Running Scared: Challenges in Mortgage Processing

I have always felt that a business relationship is based upon mutual respect, but recently the relationships between companies in the lending field has almost become combative. Although everyone wants to do business, everyone is afraid of getting stuck with a loan that they cannot sell to the next company up the line. If they are stuck with such a loan, they will likely have to sell it to someone else at a loss.

The bizarre thing is that this isn't happening because of any deterioration in loan quality. By "quality" I mean that the borrowers make the payments on time and ultimately they pay back the money borrowed. It is virtually impossible to originate a bad loan today. Why?

Appraisals must be ordered through an Appraisal Management Company, a virtually fraud-proof, anonymous process.

Every borrower must sign a Form 4506T that allows the lenders to get a summary of the borrower's last two year’s 1040s -- and you cannot lie about income without risking major fallout with the IRS.

The credit report is the third part of the process and it is also fraud-proof.

So how do you do a bad loan? You can't. In fact, according to people who keep track of such things, every indication is that the initial quality of loans is higher than it has been in years.  I'd bet that these loans will have a very low default rate.

I am suggesting that the Quality Control auditors won't be able to find out anything wrong with the loans. So what are they doing? They are rejecting loans for the most trivial of reasons, the inconsequential things that should be overlooked. The people who process loans are covering their behinds for fear of being fired.  Believe me; that is exactly what they are afraid of.  

We had one loan that got caught cross-wise because when the appraiser measured the house, he came up with a larger area than the County records show. What likely happened was that the County made a mistake back in 1987 when the house was built. Appraisers tell me that happens all the time. But the assumption the underwriter made was that the owner had made an "unpermitted addition" that cannot be counted in the value. I had to "prove" that such addition hadn't been made. Do you realize how hard it is to prove something that didn't happen?

In another case, the borrower's name on her insurance coverage did not include her middle initial. The loan documents had her full name, so this didn't conform. Was this important? Not at all. Was her insurance coverage invalid because of the lack of a middle initial? Of course not.

Finally, we have these new Good Faith Estimate and Closing Statement forms that are creating most of these problems. 

This is supposed to be a "zero tolerance" policy and funding was held up because there was a discrepancy of $10 between the appraisal fee as shown on the estimated closing statement and what the funder thought it should have been. Obviously, $10 is irrelevant and what "zero tolerance" really means is that in the worst case I would have had to come up with it. But her interpretation of "zero tolerance" was that was a mistake in the loan funding, so she didn't fund it.

If you are about to get a loan, brace yourself because this will happen to you. Just don't get angry if and when it does. Just get what they ask for. It'll be easier than fighting it.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

Reality Check: Appraisals

As everyone knows, Congress is working on a new set of laws to regulate all aspects of the financial services industry. Last I heard, the document was over 1,100 pages long and it is frightful to think of what the law will be when Congress finally gets through with it. After all, the mortgage industry is currently having trouble digesting the last changes in regulations.

The first of these new mortgage industry regulations was the Home Valuation Code of Conduct (HVCC) that became effective on July 1, 2009. It was supposed to "clean up" the appraisal process by having appraisals ordered through independent Appraisal Management Companies. These were not actually required by law but were adopted by Fannie Mae and Freddie Mac after the Attorney General of New York, Andrew Cuomo, twisted their arms.

Exactly why the Federal Housing Finance Agency that supervises Fannie Mae and Freddie Mac didn't say, "Hey! Wait a minute. That's not your job! We regulate these enterprises, not you; if you think something ought to be done, make your proposal to us." But Fannie and Freddie were reeling from years of mismanagement and losses that wiped out their shareholders. I suspect they just had no will to resist. What was more likely was that their regulator's leader, James B Lockhart III, dropped the ball and let someone else usurp his authority. In fact, in an ironic twist of fate, the administrator who oversaw two of the largest corporate collapses in American history now works for a private company that helps companies that need restructuring.

The effect of HVCC has been that these intermediaries interposed themselves in a system at a cost of between $100 and $150. Lenders order from an AMC that, in turn, orders from a list of appraisers. This was a pricewise competitive business before, so one of three things had to happen.

The appraiser would be paid a normal cost minus the AMC's fee that would be deducted from the cost charged to the customer. That would mean the appraiser makes $100 to $150 less. Or the cost of the AMC would be added on to a higher price of the appraisal so that the consumer pays more. The third alternative would be that only newer, less experienced appraisers would work for such small fees. In practice, all three have happened.

Let me insert a little information here. According to statistics complied by alamode, inc., publisher of appraisal software, the average price for appraisals in my county was $375. By comparison, I have a fee schedule that one AMC uses to establish what they will pay. This is the schedule:

	One Unit Full Appraisal
Tier 1	$225.00
Tier 2	$250.00
Tier 3	$300.00

You can see easily that the appraiser's income will be 20 percent to 40 percent less than the old days if the AMC charges market price for appraisals. That is about what they earned back in 1982. In my view, no good appraiser can afford to work for that small of a fee.

Sometimes the AMC charges more. One lender has its own captive AMC and they now charge $475 for a standard appraisal.

The third case was amply demonstrated by an appraisal we received in early January. It had problems that were ultimately solved, but when I looked at the appraiser's state license, it showed that the appraiser got his license in September. He had three months on the job!  In the old days, an appraiser couldn't get in the list of approved appraisers unless he had at least two years' experience.

I shudder to think what the scene will be like a few years from now, but my guess is that many competent appraisers – the backbone of the industry – will have changed careers, a tragic loss.

It is clear to most of us in the mortgage industry that neither consumers nor investors are better protected by this process. I doubt that the complaints from consumers, lenders, and appraisers will have any effect on efforts to change the system either.

The only good thing is that they didn't make us order appraisals from the Post Office, but maybe that's next. After all, who knows the neighborhoods better than the letter carriers?  

As a consumer, you just have to add one more "potential problem" to your list of things to worry about in the mortgage industry.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

The High Opportunity Cost of Procrastination

Borrowers are always concerned about what it costs to get a loan, as they should be. In the case of a purchase, they have to get a loan because they need the money to finance the property. The costs of the loan are just part of the purchase price of the home. They still ought to be careful shoppers, but they don’t have a choice as to whether to get a loan or not.

In the case of a refinance transaction, it's different. In this case, it's not mandatory that a borrower refinance. He should do it only when the sum of all the benefits is greater than the cost of the transaction.  Most borrowers have a tough time calculating the benefits, and it seems as if they don't ask much about that. What they certainly can ask is, "What are the costs?"

Now, what they are thinking about are the points, processing fees, lender underwriting fees, title insurance fee, settlement agent fees, and the like -- what I will call "hard costs." But almost no one EVER thinks about "opportunity cost." What's that? Let's discuss further.

A prospect was in my office today wondering about a refinance. That's a good thing, because he is paying 6.25 percent now and we could get a 4.75 percent loan. But he wasn't asking about that. He asked about the costs.

I asked him why he did not refinance a year ago when rates were about the same as today. Quite sheepishly he admitted he had procrastinated. That's okay. We all do that sometimes. At the time, it always seems as if you can procrastinate for free, but in case it wasn't free at all!

The cost that never occurred to him was the "opportunity cost." His failure to act and refinance a year ago resulted in his paying an extra 1.5% in interest for one whole year, a total of over $2,000. That is just as much of a dollar cost as those "hard" costs, but the opportunity cost just isn't as visible.

Even if we assume that he gets a loan that is 1/8th of a percent cheaper than he would have a year ago, that saves him $20 per month. It will take him over 8 years just to re-coup that $2,000 in extra interest he paid. That's what his procrastination cost him.

I think that an important part of my job is to help get my clients act when it is in their best interest, to jar them off of dead center. I do that best by helping them better understand the benefits they are passing up because of their procrastination. This was something I was not able to do this morning with this client, and sadly, he left without acting. Maybe tomorrow he will be more motivated. 
 
So, I hope you now have a better understanding of opportunity cost. If you have been procrastinating in moving ahead on your refinance, I hope you will consider this lesson and move ahead more boldly.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

Shopping for a Mortgage 101

I have spent 30 years shopping for mortgages for people who think, quite correctly, that I can do a better job of it than they can.  But every once in a while I get someone in my office who is literally unable to comprehend that my 30 years of expertise can be of any benefit to them.  They invariably have a yellow pad of paper and they want to know "the facts."

Almost invariably, these folks are the analytical types, engineers, accountants, and so forth. These are people who are used to looking at the bottom of a page and coming up with a number. Important concepts like honesty, expertise, and trustworthiness seem irrelevant.

In some cases, they may have done enough shopping so that they say they know what they want, say a 30-year fixed rate loan at 5 percent with zero points. That choice is invariably the wrong one but they don't know that. 

Their thinking is that if they nail down the rate and fee, then the only other variable is lender costs, what we in the industry call garbage fees. Sounds logical, doesn't it. Then you just have to call a bunch of lenders and ask them what their fees are. The problem is that it is NEVER this simple. 

This is a complex business, so complex that I wrote a 256 page book and over 400 articles, something like 500,000 words of advice. My book  How to Save Thousands of Dollars on Your Home Mortgage is packed with secrets ways I have of saving people money.  If shopping were as simple as my shopper thinks it is, I could have published a book with only one-page!

The ways I know about how to save money are NEVER even on the radar screen of the analytical guy. These clever ways of saving money are a result of my having done 5,000 loans. My expertise manifests itself as I teach people things that are new to them.   Many, many clients have said so often, "I never looked at it that way." Then I know I have done my job.

Here's the sad thing. There is perhaps $200 difference in lender fees between one lender and another. $200 is inconsequential when you figure he'll spend $200,000 in interest.  Among the lenders I do business with there might be one than charges $200 more than anyone else. BUT we might use him because the points on his loan are 1/8th of a point less. On a $400,000 loan, that's a $500 saving for my client. That more than offsets the $200 extra he paid in lender fees.

The other critical variable in a volatile market is which day to choose to lock in.  I can tell you that a loose-cannon client has about a 20 percent chance of locking in on the day with the lowest rate.  He probably will leave $1,000 on the table by locking on the wrong day.

Now this shopper isn't alone. In fact, most shoppers are naïve. That is why most lenders staff their 800 number call centers with twenty-something people making little more than minimum wage.  They may even quote low fees to get him to apply and then make it up and more in some other way he can't see.

Finally, the reason I will not play the game on his level is that I know that people like this never stop shopping. If I’m $50 low, next week he'll find someone else that will be $50 lower than me and he's gone.

Here's how you should shop. Find an expert and go to his office and say, "You know a lot more than I do about this. How can you help me save money?" 

If your circumstances are identical to our shopper, I can guarantee you that I could show you how to save $5,000 over the deal he ultimately gets. You are a client and I help clients. The other guy is just a prospect. I'm not about to tell him my secrets. It won't earn his loyalty. He would just take my secret down the road to some other lender so I'm not going to let him pick my brains.

So, my way of establishing the "value proposition" is that the client has to attribute value what I as the mortgage broker bring to the table. He has to WANT my help.  A good shopper wants find the best and most affordable approach for his particular situation – and that's not a simple, cut-and-dry process.

In summation, find someone who knows these secrets and get their help. You might start out by buying a book and reading about the home buying process. Of course I recommend my own highly-praised book. I have heard from countless people, "After reading your book, we think we know more than our loan officer."

Sad but true.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

Can You Trust Your Bank?

I strongly believe that when a consumer is researching buying a product or service that he can rely upon the provider to give him accurate information from which he can base his decision. That's not always true, hence the concept and term "buyer beware."

Nordstrom, probably the most trusted name in retailing, got their exalted position by earning it year after year, customer after customer. But you don't know anything about the street vendor, and if you buy a purse from one, as my wife recently did in the SoHo area of New York City, you realize that you are taking a chance.
 
When it comes to financial products, there have likely been more dishonest individuals per square foot than any industry I can think of. My end of it, mortgage lending, may be the worst, with fly-by-night mortgage brokers and subprime lenders who taught classes in how to deceive customers. And they did. And while I try to have sympathy for borrowers who were hornswaggled, there were so many warnings about shady characters in the mortgage business that those borrowers should have done a better job of verifying the reliability of the lender they chose.

But when it comes to the big banks known world-wide -- and, theoretically, highly regulated ones -- you would think that a consumer could trust the information. More particularly, when a bank has over 1,000 branches, you would think that you would get the same rate whether you went into an office in a big city like San Francisco, a branch in a small town like Yuba City, to the bank's Internet website, or called an 800 number. Apparently that has not been the case. 

It has been reported that one big bank has eliminated the ability of their loan officers to make "overages."  In a nutshell, an "overage" is industry terminology for extra compensation the loan officer earns when he is able to smooth-talk the borrower into accepting a loan on terms that are higher than the best rate that the customer was qualified for.

For example, let's say that the best rate is 4.75 percent. If the loan officer tells the customer that the best rate he can get him is 4.875 percent and the customer agrees, then an overage comes into play. That loan has a higher value because outfits like Fannie Mae will, logically, pay more for a loan with a higher yield. 

The differential would typically be about one-half point, or $2,000 on a $400,000 loan. Of that, the loan officer might get half, or $1,000. The loan officer's normal compensation might be $1,000 per loan, so with the overage, he just doubled his income. And the bank made more too. You might think this is illegal, but it isn't.

You can also see that the loan officer can get away with this only under two circumstances. The first is when the customer doesn’t understand or know what the proper rate is. The second is when he completely trusts the bank and the loan officer.

Thus on the one hand, the loan officer and his employer are exploiting the customer's misunderstanding of the proper rate and on the other hand they are violating the relationship of trust the customer counted on. If it occurs to you that this is an awful way to run a business, especially one that is regulated, you would be right. 

Worse, I will guarantee you that no regulator is looking into practices like this so as to police their behavior. They believe, quite seriously but also quite incorrectly, that "market forces" will not allow such behavior to be successful.

Good for that bank to remove temptation, but bad for them to have allowed it for so long. And you wonder how many of their loan officers are looking for jobs at other banks that don't operate quite as ethically, that will still allow overages.

Bottom line: You need to look out for yourself because no one else will.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

Changes at FHA

I recently wrote a blog discussing the tightening of various underwriting rules by Fannie Mae and Freddie Mac.  FHA has now joined the fray with an announcement of various ways they are tightening the rules.

First, the most important change is the proposed increase in the initial Mortgage Insurance Premium from 1.75 percent to 2.25 percent. The initial premium is not a cash payment but instead is added onto the loan balance.

For example, if a borrower were to make a 3.5 percent down payment on a $300,000 home, the nominal loan amount is $289,500. Adding the MIP of 2.25 percent, or $6,513.75, yields a final loan amount of $296,013.75. After making ten years of payments, the loan balance would still not be reduced to 80 percent of the initial purchase price.

Second, FHA has asked Congress for permission to increase the annual premium that is charged to borrowers. Currently that amount is one-half of one-percent, or $123.34 per month. The effect of this change, assuming it is approved, will be to start increasing the FHA reserves that have been bettered by recent losses. According to an article in The Wall Street Journal, the agency's reserves fell 72 percent to about one-half of one percent of the balance of the loans it has insured.  

FHA is going to require a minimum FICO score of 580 rather than the previous limit of 500 to get the 3.5 percent down payment program. According to Money-Zine, only 15 percent of Americans have credit scores below 600.  

FHA will do loans for people with FICO scores of less than 580, but they now have to make a 10 percent down payment. At a score of 500, about 97 percent of people have better credit. But FHA says that these are "borrowers who have historically performed well." Given the losses on the FHA portfolio of loans, I would like to see the data that shows such good performance.

In another move, the amount of allowable seller concessions was reduced from 6 percent of the purchase price to 3 percent.

Not mentioned in the article is the widespread rumor that FHA will increase the minimum down payment to 5 percent. Additionally, there is a move in Congress to increase the maximum FHA loan amount in high-cost areas from $729,750 up to $829,750.

Speaking as a loan originator, this makes me wonder why in the world we are doing loans for people who have such bad credit. Neither do I think that it is wise policy to allow 3.5 percent down payments on loans of $729,750 or $829,750. This is not much different than zero down payment loans that created so much of our current problem. Anyone who can qualify for a loan amount that large should have had the financial foresight to save enough for a reasonable down payment, say 10 percent.

I realize the FHA commitment to under-served communities, but the large group of people who have been financially irresponsible does not fall within my definition of "a community." Trying to serve that group is (at least in part) what got us into the current mess we are in.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

Mortgage Loan Standards Are Tightening

You have likely overheard someone talking about their trials and tribulations in getting a mortgage. Some of the issues may be overblown, but many others just reflect a changing environment in real estate finance.

All lenders, including and perhaps most specifically Fannie Mae and Freddie Mac, are writing off billions of dollars of uncollectable debt as they acquire homes through foreclosure. By tightening the standards, they hope to contain the damage to what is already on their plate. I don't blame them. At this point, we have a mess that is larger than anyone could have imagined a few years ago. It isn't over, and no one wants to add more loans that are likely to go bad in the future.

Remember that in this environment, there has been a lot of tightening already. For example, you cannot borrow without documenting sufficient income; you need to have reasonable credit scores; and you need to have a down payment if purchasing, and equity if refinancing. Here are some samples of current tightening:

Fannie Mae announced that they will not approve borrowers with total debt-to-income ratios greater than 45 percent. For example, if your income was $5,000 per month, your maximum outgo would have to be less than 45 percent, or $2,250 per month. If you had a $300 car payment and other bills with payments of $100, you would subtract $400 from $2,250, leaving $1,850 for a housing payment. Subtract anticipated monthly taxes and insurance to get the maximum allowable mortgage payment.

This is a dramatic change, as they would have approved loans with much higher ratios not too long ago. Note that Freddie Mac has not instituted this restriction. At least not yet, so if your ratios are pushing this limit, you would want to work with a lender that uses Freddie Mac.

Fannie Mae will also no longer do any loan where a borrower's FICO score is less than 620. They were doing these before, but they were exacting revenge by pricing hits that were almost confiscatory. Freddie Mac, again, has not done this yet.

I expected that real estate investors would take advantage of the drop in value to load up on properties, and that seems to be happening. I believe a good strategy is for an investor to buy now and hold for the long term value and cash flow. Fannie and Freddie will still allow up to ten properties to be financed, but the minimum FICO score is now 720 and loan-to-value is lowered. Purchases and rate-and-term refinances are allowed, but cash-out refinances are not.

Finally, on the Super Jumbo Conforming loans available in higher-cost areas, getting a new loan that is larger than the current loan, even if paying off a second TD loan, is considered a cash-out refinance. The minimum FICO score is 740 and the maximum allowable loan-to-value is 60 percent, and there is a 1-point added hit to the upfront fees.

The upshot of this is that if you want a mortgage, you will need to do everything you can to improve the measures of your creditworthiness. As a responsible adult, you would want to do this anyway, but a stricter disciplinarian is now in the room to assure compliance.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

Asking the Right Question When Financing a Home

I have spent many years in consumer education, and in this time I have written a great deal in articles,  newspapers, magazines, and on the web trying to help people understand the homebuying and home financing process. One critically important element concerns the questions that a borrower should be asking in the shopping process.

Not surprisingly, many people ask the question, "What are your rates?" I would argue, however, that this question is one of the least important questions. This may come as a shock, but it is truer today than ever before. Here's an example of the wrong question.

Back in the '80s, fixed-rate loans were so expensive that no one wanted them. As a result, 100 percent of the business was doing various kinds of Adjustable Rate Mortgages (ARMs). There was a big difference between one ARM and another. The initial rate, the index, the margin, how often it adjusted, and how much it could adjust were all different. That was a lot of data to collect. So you would think that consumers made good choices, right? Wrong! Most consumers chose the worst loan. Why? They never asked the right question, which was:

"What is the likely performance of this index in the next five years?"

In this case, they bought the sales pitch that the 11th District Cost of Funds loan was the most "stable" index. They did not then connect the dots and say, "Wait a minute! Rates are dropping now and I do not want a stable index. I want a volatile one, one that will drop the fastest." 

And sure enough, for the next 5 years, those people who chose the most popular COFI paid 1 percent more every year than the borrowers who did ask the question and got a loan tied to Treasury Bills. One percent on a $300,000 loan is $3,000/year; for 5 years it is $15,000. Big mistake! Just because they didn't ask the right question.

Today, with the market dominated by Fannie Mae and Freddie Mac, there virtually is no price competition between lenders who are trying to be competitive. (Note: Not all are!!!) What has happened is that mortgages are now commodities. If you are lucky and you find, say, five competitive lenders, you would not find meaningful pricing differences between them.

Price shopping is pointless. You wouldn't call different post offices trying to get a deal on stamps, would you?  The price is 44 cents wherever you go. It is the same with mortgages. That actually is good news for shoppers, because it now allows them to concentrate on shopping for service, knowing that the base price is the same.

So how does one decide? Well, you can ask questions about experience, education, number of completed loans, how long they have been in the industry, and so forth. You also could ask if they are honest, but of course even the crooks would say, "Yes."

You can also ask this great question: "Do you work for a small company where I will get individualized attention, or were you just assigned to me at random by your large, impersonal bureaucracy?" (You might want to phrase that as several questions to get a more objective answer.)

All of these factors have an effect on the quality of advice you will get and the representative's ability to solve problems that arise. Good advice will save you many times the dollar amount you think you are saving using your method of shopping.

You also have no conception of the insight your representative has regarding when to lock in your rate.  Assume that in any 30-day period there are five "best days" to lock -- most likely not today. I can assure you that there is a right answer, but it is almost impossible for you to do it successfully on your own. Stop wasting your time rate shopping and go for the quality of the service professional.

Finally, this word of advice:

Just because you don't understand it doesn't mean it isn't important.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

Do We Need Infrastructure Spending Like This?

We have all seen plenty of news about crumbling infrastructure, but the worst of the worst is the number of bridges in America that need re-building. Now that is scary! It is important that we get serious about fixing this problem, because the average age of our bridges is approaching the normal design life of 50 years – and many are well older than that. An estimated one-quarter of all bridges are structurally inadequate or deficient in some other important regard. We all remember the collapse of the bridge in Minneapolis a year ago. There are decaying public structures all over, but just for bridges, the cost estimates are all over the map – and $1 trillion doesn't seem out of the ballpark.

Speaking of ballparks, it was with some surprise that I saw that the New Jersey Nets professional basketball team is hoping to move back to New York. Will they be the New York Nets or the Brooklyn Nets? The reason for the confusion is that the team's new home is likely to be in Brooklyn.

The owner of the team has just successfully floated a $500 million tax-exempt bond issue to help finance the building of a new stadium for the team. Combined with some $450 million in equity, the cost would be over $50,000 per seat for the 18,000 seat facility. It has also been announced that an 80 percent interest in the team and a 45 percent interest in the venue has been sold to a Russian billionaire.

The IRS has entered the fray too, ordering that the financing "loophole" be plugged. It is not clear that having the city create a "charitable entity" under 501(c)(3) in the IRS tax code to build the arena would be approved. New York City and state officials have applied to the IRS for an exemption. This is just y opinion, but I don't see that soaking up American capital to construct an arena is as important as building bridges. And, even worse, using the IRS tax code to provide tax benefits to a Russian billionaire flies in the face of being "right." Why doesn't he buy a team in Minsk?

This news comes amid a veritable blizzard of news that similarly financed stadiums across the country are in financial trouble. These cities include Cincinnati, Indianapolis, Milwaukee, Columbus, Ohio, and the Phoenix, Arizona area. One would guess that if the financing in all such ventures were examined, even more of them would be added to the list.

This appears to be just one more area in which the public good – rebuilding bridges, for example – gets subverted by some local glamor project like a sports arena. I suppose that getting some bank – Barclay’s Bank in this case – or a beer or soft drink company to put its name on a stadium is easier than getting the same company to pay millions to "sponsor" a bridge over some local river. How much beer would that sell?

Yet as this plays out in my mind, I cannot help think about decline of the ancient Roman Empire. I'm sure you remember the stories from school where the emperors sponsored gladiatorial combat in the Coliseum to keep the "mob" satisfied. That kept their minds off of the reality that the Roman Empire was in a state of long-term decline.

Sic transit gloria mundi.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

Count Your Blessings

It is all too easy in troubling in times like this to focus on the immediate problems that are right in front of us.  Whoever we are, each of us has his or her own list of problems.

With that in mind, it is useful to take our minds off our troubles. We can start by looking back in time to put our own place in history in proper perspective. Most of the freedoms we enjoy today have their origin in European history, most specifically the Magna Carta. In the year 1215, the English nobility – barons, bishops, and abbots – went, in force, to King John I and demanded that he affirm certain rights.

Except for the inclusion of habeas corpus and the right of trial by jury, the common man was not particularly intended to be a direct beneficiary of the document. His time would come. Indeed, we find elements of the Magna Carta in our own Constitution.

What is easy to forget is that, sadly, billions of people in the world today do not have civil rights that existed in England 800 years ago. As troublesome as it is to watch our Congress in action, the fact that they and the rest of our government exist is a great blessing.  

Although we are in troubling economic times, the GDP of the United States has exploded since World War II. The GDP per capita has increased from $15,000 per person to just under $50,000 today. While poverty still exists today, even those in the lowest economic groups are much better off than a few generations ago.  

Life expectancy has increased from 50 in 1900 to about 65 in the World War II era to about 78 today. Compare that with the current world average of 66 years. In 1950, you only had a 67 percent chance of making it to age 65. Today, 83 percent of people make into the Medicare years. 

With that firmly in mind, think about how your life is much better today than when you were a kid.

So it might be a nice exercise to sit down with your family and make a list of your blessings. Not only is it fun, but psychologists have shown it is helpful to your well-being. The hope expressed in the Preamble to our Constitution was "to secure the blessings of liberty to ourselves and our posterity."
 
But it is also important to demonstrate to your kids that those personal freedoms, more than anything else, created opportunity. Many of the blessings they enjoy are a result of the hard work of you and your forebearers. They need to understand that the blessings they will enjoy in the future will be a function of them committing themselves to carrying on that tradition as opportunities present themselves to their generation. 

Finally, I find it enriching to remember the words to Irving Berlin's "other song" in the movie White Christmas. 

When I'm worried and I can't sleep
I count my blessings instead of sheep
And I fall asleep counting my blessings.

When my bankroll is getting small
I think of when I had none at all
And I fall asleep counting my blessings.

I think about a nursery and I picture curly heads
And one by one I count them as they slumber in their beds.

If you're worried and you can't sleep
Just count your blessings instead of sheep
And you'll fall asleep counting your blessings.

Merry Christmas, Happy Chanukah, and Happy Holidays to all.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.