I read Hillary Clinton’s blog today about what she wants to do to “crackdown” on the mortgage industry for causing all of the new foreclosures.  While I agree that the mortgage industry has some problems and I don’t believe government will solve them.  I wanted you to see my response to her.Hillary’s comments from her blog are below (in blue) and my response follows.

Crack Down on Unscrupulous Brokers:

• Require mortgage brokers to disclose to borrowers that their compensation rises when borrowers’ mortgage rates and mortgage fees are high. 

• Work with states to develop strong licensing standards and require federal registration for mortgage brokers. 

Crack Down on Mortgage Lending Abuses:

• Eliminate prepayment penalties on mortgage products. 

• Require mortgage lenders to include the cost of taxes and insurance in the underwriting assessment of higher-risk mortgages. 

Help Reduce Foreclosures:

• Establish a $1 billion fund to assist state programs that help at-risk borrowers avoid foreclosure. 

• Expand Fannie Mae’s and Freddie Mac’s Foreclosure Prevention Efforts. Hillary would expand the goals of Fannie and Freddie, the government sponsored enterprises (GSEs) that help stabilize the mortgage markets, to include helping a larger number of at-risk homeowners avoid foreclosure. 

Expand Affordable Housing:

• Establish a $1 billion fund to provide federal support to housing trust funds established by state, county, and municipal governments. 

 My Response: 

First, I want to say that I have been in the mortgage business for 15 years.  I teach people about their money and have written a book for “Working America” titled, The Money Thing Made Easy.  I have seen thousands of people’s finances and I have documented many commonalities in both those that handle their money well and those that don’t.  The mortgage problems we are facing now are completely centered on those that don’t handle their money well.  I don’t want to say that it is not their fault because I am a proponent of personal responsibility.  However, there is no place for people to go to in order to learn how to handle their money.  People are on their own and they have to be taught that. 

The banks will only help you if you want to borrow money and the investment people only help people that already have money.  So who teaches “Working America”?  I contend that the mortgage industry is the prime place where this education could take place.  At this point, that cannot happen because many of the people in the mortgage industry don’t understand money themselves and they are giving advice to people who are borrowing huge amounts of money.   

While people need to be proactive in seeking good advice when they are borrowing money, many borrowers are seeking advice from unqualified mortgage people.  You probably would not hire an obese person to help you get your body in shape, you would not hire someone who cannot read to tutor your children, yet many people are turning to people who do not handle their own money well to get advice on a mortgage.  These people have proven that they are not yet ready to offer advice on mortgages and finance.  The sub-prime meltdown is proof. 

Sub-prime loans are made available for people who have had credit issues.  The goal of a sub-prime loan is to allow people to get into a house, and then take that two-year time frame with a fixed rate of interest to fix the problems that got them there in the first place.  The people that I have seen that have or are losing their homes, they didn’t do anything to fix the problem and on top of that, they did not seek help when the problem started to get worse.  What I mean by that is that if people would just seek help immediately when they start to get behind, most of those people would have kept their homes.  It is the inactivity in the early stages that is usually caused by embarrassment or the lack of a good source of information on what to do.  Good mortgage people can help.  Inexperienced, unqualified or those that just don’t care, are not a good source for people to turn to when things get tight. 

In terms of your ideas on solving the problem, here are my comments: 

1. Requiring brokers to disclose every penny they make is neither a good nor a bad idea.  For example, If you need a truck and you get a great deal on a motorcycle, what have you really accomplished?  You still did not get what you needed.  If the consumer focuses on the lowest price, the consumer will probably get hurt in the end.  The issue that most people should focus on is strategy and product, not the lowest price. 

2. If we are going to focus on licensing standards, don’t focus all of the standards for mortgage people on how much they know about regulations and products.  While that would be an important part of any future standards.  I believe that mortgage people need to be financially solvent personally.  This does not mean that they should be wealthy, but they should be on stable ground financially.  I would never want anyone I know to go to a mortgage person with bad credit.  If, for example they are in bankruptcy themselves, they should not be allowed to practice on the public. 

3.  Prepayment penalties are not always bad.  If you eliminate prepayment penalties, rates and fees will go up.  Due to the costs of providing loans, lenders need to keep loans on their books for a period of time in order to break even.  If they don’t know that they are going to be able to keep them long enough, they will simply charge more upfront in rates and fees.  This really won’t help. 

4.  The issue of taxes and insurance included in the payment calculations is incorrect.  In every case, when the borrower is evaluated for affordability, taxes and insurance and even flood insurance is included in the calculation.  The problem lies in the scenario where the lender does not collect those fees in the monthly payment.   People get behind because they do not budget well or they just don’t take care of it.  I want to say again, all lenders already calculate the cost of taxes and insurance in the affordability ratios when underwriting a loan.  Unpaid taxes and insurance can affect the collateral for the loan.   

5. Throwing money at the problem will only help this immediate situation with people in trouble today.  If you want to help people avoid this scenario completely.  Spend money teaching people how to handle money.  What they are in for in the future and what steps they can take to be responsible.  Usually government does not spend money on these types of programs because it preaches personal responsibility.   I realize that I have ranted on at length here but this is a topic that I have devoted my life to.  I want to teach “Working

I am about to turn 51.  I do feel a little older and my body isn’t what it used to be.  But for the most part, I enjoy life now more than ever.  For our Saturday date night last weekend, my wife and I went to The Bite of Edmonds a local weekend celebration just north of Seattle.  We have a friend who runs the beer garden there and the Beatniks were playing.   We grabbed a beer and moved up right next to the stage.  As we were moving through the crowd I realized that there are a lot of people our age that still like to return to our youth and have a good time.  On the other hand, looking at the faces in the crowd I realized that there is a whole generation of adults that look at me as Dad or even Grandpa.  Then it hit me, I am now old enough to join the AARP.   Woo Hoo!

Today I was reading the newspaper and there was a full-page ad from the AARP talking about the housing choices that we older people have.  At the bottom of the page there was a few paragraphs titled:  How to Recognize a Dishonest Lender.  This struck me because with all of the recent changes in the mortgage industry recently, especially the past few weeks.  Over the years, I have talked to many people who have been damaged by doing business with these types of lenders.  Some we have been able to help get them out of the mess, some we haven’t. I thought the article had merit and I wanted to pass it on.  The print it red type is the word for word article the way it was published in the paper.

How to Recognize a Dishonest Lender

AARP, the not-for-profit membership organization of people ages 50 and older, provides seniors with advice on how to spot a dishonest lender.

“Be suspicious of anyone who offers you ‘bargain loans,’ whether they mail or e-mail you an offer, call you by phone or come to your door,” the online article advised. 

“Avoid salespeople who promise ‘No credit?  No problem.’  A bad loan is a mistake.  Beware of offers that are only ‘good for a short time.’ Be suspicious of anyone who contacts you first – most good mortgage lenders or credit companies don’t solicit business over the phone or just show up on your doorstep.

The article warned seniors to avoid lenders who call you and promise guaranteed, low-interest loans, who take applications over the phone or who offer next-day approval if you pay them some money today.

Another concern is so-called lenders who ask for up-front fees to “cover the first payment and other expenses.”  This is obviously someone who wants to take your up-front money and run, the article stated.

According to the U.S. Census Bureau, adults age 50 and older account for 60 percent of all health care spending and 80 percent of all luxury travel; spend $7 billion online annually; and own more that three-fourths of the nation’s wealth. 

The largest 55-plus population resides in California, New York and Florida.  This age group is also the fastest-growing segment to embrace computer technology.

While the discussion of housing options was the basis of the full page, the discussion of mortgage lenders I thought was important.  There are so many lenders out there, many of whom work for the “household name” lenders that are just looking for a paycheck.  They don’t have any regard for what this loan will do to you in the future because even if they are in the business, they won’t be working with you after this one loan anyway.

Our vision at Old West Mortgage is to create 1,000 millionaires.  We can’t do it with one loan so we want to make sure that every time you are doing something mortgage related, it is a step toward that goal.  In our minds, it is simple.  You take great care of the people you work with and they come back, with friends.

If there is anything we can do for you or anyone you know, answer questions about your finances or your mortgage, give us a call.  We are here to help.  Now, and in the future too.

Thanks for reading…

Howard

How much money will you need to be able to retire?

This is a question that most people don’t even want to think about.  Mostly because they know they are not prepared and don’t think they can get there.  This post will give you an idea of how much money you would need to have saved in order to be able to retire with enough money to live comfortably for the rest of your life.  I talk to people all the time that tell me that they don’t care if they become a millionaire but the more research I do, the more I am convinced that people may have to become an Everyday Millionaire just to be able to retire.

Here is a chart I put together to give you an idea of how much money you will need to maintain your lifestyle through your retirement years.  I don’t want to scare you, well yes, I guess I do.  But the truth is you can do it with some changes in the way you look at and handle your money, combined with some time.  For more information on how to get started, go to my website at www.TheMoneyThing.com

Take the monthly amount of money you need to support your lifestyle now.

Subtract your expected monthy social security and pension payments.
Use that figure for the first column and the chart will show you how much you will need to start with from your 401K, IRA and Savings.

In order to put this together I made some assumptions that are not helpful.  They actually will add to the number you need to have saved. 

Those assumptions are.

• That you receive an average of 7% per year on your invested money.
• That your cost of living will not increase.
• That you will pay no income taxes in your retirement.

Right now you are probably feeling that this is an impossible task.  The point I am trying to make is that you have to get started.  After you get started you will see that you will be better off in the long run, no matter how big or small of a dent you are able to make in this number. 

Just remember that a penny doubled ten times is only $5.00.  A penny doubled 20 times is over $5,000.  But a penny doubled 30 times is over $5,000,000.

Thanks for reading
Howard