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Friday, November 7, 2008

Consumer Responsibility

Just yesterday I was listening to to talk show hosts arguing. What's funny is that they refused to understand each other and acknowledge each different point of view whether right or wrong. You don't always have to agree with someone but you can understand where they are coming from if they make a good argument.

The topic was capitalism and free markets. The disagreement happened only because one of them saw a gray area and does not see everything as absolute when it comes to theories. What they both failed to recognize was the consumers responsibilities in a free market society.

It's obvious that we all have information at our fingertips in this new age. We would love to have all corporations to be responsible and have their factories go green and pay their employees well. The problem is that corporations have a fiduciary duty to their shareholders and first and foremost is to make a profit. The other problem is that business is very competitive and a corporation that is environmentally and employee friendly is going to have higher costs and therefore have to price their product or service higher than the competition. Most consumers choose by price. Even my own friends will ask me for a discount because the other guy is offering a discount and who cares about experience or trust but they look at price first. Competition drives corporations to find cheaper (less expensive) labor and other ways to lower the cost of doing business. Yes I know that they haven't figured out that their executives are overpaid but that's another issue for another blog.

This is where we, the consumer, need to be responsible. If we reward corporations, small businesses, and restaurants for being socially conscious they will see a higher demand and more profit for their product or service. Competitors will have to do the same in order to survive. Magazines publish lists of family friendly and employee friendly businesses and I know there are sites out there that publish names of companies that are socially responsible. We as consumer need to show our support by patronizing these businesses.

I welcome everyone to post any websites that may be helpful to all consumers. In the next few weeks I will also publish a list.

Tuesday, November 4, 2008

Letter to our 44th President

Dear Mr. Obama,
Congratulations on a well run and successful campaign. Your campaign persevered and got your message of hope and change through to the American people. My ideology is not in line with yours or your party but obviously it is with the majority of Americans. What I do see in you is a man that has the ability of bringing people together and I hope you are successful at reaching across the aisle and making your administration an inclusive one. The economy and war that you will inherit is going to be a challenge for your administration. The country is looking to you to get us out of this recession and to bring our men and women home. As commander in chief I am sure that you will come up with a withdrawal plan that will allow us to claim victory and see a more stable Iraq. Judging from the reactions to your victory I believe that the American people are already feeling more confident and we'll probably start seeing a jump in our consumer confidence index.

This was a very historic election. The two campaigns brought out voters in record numbers. I am so happy to see that people took advantage of their right to vote. I don't like talking about discrimination because I feel that our country is a lot further ahead of our shady past than what we are given credit for but your election as the first African-American president has confirmed that. You, Governor Palin, and Senator Clinton have shown the world that the United States is continuing to move forward. I hope this progression eventually results in no more hyphenated Americans. Boys and girls from different backgrounds all have hope of one day becoming President of the United States.

I hope that one of the lessons you will take from our outgoing president is that you can not continue to increase spending. Tax cuts work when you also cut spending. People are tired of these executives that make millions of dollars getting bailed out. Any economist will tell you that if there is demand then you will find someone willing to supply at a market price. If a company fails then another company will snatch up its assets and continue to supply the demand.

Early on in your campaign you spoke of personal responsibility. This is a term that I did not associate with your party. Your party loves social programs which just creates bigger government and inefficient practices. I believe in charity and giving people a chance but lets leave that up to our churches and non-profits who can do this more efficiently than the government. You yourself have proven that if you work hard in this country that the opportunities will present themselves.

One last item that did not sit well with me is when you spoke about your position on pro-choice. You mentioned that you would raise your girls with morals and values but if they made a mistake you would not want them to suffer the consequence of that mistake. This is what personal responsibility is all about. There are consequences to our actions and we must pay the price. This is what makes us grow as human beings. We were not given a "do over" button in the form of abortion. I am a single father and both my children were not planned. I have come to believe that my life has been planned by my God and those two children are the best thing that ever happened to me. Am I paying the price, of course but it has made me a better person. Will I teach them to be irresponsible how I was, of course not. I too plan to teach them morals and values but if my son or daughter do have an unplanned pregnancy then they will have to pay the price and in the end they will discover for themselves that the price is worth it.

Mr. Obama I wish you a lot of success during your presidency and I will keep you and your family in my prayers.

Sincerely,

Mario Villagran

Monday, November 3, 2008

McCain vs. Obama (none of the above)

I will make this disclosure first, I am an independent and I find myself more in line with the libertarian party. I agree with Larry Elder when he says that there is not much difference between the two parties. I also would like to recommend that people read two books by Larry Elder, "Showdown" and "The Ten Things You Can't Say in America".

With that being said I feel both candidates are very similar when it comes to policies. They both came out and supported this bailout plan which is going to cost billions. Where does this money come from? Yes you guessed it, it comes from our taxes. The market will always correct itself but we come from a society that is always looking for the quick fix. The other day I heard an economist say that we are still paying for FDR's "New Deal" and now they are talking about a "New Deal 2". Many economist argue that government involvement actually prolongs the recovery process. I believe it because the government is trying to get involved in price fixing. Prices were too high and now they are coming down to what the market can really support.

Many of our crashes if not all were driven by greed. Greed in a lot of ways is like Love, because they both blind us from making rational decisions. The Great Depression happened only after a market run that inflated stock prices. People were purchasing stocks with borrowed money and when the market turned south they just didn't have the money to meet the margin calls. This sounds very familiar to the present housing crisis we are having. People started to buy homes with no money down thinking that the market was never going to stop going up. When some of these lenders started to demand that people make more than the negative amortization payment then they walked away from their homes. Then came the snowball effect and it is getting so bad that even people who invested large sums of money are beginning to walk away.

I was convinced to vote for the libertarian candidate and I still might because I just can't bring myself to vote for either one of the candidates because they are both about spending and taxing. I do believe that the McCain camp has it right by saying they should continue to cut taxes and reduce spending but the support of the bailout proved that he is willing to jump on the bandwagon just like everyone else and support misappropriation of funds. Let's face it not one of these executives of these financial institutions is going to reduce their salaries or bonuses in what could be perceived as one of the worst years in regards to performance.

Senator Obama is a very likable individual. He is very elegant and presidential. The message his camp is sending is for change and hope. What has he really done that convinces me that he can offer change for the better and hope that we are not attacked again. Will terrorists find a way to establish cells in the U.S. with a president that welcomes them with open arms. We will continue to be a target to terrorist governments that oppose democracy. We have a system that works but we are slowly moving our democratic and capitalist country to a socialist one. We have to get rid of our progressive tax system and reduce taxes all around to encourage investment and spending. This is how a market corrects itself.

Our president is commander in chief first and our country's job is to protect us. I would rather take that fight over there and help those people establish their own democracies so that we can have a friendlier global environment. President Bush is a man that the media and everyone else loves to hate but we have not been attacked since 9/11. He has done a great job at spreading democracy overseas but some of his biggest mistakes were out of control spending and encouraging sub-prime lending. We were entering a recession when he first took office and reducing taxes created a recovery but business cycles have to take their course and eventually the recession would find it's way back.

My point is that either candidate will have a very tough first term. I am sure that confidence levels will go up with whoever wins because people have lost their faith with the current president. I will vote libertarian because I believe that this is the next party that will eventually get this country back on the right track. It will not happen overnight but it has to begin somewhere. We need to get back to the fundamentals and what our founding fathers intended for this country and we need to get away from big government. I will pray for both candidates and I will support my new president but I would like to encourage everyone to read and research on your own and let your voice be heard. This is our personal responsibility.

If Senator McCain can actually reduce taxes and reduce spending then I believe he is better for our country. Senator Obama's plan of giving taxes back to middle income people is flawed because the majority of taxes is paid by the top 10% income earners. We should really abolish the IRS and our progressive tax system.

Sunday, October 26, 2008

Loan Modifications

Loan Modifications seem to be the next industry to boom. There are so many people that owe more than their house is valued and with the economy in a downward spiral some of these people are having a difficult time making their mortgage payments. Companies are starting to issue layoff notices and they have also cut down on bonuses and overtime. Most people I know depend on the overtime to survive. Banks have also frozen many home equity lines of credit (HELOC) in this credit crunch. We are a society that uses debt as leverage so that we can have the birthdays and holidays that we all feel we deserve. Well we've gotten a huge wake up call.

What do people do now? The federal government has given people a free pass to walk away from their mortgage obligations and not pay taxes on the amount of debt that is forgiven. This was done with the mortgage debt relief act but one problem is that the state of California has not conformed to that law. People are still facing a big state tax bill when they are foreclosed on or even short sell their home. Since the passage of this law foreclosures have risen and so have rents. People who leave their homes now are looking at expensive rentals plus paying rent does not provide you with a tax write-off like paying mortgage interest does. Loan modifications seem to be one of the best solutions out there. Last week the Federal Deposit Insurance Corporation (FDIC) Chairperson, Sheila Bair, proposed an initiative to set guidelines and standards for loan modifications. Today, October 29, it was announced that Sheila Bair's proposition to the banks and lenders is to modify more loans and for the government to guarantee those modifications. Peter Barnes also reported, on the Fox Business Network, that the government is encouraging mortgage servicers to modify loans and the government will guarantee these modified loans.

Well lenders were already starting to modify loans. Companies like Green Credit Solutions (GCS) have been doing it successfully for a couple of years now. Green Credit Solutions is a company that I refer people to because I've researched their track record and most importantly they work hand in hand with the Department of Real Estate (DRE). You can look them up at http://www.getgreencredit.com. They are an attorney assisted company that gets results. Borrowers do have the option of negotiating themselves or getting free counseling at places like http://www.hopenow.com. Just like everything else sometimes it is just better to pay someone to negotiate for you because it can be time consuming. I myself negotiated for a client successfully and didn't get anywhere for another client. It really depends on the bank but I would not try it on my own anymore. This is why I refer clients to GCS.

With the federal government guaranteeing these troubled loans, I am predicting that more mortgage servicers are going to be more flexible with loan modifications. This means that there is going to be a larger number of borrowers calling for help. For the average person getting through to the lender is going to be near impossible. If anyone would like to talk about their options please feel free to contact me via email at mvillagran@dovproperties.com or call me at (818) 416-7511. Why do I make myself available? The more people I help the more referrals I will get. It's that simple. "Ain't no such thing as a free lunch", well this is the closest that you are going to get.

Thursday, October 23, 2008

NAR's Stimulus Plan

The National Associaton of Realtors (NAR), who I'm a member of, recently presented a stimulus plan to congress. Why shouldn't they since congress seems to be doing anything that they feel is going to boost confidence in the market. It is only tax money after all. Here it is and you can also read about it at http://www.mortgagenewsdaily.com/10222008_NAR_Four_Point_Plan.asp.

  1. $7500 tax credit to all buyers without having to pay it back.
  2. Urge congress to use some of the $700 billion to buy mortgage backed securities.
  3. Extend credit to Main Street, making credit more accessible to consumers and businesses. Expediting the short sale and REO process.
  4. Make permanent the prohibition of banks entering real estate brokerage and management.

I don't like to disagree with my association because they do mean well especially for the people in our industry. This is about principle for me and so I'm going to express myself and explain why I don't agree with these recommendations.

  1. The tax credit I don't have much of an issue with because I think we are overtaxed anyways. As long as the credit is only applied against the federal taxes that have been paid in because otherwise the tax credit becomes a social welfare program.
  2. I'm against the bailout plan and I'm against using tax money to buy bad investments. Why are we trying to fix prices. If someone fails then allow them to fail because another investor or corporation will come in and replace them and fulfill the demand for their services.
  3. How do you force anyone to extend credit or force them to expedite short sales? This would be great because I know that there's many realtors and buyers that don't like short sales because dealing w/ the banks and lenders is a huge pain and not worth the effort. I really believe that lenders are getting paid by insurance companies and this is why they take forever to expedite a short sale if they expedite one.
  4. Well NAR is trying to protect the careers of its membership. I welcome competition and especially competition from the banks. Realtors distinguish themselves from the competition because we build our relationships and hold our clients hands through the home selling or home buying process. After dealing with banks on some real estate transactions and hearing other Realtors' horror stories, I know that the banks would not be able to compete and they would make Realtors look that much better.
Prices will hit a bottom. We need to face the fact that the real estate bull market happened because of speculation and creative financing. A very liquid market put prices out of reach for many that some decided that the only way they would ever get into a home was with a negative amortization loan. Prices are dropping and rent continues to climb making buying a home an option for many that were priced out. Let the market take care of itself.

There are companies out there helping borrowers stay in their home. There are people everywhere that have hardships and I refer them to Green Credit Solutions, http://www.getgreencredit.com. They offer loss mitigation services and have been able to modify many loans and for those that can't be modified they negotiate the short sale or deed in lieu of foreclosure. I advise the client that they can always do these things on their own but like everything else, sometimes it pays to pay someone to work for you.

Wednesday, October 15, 2008

Why Don't Banks Get Into Property Management?

This is a thought that just started going through my head and I was hoping that cyber community will help me understand why or why not this is possible. We all know that the banks are taking huge losses and a small fraction of loans are not performing anymore. The last number I heard was that 7% of sub-prime loans are not performing and I heard this on the Dave Ramsey Show. I'm sure many Realtors have seen foreclosures out there that don't need too much work. Now instead of the banks allowing them to be sold for a fraction of current market values why don't they just spend a little money to rehab, hire a property management firm and collect rent?

I understand that the banks don't want to be in real estate but I doubt that very much because I believe NAR had to lobby last year or the year before in order to keep them out of real estate. I'm not too familiar with banking laws and regulations but I'm sure they can always use another entity in order to do something like this.

In my opinion this would make sense for the market, the banks, and our industry. Foreclosures would be taken off of our inventory therefore reducing the supply. Demand is already low but has been picking up as prices have been coming down so market price should be close to equilibrium. The homes would now be occupied and stop the deterioration of some neighborhoods that have an epidemic w/ vacant homes and vandalism or squatting. They can even do lease to own and help some of these renters save up for a down payment and eventually buy that home from the bank. The bank would save on transaction costs while generating some revenue. As the market stabilizes they can begin to sell or the renter can maybe buy.

In North Hollywood, CA there are homes being sold for under $300k. A foreclosure sold for $300k nets the bank around $279k that's after deducting 7% for closing costs and commisions. If they collected $1500 per month it would be a return of 4.38% and if they collected $2000 it would be a return of 7% on $300k. Doesn't this make sense? Please help me understand.

Tuesday, October 14, 2008

Should the U.S. Bailout Homeowners?

This morning when I dropped off my children I had a parent tell me that the government should pay off every one's loan. Thank God it was before the kids' morning prayer because I was able to pray for this man. The funny thing is that I can't blame him for thinking this way. After all the government is setting themselves up for its citizens to think like this. They preach personal responsibility but only for individuals not for CEO's and officers of major corporations or for people that continue to have children that can't afford them.

Being in this industry yes I would love for anything to happen that would stimulate spending but that would be selfish on my part to encourage the government to be irresponsible with our taxes just so I can benefit. I'll stick to hard work and perseverance and know that in time it will pay off. In the meantime my kids and I are not eating out and ramen never tasted better.

The problem that I see is that we continue to ask what can our country do for us and no longer ask what we can do for our country as our former president JFK once asked us to do. Now we are asked to share the wealth but we can't ask somebody to stop having kids unless they can afford them. We are asked to take our hard earned money to pay for these companies that are failing while the officers that ran these companies to the ground collect multi-million dollar paychecks. Why are the people of our country not up in arms about this. Why do we allow these politicians who are terrible economist and accountants to do whatever they like with our money?

What happened to the billions of dollars that many of these financial companies said that they had. Shareholders were investing in these banks because they stated that they had money. Did they put it under a giant mattress? I believe that these companies tightened up because they knew eventually the government would eventually come and bail them out. Just like they have in the past with the airline industry. For a while I started to think that maybe I should try to be a CEO for a major corporation and run it into the ground. Sure seems like you get rewarded for that type of behavior. The problem is that I don't like to fail. I teach my kids that it's not okay to fail. Now the government is telling my kids that it's okay to fail and it can also make you a lot of money. I believe in learning from our mistakes but not to learn that it's okay to continue to make mistakes.

It saddens me that the media only follows the two major parties in our politics. I myself believe that my ideology is more in line with the libertarian party and wish I could see more of them on the news. Since I don't I'm online trying to find the truth about how these new policies affect me and the economy. I wish the American people would start to do the same.

My answer to the gentleman that suggested the government payoff mortgages was that although it would be nice it is not necessary. In southern California I witnessed people buying and knowing what they were getting into. I also heard mortgage brokers trying to push option arms because they would make so much money from them. They were trying to maximize what they could legally make. Did they ever advise borrowers that if values stopped rising or started to drop that they would have a difficult time getting out of that type of loan, some did and some didn't. Were borrowers stupid for not reading their documents, the simple answer is yes. They relied on what the lender told them and that's it. The tough questions were not asked. Yes it's difficult to read the fine print but you don't always have to get into the fine print to see that you are getting suckered into something you shouldn't be buying. My thoughts are that if the banks were told that they are not getting help then they would figure out a way to fix things fast. Loan modifications, faster approval on short sales, and common sense underwriting are some simple solutions that should have taken place at least in the beginning of 2007. Lending standards now require prices to drop some more or for people to get raises so that they can afford and qualify for loans. I don't see raises happening anytime soon. The banks were too greedy to accept some of these simple solutions because they themselves did not know that the market was going into the toilet.