Thursday, June 30, 2011
On the first day of June, I spent most of my day at the International Council of Shopping Centers Hispanic Markets Conference here in El Paso. ICSC was holding the conference to teach its members how to reach Hispanic Markets, and they chose El Paso for the site of the event. One of the speakers at the event was Jose Legaspi who owns a large group of shopping centers in California which cater primarily to Hispanics. He explained that as part of the marketing strategy, his shopping centers contain areas for small kiosks to incubate tiny start up businesses. "For Hispanics," Legaspi told us, "the American dream is actually self employment. We want to own our business."
Actually, I think that for many Americans of all ethnicities and cultural backgrounds, self employment and entrepreneurship are a critical component of the American dream. Owning our own businesses gives us a chance to set the course of our futures in a way that we can never do as employees of a large or even mid-sized corporation. Even if the corporation is a good one and we could earn a good living, nothing quite compares with the freedom and adventure of owning a business.
But as with homeownership, we are seeing policies from federal, state and local governments dismantle opportunities for business ownership. We are being transformed from a nation of business owners to a nation of employees through excessive regulations.
If I were to give even a basic list of all of the attacks on small businesses in the U.S. today, I would be writing non-stop until next 4th of July. Every day we see some egregious new assault on business owners, whether through the FDA, the EPA, Health and Human Services, or any of a number of other agencies which are micromanaging small business out of business. From family farms, to small coal mining operations, to doctors, to restaurants, to small independent professionals selling financial services--practically every industry appears to have some government agency with that particular profession in its sites. We have Obamacare poised to tax small businesses into oblivion, although large corporations have been able to get waivers for their employees. Dodd-Frank has put such onerous burdens on small independent loan originators that they have almost become extinct. Five years ago, mortgage brokers originated approximately 65% of mortgage loans nationwide, and a study by JD Power and Associates showed that consumers who went to a mortgage broker reported a more positive experience than those who went directly to a lender. Today national licensure requirements, expensive continuing education, and excessive disclosure requirements and caps on income have thinned the ranks of mortgage brokers so dramatically that we originate just under 7% of the mortgage loans in 2011.
But we are by no means the only financial service professionals being affected by the new regulations. A friend of mine set up her own insurance agency last year after many years of working for someone else. She has been a life and health insurance agent for many years, but she was explaining to me that she is about to be forced out of her profession by Obamacare. As the states set up their health insurance exchanges, health insurance agents will no longer need to exist. "But I am close to retirement," she told me, "So I will probably just retire and let somebody else figure this out." If Obamacare did not exist, my friend would probably keep working. She might even delay taking her Social Security for a few years since she had always earned a good income and could afford to wait a few years. Instead, because of the new laws, she will stop contributing to the tax base and start drawing benefits from an already bankrupt system.
It is a tragedy that at a time when unemployment remains extremely high and millions of Americans cannot find work, our combined federal, state and local governments appear to be expending all of their efforts attacking and destroying small business. Small business historically has created 90% of jobs, and yet when regulations in every industry work to dismantle small companies or to make the cost of starting up prohibitively expensive, how do we expect to help unemployed Americans find work? Instead of trying to shrink the numbers of unemployed people, we are actually adding to their ranks by forcing more and more businesses out of business. Older workers are likely to say, as my friend has, "Oh well, I am close to retirement anyway." Younger workers will find themselves competing for a shrinking pool of job openings, and as the number of unemployed continues to rise in proportion to the number of available jobs, wages and benefits will naturally drop.
At the end of this mess, we are going to find ourselves in the same situation that most of the people I know are in today--working many longer hours for less money with less hope for the future. Years of work and sacrifice and dedication is being rewarded with bankruptcy and business closure. And we are teaching the younger generations that hard work, sacrifice and dedication are basically meaningless, because in the end they don't produce anything. So they are less likely to work and sacrifice themselves, having seen that our work and sacrifice produced nothing but loss and heartache.
The American Dream rewards initiative, creativity, ability and ingenuity with success. That success is partly in the form of material rewards. But it also includes self-respect, respect in the community, and a sense of accomplishment. Achieving the American Dream means building something that we can actually pass down to our children. This is a legacy that past generations have handed down to us as Americans. The New American Poverty says that achievement, initiative and hard work are not worth recognizing. Accomplishment should not be rewarded over failure; diligence should not be prized more than sloth. One action is as good as another because no matter how hard we work or how much we refuse to work, we all end up in the same place. The message of the New American Poverty is that success is bad, and the effort expended trying to become successful is just a waste of time.
I don't know about all of you reading, but I don't want to hand poverty down to the next generation as their legacy. I want my nieces and nephews to know that their actions matter and that they can have as much opportunity as they are willing to work for. But as a society, we will never be able to hand that message down to the next generation unless we are willing to trade the New American Poverty for the genuine American Dream.
For books and blog posts by Alexandra Swann visit her website at http://www.frontier2000.net/.
Wednesday, June 29, 2011
In 1946, Eric Johnston became the head of the MPAA. Johnston had previously been president of the U.S. Chamber of Commerce, and he believed firmly in capitalism and free enterprise. As the head of the Motion Picture Association of America, he believed that the film industry had an important role to play in the ideological defeat of Communism and the Soviet Union. Therefore, he worked hard to export films which portrayed American prosperity.
One story that Johnston told from those years involved trying to get the newly communist Polish government to import U.S. films to its theaters. At one time, Johnston traveled to Warsaw to screen a film with the Polish minister of Education in which two characters work at a Lockheed plant in Southern, California. During one scene, the characters are shown walking through the parking lot. Immediately, the minister of education ordered the film stopped.
"There, Mr. Johnson, there's what we don't like, that propaganda."
"What do you mean propaganda?" Johnston asked.
"All those cars in the parking lot. Are you trying to make us poor Poles believe that the workers in a factory in America drive those automobiles to work?"
Johnston tried his best to convince the Polish minister of Education that American workers did in fact take cars to work, but he was unsuccessful in doing so. The communist mindset which demanded that the "Workers of the World Unite!" simply could not reconcile the fact that in a free market, free enterprise system, average workers could enjoy a standard of living that included an individual automobile.
Today, unfortunately, the forces of socialism are still on the march, and the Progressives in our country are determined to make sure that in the future, factory parking lots will not be filled with cars which the owners will drive to their own homes.
In The New American Poverty--Part I, I talked yesterday about the fact that the housing bubble and subsequent housing crash became an excuse to re-engineer the American housing system to transform us from a society of homeowners to a society of renters. The Dodd-Frank bill, named for Chris Dodd and Barney Frank, is creating guidelines for lending which will guarantee that most Americans will never be able to buy a house. But the re-engineering that is taking place in our society goes beyond just taking away our ability to own a home--it will also change where we live and how we commute.
Last year, outgoing Senator Chris Dodd tried to pass what would have been his final piece of landmark legislation, "The Livable Communities Act." This Act would have provided federal dollars to subsidize Smart Growth--urban communities with small lots, and narrower streets which combine multi family and single family housing into one neighborhood along with shops and businesses. The idea is to make the communities walkable so that rather than commuting to our jobs and then to stores, we live, shop, and, hopefully work, in our neighborhoods. We rely on public transportation rather than our cars. The Livable Communities Act was the perfect final stroke on Dodd's rewriting of how Americans live and work.
Dodd's bill did not pass, but the reality of Smart Growth and Smart Communities is already here. In fact, in El Paso, our very left-leaning City Council has spent six years pushing Smart Growth and encouraging developers to use Smart Growth in their developments. They are also pushing for widespread use of public transportation here, even though in our city the only form of public transportation is the city bus system which is famous for its gross inefficiency. (For example, a local TV station did a report on our bus system since we are being encouraged to use it. The reporter followed a woman who cleans houses for a living from her home in Horizon City to the home where she cleans on the West side of El Paso. The trip is about 30 miles and should normally take about 45 minutes, but this woman rides the bus for 5 hours (from 5 a.m. to 10 a.m.) to reach her destination by bus. That is not exactly practical for people whose jobs require that they be at work at 8:00 A.M.
Nevertheless, less than a month ago I spoke to City Council on behalf of the El Paso Hispanic Chamber of Commerce against the new landscape ordinance which will increase the costs of all new development and ultimately the cost of new office space to all small businesses and the cost of housing to all those living in new housing developments. The City Councilman pushing through this agenda said that he was tired of the Chambers of Commerce being reactionary, and he rammed through the vote in favor of the new landscape ordinance. We were told that the ordinance is necessary to provide tree-lined walkways so that people walking to public transportation will have shade. And since we are all being encouraged to convert to public transportation, I suppose that all of us can ultimately benefit from the trees we are paying for with higher rents.
Shortly after that experience, I emailed a friend of mine and told her that I was looking for some information on Smart Growth. I wanted to write about Smart Communities in this blog, but they are also featured heavily in the new novel I am working on. My friend immediately set up an appointment for me to meet with someone from the city planning office, who very pleasantly came to my office to give me a presentation on Smart Growth. He brought a slide presentation of a Smart Community in Wisconsin with beautiful park-like spaces and a combination of single family and multi family housing. My friend told me that the biggest objection to living in a Smart Community is that the communities are mixed income. (I can see how this could be a drawback for people on all points of the socio-economic scale.)
Smart Communities in and of themselves are not necessarily bad. Carlos from the city planning office showed me studies indicating that both young adults and seniors prefer the concept of walkable communities. The apartments are built over shops so that people can shop in their neighborhoods. The garages are constructed in the back of the houses, so all of the parking is in the back and the streets are narrow to discourage driving. My friend expressed her hope that with beautiful open park-like spaces, teenagers will be encouraged to get out of their houses and walk through the neighborhood, thus reducing obesity and creating more of a sense of community in our youth. I have no issues with Smart Communities as long as the choice of whether to develop such communities and whether to live in them is completely voluntary. But any developer in El Paso will tell you that while publicly the City Council says that Smart Growth is voluntary, in practice the city does not leave developers much choice about whether to use Smart Code or more traditional development tools.
I understand why some people would want an urban experience with the opportunities to be within walking distance of work, restaurants and shopping facilities. Six years ago I visited my brother in Chicago. He works for CNN, and he lived at the top of a 34 story apartment building in downtown Chicago When the weather permitted, he walked to work which was about a mile from his apartment, and when he wanted to go somewhere else in the city he took public transportation. Since CNN provided vehicles for his use on the job, he did not really need his Jeep. But I also noticed that in spite of all of that, he never did get rid of his Jeep Rubicon. Instead, he paid excessively high rates to park it until he got a job transfer to Miami where he lives today.
My brother was barely 30 years old when he lived in Chicago, but as a successful single man who grew up in the country rather than a huge metroplex, he may have been the wrong type of personality to really enjoy an "urban" experience. After all, his goal is to retire to some quiet community in Alaska or Montana at the end of his career. For retirees, the Smart Community could offer more benefits since many retirees get to a point where they can no longer drive. Since retirees do not have to worry about their careers, they can be more open to this kind of lifestyle.
However, when my mother asked her younger sister who has worked as a social worker in Los Angeles, California for nearly 30 years and is close to retirement whether she had considered life in a Livable Community, she said that she had not and would not. After years of driving all over LA to provide social services to various residents, she said that she knows what part of town the Livable Community that her son-in-law is helping to build is located in and she would not even consider living there, because as she put it, "Sometimes I am going to want to leave the community and I don't want to be in the neighborhood that it is built next to when I do." After 30 years of traffic, civil service and mediating problems for troubled individuals and families, my aunt's dream is to retire to a small piece of land in Tennessee and spend her weekends driving around visiting old antebellum homes that have been made into museums and eating Southern cooking.
And many of us who are not retirees--particularly people in my age demographic of 35-65--don't want to live in walkable communities and depend on public transportation. We want the freedom to use our cars, to own our homes, and to determine what kinds of neighborhoods appeal to us. If we have children, we want to be able to choose neighborhoods that offer the kinds of schools and after-school activities that we believe will best help them achieve their potential. We want to be able to choose the stores and businesses we frequent--not because they happen to be located within walking distance of our homes--but because they offer the lowest price, or the best service, or because they sell such and such item that we just can't do without. We want to be able to change jobs when we want to or need to without worrying about whether the nearest public transportation is going to get us to work on time every day. We don't want somebody to draw boundaries for us that dictate where we live and where we shop and where we work.
If giving up our cars and living in communities where we walk almost everywhere and rely on public transportation were concepts with widespread appeal, the Progressive elements of the federal and state and municipal governments would not have to go to such lengths to change our society so that we have no other choices about how we live and work. Keeping gas prices high and mortgage guidelines unattainable for all but an elite few serves the purpose of forcing us into Livable Communities and making us adopt a lifestyle that most of us would voluntarily reject. Looking at the New American Poverty, the Polish minister of Education would have been extremely proud.
For related posts and books by Alexandra Swann, visit her website at http://www.frontier2000.net/.
Tuesday, June 28, 2011
This week as we get ready to celebrate Independence Day, I am taking a look at the American Dream as it stands today. The American Dream is dying around us--being murdered actually--and although Progressives such as Suze Orman say this is a good thing, I disagree. The country that has offered so much opportunity to so many is fast becoming a land where freedom from responsibility trumps freedom to dream, to achieve and to succeed.
When we hear the words the American Dream, many of us think immediately of homeownership, since for millions of people, the ability to own our own homes has embodied the American Dream. For many Americans, their home represents their largest single investment. But there is a concerted effort today in this country to steal that dream of homeownership from most Americans and reserve it instead for the wealthy and privileged.
In her book "The Money Class", financial guru Suze Orman encourages homeowners who are underwater in their houses because they owe more than the house is worth to walk away from those homes in a "strategic default." Her rationale is that the housing market will not come back for 20 years, so it is ridiculous to make payments on a house that is not going to increase in value, even though if the loan is a fixed rate principle and interest loan, the payments are reducing the balance owed. Even though a decision to practice strategic default ruins the creditworthiness of the person, and may mean that in today's tough lending environment the homeowner may not ever be able to purchase a home again, Orman tells us that this is okay. It is okay to rent for the rest of our lives, because we are about to experience "The New American Dream."
Orman anticipates that in the future 60% of Americans will be renters (a very interesting number considering that 60% was roughly the number of Americans who were home owners before the boom and subsequent bust.) She says that in the future all homebuyers will be required to put 20% down as a downpayment and have at least 8 months of mortgage payments in their savings on top of the down payment. But this too, is a good thing she says, because in "The New American Dream" people don't aspire to have much materially. We have enough to cover our needs and we don't have the stress that prosperity apparently brings.
What many people do not seem to understand is that the concept of putting 20% down on a home mortgage is not the traditional way of purchasing a home in the United States. A couple of months ago, I wrote a blog post about this entitled, "The Myth of the 20% down payment." If you don't believe what I am saying, I invite you to read that post which has a lot of supporting documentation to back up the following statement:--in the last 80 years, during which the U.S. has experienced an explosive growth in homeownership, many Americans have purchased their homes with less than a 20% down payment. And many of them have been excellent homeowners.
The problem today is that Progressives want to re-engineer our society to be something it has never been. And since the desire for homeownership is so deeply ingrained in our American psyches, and since acquiring a home represents tangible wealth for many Americans, the first place to start is to strip us of the opportunity to own a home of our own.
The Dodd-Frank bill, which passed last year, is really designed to lock Americans out of homeownership. By killing the primary delivery system for mortgage loans--the independent loan originator--the government has assured that less mortgage money will be available. And by introducing guidelines such as the Qualified Residential Mortgage, which is virtually unattainable for most Americans, Dodd-Frank guarantees that most would-be homeowners will never qualify to buy a home. Currently the comment period on the Qualified Residential Mortgage Proposal has been extended two more months, through August 10, 2011, to give the public an opportunity to weigh in on the proposal. But after the comment period ends, we can expect to see the following guidelines: 20% mandatory downpayment, debt to income ratios of no more than 36% percent, and no 60 day lates on consumer credit in the past two years. Fewer than 20% of people who bought houses on "A" paper loans in the last decade will qualify to purchase a home under these new guidelines. As a result, overnight we will become a society of renters.
What many forget is that Chris Dodd and Barney Frank of Dodd-Frank were deeply involved in the housing boom that led to the housing bust. As a then junior member of the House Financial Services Oversight Committee, Frank recommended his significant other for a job at Fannie Mae in 1991. Frank admits this, but denies that there was any conflict of interest. And though for the past several years Frank has spewed vitriol about evil mortgage entities getting rich off of the people, he did not seem to object to Fannie Mae's excessive executive bonuses as long as his partner was one of the executives. Just to put this in perspective, former Fannie Mae CEO Franklin Raines, who left Fannie Mae in 2004, reportedly earned $90 million from 1998 to 2003, and $52 million of that was performance bonuses for Fannie Mae reaching its lending goals.
Chris Dodd was equally involved in the mortgage boom. Dodd was part of "Friends of Angelo" an exclusive list of power brokers to receive mortgage loans from Countrywide CEO and founder Angelo Mozilo. Mozilo built Countrywide from a small mortgage company to one of the top residential mortgage lenders in the United States. Although many people associate Countrywide with mortgage brokers, Countrywide actually had a huge retail network of branches throughout the country and bragged that over 50% of their loans were done in house. Always on the cutting edge, Mozilo pioneered the "Fast and Easy" loan which allowed borrowers with good credit scores to state their income and assets without documentation. The program became a huge success among the self-employed and those who generally did not want to have to document what they earned or what they had saved. In fact, "Fast and Easy" became something of an industry standard--in order to compete other companies copied the program and stated income stated asset loans became the norm.
In 2007, I had dinner with a friend of mine who was the Vice President of Ohio Savings Bank--a regional bank competing in the wholesale market. That evening she told me that Angelo Mozilo had just dumped his stock in Countrywide--just as problems in the subprime market were about break open. "Countrywide is going to be another Enron," she told me. But Countrywide was not Enron. True--they were taken over by Bank of America, but unlike Jeffrey Skilling, Angelo Mozilo is not sitting in a prison cell--nor will he ever be. Through the "Friends of Angelo" program, Mozilo had made residential mortgage loans at below market rates to special people who had the power to help him later in what amounted to a series of very well placed bribes. So when his company collapsed, he had "Friends" in high places to make sure that he did not collapse with it.
These two bastions of morality profited personally from the huge housing boom and then used the ensuing crash as an excuse to give us Dodd-Frank--at 2000 plus page bill which has codified into law financial ruin for this country and for Americans individually. The same bill which authorizes HUD to hand out $1 billion in the form of "lottery" to subsidize a tiny percentage of mortgages for the next two years (see my post "The Mother of All Entitlements" if you are unsure what I am referring to) also sets up safe guards to make sure that in the future we will be a society of tenants rather than homeowners.
And financial guru Suze Orman seems to be the lead cheerleader for the Progressives. Orman and her Progressive friends tell us that we should not worry about being renters. In The New American Dream we live within our means, and we focus on "what really matters" rather than materialism. But destroying home ownership has nothing to do with the American Dream--new or old. Instead, this is about a calculated re-engineering of our society to create The New American Poverty. In the New American Poverty, we know that home ownership is beyond the reach of all but a few elites. Our society is content to own nothing, to have nothing, to aspire to nothing because we know that as individuals we have no future and no opportunity. Having never experienced the thrill of success, we will not feel the sting of failure. We will know neither achievement nor disappointment--we will just exist.
If individual homeownership is no longer an option, then what do we have to look forward to? Tomorrow, I will look at the Progressive's model for the new American lifestyle.
Monday, June 27, 2011
One of my parents' favorite films is Far and Away. The 1992 film starring Tom Cruise and Nicole Kidman is one of Ron Howards' early efforts as a director. I think my parents relate to the story because of their own Scotch-Irish heritage, since the film tells the story of the Irish immigrant experience in America as seen primarily by the two main characters, Joseph, played by Tom Cruise, and Shannon, played by Nicole Kidman.
As the film opens in Ireland, we see that Joseph is from an extremely poor family who farm the land as sharecroppers for Shannon's wealthy father. As a poor Irishman, Joseph has no real rights in Ireland, no genuine hope of a better future, and no recourse against the abuses and indignities heaped upon him and his family by those wealthier than he. Shannon, on the other hand, is the spoiled only child of a wealthy family, but although she has everything she rebels against her parents' control and ambitions and longs for the freedom that America promises. Persuading Joseph to go with her, she steals her family's prized spoons to pay passage for both of them to America, where she has read that land is so plentiful that the government is actually giving it away.
Once they arrive in America, both Joseph and Shannon experience culture shock. As Irish immigrants, they experience harsh discrimination from non-immigrants, and gross abuse by the Irish bosses who run Boston. Although it was Shannon's idea to come to America, she quickly finds out that life is very hard for a single young woman with no money (immediately upon her arrival she is robbed of her spoons by a con man) and that America is not exactly what she had in mind. But Joseph is intrigued by America and the opportunities that it offers to a young man who is willing to work and fight for a better life. While Joseph had no hope, no future and no opportunity in Ireland, he soon discovers that he can set the course for his own life in America, and even though he faces discrimination from those who are not Irish and theft and abuse by those who are, he understands that he can seize control of his future in this country in a way that he never could have in Ireland.
The climax of the movie comes at the end, when after many hardships and adventures, both Joseph and Shannon make their way--separately--to Oklahoma to race for free land. This was the real purpose of their trip and of all of the hardships they have endured--a chance to own their own property, to be masters of their own homestead. And as we watch Joseph and Shannon line up at the start line to join the rest of the Oklahoma Sooners, we understand that everything that they have experienced has been worth it to get them to this moment--their own individual chance at the American dream.
As we prepare this week to celebrate the Fourth of July holiday and the anniversary of our nation's independence, we as Americans tend to reflect on what our country has given to us. For over 230 years, America has symbolized the fulfillment of dreams--dreams for self-employment, dreams for home ownership, dreams for a better, freer life both for immigrants and for those of us born in this country. Like Joseph in Far and Away we tend to look at America as a place where our dreams have the power to take flight. Even if our circumstances are difficult today--if we face persecution or discrimination or mistreatment--nevertheless we ultimately have the chance to set our own course for the future and to write our own story.
Unfortunately, if we are honest about our country's situation, in 2011, the American dream as it has been traditionally defined--home ownership, self employment, opportunity for success through personal initiative--is dying. In its place, we are being told that we need to look to the New American Dream where freedom from responsibility is better than freedom to succeed.
This week, as we prepare for Independence Day, I am taking a look at the ways in which the American Dream is being reshaped and redefined to mean something that it is not. As we celebrate July 4, next Monday, I hope that each of us will take a serious look at the freedoms and opportunities we are losing and to ask ourselves the question, "What is freedom?" Is freedom merely the absence of responsibility, or is it the ability to work toward and achieve our goals? I hope you will join me.
For other articles by Alexandra Swann, visit http://www.frontier2000.net/.
Thursday, June 23, 2011
Remember last year when the federal government announced that Recovery Summer was well underway since the economy had actually been in recovery phase since 2009? Well apparently the Recovery did not make its way to most of us, because we are now in the summer of 2011 and Recovery is nowhere in sight. Unemployment remains high, home valuations are plummeting, and thanks to the Dodd Frank bill we are facing a dismal mess in the housing market.
In light of all of these problems, the federal government appears to have determined that we need more economic stimulus--more entitlement programs. Apparently, if we get enough entitlement programs, we will all be comfortable and happy. And, to kick off the summer, on Monday the Department of Housing and Urban Development rolled out a brand new program--the emergency homeowner loan program. The EHLP is such a doosey of a program that it deserves special recognition. So today I am borrowing a phrase from our Middle Eastern friends and naming it "The Mother of All Entitlements."
As with everything else involving housing, EHLP is actually based in the Dodd Frank bill. Last year, as part of the massive piece of legislation which is now crippling the housing market and closing down scores of small businesses, Congress authorized $1 billion to be used to provide mortgage assistance to unemployed or under-employed homeowners for up to 2 years. The cap on the amount of assistance that any one homeowner can receive is $50,000 or 2 years--whichever comes first. The rules are simple--a homeowner must be three months delinquent on their primary residence mortgage due to job loss, illness or the overall economy--both self employed and wage earners are eligible. The homeowner must have experienced at least a 15% reduction to their gross income because of one of these factors. Finally, foreclosure of the residence must be imminent as documented by a notification of intent to foreclose or a self-certification from the homeowner that they are three months past due on their mortgage and foreclosure is therefore likely.
Although the legislation actually caps the individual amounts to $50,000, in its announcement on Monday HUD stated that it plans to offer about $35,000 in assistance to about 30,000 families located in 27 states and Puerto Rico. Since there are likely to be significantly more applicants than available loans for each state or county, competition is expected to be fierce. For example, in Pueblo County, Colorado, the county is expected to receive enough funds to assist about 84 families, so they may have a lottery for the qualified applicants.
As part of the selection criteria, HUD counselors must determine that the homeowner has a reasonable likelihood of being able to begin making the primary mortgage payment again within two years. To prove this the counselors must show that the debt to income ratio of the homeowner does not exceed 55% of their income prior to job loss or income reduction.
The loan to HUD has to be repaid if the homeowner sells or moves out of the house, increases their income to more than 85% of the "pre-event" level, or "fails to report changes in unemployed status or income." If three to six months before the end of the two year period, the homeowner is still unemployed or underemployed, the homeowner will be required to meet with a HUD counselor to explore short sale and loan modification options. Underwater borrowers will be encouraged to explore short sale options while they are receiving assistance. An underwater homeowner selling his home on a short sale will not have to repay the funds to HUD.
A homeowner who gets his income back and starts making his mortgage payment also does not have to repay the funds if he makes timely mortgage payments for five years. The balance of the note to HUD is reduced 20% per year until the note is extinguished at the end of five years.
This program has got to be one of the most wasteful uses of taxpayer money ever conceived. I know what some of you may be thinking. When I did the piece on Suze Orman entitled, "Suze Orman is Wrong--Don't Walk Away," I said that walking away from an underwater mortgage is a bad idea, so some of you may be thinking, "First you criticize strategic default; now you criticize a federal program to help homeowners stay in their homes. Make up your mind." When I wrote the piece on strategic default, I was referring specifically to people who can make their mortgage payments but choose not to because their values have dropped and instead walk away. The HUD program targets homeowners who are not working, or at least have experienced a dramatic drop in income, and who clearly cannot make their payments as evidenced by the fact that they are three months behind. They cannot pay their mortgage--plain and simple. So instead of allowing the foreclosure process to happen, the U.S. taxpayer is going to subsidize 30,000 of these people to stay in their homes for two years with or without work.
A person who is unemployed, or underemployed today whether through job loss or the loss of a business needs to make some life changes. Those life changes may include moving to another place geographically where the person can start over and find work. By subsidizing the mortgage payment for 2 years, HUD is making it possible for these people to sit where they are. Apparently, the folks at HUD don't know about the law of inertia--an object at rest has a tendency to remain at rest until acted upon by an outside force. I know this is going to sound very harsh, but I am speaking from personal experience here: when times are tough people get out and do what they need to do to make ends meet unless someone enables them not to. But for a lot of people, two years of unemployment checks and two years of mortgage assistance is just enough motivation to keep them from doing anything to improve their own situation until the money runs out. And at that point, most of them will get foreclosed on anyway.
To put this in perspective, if you are business owner in this country today trying to get a small business loan, you are going to hear frequently that the government is really down on small business right now and that this is a really bad time to be trying to get a loan. Even for business owners with good credit and a previous track record of repaying SBA loans in a timely manner, this is a difficult time to get financing. As far as the federal government is concerned, an unemployed homeowner who is 90 days late on their mortgage is a better credit risk than a small business person trying to work and generate income.
As with the rest of the Dodd Frank bill, this is a poorly-conceived, expensive proposal which will not help anyone.At the end of seven years, I would love to get an honest accounting from HUD of exactly how many homes were saved and how many homeowners resumed their payments for five years in a timely manner. The numbers of success stories coming out of this program will be miniscule. And tax payers will be $1 billion dollars poorer.
For related articles and books by Alexandra Swann visit her website at http://www.frontier2000.net/.
Tuesday, June 21, 2011
As a small business person who is openly not a fan of the current administration, I get asked a lot who I would like to see for president in 2012. Since the last election I have had only one answer--"Rick Perry." Although the governor of Texas still has not announced his candidacy, he is, in my opinion, head and shoulders better qualified to be president than anyone else I have seen or heard so far.
Let me say first that although Perry has become the longest-serving governor in the illustrious history of the state of Texas, I have never voted for him. The reason for that is that while I work and own property in Texas, I am a resident of the neighboring state of New Mexico and, therefore, ineligible to vote in Texas elections. But since my company is a Texas corporation, my office is in Texas and the majority of the work that I do is in Texas, I follow the elections and politics and the laws of Texas with great interest.
I was born in El Paso, Texas at Southwestern General Hospital. My parents moved out of the state when I was seven years old because they wanted to homeschool me, and in the 1970's homeschooling was illegal in Texas. So I am really a Texas ex-pat, driven from the state of my birth at a young age because of onerous regulations which prevented parents from choosing the type of education they believed was best for their own families.
When I opened my business in 1998, I opened my office in El Paso, Texas but I got my first license in New Mexico. As a business owner in both states, I came to see the difference that effective government makes in the health and well being of a state. New Mexico is a beautiful state geographically, but it is a very poor state. The state income tax discourages many people from moving there and causes professional people to move out. The various taxes on businesses discourage industry and innovation.
Texas, on the other hand, has a tax structure which encourages growth. The state has no income tax. The various state departments work with the businesses to promote growth and cooperation. Texas's pro-business stance is a primary reason that over 40% of the new jobs created nationwide in the last two years have been created in Texas. The city of Houston now boasts that it leads the country in one way UHAUL rentals to the city.
My own experience as a business owner has been primarily with the Texas Savings and Mortgage Lending Department which regulates small mortgage brokerages like mine. Texas introduced licensure for its mortgage brokers in 1999, and I received my first license in the state January 3, 2000. The Savings and Mortgage Lending Department was our regulator. Since prior to the licensing law for mortgage brokers, the Savings and Mortgage Lending Department regulated savings and loans, and there were only a handful of these left in the state by the year 2000, the state of Texas made the Department of Savings and Mortgage Lending responsible for regulating the mortgage brokers. But the Department had to be self-sustaining. That meant that all of the fees to run the Department and pay the staff had to come from the brokers and small entities the Department regulated. This was a wonderful system, since each year the Department had to plan its budget based on the amount of money it could charge the small businesses it regulated. If the Department charged too little, it could not meet budget. If they charged too much, they might close a lot of us down which would result in declining revenues for them. Their survival as an agency was tied to our survival as businesses--if we died, they died.
That philosophy is a key reason that Texas is a lead job generator--the state and its governor treats business not as an evil combatant, or even merely a necessary evil, but rather as a partner with mutual interests. In spite of all of the rhetoric we have heard from Washington in the last two years, the government does not create jobs. The only jobs that the federal government has the ability to create are jobs for federal employees, and these positions must be supported through tax dollars. Likewise, the state government does not create jobs except for state agencies. The role of any effective government is to foster an environment where the private sector, large and small, can grow, thrive and create jobs and opportunities. Too much regulation kills incentive and opportunity. No regulation at all creates an environment where criminals flourish and then leads to job killing regulation to cover the mistakes made by a complete lack of oversight in the beginning.
Rick Perry seems to understand this principle. Yes, there are other fine conservatives who have already announced their intentions to run. Some of them have good ideas and strong principles. But Perry has a depth of experience as the governor of a state with an economy bigger than many small countries that I just don't see in any of the others. And he really gets the concept of the true relationship between business and government. Business is not the enemy and opponent of the government--it is a partner and necessary ally. We create the jobs, the tax base, and the growth that keeps the economy vibrant. When we die, everything dies.
As governor of the only state that had a brief stint as an independent republic, Perry also gets the concept of personal freedom. We, the taxpayers of Texas, are adults who are capable of making our own decisions about the most important aspects of our lives. We are capable of deciding what type of health care we should have and how we should pay for it. We don't want to be micro-managed; we want to be free to work, to create, to prosper, to help our state and our nation prosper. We know that we can't do that with a massive bureaucracy hanging over our heads, whether that bureaucracy governs us in the form of Department of Health and Human Services, or the Consumer Financial Protection Bureau.
Rick Perry is a straight talking, action-oriented governor. Those characteristics may be off putting for people outside of Texas who may consider him brash and over confident. But for me his straight talk is a breath of fresh air. We already have an elegant president who is a masterful speaker and a great campaigner. Perry is not elegant--he is way too rugged. But much of the U.S. is also rugged--this is a vast country with many people who still have big dreams and big goals and big plans. It needs a president who will allow us to nurture our dreams rather than a runaway freight train of a government that crushes our initiative under the weight of massive rules.
Governor Perry, if you are reading this, I hope that in 2012 I will get the opportunity to vote for you for the first time. I feel certain that as Americans get to know you better, a lot of others will feel the same way.
For related posts visit http://www.frontier2000.net/
Friday, June 10, 2011
The AOL Huffingtonpost headline today shouts that the Obama administration is "punishing" three mortgage servicers for failure to comply properly with the terms of the much maligned Making Home Affordable Program. The punishment involves withholding payments from the Treasury to the combined three largest servicers of mortgage debt in the US--Bank of America, Wells Fargo, and JP Morgan Chase. This newest announcement is just the latest in a series of blows rained down on the banks lately by the federal government. After losing the vote to delay implementation of the Durbin Amendment Wednesday, the banks are going to be looking for new ways to make up the loss of $16 billion dollars which they currently receive through swipe fees. With the government's announcement yesterday, it would appear that the Administration is in a full-fledged war against the banking system.
In reality, the threats are really just token threats to get front-page attention. The Treasury Department has been threatening to withhold funds from the banks for nineteen months, and the suspension of payments is only temporary--as soon as the banks come in line with the Treasury Department's standards, the payments will resume.
There can be no question that the Making Home Affordable Program (commonly known as HAMP) has been a disaster. When the Administration announced the program in 2009 to modify the mortgage terms of homeowners who were experiencing difficulties, the White House assured us that 3 - 4 million homeowners would receive help under HAMP. As of last October, which appears to be the latest data available--only about 483,000 homeowners were able to reduce their monthly mortgage payment using HAMP--about 16% of the total homeowners the program was promised to help. Estimates today say that twice as many Americans have been kicked out of the program as accepted, and an alarming number have remained in the "trial modification" phase for 12 to 18 months while waiting for a final decision from their mortgage servicer about whether they qualify for a permanent modification.
Being stuck in trial modification can be a nightmare for homeowners. If they have mortgage delinquencies, their mortgage payments continue to report delinquent during the trial mod, which drags down their credit and can prevent them from being able to get a car or any other type of credit and can even impact their ability to get jobs if the employer runs a credit check. Further, even though the mortgage payment is reduced during the trial modification, the difference between the full payment and the reduced trial payment accrues on top the principal of the note, so that a homeowner who ultimately does not qualify for modification ends up in a dramatically worse position than he or she started in, since the amount owed to the mortgage company is now higher than it was at the beginning. And for borrowers who are stuck in the trial modification program for 12 to 18 months, often that increase in total debt brought on by the reduced trial modification is the very reason that the homeowner does not qualify for permanent modification at the end of the trial period. So after complying with all of the HAMP guidelines, a borrower can be denied at the end of the process simply because the process took too long in the first place.
The initial theory behind HAMP was that reworking mortgages would allow distressed homeowners to remain in their homes and the mortgage servicers would take smaller losses than they would in a foreclosure situation. But new studies indicate that even those homeowners who are accepted for permanent modifications have about an 80% debt to income ratio by the time they receive their modification, so the chances that these homeowners will actually get to remain in their homes even after the modification are very slim. According to the Huffington Post, 3 out of 4 housing counselors reported that borrowers had a "negative" or "very negative" experience with HAMP. Only 9% of borrowers described their experience as either "positive" or very "positive."
HAMP was an ill-conceived, poorly-executed program which did not at all deliver on its promise to keep 3-4 million homes out of foreclosure. In fact, the U.S. is on track for 6.5 million foreclosures by 2012. The program has not stabilized housing or home values. But is the failure of the program the fault of the mortgage servicers?
Probably only in the sense that poorly-trained, over-worked bank employees did not respond in a timely manner to let borrowers know that they did not qualify for the program. If they had done so, some of those borrowers might have been foreclosed on one year to eighteen months ago. For some, HAMP and the "trial modification" process just delayed the inevitable.
For others, the HAMP program probably made their situation much worse than it needed to be. Unquestionably, some borrowers who were strapped but able to make their payments probably ended up in this program and then found that the very vehicle that was supposed to bring them some relief actually dragged them into foreclosure.
But the basic fault of the failure of the HAMP program is the program itself and the Treasury Department. With so many new rules and so much new oversight over the banks, most borrowers simply did not qualify for any type of relief. The Treasury Department and the White House used HAMP as a carrot to dangle in front of stressed homeowners to promise relief that was simply not available to most of them. Now they are blaming the mortgage industry for the failure of that program. JP Morgan Chase disagrees the Treasury Department's claims that they have not acted properly in the program, and a representative from Wells Fargo told the Huffington Post that they are formally disputing the government's findings because the report, "contradicts previous written assessments shared with us by the Treasury."
In mortgage lending, we are required to make certain that the rates and programs that we offer are rates and programs that are actually available and that we have a reasonable expectation that our borrower could qualify for. Only the federal government could promise relief to between 3 and 4 million homeowners when actually only about 25% of those will really qualify for permanent modifications and then blame private industry for their own failed program.
I am also troubled by the fact that "punishing" industry is now a headline grabber. The Treasury Department's announcement is really designed to make front page news--to make Americans feel that their government is working on their behalf by whipping the evil banks. The whole idea of punishment for not be able to deliver on a program that was unworkable is as ridiculous as it is wrong.
As a society, we need to guard against the temptation to find a scapegoat for every situation. It is a dangerous tendency to want to punish an industry (any industry) when we are unhappy with the outcome of a program. And it is dangerous to set up industries or groups of people as public enemies who deserve our collective blame and scorn whenever we have problems rather than taking responsibility for our own bad decisions.
For related posts, visit http://www.frontier2000.net/.
Thursday, June 9, 2011
Over the last few weeks banks have been up in arms about implementation of the rules laid out in the Durbin Amendment, one of many amendments in the voluminous Dodd Frank bill. As the Federal Reserve prepares to issue its final rule capping fees on debit cards, banks stand to lose a lot money, which they are going to pass on to consumers in the form of other fees and charges.
The issue with the Durbin Amendment is very simply that decreased revenue to a specific busienss always equals additional charges to the consumer while increased savings to a business does not necessarily equal increased savings to consumers. The Durbin amendment benefits merchants because of the lower swipe fees, and they claim that the new rules will allow them to pass those savings on to their customers. But in reality, they pass those savings along at their own discretion and in a tightening economy, most merchants are likelier to use the savings to pad their own bottom line. There is nothing wrong with this--every business has to do what it needs to do to be profitable. But this is the reality of the situation. A business that can save several thousand dollars a month in debit and credit card transaction fees is very unlikely to lower their prices by the same amount.
The banks, on the other hand, will lose a lot of money due to the limits on swipe fees. Curt Perry of Pioneer Federal Credit Union in Mountain Home, Idaho, told Yahoo News that the proposed fee caps of 12 cents per swipe will cost his bank $780,000 a year. Nationally, swipe fees generate $16 billion annually for bank and credit unions, according to Federal Reserve estimates. Since no financial institution is prepared to absorb those costs, banks and credit unions are going to look for ways to make that money back in the form of new charges, such as fees on checking and savings accounts.
A bill proposed by Senator Jon Tester (D MT) and Bob Corker (R-TN) would have prevented the Federal Reserve's rule which implements the new swipe fee limitations from going into effect for one year while the effects of the rule were studied. During that year, the Federal Reserve and three other agencies would have completed a study on the current rule. If two out of three agencies had decided that the rule was not fair, it would have been rewritten.
Yesterday, however, the Tester-Corker Amendment failed. The Tester-Corker Amendment needed 60 votes to avoid filibuster and it garnered only 54--6 short of the required minimum. The vote did reflect some buyer's remorse on the part of the Senate--a dozen senators who had supported the Durbin amendment switched sides to vote to delay its implementation, but their votes simply were not enough.
So now, in a little more than a month the Federal Reserve will issue its final rule regarding swipe fees. There is some speculation that the 12 cent cap might be changed, but I predict that in the end the final rule will reflect the interim rule exactly.
Lending institutions are not charitable institutions. If the government restricts their income in one area, they are going to make the money back someplace else. In the end, all efforts to "punish" the banking industry really only punish consumers as the lending institutions pass on new higher costs to you and me.
For related articles, visit http://www.frontier2000.net/
Tuesday, June 7, 2011
It has been said that the definition of insanity is "doing the same thing, over and over, and expecting a different result." I think that in light of recent developments with the economy and our government's solutions to our problems we need a new definition. I propose that we change the definition of insanity as follows,"Doing the same thing, over and over, which clearly is producing harmful results and then proclaiming that everything is as it should be."
As example 1, I take Austan Goolsbee's tour of the Sunday morning talk show circuit this last week to proclaim that the economy is in recovery and that all of the White House policies we have seen implemented over the last two and half years have been successful. Goolsbee is one of the White House's top economic advisers, although he has announced his resignation so he won't have that job for long. His goodwill tour was in response to dismal job numbers released in May which show that unemployment is not decreasing and for those who have been unemployed for 27 weeks or longer, unemployment has actually increased to 6.2 million or 45% of the unemployed. Total unemployment stands currently at 13.9 million people or roughly 9.1 % according to statistics released by the Bureau of Labor.
A second source of concern for many Americans is that housing prices continue to drop. As underwriting guidelines have tightened and Americans have continued to lose equity in their homes, more and more homes have been lost to foreclosure, short sales or strategic default. The resale of those homes is at discounted rates. Furthermore, new would-be buyers are having a very difficult time qualifying to purchase homes so as the inventory sits on the market the housing prices continue to drop.
Why are we in this mess? Well an exhaustive list would probably stretch around the world. But there are definitely a few factors that are impacting heavily on the current situation. First, the anti-business tone of all of the policies that this country has embraced prevent people from starting businesses, growing businesses and expanding businesses. A lot of our job growth today is in the federal government sector rather than the private sector. That means we have a lot more people to enforce the regulations which are strangling business. And that is only going to get worse as massive agencies such as the Consumer Financial Protection Bureau get up to speed next month. Financial services industries, community banks, small business owners involved in such industries are being decimated by the Dodd Frank Bill. Every time that another business has to close its doors, unemployment grows or at least stays stagnant.
Excessive regulation is also the reason for the housing double dip. If we were not experiencing unprecedented regulation of housing finance, including newly proposed national underwriting standards for mortgage loans, borrowers would be taking advantage of the low interest rates to buy homes. By doing so, they would be clearing out a lot of inventory and the housing prices would rise. After September 11, the economy went into shock, but the drop in interest rates motivated a lot of people to either refinance their existing home or purchase a new one. Today, however, many Americans cannot qualify to purchase a home, and that situation is only going to get worse as the new tougher standards come into play.
Rather than sending out Goolsbee to do damage control and declare that "one month is not a trend," Washington needs to be looking at the specific problems and the specific policies which have exacerbated those problems. The truth is that we have a war on business today in the U.S. and we see it at every level--federal, state and local. As long as that war continues to rage, businesses are not going to thrive and the economy is not going to grow.
I spent the greater part of this morning at a City Council meeting in El Paso, Texas. I was there to speak about a landscape ordinance which the city is pushing through requiring that developers use much more landscaping in their developments. During the entire course of the City Council meeting, various members of City Council kept reiterating that it is time for business to pay their share to beautify the city. When my turn finally came, I commented that the regulations impact small businesses dramatically since business owners will have to pay more in rents and more to buy properties and more to maintain those properties. The ordinance includes excessively high fines for non compliance and makes violation of the ordinance a Class C Misdemeanor. I objected to this as well, since although various members of our city council have stated publicly that El Paso should have an open dialogue about whether to legalize drugs, they have no problem criminalizing shrubbery.
We were told today that the purpose of the ordinance is to beautify the streets so that they will be more attractive to pedestrians who are walking along the sidewalks on their way to public transportation--which in El Paso is the city bus system. And, just before voting in favor of the ordinance by a 6-2 majority, one Councilman said that he was tired of everybody claiming that regulations would put small businesses out of business--everybody meant me since I was the only person who objected to the ordinance His tone said "How dare you come here and bother us with your talk about protecting business when we are going to do what we want to do anyway." He could be a posterboy for what is wrong with this city and what is wrong with this country.
I might add that in El Paso, we feel very proud because our unemployment rate right now is the same as the national average--roughly 9.1%. The reason we feel very proud is that historically our unemployment rate is 2% higher than the national average. Our city despises businesses and business owners, and it always has. And so we remain a poor city lamenting that nobody takes us seriously when the problem is that we attempt to pillage the businesses that choose to come here. We will celebrate the trees as an accomplishment while pretending that the small business owners who cannot afford the new rents and therefore do not get a foothold here would not have succeeded anyway. And if we do file criminal charges against some poor sap who could not afford to replace his landscaping that died (yes, failure to replace dead landscaping is a violation of the ordinance) we will feel righteous, but we will never apologize for consistently maintaining an unemployment rate that is considered unacceptable everywhere else in the United States.
That, folks, is insane.
For related posts, visit http://www.frontier2000.net/.