns 789.6 billion dollars in treasuries.

China also purchased billions of dollars of mortgage backed securities. Once this holy grail of profit became anointed as toxic, the investors fled to safer havens. Our government continued to purchase these mortgage backed securities that no one else wants: to keep a lid on our interest rates, to keep our housing market active and to protect the Chinese from losses.

Last week the FT times reported that Russia approached China during the 2008 Olympics in Beijing with a plan for both countries to sell their treasury securities, worth over a trillion dollars, with the intent to blast our economy into turmoil. The Chinese refused. Friday, a Chinese official dangled the treasuries as retaliation bait in response to President Obama’s announcement of his intent to sell arms to Taiwan.

Unfortunately we invited the dragon to our party when it was a baby. Now it’s all grown up, breathing fire. And it isn’t a myth. Maybe next time we should check our guest list before we let strangers into our house. You never know who’ll become family.

BY:DianeGerdes     the "Economy Cupcake"

Bail outs are taking a whole different meaning in today’s world. A few short years ago bail out meant contacting Dennis, the bail bondsman to borrow money to get my irresponsible brother out of jail. Now 15 members of the Euro Zone have gotten the call to bail out their financially reckless sister, Greece. So why would they bother?

The same reason I bailed out my brother. He never paid back the thousands of dollars he borrowed through the years. Greece already owes a ton of money to many members of the EU. The other countries need to protect their investment.

The two largest and healthiest members of the Euro Union, France and Germany have too much invested in Greece to let her fail. The nether-do-well sisters, Spain and Portugal are also reported close to faltering. How will the members swing the copious amounts of cash needed to prevent economic disasters? To bail out my brother I had to cancel my pretend trip to Europe. And like me, it will put a squeeze on their own economies to save the spend-thrift countries from going bankrupt.

Speaking of Greece, China rocked the global markets by demanding their own banks shore up their cash reserves to protect against financial overheating. They are doing exactly the opposite of what the western countries did during the bank fueled expansion of 2004-2007. It may slow down China investing in U. S. securities and treasury bonds, but may prevent a sharp downturn in their economy.

Arizona is trying to prevent their own financial meltdown by implementing sharp, decisive measures to curb spending. There is no Dennis the bail bondsman or big sister to bail them out.

BY: Diane Gerdes  the"Economy Cupcake"

2010 is bringing unprecedented changes to lending. Our squabbling, not-talking parents, HUD and the FED have put new regulations into place to monitor home loans. (They don’t even meet for coffee. More on that at a later date) In the old days (2005-2006) if a buyer was using an unethical lender, went to closing and the interest rate was higher or the closings costs were more than stated on the good faith estimate, the buyer was encouraged to sign the final loan documents or the seller could refuse to sell the home. Those days are gone, gone, gone. As of January 1, 2010 within three days of a new loan application, the new good faith devised by HUD is required to be sent to the buyer. There is zero tolerance for increases in fees or interest rate. The new good faith DOES NOT HAVE CASH TO CLOSE OR THE TOTAL PAYMENT AMOUNT. It is no longer an estimate but a contract between the lender and borrower for the fees and interest rate associated with the loan. Most lenders are requiring the title fees to be perfect and to add the owner’s policy (HOA fees, assessments, and home warranties are excluded). Also by law, the buyer has 24 hours to review the HUD-1/settlement statement before he goes to sign the final loan documents. The GFE also includes the upfront mortgage insurance premium (FHA) or funding fee (VA or USDA) to be included in the total amount of the fees. Freak out time if your borrower thinks his closing costs are $11,000 instead of $5,000 because of a $6,000 VA funding fee.

Get this: The 2010 GFE does not need to be signed. HUD does not want any marks on the GFE. Again, I can’t make this stuff up. It is enough to make you go back to box wine...

by: Diane Gerdes  the "Economy Cupcake"

One day after President Obama’s State of the Union address with the promise of adding more jobs, the City of Phoenix announced they are cutting 1379 positions including police officers and firefighters to offset the $242 million deficit. Instead of eliminating necessary personnel, the following are suggestions to offset the drain on our coffers:

1. Say goodbye to photo radar. The cost of maintaining the cameras, managing the photos, mailing the tickets and serving the good citizens with their very own picture would equate to more than a few bucks. We could sell the cameras to some unsuspecting state, say South Dakota, to recoup several mil. Besides, my kids are tired of going out through the back gate to meet their friends and are looking forward to the day they can answer the front door again. FYI: “The gas pedal is stuck” is not an acceptable excuse for speeding. All recent model cars have a brake.

2. Arizona is becoming the “Green Capital” of the Universe focusing on solar and alternative fuels. Businesses are sprouting up throughout the state including the opening of the Chinese based Solar Tech in Goodyear. So, why keep the city buildings at a balmy 40 degrees during the summer? Or to keep every light on during the day or after dark?

3. According to a Stimulus Checkup report released in December by our own Senator John McCain and Tom Coburn of Oklahoma, a construction firm in Phoenix with a history of tax fraud is getting $21 million. Also two major universities in Arizona are receiving a combined $950,000 to study the division of labor in ant colonies. Hmm, ants vs. protecting our children against stranger danger.

4. Arizona should implement its own “bank tax”. Every bank that files a foreclosure notice should pay the city $1500. You do the math. The big boy institutions are ground zero for our housing crisis, let them step up and help our communities.

Levying a sin tax against our vices whether it’s alcohol, casinos, or bowling is not an option. We all need a diversion of the temporary kind. At least until those that serve can make us feel safe again.

FYI: Interest rates may swing upward when the Feds stop buying the mortgage backed securities in March. Total to date purchases: 1.61 trillion. Dollars.

By: Diane Gerdes    the "Economy Cupcake"

This week we have something else to talk about other than our economy. That’s right, now that we have turned off our sprinkler system, think of all the money we are saving! The rain is not hampering the unemployment rate, though, as it continues to climb in 43 states. A little bit of sunshine peaked through with the announcement that only 9.1 Arizonians are out of work compared to the national average of a shade over 10 percent and Michigan’s 14.6.

The housing market continues to cloud our economic recovery throughout the United States. The Obama administration has finally admitted its $75 billion program to stop foreclosures may need some more tweaking. According to the New York Times only Ocwen Financial, a subprime lender, can claim success in loan modifications, with a 40% conversion rate. Bank of America and Chase are lagging far behind with only 2% and 4% respectfully.

But the big boys are unwilling to do what Ocwen did early on to fend off foreclosures: principal reduction. It is reported that 43% of Arizona homeowners are underwater. It would cost the banks billions of dollars to reduce loan balances, not to mention shaving the mega profits off of their bottom lines. Is that a tear in your eye?

The whining continues that it would not be fair to the banks or investors that hold the notes. All is not fair in love and economics. If you want fair, go to a fairground. Or this storm may never pass.

FYI: Confused? Dismayed? The new FHA changes got you down? Cheer up! It was a nonevent. 10% down with 580 credit Scores? Very few 580 credit score loans have been approved over the past two years. The increase in the upfront mortgage insurance? It is going back to the pre-2007 amounts. The reduction of the seller concessions to 3%? That may hurt a little for the low loan amounts, but probably not enough to make a difference.

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"