Wednesday, February 27, 2013

The Absurdity of the Sequester Crisis

What do you think is the single biggest problem with government today?  I know that is an open-ended question that could generate pages of responses since there are so many clear problems with our government. But as I have watched and lived through the massive regulations of the past four years, I have come to believe that the biggest problem with our government is that we have two sets of rules--one for politicians and the other for everybody else.

Two days from now, the sequester is about to go into effect which will cut $85 billion over 10 years from a budget that will still be larger than the federal government's 2012 budget.  I have spent the last few days watching and reading various commentaries on the sequester--ABC News reports that the sequester will lead to longer lines at the airport, cuts to Head Start, cuts to education, cuts to defense, and on and on.  A few days ago, the Administration released non-violent illegal immigrants awaiting hearings to drive home the consequences of budget cuts to federal law enforcement.  Much of this is an obvious attempt to create a public outcry against the government being forced to cut its budget by 2.3%.  Unfortunately for Washington, no outcry is coming.  The American people are fed up--we simply don't care that it's finally the government's turn to make do with less money than it would like to have.

I have also read some excellent commentaries on the fact that the all Americans were subjected to a 2% payroll tax increase in January of this year, so we all have to make do with 2% less money than we had last year.  Yes, agencies may not be able to hire so many employees; yes, they may have to furlough employees.  So what?  Government workers earn an average of 16% more than workers in the private sector.  In a climate where many businesses are struggling and millions of Americans remain unemployed, no one is going to shed any tears over a federal employee being furloughed.  At least they have an excellent job to go back to as soon as the furlough ends. 

Another possibly horrific consequence of the sequester--Congress might not be able to travel free on military jets as a result of defense cut spending.  According to Air Force Secretary Michael Donley at the Air Force Association's Winter Conference, the reduced military budget might not allow for free transport of Congressmen and women.  That would truly be sad--they might have to fly business class where they would stand in the lines created by TSA and sit next to their own constituents during flights to and from their districts. This might, however, have the positive effect of increasing business class air travel if people knew that they might actually have an opportunity to speak face to face to their elected representatives since anyone who has ever lobbied on a grassroots level knows that these people are virtually impossible to contact directly by phone or email and often do not see visitors from their districts who travel to their DC offices to meet with them.

What is hypocritical about the weeping and wailing over the cuts brought on by the sequester is that the same government officials who are warning that the Apocalypse is about to begin have spent the last four years imposing draconian regulations dictating how much private businesses can earn.  In the mortgage industry, for example, two years ago the government implemented regulations mandating that a self-employed loan originator could no longer be paid both by the consumer and by the lender to whom he sold the mortgage loan. At that time, many experienced originators left the market, because the government had cut their pay.  Last year, the government again cut the pay of originators--this time indirectly--through ruling against Wells Fargo in a discrimination case.  In that case, the government determined that because some brokers had charged higher fees to some minority borrowers than had other brokers, Wells Fargo's policies, while not intentionally discriminatory, had a "disparate impact" on potential borrowers and therefore Wells Fargo was guilty of discrimination. The immediate effect of this ruling was that many lenders (including Wells Fargo) stopped working with independent loan originators completely, and those who remained changed our contracts effectively reducing how much we can earn once again.  Now, in January, the CFPB announced its new rule federally capping all fees on qualified mortgages at 3% in a move that will finish destroying what is left of the independent mortgage market. 

All of these regulations were touted as necessary for the protection of the consumer.  Mortgage brokers were apparently charging too much money and their customers did not understand the hundreds of pages of forms provided to them to explain their costs and fees.  In order to protect the consumer from being overcharged, the new regulations had to be implemented.  No one ever protested, "But mortgage brokers with many years of experience have financial obligations--homes, mortgages of their own, children in school, debt, office expenses, payroll, etc. They have entered into those obligations based on past earnings. If we cut their incomes how will they meet those obligations?  How we can expect them to do the same level of work they are doing now for substantially less money?  What if they can't earn enough money to meet their expenses and they are forced into bankruptcy or foreclosure?"  Rather, the bureaucrats who made these rules were smugly confident that what they were doing was for the greater good.  The businesses they affected would just have to learn how to make do with less.

Now, it's the government's turn to experience some cuts--cuts they imposed on themselves, apparently thinking that when the time came they would never have to actually live under them.  President Obama believes that the American public should rush to the government's defense and accept more tax increases--further reductions to our own income--in order to prevent any reductions to the government's budget.  To make his case, he calls the cuts "brutal" and "severe" and warns that they will "eviscerate" key segments of the economy.  In doing so, he is using the same reactionary strategy that he has successfully used several times in the past--the world is about to end, the wolf is at the door, and we are all going to die unless we acquiesce.  Apparently, Obama never read the story of the boy who cried wolf or he would know that this particular strategy only works so many times before the people stop listening.  I think that's where we are today.

While the mainstream media and the government want to pretend that a 2.3% reduction in the federal  budget will mean the end of the world as we know it,  the truth is that it's time the government learned how to adjust its spending and live within its means.  If that means some pain for the agencies and employees, so be it.  We the people need to let Washington know that the cuts imposed by sequester are necessary for the protection of the taxpayer--we are doing it for the greater good.  The government will just have to learn how to make do with less.

Alexandra Swann is the author of No Regrets: How Homeschooling Earned Me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at

Thursday, February 21, 2013

Marketing Indefinite Detention to the American Public

On Tuesday evening I watched an episode of NCIS-Los Angeles.  NCIS-LA has a really openly liberal bent in most of its episodes, and for that reason I am not a fan of the show, but somehow I end up watching  a few episodes each season in spite of this. But the episode this week featured more than just the normal "white rich people (especially men) are bad; socialism and liberalism are good" message that I have come to expect from a lot of television entertainment.

In Tuesday's episode, NCIS investigators played by Chris O'Donnell and LL Cool J were pursuing a terrorist group from the 70's called the "Gun Barrel Party."  This anarchist organization was a sort of a cross between the uber-leftist terrorist organization "The Weathermen" and the current Tea Party, and in the episode they had been involved in a series of high profile bombings in the 70's and were now making a comeback with new followers and a new mission to get the attention of Americans through new attacks on the social order.

As the investigators tracked the members, they came upon the scene of one demonstration where bombs were set to go off, and they were able to arrest one young member of the group.  The young man began quoting the Constitution to O'Donnell and demanding his right to see an attorney.  O'Donnell quickly shot him down, however, by informing him that because the U.S. Government had designated "The Gun Barrel Party" as a terrorist organization, he no longer had any rights and that he had better cooperate.  The suspect told them that he wanted to exercise his Fifth amendment right not to incriminate himself, but O'Donnell explained to him that under the provisions of the National Defense Authorization Act the government now had the right to detain him as long as they decided they needed to and if he failed to cooperate he would end up at Gitmo.  At that point, the suspect began talking and gave them the information they needed to arrest the leader of the organization.

Even though the indefinite detention provisions of the  National Defense Authorization Act have been in effect since New Years Eve of 2011, I am certain that most Americans still do not know that the U.S. government has empowered itself to imprison Americans without trial.  That is one reason that this episode of NCIS is so shocking.  The writers used the full name of the Act and explained that it trumps the constitutional rights of Americans, but they presented this information in a very positive light as the protagonist investigators used the law to take down the evil terrorists.

As Americans, we expect to have many disagreements with our fellow citizens about the issues of the day--welfare, deficit spending, entitlements, social issues, etc.  But the right of each citizen to be protected by the constitution should never be open for debate--this issue should be so basic that no one, regardless of political affiliation, should ever question it.  Yet, Hollywood is now doing a marketing campaign to let Americans know that some citizens can be marginalize and that anyone who is deemed to be part of a designated terrorist organization is not deserving of the rights or protections which are the framework of our society .  This is very dangerous propaganda.

It is ironic that while "Gitmo" has become a national symbol of failure in our dealings with enemy combatants, it is now perfectly acceptable as a threat against American citizens.  It is sad that Hollywood writers who, if they are going to address this subject at all, should be using their forum to explain the dangers of undermining the constitution, are instead championing a destructive law.  And it is sad that many Americans watching NCIS-Los Angeles who had never heard of the NDAA before Tuesday night now see it only as a vehicle for "cool" investigators to use to bring "really bad people" to justice. 

What is saddest of all though, is that our entire media system has become a propaganda machine for leftist policies. From news to entertainment, the media is preaching one big government, post-constitutional message  and indoctrinating the less informed people in our culture to accept the trampling of our liberties as a good thing. 

Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her newest novel, The Chosen, about one small group of Americans' fight to restore the Constitution and end indefinite detentions without trial, is available on Kindle and in paperback. For more information, visit her website at

Tuesday, February 12, 2013

Real Economic Stimulus Happens Only Through Less Regulation and Lower Taxes

Last night just after 5:00 PM I got a call asking me to stay another 30 minutes to visit with a homeowner to whom I have made a couple of real estate loans in the past.  The man said that he needed to talk to me and wanted to come by about 5:30 and visit for a few minutes.  The man's property is located in New Mexico, where I no longer hold a lending license, and I was getting ready to leave for the evening when the call came in, but as a courtesy to an old customer I stayed and waited for him.

When my borrower arrived he told me that he knew that I could not loan him any money on his New Mexico property but that he was very frustrated by his current experience of trying to get a loan and he wanted to see if I could make some suggestions to help him.  His property in New Mexico is very nice and he does not owe much money on it, but he wants to buy a home in Texas and in order to get the down payment for his new home he wants to do a cash out refinance on the New Mexico property where he currently lives.  He complained that the companies that he is working with now don't return his calls, that the level of service is terrible, and that he is not getting the cooperation he needs.  "I called over here and you agreed to see me right away, but I can't even get these other guys to return my calls."

He wanted to know why I stopped lending in New Mexico, and I explained to him that when the SAFE act was introduced requiring that mortgage brokers have federal licensure, the licensure fees for each state more than doubled.  I had always had a New Mexico license for as long as I had been in business, but I could no longer afford to pay the fees to be licensed in two states, so I had to choose the state where I conducted the most business, which was Texas.  Prior to the SAFE act, I could have handled the transactions in both states.  It was true that I always met with him after hours, at times that were convenient for his work schedule and that I  closed his loans quickly and was always accessible, but the elevated costs of doing business coupled with the drastic cuts to our income produced by regulations have made it impossible for me to work the way I once did.

I then explained that he needs to be aware that the mortgage debt ratios for borrowers refinancing their homes or buying new ones are tighter than they have ever been.  In order to be able to purchase the new home after he refinances his current one, he is going to have to be sure that his debts do not exceed 45% of his income if he is going to be getting a conventional loan.  His current plan is to rent out his home in New Mexico to offset the payment on his new loan so that he can qualify to buy his new home, but if he does not have 30% equity in the existing home after his new loan is finished as verified by the current appraisal he will not be able to use the rent to offset the payment which will mean that he will have to qualify for the house with both his current house payment with his new higher loan amount and the new payment on the new home he is buying. To make matters worse, his wife has a steady job with the school district but her credit is not very good, so she may not qualify to be on the loan which will mean that her income cannot be used.  He is also working with the school district, and his credit has always been very good, but due to a mistake by his current mortgage servicer where they erroneously reported his payments late because of an escrow shortage, his scores are lower than they were when I was working with him and he may not make enough money to qualify by himself.

While we were talking, he received a text message from one of the mortgage loan originators he has been working with saying that the mortgage loan originator wants to meet with him.  The originator wants $400.00 in order to order the appraisal on the house in New Mexico.  My former borrower looked at me expectantly as he told me that he can't pay for the appraisal right now and expects it to be rolled into the loan.  I explained that mortgage loan originators used to allow borrowers to pay for appraisals at closing--which often meant that if for some reason the loan did not close we had to pay for those appraisals ourselves.  Although not collecting the money upfront meant that many times we had to pay those fees ourselves, because the lending environment was very competitive, we would often take the chance on not collecting the appraisal money at the time the appraisal was done because we were competing with other lenders who would not collect the money up front, so we could risk $350.00 or risk losing the deal totally.  Now, however, since new appraisal regulations were introduced in 2009, we no longer hire the appraisers ourselves.  Appraisers are selected by appraisal management companies contracted by the lender and the appraisal management companies demand payment in full upfront.  Not only are appraisals considerably more expensive than they once were, but we no longer have the flexibility to call up our friendly local appraiser and ask if he will wait three weeks to get paid.  Since loan originators no longer have the money to cover those costs themselves, and since most the competition is gone now, the borrower has to cover the cost of each and every appraisal up front.  I explained that he will be paying for his appraisal on his refinance and his appraisal for his purchase at the time each is ordered--no exceptions.

As I talked to this man, he commented that if the market is slow and loans are difficult to originate, then everyone should be eager to work with him and eager to accommodate him, but that is really a very naive view of business.   In a competitive, profitable environment, loans were affordable and loan originators worked hard to try to close the borrower.  Today, loan origination is extremely difficult and laborious and not very profitable.  As a result, there is very little competition and very little incentive to go above and beyond.  I am sure from having known this man for a number of years that he voted for President Obama both times and that he has been completely in support of Obama's anti-business policies and his strangling regulations, but now he does not understand why increasing the regulation and the costs of doing business for lenders is making it difficult for him to get the loans, the pricing and the service he wants.  I am sure that there are people all over the U.S. who would agree with him.  They like to complain about evil business people, but they don't understand why high costs of doing business and low profit margins kill the incentive of business people, increase costs to consumers and limit consumer choice by driving out competition.

Tonight President Obama will give his first State of the Union of his second term.  One major focus of this speech is supposed to be jobs, the economy, and to paraphrase one commentator, "making sure that all Americans can participate in the economy while paying their fair share."  We can look for a speech calling for more regulations, higher taxes and more top down economic stimulus in the form of taxpayer funded subsidies for pet projects such as union shops and green energy.  We can be pretty certain that the speech will not call for any of the real actions that actually would stimulate the economy--unraveling the tens of thousands of regulations that have been implemented over the past four years, lowering taxes or reducing the cost of compliance.  Yet, if the President were serious about improving the economy, these are the actions he would take.  No matter what the left likes to tell themselves, the government does not create jobs.  The government does not create opportunity. The government only has the power to kill jobs and opportunity.  For profit businesses do not operate out of a sense of altruism; the owners and employees work hard and give their utmost effort so that they can experience the rewards that go with hard work.  When those rewards are stifled, the incentive to produce and compete is gone.  And when business becomes too difficult and expensive to conduct, business owners either close up shop completely or they raise the costs they pass on to the consumers and cut services.  Either way, in the end, the American people end up paying the final bill, not only through higher taxes, but also through higher fees and costs and poor service.   

Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at

Thursday, February 7, 2013

The EPA, Water Rights, Property, and Freedom

The EPA may have lost a round in their battle to seize regulatory control of all of the nation's water when Virginia attorney-general Ken Cuccinelli defeated them in court last month, but the agency is still working to get control of more and more regulatory powers over our country's water supply.

For anyone unfamiliar with the case, the EPA had determined that storm water runoff was a pollutant, or at the very least a conduit for a pollutant, and that the agency had the power to regulate such runoff in Virginia at considerable expense to the state and the individual residents. The EPA's argument in this case was that since Congress has not specifically excluded their authority to regulate storm water runoff, the agency is authorized to regulate it, and they have the rights to issue rules managing the runoff. Cuccinelli successfully argued that using the EPA's argument, the agency could also infer that it had the authority to invade Mexico since Congress had not specifically denied them this authority either.  Judge Liam O'Grady ruled in favor of Virginia and against the EPA's overreach.

While Cuccinelli's victory was significant, it is only one battle in an ongoing war between the EPA and property owners.  As of January 15, 2013, the EPA is still waiting for the White House to review its proposed  new guidance  regarding "Waters of the U.S.".  Since 2011, the Environmental Protection Agency and the Army Corps of Engineer have been trying to expand the Clean Water Act to expand the authority of the EPA beyond its current authority to regulate navigable waters and waters adjacent to navigable waters. (The EPA had tried unsuccessfully to expand their authority under the Bush Administration but they had been rebuffed.)  By expanding the regulations to include virtually all waters and wetlands,the EPA will have increasing authority over developers and private land owners.  Land owners will be subject to federal regulation and expensive federal permits when developing their property.

Although the EPA argues that the new proposals are merely "guidance" and do not rise to the level of rule making, in reality each new bit of authority that the EPA acquires increases federal authority and undermines the rights of property owners. And during the past four years, Director Lisa Jackson's EPA has issued 1824 regulations costing businesses and consumers billions.  Of these, twenty are considered major regulations.  By the EPA's own estimates, these rules will cost more than $7 billion in initial compliance and over $44 billion in annual direct compliance costs.  Do we really believe that an agency this out-of control does not plan to act on a non-binding guidance document at the expense of every property owner and developer in their potential path?  Every time the EPA flexes its muscles, Americans lose their rights and incur additional expenses, and they are able to reverse these losses only through lengthy and expensive legal battles.

One of the many troubling aspects of the EPA's guidance document is that it ignores the Clean Water Act's acknowledgement that some waters are under the exclusive jurisdiction of the states, and the federal government does not have jurisdiction over these waters at all.  By claiming authority over all waters, the EPA and the ACE are undercutting states' rights in a powerful way.

We saw an example of this overreach last year when the federal government attempted to take control of the regulation of New Mexico's underground water supply.  As I wrote last August in the post entitled Water, Water Everywhere, Southern New Mexico is home to a vibrant and prosperous farming community made possible through irrigation, both from the Rio Grande, which the federal government does have power to regulate, and through irrigation from ground water wells, which it does not currently regulate.  Last August, the Feds sued the state of New Mexico for control of the ground water.  Had they been successful in that case, which thankfully they were not, the federal government would have had the authority to pump out the groundwater from New Mexico and ship it to other states, leaving our state with insufficient ground water and rendering our properties completely worthless.

The federal government's desire to control and regulate the use of the U.S. water supply should be extremely troubling to every American.  This is an unprecedented attack on property rights and on states' rights.  Without access to water, ownership of land has no value.  If the government can successfully gain control of the use of and access to water, they can successfully dictate where we can live and work.  They can render entire communities dustbowls by simply cutting off the water.  They can decide which farms are allowed to thrive and which ones become barren.  They can charge taxes and fees on private wells on private property.  The options for control are endless.

Last year, Congress and the Senate both introduced bills to prevent the EPA's final guidance document from ever being implemented or from being used as the basis for a final rule.  But in the current gridlocked environment in Washington, bills limiting the power of the EPA have little chance of passage.  Battles over water rights are more likely to be settled through legal battles, state by state, as brave attorneys-general like Cuccinelli fight in court to make sure that their states' property owners are protected.  Every state victory against the EPA reinforces the principle of private property rights and states rights and preserves a piece of our freedom. But in order to win, we have to be willing to stand up and fight.

Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at

Friday, February 1, 2013

Everything's Coming up Roses?

With all of the mainstream media reports about the surging economy, I am reminded of Bette Midler in the TV version of "Gypsy" belting out "Everything's Coming up Roses."  This week saw the stock market surge over 14,000--levels it has not seen since 2007.  We also saw reports that housing is recovering nationwide and that housing prices have increased 23% in Phoenix, Arizona.  Although we do have reports that the unemployment numbers did tick up a point, the overall message is that life is good and getting better.

Unfortunately, that message does not mesh with reality for a lot of us.  For many Americans--the top 1% that the supporters of the current administration seem to dislike so intensely--life actually is good.  The policies of the last four years have benefited Wall Street enormously.  The historic low interest rates fostered by quantitative easing are good for stock prices, and budget deals like the one we saw with the "Fiscal Cliff" provide investors with confidence.  As long as interest rates and the price of oil remain low and the government continues to spend money, Wall Street is happy.  So are the Americans who are invested in the stock market, the investment advisers who assist them, and the publicly traded firms.  My wealthier clients are doing just fine. For example, one family of attorneys for whom I do a lot of transactions are taking advantage of the low real estate prices to pad their portfolio of commercial and residential real estate.  They have plenty of disposable income since they derive their funds from a hugely profitable social security disability practice.  For people like these, this is a good time. 

For a lot of Americans in the middle class tier of the economic scale, however, these are not such good times.  We are seeing continued high unemployment, hiring freezes, and a contracting job market.  For those of us who do not have investments, we are supposed to take comfort in the fact that housing prices are improving and so the most important asset that most of us own is appreciating in value.  But is it really?

In the areas of the country hardest hit by the housing crash, prices are rising.  The appreciation was rapid, the crash was horrific, and now there is some recovery.  But in other parts of the country, such as Texas, where property values did not ride the roller coaster to such great heights, we have seen more steady depreciation and no recovery.

Consider this--in 2012, I saw only two loans where the properties actually appraised as or better than expected.  The first one was a custom remodel for a doctor I had financed in 2008.  He had doubled his property's square footage, and his appraisal in May of 2012 came in considerably better than expected.  The other property which appraised was a Fannie Mae owned foreclosure being purchased an investment property. Fannie Mae was selling the property for $170,000--the house appraised for $214,000.  The borrower did not close on the loan, but if he had, the lower sales price would have effectively reduced the price of the house to $170,000, thereby lowering the values of the other properties in the same neighborhood.

All of the other properties that I financed last year came in below the expected appraised value--some significantly so.  In January I closed a loan for a couple who had custom built their home several years ago. They spent $650,000 building the house and assumed that this was the value--especially since the house is in pristine condition, located in a great neighborhood and has desirable amenities including a three car garage.  They were disappointed when the house appraised for $599,000.  However, the underwriter did not accept the appraisal and questioned the appraiser's statement that one of the comparables in the immediate neighborhood sold for $610,000 when the information the underwriter had on file indicated that this property had in fact sold for $510,000.  The underwriter also rejected one of the comparable sales on the basis that it was just over a year old and therefore unacceptable.  After a month of working on this, the appraiser returned a report stating that the first comp was reported in error--the sales price was $510,000, and the new comps have all sold for substantially less.  After making the adjustments, this beautiful custom built home appraised for a current value of $510,000.  The homeowner was able to close but they were not able to pay off their second lien because we had to reduce the loan amount to get them to 80%.

This month I am working with another long-time borrower of mine. This man wants to take advantage of the low interest rates by refinancing his home to lower the payment.  He purchased his house, new from the builder, in 2008 for a price of $200,000.  At the time, the property appraised for $250,000.  In 2009, he refinanced the house from his original 6.5% interest rate to a new rate of 4.875%.  At that time the house appraised for $205,000.  This year, when we appraised the house, the appraisal came in for $200,000.  My borrower was extremely upset, because not only has the property actually lost $5000.00 in value since 2009, which was a very bad year for property values, but he is not able to roll in his closing costs without MI.  (The property did qualify for a DU refi plus, and we will be closing him on that program.)  He has also questioned whether he should even go to the trouble to refinance his home to a 3.49% interest rate, since he has just learned that there are a lot of changes coming to the company where he has worked for the past 20 years, and now, even though he has held a key position for two decades and by his own admission, "works cheap", he is afraid that at some point he will be told that there is no longer a need for his services.  Although he is a person with specialized abilities whom I am certain will not have trouble finding more employment--and he does in fact have other jobs now, should his current employment end in the next year--he is anxious and nervous about his future and about even the remote possibility of having to look for work. 

Unfortunately, his story is much more representative of the condition in which most of us currently find ourselves.  In this brave new era, years of hard work and experience don't really seem to mean much at all.  Consumer confidence is down partially because many of us have no assurance of a paycheck or a job or any security.  We hear a lot about how the top 1% of the country needs to pay their share, but in reality we see the wealthiest class of Americans becoming increasingly wealthier while middle class Americans have less confidence, less assurance of finding work, and less to look forward to.  That's a story that the media is not reporting much, and it is not rosy at all.

Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at