Actually, both claims are correct but the bigger issue is whether refinancing is actually worthwhile.

According to the letter my mortgage rate would drop from 4.63 percent to 4.46 percent if I refinance. That’s right, based on the APR or annual percentage rate, my rate would fall .17 percent. Not a partial .17 percent, not a fraction of .17 percent, but a full .17 percent. That’s about 1/6th of 1 percent.

But wait, there’s more.

And, yes, monthly costs would fall. For instance with a fixed-rate, 30-year $200,000 mortgage the monthly expense for principal and interest would go from $1,028.88 to $1,008.62. That’s a savings right there of $20.26 per month or $243.12 annually.

So the lender’s letter is literally true: I would have a lower interest rate and save almost $250 a year in this example.

Mortgage Rates

Despite the accuracy of the lender’s claims — which are subject to change along with the interest rate according to the letter — the offer is unacceptable to me. Here’s why.

How much would I have to spend at closing to save $250 a year? If closing costs $3,000 for transfer taxes, legal fees, title insurance and other expenses than it would take 12 years of mortgage “savings” to get back my money.

And why are mortgage rates at anywhere near 4.46 percent attractive in today’s world? The latest figures from Freddie Mac show that a typical 30-year mortgage is priced at 3.98 percent — that’s almost a half point lower than the offered rate.

Nope, I won’t be taking the lender’s offer.

But here’s the question: Why didn’t the lender simply repeat it’s last refinancing offer — an offer I took. In that case the rate went down almost a point, I saved about $200 a month and the lender paid all closing costs except prepaid taxes and insurance.

The lender and I both benefited. I got the lower monthly payment and the lender got a crisp, new loan to re-sell at a profit in the secondary market.

In other words, everybody won.

Mortgage Prepayments

The new refi offer doesn’t work because it’s one-sided — assuming the lender actually provides the terms mentioned in the letter (remember, they’re subject to change).

If I’m going to spend more money on a loan, I certainly would not pay $3,000 in closing costs to save $250 a year. Instead, I might simply increase the monthly payment by $25. While a $200,000 loan at 4.63 percent costs $1,028.88 per month, I might instead pay $1,053.88.

That would reduce the total interest bill over the loan term by nearly $10,000 — from $170,396.80 to $160,502.20 – and shorten the mortgage term by 18 months. This approach works regardless of whether the loan is an FHA, VA, or conventional fixed-rate loan. The concept also works for fixed-rate jumbo mortgages as well.

As to the lender — hey, write me again. Let’s redo the last deal at today’s rates. You know where I live.

Caution: Refinancing with Low Mortgage Rates May Not Work is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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After years of dispute and conflict that was some of the most interesting — if painful — broadcasting on television, Paul Sr. and Paul Jr. seem fairly settled as rival bike builders who now churn out theme bikes and custom cycles. As well, Paul Sr. has somehow worked out his dispute with his lender, a dispute which at one point lead to mortgage loan foreclosure notices for his newly-built headquarters.

But with the end of a massive lawsuit between the son and father and with the headquarters property no longer distressed, the story of the battling Pauls has cooled and with it some fan ardor. One way to rev-up their long-running American Chopper series is to bring back Jessie James.

James, like the Teutuls, is a bike builder, TV personality and businessman. While Paul Sr. may yell and Paul Jr. may be collegial in the workplace, James is a different story. He is arguably the least vocal of the bunch, but plainly a shrewd planner and strategist, something which could be seen when he appeared on the second season of the Celebrity Apprentice and came in third under the watchful eye of Donald Trump.

Live and from Las Vegas

The build-off programs will run live on Discovery on December 5th and 6th and as I read the promo the end result will be three bikes. Viewers will then have a chance to vote for a winner, probably in the same way as viewers rated the two bikes built by the Tuetuls for Cadillac.

All three builders have strengths: Paul Sr. has a huge facility and is backed by a large number of mechanics, machines and craftsmen, most notably metalworker Rick Petco. Paul Jr. has a far-smaller shop and a much smaller crew but a vastly-better sense of design along with help from show regulars Vinnie, Brendan and Cody. As to Jessie James, he’s now centered in Austin and we’ll have to see what he can do.

So who will win? Viewers will likely enjoy the fireworks, bike building and verbal sparring among the three main rivals. Also, it will be interesting to see how much — if at all — Paul Sr. and Paul Jr. cooperate in the face of a common rival.

We don’t know at this writing who will win the bike build-off, but it’s certain that Discovery will have a huge ratings hit on its hands.

American Chopper Vs. Jesse James: Who Really Wins? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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The answer as derived from the American Chopper TV show and public information is very simple: Both.

Let’s start with foreclosure. It’s plain that a foreclosure action was initiated by the lender, the GE Commercial Finance Business Property Corp.

The matter is openly discussed by Paul Sr. on the show. He raises such ideas as renting another facility, moving to another building he owns or building a new structure nearby. The local Times Herald-Record explains that loan payments of more than $100,000 had been missed as of June 1, 2010. (See: Orange County Choppers’ HQ faces foreclosure, Nov. 18, 2010)

Minutes from the Orange County Industrial Development Agency discuss the possibility of a smaller replacement building.

So if a property is foreclosed doesn’t that mean the borrower is soon tossed out?

Actually, no. Not always.

It’s in the interest of neither the lender nor the borrower to go through with a foreclosure, especially in many of today’s major foreclosure centers. The fact that a property has been “foreclosed” — that payments have been missed and foreclosure notices sent out — does not mean it will be lost.

There are a number of possible solutions to the foreclosure problem. For instance:

1. The lender and borrower can attempt to “cure” the loan. As one example, HUD reported that for fiscal 2009 the FHA had a “82.7 percent cure rate for properties 90 days or more delinquent.”
2. A cure can be created by bringing the loan current or moving unpaid money to the back of the mortgage; that is, making the loan term longer.
3. Another approach is to modify the loan by reducing the interest rate, forgiving principal, waiving penalties and fees or some combination of changes. Modifications have been used successfully by more than 720,000 residential borrowers under the government’s Making Home Affordable program.
4. If the lender will go along, the borrower can give up title — and then rent back the property. A deed-in-lieu of foreclosure with a rent-back allows the borrower to stay in place while generating income for the lender. This is the system behind Fannie Mae’s Deed for Lease progrtam. (When values are rising and foreclosure is not an issue, the better strategy is to sell the building and then rent it back — a sale and leaseback.)

Lenders would like to avoid foreclosures if possible because they can produce the most expensive outcome. To avoid that high-cost outcome lenders will sometimes agree to a short sale if the loss will be less than with a foreclosure.

For borrowers, foreclosure is a lousy choice, especially if the lender can go after not only the property but also your equipment and other assets. Credit will be damaged and the ability to get another loan will be impacted.

What happened between OCC and its lender is thus far a private matter. The objective fact is that something was worked out, maybe one of our options, maybe something else. (And, as I have mentioned elsewhere online, maybe there will be a lender theme bike to settle the matter…).

Meanwhile, at Paul Jr. Designs the approach is different. The property is rented.

Was it better for Junior to rent or for Senior to own? It’s years too early to answer that question, but Paul Sr. has been smart to have a world headquarters building that could showcase his custom motorcycle business and TV show while Paul Jr. was right to start with a rental since he may need more space in the future for his bikes, trikes and designs.

American Chopper — Foreclosure Vs. No Foreclosure is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Certainly mortgage rates have improved. In recent weeks they have been at or near historic lows. But no less important the lending system has improved. It’s not just that mortgage rates are better, it’s also that the probability of getting a good loan has gone up.

Let me provide three examples:

First, since January 2010 lenders have been required to use a new good faith estimate form. This is a big deal because HUD estimates that the new GFE will reduce borrower costs by $700 per transaction.

Second, there are no more yield spread premiums (YSPs).

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act lenders can no longer collect additional fees by selling more expensive loans. In other words, a lender was paid extra money — the yield spread premium — by hiking up the interest rate.

For instance, if you qualified for a loan at 4.5 percent on the basis of your credit standing and a lender sold you a loan at 5 percent, the lender got additional money out of the deal — and you got a higher mortgage cost for the entire loan term.

The ban on yield-spread premiums, of course, is just one reason why lenders want to revoke, revise and refine Wall Street reform.

Third, Wall Street reform has created a category of loans called qualified residential mortgages or QRMs. Lenders who offer QRMs do not have to set aside 5 percent of the loan amount in a reserve fund and they are protected against borrower lawsuits.

So what’s a QRM? The usual definition is that a qualified residential mortgage under Wall Street reform is a VA, FHA or conventional mortgage originated with a full-docs loan application and with points and fees that equal 3 percent or less of the loan amount.

Lenders, in some cases, also don’t like the QRM standards under Wall Street reform. They want the right to make riskier and more-profitable loans.

But what about the future? Won’t all loans require 20 percent down?

Nope. QRMs plainly do not require 20 percent down and they represent they overwhelming majority of the loans that borrowers want and get.

So, yes, loans are better today then they were a few years ago. Add up the changes big and small and the mortgage you get today will be less risky and less costly than loans from just a few years ago.

For all the carping and complaining about the new mortgage market, the reality is that what we’re really seeing is a return to the 1990s — a period when there were no option ARMs, interest-only loans were rare, and no-doc loan applications were expensive and uncommon.

In other words, rather than “affordability” loan products and “non-traditional” loan applications, we’re going back to mortgages and underwriting that proved successful and low risk for decades.

The crime, of course, is that we veered from these standards in the first place. There would literally be no mortgage meltdown today, no financial crisis, if we had stuck with the old, boring, dependable lending standards that worked so well. There would be no worries about mortgage-backed securities and no needless losses for bank shareholders and mortgage investors. With proper loans there would be no foreclosure spike and thus no incentive for robo-signing.

Unfortunately, our federal regulators failed to regulate and the result is the mess we have today.

Has Mortgage Lending Gotten Better Since Wall Street Reform? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Now Wall Street is our financial Vietnam. It’s broken. The old cures and postponements won’t work. Everyone knows it.

“High risk mortgage lending and shortcomings in consumer protections for mortgage borrowers were among the most important underlying causes of the housing bubble and the financial crisis that resulted,” according to Sheila Bair, past chairman of the FDIC. “Not only did the proliferation of high-risk subprime and nontraditional mortgage products help to push home prices up during the boom, but excessive reliance on foreclosure as a remedy to default have helped to push home prices down since the peak of the market over four years ago.”

No longer are huge financial corporations seen as too big to blame — nor as too big to fail. In fact, some have even embraced the idea of a voluntary bankruptcy.

• Stock values for the financial sector are in the dumper. Shareholder equity worth hundreds of billions of dollars has been destroyed.
• The value of savings has been demolished with interest rates at record lows. Those who had played by the rules and put away for retirement now find themselves with pension cash that generates only tiny dribbles of income and surely less than the rate of inflation. In effect, savers are losing buying power. Many who were once financially comfortable are comfortable no more. Government, corporate and private pension plans have all been decimated.
• According to the FDIC the banking industry had profits of $28.8 billion in the second quarter — after reducing reserves for loan losses by $21.5 billion when compared with a year earlier.
• Large and growing demonstrations are taking place in New York, Seattle, Boston and Washington. Groups such as Occupy Wall Street, Occupy Together.org, Occupy DC and TakeBackBoston are rising with the speed of Twitter, texting, Facebook and Google.
• A huge march for jobs and justice is scheduled for October 15th in Washington. Major unions and other organizations will be involved, according to the National Action Network.
• Sweetheart deals between banks and regulators are falling through. The Federal Housing Finance Agency is now suing 17 major banks and servicers, alleging that mortgages worth nearly $200 billion were sold to Fannie Mae and Freddie Mac through “negligent misrepresentation.”
• An effort to paste together a $20 billion robo-signing settlement between several major banks and the nation’s 50 attorneys general is on the rocks. Several state AGs — including New York’s Eric Schneiderman and California’s Kamala Harris — oppose a general settlement which would allow banks and servicers to avoid further mortgage and securities investigations.
• Michael Hudson, author of The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America–and Spawned a Global Crisis, alleges that lenders have “protected fraudsters by silencing whistleblowers” in his new two-part series, The Great Mortgage Cover-Up.
• The real size of the 2008 bailout is beginning to be understood. It wasn’t just a $700 billion line-of-credit, it was also secret funding worth $1.2 trillion according to Bloomberg News. “The largest borrower, Morgan Stanley (MS), got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion,” says Bloomberg, which had to sue to get the information. (See: Wall Street Aristocracy Got $1.2 Trillion in Secret Loans, August 22, 2011)
• Across the country foreclosures have slowed, not because there are more jobs or better times but because the electronic sale and transfer of mortgage notes is widely regarded as unreliable. As the Maine Supreme Court explained to one lender, their documentation was “inherently untrustworthy.”

Gutting Regulation

In even in past periods when unemployment has been high there was no mortgage meltdown that compares with what we have seen since 2007, the year home prices peaked.

So what happened?

The presidency of George W. Bush was powered in large measure by an effort to reduce both taxes and government regulation. The compassionate conservatism he promised — whatever that was — quickly was replaced with the thinking of Ayn Rand.

“When I say ‘capitalism,’” said Rand, “I mean a full, pure, uncontrolled, unregulated laissez-faire capitalism — with a separation of state and economics, in the same way and for the same reasons as the separation of state and church.”

Indeed, officials from five financial regulatory agencies told reporters in 2003 they were going to “identify and eliminate outdated, unnecessary or unduly burdensome regulations imposed on insured depository institutions.” To make sure no one misunderstood, four of the regulators stood around a pile of paperwork with pruning shears. The fifth, James Gilleran with the Office of Thrift Supervision, posed with a chainsaw.

The Securities and Exchange Commission decided in 2004 that 11 major banks and brokerages could have more liberal reserve requirements than competitors. The SEC said “the 11 firms we expect to apply under the rule amendments could realize a total reduction in haircuts of approximately $13 billion. We estimate that they will realize a total annual benefit of approximately $26 million (.2% * $13 billion = $26 million).”

How nice to give selected corporations a $26 million advantage. That sure sounds like a case of the government picking marketplace winners.

In fact, according to The New York Times, much more that $26 million was involved.

“The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments.” (See: Agency’s ’04 Rule Let Banks Pile Up New Debt, October 2, 2008)

Federal Monopoly

In 2004, one major bank regulator, the Office of the Comptroller of the Currency (OCC), simply ruled that state regulators had no right to oversee national banks in any meaningful way. According to Eliot Spitzer, then the attorney general of New York:

“The OCC today issued two regulations designed to protect national banks at the expense of consumers.

“One regulation would broadly preempt all state laws against national banks, including predatory lending laws, leaving only narrow exceptions for contracts, debt collection, acquisition and transfer of property, taxation, criminal, zoning and tort laws.

“The other regulation would confer upon the OCC exclusive jurisdiction over national banks, and specifically exclude state attorneys general from enforcing consumer protection laws against national banks.

“Together, the two regulations would prevent the states from enacting or enforcing almost any law against national banks, including consumer protection laws of general applicability that apply to every other business in the state.

“These regulations would also result in an unprecedented expansion of the OCC’s powers, while at the same time shielding the banks from state enforcement officials charged with protecting their citizens from fraudulent and illegal conduct.

“The OCC regulations are opposed by a bi-partisan coalition of state officials. In fact, all 50 state attorneys general have submitted comments to the OCC opposing this action. The attorneys general have noted that OCC devotes the vast majority of its time and resources to monitoring the safety and soundness of financial institutions, and does not have the states’ experience, expertise, resources or record in addressing consumer protection issues.”

Spitzer was exactly right.

The truth is that the mortgage meltdown was entirely preventable. The Federal Reserve, under the Home Ownership and Equity Protection Act, has the unilateral right to ban mortgages and mortgage activities which it defines as “unfair and deceptive acts or practices.” Under the chairmanship of Alan Greenspan — a long-time Rand devotee — the Fed never used its power to stop option ARMs, interest-only mortgages or no-doc loan applications.

Think about it:

If the mortgages were good then the mortgage-backed securities (MBS) would be good. If the mortgage-backed securities were good then the banks and brokerages would not have massive losses, mortgage investors would be whole, the companies that “enhanced” (insured) mortgage-backed securities would be profitable, and people across the country would not be losing their homes because they financed with “nontraditional” loan products that included surprise terms, prepayment penalties and huge monthly cost increases. And if the housing sector was okay then home prices might well be stable and many of the job losses we have today would never have happened.

There’s little doubt that many will discount the marches and tweets now growing in volume and fervor. That’s a mistake. In the same way that the Vietnam war became unsustainable as political support waned, that’s now happening with the policies, tax breaks and favors for big banks, big brokerages and big corporations. It’s our new financial Vietnam and like the first one it has cost great treasure, weakened our economy, hurt our national interests and devastated the social contract.

“There’s class warfare, all right,” Warren Buffett told the New York Times, “but it’s my class, the rich class, that’s making war, and we’re winning.”

I disagree. It’s not the “rich” it’s the greedy. There are a lot of rich people — including Buffett, Bill Gates and even JPMorgan Chase CEO Jamie Dimon — who understand that higher taxes are a cheap price to pay for social consensus.

It’s also in a large sense not a left-versus-right or conservative-versus-liberal debate. Rather there’s a growing understanding that Albert Einstein was right when he said “the thinking it took to get us into this mess is not the same thinking that is going to get us out of it.”

Moreover, it’s hard to see that there are many winners. If you don’t believe it just look at the Bank of America — it’s downsizing and planning to lay-off 30,000 workers.

There is an answer. Big financial institutions need to be smaller so there’s less risk to us all. Repeal the Gramm-Leach-Bliley Financial Services Modernization Act and bring back Glass-Steagall, a 1933 law which said that a bank could make loans and collect deposits or it could raise money and sell securities — but not both. Require financial institutions to have a 5 percent cash reserve for every derivative they buy, sell, finance or insure — for themselves, for others or for a subsidiary. Limit the size of depository institutions to $100 billion in assets. Limit the size of branch networks to a maximum of ten states. Prohibit commercial banks from selling insurance or annuities. Limit ATM charges to $1. Allow state bank regulators to define predatory loans and enforce their definitions even when national banks, thrifts and credit unions are involved.

The list goes on but the point is obvious: A financial institution which can undermine the entire economy of the United States is not just too big to fail, it’s also too big to regulate and too big to exist.

Financial holding companies can divest divisions and subsidiaries until they’re rightsized, downsized, focused, leaner, more efficient and more profitable; a better deal for customers, clients, employees and shareholders. The businesses that are sold off can keep their employees and function independently — and sink or swim on their own without needing or expecting a taxpayer bailout.

America’s Big Banks, America’s Financial Vietnam is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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At first this may seem like an audacious idea, a violation somehow of the free market absolutism preferred by so many businesses and industries — at least until they need a special rule, tax break or handout from Uncle Sam.

In fact, it was not too long ago that Uncle Sam actually set mortgage rates for government-insured loans. For instance:

• Until November 30, 1983 HUD set interest rates for FHA mortgages. The practice ended with passage of the Housing and Rural Recovery Act of 1983.
• Under the Veterans Home Loan Program Amendments of 1992, the VA is allowed to set the maximum interest rate that can be charged for a VA loan as well as the maximum number of points. Today, the VA still has the right to set mortgage rates for vets but has elected not to do so.

Imagine what would happen if the government set daily mortgage rates for FHA and VA loans. Each day at 9 AM the daily rate would be made available online. Every borrower would have an opportunity to see the available rate for qualifying borrowers. Borrowers could compare the FHA and VA rates with rates for conventional financing — meaning there would be no need to set conventional interest levels, though if we wanted that could also by done through the Federal Housing Finance Agency.

The rates would be show at “par” — meaning with zero points — and with points so that borrowers could see a number of rate-and-point combinations. For instance, today a loan might be at:

• 3.75 percent and 1 point.
• 4 percent and 0 point (par pricing)
• 4.25 and -1 point (borrower gets a cash credit at closing or lender pays some or all closing costs).

In a marketplace filled with openness and clarity borrowers would have more of a chance of getting a fair deal.

Alternatively, we could go back to 2006.

The Wall Street Journal says in 2006 that 61 percent of all subprime loans originated that year went to borrowers who actually qualified for FHA, VA and conventional mortgages. Think how much borrowers could have saved if only they had known their real financial position. Think how many foreclosures could have been prevented. (See: Subprime Debacle Traps Even Very Credit-Worthy, The Wall Street Journal, December 3, 2007).

And while lenders might object to HUD and the VA setting rates for their insured loan products, they certainly have not complained with new rules which have benefitted mortgage companies.

For instance,  HUD limits on lender fees for FHA borrowers were ended in November 2008 — just two weeks after the presidential election. The Bush Administration said it decided to “remove the current specific limitations on the amounts mortgagees presently are allowed to charge borrowers directly for originating and closing an FHA loan.”

While many lenders have acted fairly and in good faith, some have not. That’s why better regulation is needed and that’s why the government should publish daily loan rates that anyone with Internet access can see.

Should Government Set Mortgage Rates? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Mortgage borrowers are now seeing home loans at not much more than 4 percent for 30-year, fixed-rate mortgages. And, reports HSH.com, 15-year loans are already below 4 percent.

The lower rates result in substantially reduced monthly payments. For instance, imagine that you borrow $100,000 over 30 years and the fixed rate is 3.9 percent. Your monthly cost for principal and interest will be $471.67. The same loan at 5 percent would have a cost of $536.82 and at 6 percent the expense would rise to $599.55.

Of course, to get these terrific mortgage rates you need an income, a problem for the 16 million or so people who are unemployed or “marginally attached” to the workforce. And, certainly, no lender will give you a loan if you’ve recently been foreclosed, even if the cause of your financial distress was the lender’s “affordability” loan product that lead to your demise.

Federal Reserve

Since 2008 the government has done everything possible to save a tottering and tettering financial system, meaning big banks and brokerages on Wall Street. Part of this effort has been to knock down interest rates to levels unseen by any living human being.

For instance, the Federal Reserve has just decided to spend $400 billion to swap three-year Treasury securities for securities with a longer term, from six to 30 years. This maneuver shuffles the financial deck while not creating a single new job.

This has been great for the financial sector, which gleefully charges 29.9 percent for credit card debt while it borrows money through the Fed at near zero percent.

Taxes

There is now a serious proposal in Washington which would raise taxes on those who have benefited most from society. Some, however, oppose the idea because they feel it’s a form of “class warfare”.

“There’s class warfare, all right,” Warren Buffett told the New York Times, “but it’s my class, the rich class, that’s making war, and we’re winning.”

“This is not class warfare,” says President Obama. “It’s math.”

Meanwhile, major US corporations continue to generate massive profits — and pay little or no taxes.

GE, says the New York Times, “reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States. Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.”

US corporations now have some $1.5 trillion in overseas profits sitting outside our borders. This money could be used to modernize American factories and create millions of jobs but patriotic American companies will not bring the money back to the United States unless their overseas profits are taxed at just 5.25 percent.

Pensions

There is also much debate regarding the Social Security system, but little has been said about how the Fed’s efforts to help the financial sector have destroyed pensions.

Imagine that you had $2 million in retirement cash and invested it today in five-year CDs. Your likely interest rate would be roughly 1.75 percent or $2,915 a month.

But ask yourself: How many people have $2 million in retirement cash? Or $1 million? $100,000? In fact, the median amount set aside for retirement is just $45,000.

Truth is we all want interest rates that are higher than what we have today. Higher rates suggest the economy has begun to return, capital is more in demand, jobs are being created, homes are selling and savings are producing decent returns — things that help everyone, even folks not on Wall Street.

Ready For The 3 Percent Mortgage? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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With the economy the way it is — driven into the ground for many people — one attraction of Pawn Stars is fairly obvious: Maybe we also have stuff that has hidden value. Perhaps not a canon or a boat, but maybe something Grandma left in the basement.

One of the great curiosities of the program is the effort sellers make to get the best prices for their goods. Some do okay, a few do far better than they hoped, but many come away with less than the daydream value they wanted.

So why does this happen? Why does the pawn shop generally win the daily battle with sellers?

Several reasons stand out.

First, as the cast routinely explains, they’re not collectors or hobbyists. Instead they’re folks who buy wholesale and sell retail. They’re in business, they trade every day and they’re good at what they do.

Pawn shops have cash, a very useful commodity. So, by definition, a pawn shop is a buyer’s market. The assumption is that if sellers could do better elsewhere, they would

Second, the difference between wholesale and retail is not profit. It’s something less. Sometimes a lot less.

Imagine that a photo from the Civil War has a retail value of $200 and the Harrisons offer $100. At first paying “half price” may seem like a form of, er, plundering, but that’s not the case. The $100 offer may well be a very realistic price — and even a risky one. Here’s why:

• For the shop to make a profit it must have a buyer and not every item is fascinating, collectible or valuable.
• The buyer has to see the item, which means it has to be displayed or cataloged. Now, suddenly, we have the cost of rent, electricity, advertising and staff. There are costs for insurance, CPAs, security guards and other expenses.
• The money paid for the photo is not free. The decision to purchase the photo represents an opportunity cost — the money could also have been placed in a CD to earn a sure rate of interest. An item that doesn’t quickly sell isn’t making money, it’s eating money.

Part of the shop’s risk, of course, is that an item may not sell for a good mark-up or worse it may never sell. That’s just part of the business. In the worst case the item will be stolen or a fraud, meaning a total loss.

Pawn shops, historically, have offered consumers the choice of selling an item or pawning — giving it to the pawn shop in exchange for cash and the right of redemption for a given period. The effective interest rate for such transactions is “high” but then compare the cost of using a pawn shop with the expense of a credit card and maybe the expense is not so unreasonable. (Remember also that banks as this is written can borrow from other banks overnight at near 0 percent.)

Moreover, with a pawn shop every transaction is a nonrecourse deal, there are no bill collectors in the picture or credit dings.

Third, to be an equal in the marketplace you need to be prepared. Check eBay or Google to find recent sales of like or similar items before trying to bargain. Know about the history of the item, what makes it valuable, the finer points. See if there is some group or seller that specializes in such items. Maybe you can do better online or in another setting.

Fourth, as Rick says, when you sell something in a pawn shop you have to be prepared to bargain. Thus if you want $100 don’t ask for $100 — ask for $120. This gives you room to haggle, a part of the process the Harrisons seem to like, but only when the bargaining is within the realm of reality. And who knows, you may get the higher price — but only if you bargain.

Notice that Rick and the other staffers do the exact same thing — in reverse. They have an opening bid but in many cases are willing to go higher.

Pawn Stars — How To Win At Haggling is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Freddie Mac is reporting that mortgage rates have hit their lowest levels since last November.

The 30-year fixed-rate mortgage averaged 4.39 percent, its lowest level for 2011. Last year at this time, the 30-year FRM averaged 4.49 percent.

The 15-year fixed and 5-year ARM set new historical record lows averaging 3.54 percent and 3.18 percent, respectively.

One index of a housing recovery would be higher mortgage rates produced by increased loan demand. It should be fairly clear that loan demand is now minimal, a predictable result given continued high levels of unemployment as well as federal spending policies which contracting at the very time they should be expanding.

Don’t believe it: Look at the FAA shutdowns and their impact on jobs and local spending.

Mortgage Rates Sink, Hit Yearly Low is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: ARM, FAA, fixed, Freddie Mac, interest, loan, mortgage, rates

This is important stuff for three reasons: First, HUD estimates that the 2010 GFE saves borrowers $700 per loan. Second, when a lender hands you a good faith estimate it’s a commitment to deliver a mortgage with certain terms and conditions once all application requirements have been met, say a 5 percent interest rate and not 6 percent by the time you get to closing. Third, you can check the lender’s promises at closing because the numbers from the GFE are used to complete the official settlement document, the HUD1.

In terms of graphics and layout the proposed CFPB forms — Prototype A and Prototype B — are well designed. There’s no doubt they’re easy to read and that they explain in plain language how a proposed mortgage will work. Kudos to the designers.

But while the CFPB has asked the public to comment on which design it prefers, the forms can easily be viewed as suggesting new and higher loan costs for borrowers — precisely what the new consumer bureau was designed to avoid. How? Not because of the form’s design characteristics but because of the numerical examples they illustrate.

Interest Caps

The model forms describe the terms for a 30-year ARM. The loan amount is $216,000, the start rate is 2.5 percent and the highest possible rate is 10 percent.

The forms also tell us that the interest rate can rise by as much as 3 percent after two years and 3 percent each year thereafter until the 10 percent maximum is reached.

These numbers are a gift to the worst lenders in America and describe a loan that’s simply awful. The government itself does not allow such terms for the mortgages it insures under the FHA and VA programs. Moreover, most private sector lenders — to their credit — do not demand such terms.

Most ARMs have a 2 percent annual interest rate cap and a 6 percent lifetime interest increase cap. To further clarify their terms, many ARMs also have an additional cap, a limit on the first adjustment after the start rate ends. Thus you might see an ARM with caps described as “2/6″ or “2/2/6.”

What the CFPB is describing is a 2/28 ARM with caps set at 3/3/7.5. In other words, the rate is fixed for the first two years of the loan term and then adjusts. Depending on rates at the time of the adjustment, the interest rate can rise or fall. In practice, the adjusted rate is likely to rise after the start because the initial interest level is deliberately set low to attract borrowers who might otherwise prefer a fixed-rate loan.

Why do lenders want to sell ARMs more than fixed-rate loans? Because the risk of inflation — higher interest rates — is shifted to the borrower.

So is it a big deal if the maximum rate can grow by 3 percent instead of 2 percent? You bet.

It’s possible, of course, that interest rates will not increase to the allowable maximums. However, the risk to borrowers if rates increase is enormous, especially in an environment where household incomes have been falling. Here’s why:

With the 2-percent increase annual costs can rise by as much as $2,716. If the maximum increase is 3 percent then the annual loan cost can grow by as much as $4,200. The larger increase can be as much as $1,484 per more year higher than the 2 percent standard.

Are these big increases? In many households the answer is yes. Are these increases large enough to lead to foreclosure? Unfortunately, in many households the answer will again be yes.

The situation, of course, can get decidedly worse. In year four the “better” loan can have another 2 percent increase and a third 2 percent increase in year five. That means the highest rate can grow to 8.5 percent in this example. For the loan that allows the 3 percent increase, the rate can grow to 8.5 percent in year four and 10 percent in year five, the lifetime cap.

The CFPB is on the right track. Consumer representation is a great concept, it’s long overdue and the Bureau is also new and untried. The Bureau will make mistakes. Big deal. Let’s have some perspective: The failure of existing regulators to adequately police lenders virtually bankrupted the country.

The CFPB is asking for public input, so why not do what existing regulators do and pay for a few hours of outside help?

Oh, and more thing, the forms have still another flaw. A huge flaw. But that’s a matter for another conversation.

Are ARM mortgage interest rates about to rise? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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