Using 20 illustrated steps, Hudson explains some of the conditions which will lead many households into a lifetime of debt and too many others into an inevitable pit of foreclosure and bankruptcy. He acutely understands that “affordability” today is too often measured in terms of monthly payments rather than overall debt load.

“Why is the demand for mortgage debt so high?” he asks. “There are several reasons, but all of them have to do with the fact that banks encourage people to think of mortgage debt in terms of how much they can afford to pay in a given month — how far they can stretch their paychecks — rather than in terms of the total amount of the loan.”

The problem, of course, is that for too many borrowers paychecks are essentially fixed while monthly mortgage costs are not. If interest rates rise — or if loans automatically convert from low “start” rates to bigger payments in three — five or seven years, then many owners will face one of three realities:

• They will not be able to sell at a profit or a break-even basis (because prices will have declined as more homes come on the market);
• They will not be able to rent at a profit or a break-even basis (because too many owners will try to rent unsold units at once); and
• They will not be able to hold (because monthly payments will be crushing).

At first it may seem as though the inability of someone to pay their loan is a problem just for those who bought and financed imprudently. However there are other parties who will be impacted, not a minor matter since one of those parties may be you.

Even if you’ve been financially cautious to the point of absolute boredom, the value of your property does not exist in a vacuum. If a few additional homes above the norm in your neighborhood are foreclosed, if they sell at distressed prices, guess what happens to the value of your home?

It’s not just homeowners who will suffer if there are price declines. Lenders too will be walloped by the marketplace.

At the 2006 annual meeting of BerkshireHathaway, billionaire investor Warren Buffett gave his usual clever and insightful performance before investors.

According to Money magazine, Buffett said with regard to lenders and their annual (10K) reports that “dumb lending always has its consequences. It’s like a disease that doesn’t manifest itself for a few weeks, like an epidemic that doesn’t show up until it’s too late to stop it. Any developer will build anything he can borrow against. If you look at the 10Ks that are getting filed and compare them just against last year’s 10Ks, and look at their balances of ‘interest accrued but not paid,’ you’ll see some very interesting statistics.”

In other words, there’s no value to a loan which potentially produces a lot of interest if the interest is not actually being paid.

The issue, of course, is that a nonperforming loan secured by a property which has lost value or cannot be quickly sold or rented is not an “asset” in the usual sense of the term. Instead, nonperforming loans are a financial albatross that when spotted can undermine balance sheets, valuation models and stock prices — something that no doubt interests Buffett and other investors.

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Published originally by Realty Times on May 16, 2006 and posted with permission.

The Illusion of Mortgage Assets is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: asset, Buffett, dumb, Harpers, Hudson, lenders, mortgage, Mortgages, nonperforming, real estate, Warren

But now we have a quantum leap in local information, the ability to examine your neighbors’ politics in some detail. It’s not voting records which are online, instead it’s the next-best-thing — or maybe a better thing — a searchable list of who gave what to whom.

Visit FundRace.org and you can find a “neighbor search” button to review local giving patterns. You can snoop on the neighbors by street address or name, as you prefer. Another good site is OpenSecrets.com.

Of course, the neighbors can also snoop on you.

I checked my neighborhood and the results were both informative and discomforting. Along with the amounts given and to whom, there is also a handy and convenient list of jobs and professions.

A high-ranking official of the U.S. Army Corps Of Engineers contributed $3,000 to the Democratic National Committee, an attorney donated $2,000 to Dennis Kucinich, a professor gave $1,750 to Carol Moseley Braun, Howard Dean received $2,000 from someone who works at the Urban Institute, Joe Lieberman got $2,000 from a homemaker, Wesley Clark got $2,000 from a secretary, $2,000 was given to George Bush by a cosmetologist and he received $1,018 from a special assistant for cabinet affairs. John Kerry got $2,000 from an economist. A $1,000 contribution from a reporter is noted as well as $1,000 from an editor.

Since one can search by name nationwide, I checked on a long-lost acquaintance — and there it was, both a donation and a new address.

I’m not sure whether to be elated by the availability of campaign financing information or appalled by the lack of personal privacy. After all, why have curtains on polling booths if everyone knows how you’re voting?

With this handy information an employer or government agency can quietly see if workers have made contributions to the “right” candidate and if those donations are sufficient. Government bidders can be checked for political correctness. Teachers can review parent political affiliations — and grade accordingly.

The concept of privacy is relatively new, it cannot be found in either the Declaration of Independence nor the Constitution. Instead, its modern American roots began with an 1890 article in the Harvard Law Review entitled The Right To Privacy. Written by Samuel Warren and Louis Brandeis, the commentary argued that:

“The common law secures to each individual the right of determining, ordinarily, to what extent his thoughts, sentiments, and emotions shall be communicated to others. Under our system of government, he can never be compelled to express them (except when upon the witness stand); and even if he has chosen to give them expression, he generally retains the power to fix the limits of the publicity which shall be given them.”

In 1928, Brandeis — by then a Supreme Court justice — wrote that the right to be left alone is “the most comprehensive of rights and the right most valued by civilized men.”

Like mush, the concept of privacy has no particular shape or limits. Honorable people disagree about what is, or should be, private.

In practice, some information which seems largely personal at first glance is either public or semi-public. For example, it makes sense to list real estate ownership in public records to protect the rights of property owners against unjust claims. It’s reasonable to list mortgage debts to protect lender interests. Our economy depends on the credit system, thus credit reports are well within the realm of reason. Non-profit groups, associations, unions and companies surely have the right to collect information about their own transactions, otherwise there would be no way to develop credit information — and such organizations would be continually defrauded. Medical information, if properly handled, conveys important health benefits should you need treatment.

The public airing of campaign contributions is entirely lawful — and the law stinks. The idea is to show who influences which candidates, but vaults full of money lay beyond the scope of public disclosure. The result is that some contributions are disclosed, many are not and the neighbors who lose out are those who play by the rules.

Political views ought to be seen as among the most important and private values we hold. Whatever they are, or whatever they aren’t, they’re your business — and no one else’s. That includes your employer, family members as well as the folks next door. And me.

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Published originally by Realty Times on August 31, 2004 and posted with permission.

Here’s How Your Neighbors Vote is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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