When computers take over (and the models aren't right!)

For the past several weeks I've been following my friend George Kahn's blog. He's having a "passion party" - doing what he loves to do and inspiring others to do the same.

Today George wrote an interesting bit about computer models and the role they have played in banking. Check out the story below. And, join the Passion Party - check out George's blog here.

There is no denying that computers have taken over banking, and Wall Street in general.
As we move forward in time, past the Banking Crisis of 2008
and the Great Crash of 2009
it is becoming clear that a root cause of the mess we're in stems from faulty computer models that made people (and banks and investors) believe that a risky transaction would become risk-less if it were sliced and diced enough to become unintelligible to mortal man.

Faulty computer model #1
The Fair Issacs Company (FICO) uses computer models to create a risk-based credit score that banks take as gospel in creating loans. As The Market continued on its frothy way in the early 2000s, FICO discovered an amazing "fact" - that people with a very high credit score historically never default on a home loan, even if they borrow 100% of the purchase price to buy the house.

Viola! 100% financing for "qualified" borrowers ("qualified" at this point equaled a high FICO as the banks had already accepted computer models that allowed them to do "stated income" loans, rather than dealing with those pesky tax returns).
Then somehow, a few months AFTER real estate prices started to drop in 2007, FICO retracted this idea. It seems the computer model was flawed. They discovered that with NO equity in a house, a person with perfect credit had as much likelihood of defaulting as a person with bad credit that put 30 - 40% down to buy a home.
Of course, this was a severe case of "closing the stable door after the horse has bolted".

100% financing had snared many folks into a belief that borrowing money was a way to riches as opposed to a way to be in debt up to their eyeballs.
(to be continued...)

Still on the fence about buying?

You've probably heard it over and over - historic low interest rates and a relatively flat market make this one of the best times in history to purchase real estate. And - you still have some questions. WHY is an investment a good idea at all? HOW can I make this work? WHAT am I not thinking about???

This fantastic piece was put together by the National Association of REALTORS® (NAR) and outlines some of the why, how and what's. Check it out - and remember, when you or someone you care about are ready to take the plunge, you deserve the professional service of a qualified Real Estate Consultant. We're here to help - give us a call!

TREPAC Investors Breakfast

Every once in a while it's fun to start the day a little differently. Today I was fortunate enough to participate in the Texas Real Estate Political Action Committee (TREPAC) investors breakfast held at the UT Club.

Now, I've never been to the UT club...and this shindig started at 8:30. I was a little nervous about being late, and since I'm a little nutty about being on time, I ended up there 30 minutes early - the first attendee to walk in.

The cool part about arriving early is that I had some time to run around and check things out. Here are a couple views from one of the club rooms. It was really quite a site - it was pretty foggy outside, but it was as if there was no fog what so ever in the stadium - it was picture perfect. These iphone shots give an idea, but don't do justice the the view.




You've probably read a few posts about TREPAC here in the past. TREPAC monitors, educates, and influences legislative agenda - in an effort to help protect the individual property rights of Texas property owners. You can see more about the activities at this site. Whether you are a REALTOR® or private property owner, I would like to encourage you to consider contributing to the PAC.

Feds crack down on dubious lenders

This just in from the NAR newswire:

The Federal Housing Administration served subpoenas Tuesday on 15 mortgage companies with high default rates for FHA-backed loans.

The agency has previously taken action against several lenders with questionable records, including Lend America and Taylor, Bean & Whitaker Mortgage Co.

Department of Housing and Urban Development's Inspector General, Kenneth Donohue said he plans to determine why these 15 lenders had so many loans that defaulted shortly after they closed.

Troubled lenders include: First Tennessee Bank N.A, of Memphis, Tenn.; Alethese LLC, of Lakeway, Texas; Security Atlantic Mortgage Co., of Edison, N.J.; Pine State Mortgage Corp., of Atlanta; Birmingham Bancorp Mortgage Corp., of West Bloomfield, Mich.; Alacrity Financial Services LLC, of Southlake, Texas; Assurity Financial Services LLC, of Englewood, Colo.; D and R Mortgage Corp., of Farmington, Mich.; Webster Bank, of Cheshire, Conn.; Mac-Clair Mortgage Corp., of Flint, Mich.; Americare Investment Group Inc., of Arlington, Texas; 1st Advantage Mortgage, of Lombard, Ill.; American Sterling Bank, of Independence, Mo.; Sterling National Mortgage Co., Inc., of Great Neck, N.Y.; and Dell Franklin Financial LLC, of Columbia, Md.

John Courson, CEO of the Mortgage Bankers Association, applauded the crackdown. "We're concerned about the viability of the program and we want to make sure that the bad apples and the bad players, frankly, are eliminated," he said.

Source: The Associated Press, Alan Zibel (01/12/2010)

New Rules Help Borrowers at Closing

Check out this great Wall Street Journal article for information on the recent changes to the Good Faith Estimate as well as the new HUD-1 form.

In my years as a Real Estate Consultant I have been very fortunate to work with top notch lenders. Every time a client has chosen to work with one of the lenders from "the list" that I have provided for them, closing has happened smoothly, on time, and with no surprises.

Oddly enough, almost every (there has been ONE exception) time a client has chosen to work with a lender who is not "on the list" we have had turbulence, delays, and surprises.

These new changes are very welcome. They will benefit buyers in a very dramatic way. They also require lenders to be honest with the information that they provide our clients. One of the drawbacks of these changes is that it is forcing mortgage professionals who were not part of the problem to have many more hoops to jump through, something I certainly do not envy.

The most important thing to remember when working with both a REALTOR® and a mortgage professional is to work with highly skilled, qualified and ethical folks. You already know who to call in the Austin area - and it's important for you to know that we can help the people you like in other parts of the US and Canada by referring them to professionals that practice just like we do. Please - don't keep us a secret!

Iowa State takes its place in computer history

Iowa State has a special place in my heart. Aside from loving the college/community partnership that Ames and Iowa State University are known for, it is also the institution that I completed my Master's in Educational Leadership.

This cool note just came in from the Alumni Association - I thought it was interesting enough to share with y'all - even though we're in Texas!

ISU's full-scale, working replica of the groundbreaking Atanasoff-Berry Computer (the first digital electronic computer) will be part of a major new exhibition opening fall 2010 at the Computer History Museum in Mountain View, Calif. The exhibition will include more than 1,000 artifacts that tell the story of computing and computer innovation. The ABC replica, which weighs 750 pounds, is currently displayed in the lobby of the Durham Center. It will be moved by April 1. "John Vincent Atanasoff and Clifford Berry were true pioneers in electronic digital computing," ISU President Gregory Geoffroy said. "As part of the new exhibition, the Computer History Museum can tell the story of their innovations to hundreds of thousands of museum visitors and millions of online visitors every year. And so we're pleased Iowa State's working replica of the ABC will be part of the museum's ambitious exhibit. The ABC deserves a prominent place in the history of computing." Read more about the Computer History Museum online.

Get your free housing trends report now!

We're happy to offer this new, free service to our clients, friends and fans! Check out our monthly Housing Trends Report for useful, up-to-date information on the housing industry.

Each month we'll provide a link to the newest report - full of information that you can use to get a better idea of what the real story is in the housing market.

Remember we're here to help you determine what this information means to you, and to help you attain the most positive position in this new market.

Feel free to share with the people you like!

Interesting cell phone comparison

You probably already know I've always been a bit of a tech geek. I like to have the newest electronic gadget - but lately I've become a little more frugal.

One of the things that is always perplexing is whether or not it's a good idea to change cell phones ( and often, this includes changing carriers as well). The last phone that I had that I REALLY liked was an LG flip phone that I got at Fry's electronics back in 2002. It was a plain old phone, and didn't even have a color screen let alone camera or web browser.

The biggest thing I liked about it? IT WORKED. Every time. No software conflicts, no lag time between pushing send and the call taking place, etc. It has been a long time since I've had a similar experience.... Since that time I've had the very first Treo smart phone, a treo 600, 650, 700, LG slider, motorola razr, blackberry pearl, treo centro and appli iphone 3g. That's a lot of phones. Apparently I'm a tough guy to please when it comes to cell phones...which is odd, since my basic requirements are that it make phone calls, the software works quickly and correctly, and the carrier isn't evil (the carrier issue is a whole different story!).

Anyway, lately I've had my eyes on the new devices powered by the Google Android operating system. You may have your own opinions of google...my opinion is that google is generally good, generally cutting edge, and generally exciting. That makes me want a phone that uses their OS.

As I've been considering changes, I've been thinking it is getting more and more difficult to compare costs between carriers. That's where this exciting new chart comes in. Check it out here.

If you have some thoughts on your favorite phone or carrier - please shoot me a note or comment here and let me know!

What you need to know about the tax credit

There has been lots of buzz about the Federal Tax Credit for home buyers. The most recent changes have extended the deadline as well as added a credit for folks who already own a home. As you might remember, the original credit was for first time buyers only.

Originally created in 2008, the home-buyer tax credit has evolved from a $7,500 credit, which had to be repaid by the home buyer over the course of 15 years, to an $8,000 tax credit with no repayment required in 2009. Now, for a limited time in 2010, the $8,000 home buyer tax credit will still be available to first-time home buyers and certain current homeowners will also be eligible for a $6,500 credit.

To help everyone better understand the extended and expanded home buyer tax credit, here are some highlights of the changes.

Who can claim the credit?

“First-time home buyers” who purchase homes between November 7, 2009 and April 30, 2010 are eligible for the credit. To qualify as a “first-time home buyer” the purchaser or his/her spouse may not have owned a residence during the three years prior to the purchase.

For current homeowners purchasing a home during the same time frame, they are also eligible for a tax credit, so long as the home being sold or vacated was their principal residence for five consecutive years within the last eight. To elaborate, it must be the same home; it is not enough that they have been homeowners for five consecutive years, they must have been in the same home for five consecutive years.

Another key point is that the existing home does not need to be sold. One must, however, occupy the new home as a principal residence and do so for three years or risk recapture of the credit. Also, the new home does not need to cost more than the old home despite the concept that it is directed at “move up” buyers.

How much is the credit and what are the income limits?

The maximum allowable credit for first-time home buyers is $8,000 or 10% of the sales price, whichever is less. For current homeowners, it is $6,500 or 10% of the sale price, whichever is less. Under the extended home buyer tax credit, single buyers with incomes up to $125,000 and married couples with incomes up to $225,000 may receive the maximum credit.

The credit decreases for single buyers who earn between $125,000 and $145,000 and between $225,000 and $245,000 for home buyers filing jointly. The amount of the tax credit deceases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income – over $145,000 for singles and over $245,000 for couples – are not eligible for the credit.

What are the deadlines for qualifying for the credit?

Under the extended home buyer tax credit, as long as a written binding contract to purchase a home is in effect on April 30, 2010, and the deal is closed by July 1, 2010, one can claim the credit.

Will the tax credit need to be repaid?

No, the buyer does not need to repay the tax credit if he/she occupies the home for three years or more. However, if the property is sold during this three-year period, the full amount of the credit will be recouped on the sale. Another provision of the law waives the recapture provisions for service members who receive orders that require them to move.

Are there any other critical provisions?

-There are three provisions people should be aware of:
-There is an $800,000 limitation on the cost of the home
-The purchaser must be at least 18 years old on the date of purchase
-For a married couple, only one spouse must meet this age requirement and dependents are not eligible to claim the credit

Finally, as an anti-fraud measure, purchasers must attach documentation of purchase to his/her tax return claiming the credit. Normally this would be a copy of the HUD-1, but could include other documents memorializing the settlement.

As with all tax matters, responsibility for complying with the tax code belongs to the taxpayer. Real estate professionals should recommend that their buyers consult their tax professionals to ensure eligibility for the credit and the proper way to claim the credit. For more information including the required IRS forms please contact the Internal Revenue Service at 800-829-1040.

Information courtesy of RISMedia - Ken Trepeta is the Director, Real Estate Services for the National Association of REALTORS® Real Estate Services program.

For more information, visit www.realtors.org/res.


Read more here.

Will 2010 be the beginning of your financial independence?

Since we're already a few days in to 2010 I thought it would be good to share some tips on improving your finances. Seems like no matter how hard we work on some of our goals, there is always room for improvement. I've found a few of these tips helpful in the past and will implement a few more for 2010. Hope you'll join me!

-From RISMedia:

What will you be looking forward to in the New Year? Buying your first home? Sending your last kid off to college? Or obsessing over your own personal mountain of debt, even more worrisome in this uncertain economy? It may feel like “Resolution Impossible,” but if you follow Eric Tyson’s advice, you’ll remember ‘10 as the year you finally took control of your financial future.

“While the situation is improving, Americans carry too much consumer debt,” says Tyson, author of Personal Finance for Dummies, 6th Edition.. “If you have credit card debt or auto loans, take some solace in the fact that you’re far from alone and that many others have overcome these hurdles. Consumer debt is not okay, particularly in a slow economy such as this one. It can damage your personal relationships and mental well-being, not to mention the stability of your financial future.”

Here are a few tips from Tyson that will help you improve your financial health in 2010:

Partake in a little self-reflection. A misaligned mindset toward spending and shopping—compulsive or otherwise—can severely affect your financial and personal well-being. If you think you might have a problem with shopping or spending, there are several questions you should ask yourself:

-Do I feel guilty about shopping?
-Is my shopping causing financial trouble?
-Is my shopping, spending, and accumulated debt leading to feelings of helplessness, anger, confusion, fear, or depression?

Make a plan and stick to it. The reason so many New Year’s resolutions fail is that we simply state the thing we want to improve and then never create a plan for helping us get from point A to point B. Most people don’t like to plan unless we’re talking about something fun, like a vacation. But actually, planning for your financial future is a little like planning a vacation. You’re organizing your money and time so that you get to do all the great things you want when you get there. Look at it that way, and you might actually enjoy the process.

Get rid of your four-wheeled debt. Too many people define necessities by what those around them have. A brand new car is not a necessity, although some people try to make it one by saying, “I need a way to get to work.” Guess what? There are plenty of far less expensive used cars out there that will also make it to your office. If you take out an auto loan to buy a car that you really can’t afford and you take a similar approach with other consumer items you don’t truly need, you’re going to have great difficulty saving money and accomplishing your goals. Moreover, you’ll probably feel stressed all the time—which is a poor trade-off for the (short-lived) “new car smell.”

Start making your purchases based on need, not emotion. It can be easy to give in to all of those advertisements telling us how much we “need” that new car, expensive gym membership, or trendy outfit. Marketers play on insecurities, fears, and guilt and suggest that you can feel better about yourself by buying their products. You won’t be able to overcome spending and consumer debt until you recognize these pressures and how they corrupt your buying decisions.

Research before you enter the store. Prior to going shopping for necessities that aren’t everyday purchases—say, a new refrigerator—do some research first. Your research will help you identify brands, models, and so on that are good values. You don’t want to make an expensive mistake.

Watch your food budget. Dine out less and keep stock of the groceries you already have. Learn to cook if you don’t know how. Try to keep a healthy inventory of groceries at home. This will minimize trips to the store and the need to impulsively dine out because your cupboard is bare. Try to do most of your shopping through discount warehouse-type stores, which offer low prices for buying in bulk, or grocery stores that offer bulk purchases. Saving on the amount you spend on food will help you put more money toward paying off your debt and eventually setting money aside for investments.

Become more energy efficient. Check out opportunities to make your home more energy efficient. Adding insulation and weather-stripping, installing water-saving devices, and reducing use of electrical appliances can pay for themselves in short order. Many utility companies will even do a free energy review or audit of your home and suggest money-saving ideas.

Watch what you are paying for insurance. Many people overspend on insurance by carrying coverage that’s unnecessary or that covers small potential losses. Coverage of small losses, such as $100 or $200, is not useful for most people since such a loss wouldn’t be a financial catastrophe.

“It won’t be easy getting out of debt, and it’s certainly not something you will be able to achieve overnight,” says Tyson. “Like losing weight, it’s something that takes constant dedication but has a great payoff in the end. Whenever you lose focus or feel like giving in, think about the wonderful benefits of financial well-being. Once you’re out of debt, the money you are able to invest will mushroom into substantial savings that will allow you to get more for your money,” concludes Tyson.

RISMEDIA, December 30, 2009