Looking over the housing markets, and considering the negative sentiment out, I decided that this was a good time to purchase a new home. Rates are 5.875% fixed and many home prices are depressed currently. And I’m not alone in my decision to pick up some property. So I wanted to share my experience so far, and at the end of this post I have 2 questions for you my reader.

Many who have good to excellent credit ratings, and available cash are out looking for a new home or a first time buy. But don’t believe this is exactly a buyers market. Even in a dying economy that is the Binghamton New York experience, home prices have held firm if not risen up. In fact I would say that prices over the last 6 months have risen about $3,000 on median. Because many like myself are entering this troubled market.

Still there are bargains to be found. I am looking into a couple as this is being written, and is part of the reason why I have not been writing as much as normal for both of my blogs. [Of course having built and set up over 100 blogs in the past 2 months, the deal with TV One, and working out a deal with an upcoming magazine are factors as well.]

Part of the process in getting a home is the mortgage pre-approval process. For those that are unfamiliar this is the initial amount that you may be able to get a mortgage for, the loan rate, and all other terms you might run into. It is affected by your credit rating - heavily, cash on hand, and income as per taxes filed.

Now without giving away too much of my finances (some points I will deliberately extrapolate on – so the figures on income and pricing are inaccurate but the situation and rates are accurate) I will make you aware of what the world is like for me. You can decide if my skin tone and last name are factors or not.

My first stop in the process was my local bank, NBT, which I have had accounts with for several years. I believe I had 1 check bounce in the entire time I was with the bank, and that was because of a bank error in depositing funds into the proper account. I also know and speak with a couple of managers on a regular basis. Thus you can say my relationship with the bank is favorable to friendly.

I initially was given an indication that my pre-qual rate would easily be what I had asked for. My credit rating is 750 (after rebuilding my credit after a career change in 2001) with at least one agency ranking me at 766. That is considered good to excellent. It would normally grant a lower credit rating as I am a low risk. I also have no long-term debt. Thus the initial loan rate mentioned was 6.11%. I have a witness to this.

I was rather pleased.

But after looking at several homes, and having requests from the bank for additional tax records for my corporation and myself – which I provided promptly – I received my pre-approval line. 7.11% and a reduction in the dollar loan amount of 27% [ie. if I asked for $100,000 they approved $73,000]. But I was assured that this is not accurate and I could be approved for more if I found a home in the range I was initially looking. Though no mention was made of what interest rate would go with this higher loan dollar amount.

Now I am insulted. I went from a very good interest rate and a decent yet highly affordable mortgage (fixed rate 30 years) to a bad rate – 1% higher than initially suggested and documented and 1.235% higher than the national rate – and a dollar bracket that provided access to homes far inferior to what I had wanted.

I will add that I have an income that surpasses the local area average, in excess of 2x’s, and never had a bankruptcy. There was a surplus of cash in my bank account - as there has been for over a year - that easily surpassed the 3% required for the loan by the bank. I have been operating my business for 2 years, and have been in the field of work for over 7 as an independent consultant. I have never been sued and was a successful stockbroker for roughly a decade.

I believe the increase in rate and decrease in dollar loan amount is insulting. I was given a reasoning that my credit report had bad notations (which I have reviewed for well over a year and cannot find), I have inadequate cash reserves (which I noted above), I do not make enough money for what I was requesting (which I and the initial loan officer determined I had far in excess for the amount requested beyond the local area average), and I failed to have enough funds to meet the 3% closing requirement (which I had in excess of 7% sitting in the bank).

Now what factor could be the reason for the change? What could motivate such an extreme reaction?

The loan officer that questioned me, and needed additional documents, never met me. He did speak to me (getting my last name wrong a couple of times). So what changed? Could it be that my actual last name (which is Spanish and yes Vass is a registered alias I use for business to avoid racial prejudices since I was a stockbroker) was too ethnic? Was it that my income too far exceeded the income of most of the 3% African American population in this area – as well as exceeding the White population income average.

Obviously I went on to seek out a separate mortgage loan via a broker that is Hispanic, and the brother of a friend. My preference was not his background but that I knew his brother whom I speak with regularly.

It has been over a week since placing my documentation with him. He is quite successful in getting mortgage loans, and owns his own brokerage. He too had high expectations for my loan. His opinion was that my dollar loan amount was very reasonable and in my affordability range. He could not understand why a bank I had been doing business with for years could not provide me a better rate, which he believes will be in the 6.4 – 6.6% range. Based on my cash on hand he believe that he might be able to get that percentage down to 6.25% (obviously the difference [from 5.875%] is for his own operating profit, which I do not begrudge him. This is business after all and we aren’t doing this to not make a profit).

Why am I facing a delay? Because the bank has suspicions that I am hiding money. Because I own my own business the bank that the broker has gone to believes I may be laundering money. Now the United States Government, via the IRS, has had no problems with my finances. My income has been steady with a respectable increase to my top line revenue for years. Every dollar that comes in is documented, and every write-off is noted and within legal allocations. I do not make excessive amounts of money (Bill Gates, or even several stockbrokers I know, make significantly more), I am just a regular small business owner.

So what could be the reasons? My last name is the reason some friends have mentioned to me. I’m ethnic and not generic like Smith or Hannity, or O’Reilly. I am immediately identified as at least Hispanic, and noted on some government documents as Black and Puerto Rican. And I live in an area that is 95% White, and comparatively a small town. Not to mention that a high percentage of those in the mortgage crisis are African American and minorities – though why they were selected and focused into these one-time highly profitable (for the lender) loans is unknown (sort of).

What do you think? Can you imagine a reason why banks would have a problem loaning money to a low-risk, no debt, middle-class income, single, business owner, who normally pays taxes (no refunds for me) is in his affordability range and has never had a bankruptcy or problem with the IRS?

Do you think if I was White, with exactly the same conditions I would be treated the same?

Before you answer here is another fact. Less than 3 weeks before interest rates were lowered, and prior to my first loan query, I had a friend that was pre-approved for a mortgage up to 75% greater than what I asked for. They had a 750 credit report. They are a single parent. They make 50% of my own income. They had a gift provided to cover closing costs and down-payment (which I do not begrudge).They are almost 20 years my junior. And the final loan amount was for a home in the range I am seeking, with an interest rate of ~6.75% (closing after rates dropped).

The big difference between us? Besides the income, that I am a business owner and not an employee, my age, and that she is a parent is that she is a White woman.

And for those wondering what the big deal about an extra 1.235% is that over 30 years (which I can affordably pay off in 5-6 years) there is an extra $20 - $50,000 dollars in interest to be paid.

So now I ask, why do you think I have been treated as such so far? Is this something others are experiencing across the nation?

Labels: Binghamton NY, credit report, home buying, IRS, mortgage rates, NBT Bank, real estate, TV One

Continued from Jim Cramer gets upset with reason Part 1...

It’s a real gloom outlook. Like dominoes falling the effects move from the financial sector to every other industry. Once it starts there is really nothing that can be done. This is why so many would tell Mr. Cramer they are afraid. This is why he would demand that the Fed ease rates. It’s not a recession they fear, it’s a depression. It wouldn’t be 1929, but a depression all the same. Economically it’s just part of the cycle, emotionally and in terms of real people it’s quite another.

Most average people are unfamiliar with the terms being discussed by most analysts. Many see Mr. Cramer flipping out and they don’t get it. Such are the markets.

It’s not worth pulling everything out of the market in a panic, to me. It is worth evaluating and planning your investments around. A good plan takes into account that these things may happen and provides shelter for the storm. Just as the markets rebounded from the 2000-1 drop, the up-coming drop will also be survivable. But don’t doubt it will hurt a lot.

Since 2003 the market has gone from around 8000 to 14000, a total of roughly 75% overall or about 19% per year. That is very strong growth. The 7% drop from 14,000 to 13,000 is not enough to balance the growth. I’d expect a drop to 11,000 before things settle out. And at the same time there will be far less credit available. Already that has gotten tougher as Mr. Cramer mentioned. It will get worse.

These are things I expect. I could be completely wrong, and that would be a great thing. How any one person should prepare for this potential problem is a conversation that I cannot have. I would suggest having the conversations with your professionals though, and re-evaluating the potential costs of a mortgage. Preparation is the key.

**Mr. Vass is no-longer a stockbroker, and is not providing any financial advice. The above is an expression of the thoughts of Mr. Vass and do not make or imply a solicitation. Investments of any nature are complicated and highly individualized; it is recommended that any financial advice be sought from licensed professionals. **

Labels: Jim Cramer, mortgage rates, stock market, stockbroker

So I was checking out a few things when I ran into this conversation by Mr. Jim Cramer. Actually I can’t really call it a conversation. It’s Mr. Cramer going off about his concerns. This is perhaps the most passionate I have ever heard him be. And I understand exactly why.

I’ve mentioned before that I am a former stockbroker. I’ve had years of experience and have spoken or listened to maybe hundreds of analysts and CEOs. I’ve come to understand the relationship between the markets, data, investor impressions and institutions both domestic and international. Given this I have a bit of understanding of Mr. Cramer’s words that some I’ve read do not. He may be blustering and a bit of a showboat, but he is no idiot.

Here is the actual footage –


The fact is that if you are an investor in the market, you should be concerned as well. Things are not going well and they will probably get worse. For all the naysaying of many democrats (and a couple of Presidential candidates) the economy has been doing well. That has a lot to do with the low interest rates and the boom that has persisted in the housing market. Couple that with investor impressions and you get most of what the market has been for a while now. But interest rates are on the rise and the evil some men do is coming to term.

When I say evil I mean the vultures that sought out the uninformed and ill-advised that were convinced to take on high-risk variable rate mortgages. Whether they are White or Black, most were less educated in the ways of markets and were not prepared for what would happen if rates increased. I don’t know how many people took advantage of the low rates being offered to take second-mortgages to cover rising healthcare costs or to keep up with the Jones’ and get new cars or some other such. How many ads are still being shown on TV advertising the homes that can be bought for as little as $1000 if you just call a 1-800 number for details.

For whatever the reasons, I estimate that the last 5 years has caused more people than are being estimated now to take on a home. I would say 10-20% of them were older people that took on risky second mortgages and 10-20% were mislead about the eventual cost of a first mortgage. I guess it could mean a total of about 10 million are in danger of defaulting on their loans.

If so many were to do so, banks and financial institutions would take significant losses. Profits would shrink as they are used to cover the defaults. Credit would tighten, causing some small businesses to fold, middle level companies to stagnate and fire employees and large corporations to increase prices. Unemployment goes up and the GDP of the nation drops.

Continued in Part 2...

Labels: Jim Cramer, mortgage rates, stock market, stockbroker

Continued from part 1...

The fact is that there is a massive bias out there that no one wants to address. In 2005, it was found that 71% that earned 153,000 dollars or more had high mortgage rates as opposed to 9.4%
of Whites. For Black Americans and Hispanic/Latino Americans that earned between $92,000 and $132,000 (hardly a low income and indicating steady work habits I believe), 70% paid a high interest rate vs. 17% of Whites in the same bracket. You may wonder where these rates might be at, perhaps a small town in an isolated or economically challenged portion of the nation? Actually these are figures for the greater Boston area.

In fact the system is so skewed that when an experiment was conducted in that area with a White and an African American potential homebuyer the results were consistent to the above. The fact that the White homebuyer had a lower credit score and lower income, indicating greater risk which should guarantee a higher rate, had no reflection in the rate received. Does your face feel red, because mine feels like it was just slapped.

So given the unspoken fact that a minority citizen will be forced to pay a higher mortgage rate in the best of situations on average, it’s no surprise that many are facing the loss of their homes due to sub-prime mortgages today. That verges on the criminal if you ask me. Lenders are supposed to know better. They are supposed to evaluate the risks involved and the potential impact higher rates can have on the potential homeowner. They are supposed to follow one of the guiding principles of all investments – the ‘best man’ rule. That is essentially placing yourself in the clients position and acting in the best interest given the higher advantage the professional has versus the common person. While I have no doubt some have, the above data (that I have no doubt can easily be found and reproduced around the nation) indicates to me that many used this educated position to reap profit for themselves.

Yet not a word is mentioned on this. Millions are being systematically abused, stripped of funds they should have, stressed with the threat of losing the home their family lives in; and as a by-product contributing to the potential for severe economic consequences they may not fully understand. As regulators face Congress explaining why such bad loans were made, I have yet to hear one question to ask why there is such an extreme disparity. I have yet to hear why this situation was allowed to become so extreme.

And it won’t be asked. Because if it were Wall Street could not deny that they are ‘taking money from widows and orphans.”

This is what I think, what do you think?

Labels: African American, Hispanic American, mortgage rates, Wall Street

So everyone is scared about losing their homes, or the stock market crashing, because of the sub-prime loans made for years. Since the blip in the Dow Jones Index in February, and comments by Mr. Alan Greenspan, there has been constant news about the status of these loans that represent more than a million homes in the nation. And there is good reason to worry.

As teaser rates on mortgages are replaced my adjustable rates, many over 3 points higher than the market rate, late and missed payments are growing. Forclosures are growing and banking institutions of all sizes face drops in profit or worse as the year progresses. The ramifications go on and on. Virtually any nightly news will catch you up on all of this. Of course there are a few ‘minor’ things that are being left out.

By minor I mean minority, and when I say left out I mean overlooked. It’s a situation that is a blatant abuse, in my opinion, that is obvious to anyone that can count to 100. Now I’m sure you are wondering what I am talking about. You didn’t hear anything like this on the evening news, or your favorite cable news channel. That’s because the markets hate to mention an abuse that targets the poor, uneducated, and minorities. It’s like investing money for an elderly widow(er), take their money and you will get sued and lose guaranteed.

Specifically I mean that many sub-prime lenders swooped in on African Americans and Hispanics worse than vulture investors. This isn’t an opinion, though it’s not wholesale fact. I’ll explain.

It’s known, though not officially acknowledged, that an African American or Hispanic will virtually always be given a higher mortgage rate than a White person. To quote Mr. Jim Campen of the University of Massachusetts, “Blacks and Latinos have lower incomes and less wealth, less steady employment and lower credit ratings, so a completely neutral and fair credit-rating system would still give a higher percentage of subprime loans to minorities.”

The statement assumes that both groups are being given higher rates currently, and that the system is unfair or hardly neutral, which Mr. Campen does admit. It relies on the statistics of the census rather than individual data. It’s a great excuse to overlook what sub-prime lenders have done. It gives credibility to why a Black American is 3.8 times more likely to have a higher rate than a White, and 3.6 times more likely for Hispanic/Latinos.

That is both ludicrous and insulting. I am not a general statistic. I deserve better than an assumption that I cannot maintain a job, or that I will be paid less than another man, especially when being considered for a piece of the “American dream.” Loan originators are supposed to evaluate the person, based on the factual data before them. Mr. Campen’s statement seems to clearly state that this doesn’t happen, and you might imagine my shock being underwhelming by this.

Continued in part 2...

Labels: African American, Alan Greenspan, Dow Jones Index, Hispanic American, mortgage rates, sub-prime loans