Marc's Mortgage Matter's

Warren Buffet once noted that "you only find out who is swimming naked when the tide goes out." The collapse of what prosecutors say was the biggest Ponzi scheme in history, orchestrated by the NY money manager Bernard Madoff, has left a large number of powerful and smart people shivering on that beach.

Mr Madoff's suspected multibillion-dollar fraud, discovered as falling markets exposed the fiction of its 10% annual profits, provided a stark reminder of how greed impairs judgement, duping some of the world's supposedly savviest investors for decades. It raised once more a fundamental question of these times; where were the regulators when all of this was happening?

Just lock your dog and your spouse in the trunk of the car for an hour.

When you open the trunk, which one is really happy to see you? 

DAMNED IF THEY DO, BUT ISRAEL'S DEAD IF THEY DON'T!

December 29, 2008

DEAD Jews aren't news, but killing terrorists outrages global activists. On Saturday, Israel struck back powerfully against its tormentors. Now Israel's the villain. Again.

How long will it be until the UN General Assembly passes a resolution creating an international Holocaust Appreciation Day?

Israel's airstrikes against confirmed Hamas terrorist targets in the Gaza Strip were overdue, discriminating and skillful. So far, this retaliatory campaign has been a superb example of how to employ postmodern airpower.

Instead of bombing empty buildings in the dead of night in the hope of convincing bloodthirsty monsters to become peace-loving floral arrangers - the US Air Force version of "Shock and Awe" - the Israeli Defense Force aimed to kill terrorists.

Israel's attack aircraft appear to have accomplished that part of the mission. As I write, some 300 terrorist dead have been reported in Gaza, while the propaganda-savvy information office of Hamas has strug- gled to prove that 20 civilians died.

Given the fact that Hamas adheres to the terrorist practice of locating command sites, arsenals and training facilities in heavily populated areas, the results suggest that the IDF - supported by first-rate intelligence work - may have executed the most accurate wave of airstrikes in history, with a 15-to-1 terrorist-to-civilian kill ratio.

The bad news is that it still won't be enough. While Israel has delivered a painful blow against Hamas, it's still not a paralyzing hit. The only way to neuter such a terror threat - even temporarily - is to go in on the ground and scour every room, basement and underground tunnel in a region.

That would mean high Israeli casualties and, of course, condemnation of Israel's self-defense efforts by every self-righteous, corrupt and bigoted organization and government on earth, from Turtle Bay to Tehran.

What have been Israel's "crimes?" Not "stealing Palestinian land," but making that land productive, while exposing the incompetence and sloth of Arab culture.

Israel's crime isn't striking back at terror, but demonstrating, year after year, that a country in the Middle East can be governed without resort to terror. Israel's crime hasn't been denying Arab rights, but insisting on human rights for women and minorities.

Israel's crime has been making democracy work where tyranny prevailed for 5,000 years. Israel's crime has been survival against overwhelming odds, while legions of Arab nationalists, Islamist extremists and Western leftists want every Jew dead.

But Israel's greatest crime was to expose the global cult of victimhood, to prove that hard work, fortitude and courage could overcome even history's grimmest disaster.

Was it a crime to hand Gaza back to Palestinian authorities, to give peace a chance? Look what Israel received in return for trading land for peace.

Let us never forget the fundamental truth that, while Israel longs to live in peace with its neighbors, those neighbors openly profess the desire to eliminate Israel and exterminate its people.

Indeed, Arab and regional jealousy toward Israel is so all-consuming, so necessary to excuse the Arab art of failure, that even these judicious airstrikes will hardly make a dent in the terrorist threat.

Unless Israel sends in ground forces for the long haul - and thousands of IDF reservists are being mobilized - there will be, at best, a temporary respite from terror attacks. Even a new occupation of Gaza would not fully solve the problem.

A crucial point about interfaith and interethnic conflicts that we sheltered Americans refuse to understand is that, all too often, there's just no good solution - and not even a bad solution, short of acts of barbarism.

It's a rare conflict that results in an enduring peace. Unintended consequences abound. At times, you fight just to buy time, to gain breathing space - or merely to frustrate an enemy's designs for a limited period.

That's the situation Israel faces: No hope of an ultimate victory, but a constant fight to survive. Enemies who believe their god ordains their actions can't be placated. For faith-fueled terrorists, such as the core members of Hamas, the struggle with Israel's a zero-sum game. Compromise is, at most, an expedient tool, never an acceptable end state.

What will we see in the coming days? Much depends on Israel's resolve. The most probable scenario is that Hamas will continue launching terror rockets for a few weeks to salve its wounded vanity and maintain the image of "resistance," but will ultimately reduce its attacks against Israel - while it rebuilds its cadres and restocks its arsenal.

Israel will have bought time, not peace.

What might Israel have done better? It's essential to take out the top terrorist leaders. But Israel's government remains reluctant to target the cowardly Hamas leaders hiding in Damascus - or even the top terrorists remaining in Gaza.

For terrorist bosses, the rank-and-file are disposable and replaceable. You can't just kill the gunmen. You have to kill the names.

We may sympathize with the average Palestinian family, exploited by generations of corrupt leaders and now caught in yet another round of violence. But let us never forget that Israel hasn't fired thousands of blind rockets into Palestinian cities, that Israeli suicide bombers don't attack Arab restaurants and bus stops, and that Israel seeks to avoid harming civilians - while Hamas seeks to kill as many civilians as possible.

In a world where there are no good answers, Israel just answered as best it could. The world's response? "How dare Jews defend themselves."

Humanity doesn't progress. It just changes clothes.

Last month, the United States attorney’s office in San Francisco announced dual inquiries into whether World Savings engaged in predatory lending practices or misled investors about its financial well-being. And the bank has been sued by numerous borrowers who claim they were misled into taking out mortgages they could not afford.

At the center of the controversy is an exotic but popular mortgage touted and marketed by World Savings, WAMU, and Countrywide to name a few - that helped generate billions of dollars of revenue at their banks. Known as an Option ARM, and named “Pick-A-Pay” by World Savings (and others) - it is now seen by an array of housing analysts and regulators as the Typhoid Mary of the mortgage industry.

Option Arm's allowed homeowners to make monthly mortgage payments that were so small they did not cover their interest charges. That meant the total principal owed would actually grow over time, not shrink as is normally the case. Now held by an estimated two million homeowners, the option adjustable rate mortgage will be at the forefront of a further wave of homeowner distress that could greatly delay or even derail an economic recovery, mortgage industry analysts say.

Lenders embraced practices like the use of independent brokers who used questionable methods to reel in borrowers. These and other practices, critics contend, undermined the conservative lending practices that the banks let go off - in the years leading up to the present crisis.

“This product was the most destructive financial weapon ever deployed against the American middle class,” said William J. Purdy III, a housing lawyer in California who is representing elderly World Savings customers struggling to repay their loans. “People who have this loan are now trapped, and they can’t get another loan.”

Many lenders also used pre-payment penalties to lock borrowers into “absolutely awful” loans. “You have to understand how independent brokers work,” one insider states. “They are the whores of the world.” I don’t think anyone thought a Pick-A-Pay product was a customer friendly product, says a former Wachovia executive who requested anonymity to preserve professional relationships. “It was easy to mislead them.” When you get people whose mortgage payments are taking half of their cash flow, well over half if the loan reverts to a normal term fixed mortgage - they are in over their heads, and these loans should not have never been sold to this customer base.

Over all, analysts expect the option ARM fallout to be brutal. Fitch Ratings, a leading credit rating agency, recently reported that payments on nearly half of the $200 billion worth of option ARMs it tracks will jump 63 percent in the next two years — causing mortgage delinquencies to rise sharply.

“As the largest and most respected regulated institution providing option ARMs, I hold the these lenders responsible because a large percentage of home borrowers — but not all — should have been advised that it was in their best interest to have a fixed-rate mortgage,” said Robert Gnaizda, general counsel for the Greenlining Institute, a homeowner advocacy group. “I believe that financial institutions have a quasi-fiduciary responsibility not to mislead the borrower.” Good luck with that one Bob.

 



Happy Holidays to one and all!

As everyone knows, the Fed reduced its target for the federal funds rate to between zero and 0.25%, down from 1%, along with pledging to use "all available tools" to fight the current downturn. (Having a negative Fed Funds rate is highly unlikely, so they are left with flooding the market with liquidity as their tool going forward.) It said it was likely that rates would be kept at "exceptionally low levels" for some time to come. Bonds rallied, rates dropped, equities rallied on the news. The dollar worsened, but look for our currency to rally as other countries lower their rates.

Although the rate cut will help, remember that we still have an auto industry with problems, expected continued lay-offs (although not in mortgage banking!), and home builders are hurting. But the central bank's move to cut interest rates and pledge other efforts to unfreeze frozen credit markets should translate into significantly lower interest rates for consumers. Commercial banks responded immediately to the Fed announcement by cutting their prime rates. Great time to review your present mortgage situation, and call me with any questions regarding this WOW drop!

Dear Sirs,
In view of current developments in the banking market, if one of my checks is returned marked “insufficient funds”, does that refer to me? Or to you?
Yours Faithfully,
Signed - Marc

“Shoot yourself in the foot” means to do or say something stupid which causes problems for you. Are mortgage rates really going to be pegged at 4.5%, as the press seems to believe? You’ll notice that stories about this rumor have died down, perhaps because it isn’t true? Unfortunately it froze many potential buyers in their tracks, waiting. Many believe that this is precisely the wrong solution to the housing crisis – are rates the problem, or are underwriting guidelines? The plan would have supposedly required Fannie Mae and Freddie Mac to lower rates to 4.5%, and then require the Fed to directly buy the loans after they were made, and hopefully new buyers will be more likely to qualify for larger loans. But artificially suppressing mortgage rates will encourage risk taking and debt assumption, which got us into this mess to begin with. By setting rates below market levels, and buying mortgages that no private funder wants, the government would be creating an even large mortgage entitlement program.

Wouldn’t it be better to adjust underwriting guidelines to help the self-employed borrower, or to work on helping existing borrowers? As one industry expert suggested, “Money should not be spent on loans already bad, since the damage is done. Money should be spent on making sure no more loans go bad.

A fleeing Taliban, desperate for water, was trudging through the Afghanistan desert when he saw something far off in the distance. Hoping to find water, he hurried towards it, only to find a little old Jewish man at a small stand selling ties.

The Taliban asked, “Do you have water?”

The Jewish man replied, “I have no water. Would you like to buy a tie? They are only $5.”

The Taliban shouted, “Infidel! I do not need an over-priced tie! I need water! I should kill you, but I must find water first!”

“OK, OK,” said the old Jewish man, “It does not matter that you do not want to buy a tie and that you hate me. I will show you that I am bigger than that. If you continue over that hill to the east for about two miles, you will find a lovely restaurant. It has all the ice cold water you need. Shalom.”

Muttering, the Taliban staggered away over the hill.

Several hours later he staggered back, almost dead, shouting, “Your darn brother won't let me in without a tie!”

The recent dip in mortgage rates makes refinancing more attractive, the Democrat says, but he is warning New Yorkers that unscrupulous brokers may try to snare homeowners with deals packed with hidden fees and costs.

At a press conference in New York, the senator says "there’s no free lunch, and there’s no free refinanced mortgage."

While it is a good time for many New Yorkers to refinance their mortgages to lower fixed rates with reputable firms, the senator is urging New Yorkers to be wary of the sort of too-good-to-be-true radio ads and flyers.

Last night the European Central Bank delivered the biggest interest-rate cut in its 10-year history by cutting their benchmark lending rate by 75 basis points to 2.5%. And here in the United States, lobbyists are pushing the Treasury Department to consider a plan to purchase mortgage-backed securities in the hopes of driving mortgage rates to as low as 4.5%. How? As we saw last week, an increased demand for mortgage-backed securities would prompt mortgage rates to drop, which enables homeowners to refinance into lower-cost loans and make it cheaper for potential homebuyers to get into the market. Of course, the plan is not without its critics, especially since the markets have naturally pushed rates higher since last week. They say that only a narrow slice of credit-worthy borrowers would benefit, and the proposal would do little to help troubled borrowers who have fallen behind on their payments, have no equity in their homes or have lost their jobs. And remember those tight guidelines! 

In the event anything close to this pans out, and we have an opportunity to lower your rate by anything close to such levels, I will be contacting you if you're on my radar. If you have not heard from me in the past 12 months make sure to email me or call as you may have fallen into the do not disturb category ;)

The three big domestic automakers are now saying they are working jointly on a new hybrid car. It runs on a combination of state and federal bailout money. Tuesday marked the major automakers' deadline to submit restructuring plans as part of its $25 billion bailout package. (Conan O’Brien quipped, “A new study found that the Ford Motor Company makes the cars with the highest safety rating of all cars. Apparently, Ford cars are so safe because they never leave the dealer's lot.”)

The big 3 Detroit automakers now say they need $34 billion to fix the industry. The base price is still $25 billion, but they say they need another $9 billion for parts and labor. Sure, and I need only $1.2 billion to pay off my Visa and Discover credit cards!

There was a decent article in the Wall Street Journal yesterday about self-employed borrowers. “The changes are increasingly frustrating a group of borrowers whom banks once coveted: affluent self-employed professionals such as doctors, lawyers, accountants and small-business owners. The chief problem for self-employed people is that they don't have W-2 forms from an employer to document their full wages. For proof of income, they must rely solely on their income-tax returns. But income for the self-employed is often understated for tax purposes, in part because they tend to take large business-related deductions. Self-employed borrowers who don't take any big deductions won't likely face the same difficulty getting a loan. "When you're self-employed, the write-offs that you use help at tax time -- but that means when you apply for a loan, your income won't reflect your cash flow," says Richard Redmond, a mortgage broker in Larkspur, Calif. Lenders are also cautious because non-salaried workers can see greater volatility in their annual income.”

I know the families involved in the Chabad House center in Mombai,(formerly known as Bombay) India and I am speechless as to what had happened to Gavriel and his wife Rifka. I am involved with many different Chabad Houses and know first hand the great work they do. By now most Americans know what they do too. Their outreach centers are a haven for thousands upon thousands of traveling Jews throughout the world in over 70 countries. Their work is selfless and they never ask for money. There are no words that will console these barbaric acts of violence, and nothing justifies it either. My heart goes out to the Indians that lost loved ones and so many others with them. We are all sitting Shiva this week with them in our minds, no matter who or where we are, with Moishe the orphaned 2 year old, and with hopes of no more blind hatred and sensless mayhem.