Author: Brian Brady (page 6 of 27)

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Want to “finance your closing costs” but are confused about the disparity in offered mortgage rates?  You might have to thank the Financial Regulatory Reform Act of 2010 (H.R. 4173) for limiting your ability to structure your loan fees.  Read pp 1486- 1490, specifically Section 9903 of the Bill; Prohibition on Steering Incentives.

I’ve explained that Yield Spread Premium in a way for consumers to reduce upfront closing costs by accepting a higher rate:

Discount Points are upfront interest to the borrower .  Along those lines, so are closing costs from third-party providers.  This means that we figure in those costs as the true COST of credit to the consumer and measure it as an annual percentage rate (APR). There are 2-3 good arguments about why APR is an antiquated measure but I’ll leave them for another article.  Borrowers pay points to lower the rate.  A common term is to “buy down the rate”.

Did you know that mortgage brokers get money at a wholesale cost?  It’s how we make profit. Just like your local Nordstrom’s, we buy at wholesale and sell at retail.  The only difference is that we, acting as a mortgage broker have to tell the customer three times what we expect to profit on their mortgage transaction:  First, within three days of an application on a good-faith estimate, at the bottom of the itemization (bottom of page 1 of the California MLDS), second, within three days of drawing loan documents (same disclosures), and finally, on the HUD-1 Settlement Statement as a paid outside of closing (POC) item.

That profit, paid by the lender to the broker is called yield spread premium or YSP. You can understand it as “negative points”.  if a consumer “pays points to lower the rate”, why can’t they “receive points to accept a higher rate”.  Instead of paying upfront interest in the form of a discount point, they receive upfront interest in the form of a “YSP”.  That receipt of upfront interest defers the mortgage broker’s fee!

In the beginning of 2010, the industry adopted the 2010 good-faith estimate.  The purpose of that Read more

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Got oil in your water?  How’s that government supervised clean up working out for you?  A few weeks ago, I said:

This may be a hard pill for government groupies to swallow but the response to the Exxon Valdez oil spill (more government regulations and a limit on liability) is what caused this disaster.  Regulations offer a false sense of security.  Moreover, when the State manages risk for private industry, private industry will take as much risk as they are legally permitted.  It happened in the housing market and now its happening to our environment.  This is what free market supporters call “moral hazard” which is a fancy way of saying “with reward comes responsibility”.

Still, the chocolate milk pumps into the sea at a rate of 150 gallons per minute.  In my conclusion I said the free market might develop some new technology to clean up oil spills:

The solution?  Government should do one of its two legitimate functions and adjudicate the claims.  The judgments will properly quantify the risk associated with an oil spill so that the industry can better measure that risk.  Maybe all offshore drilling will cease.  Maybe new technology will be developed to bring the oil through the water safely.  Maybe reinsurance products will be developed to diversify the risk.  …but we’ll never know.  We’ll never know because Senator Sara and the rest of the superheroes in Washington are certain that they can corral what Adam Smith called “The Invisible Hand”

and…perhaps the private sector, financially backed by the most unlikely of entrepreneurs, did:

Motivated by the Exxon-Valdez oil spill, Kevin Costner began assembling a team of scientists to construct a machine that could clean up massive spills. A decade and a half later, that technology might now be put to use off the coast of Louisiana.

A massive oil slick creeping to the coast, vulnerable Louisiana wildlife just miles from its path, and Kevin Costner mingling on the lakefront. These are unusual times, and the Hollywood star is introducing Read more

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

I’ll say it out loud;   I like that Arizona Immigration Law.  I was initially unclear about it but I read the text , alongside the text of the 4th Amendment.  For me, it boiled down to what  an “unreasonable search” is and what is “reasonable suspicion“.  At the end of the day, I have to trust that the law enforcement officers will follow both the letter and the spirit of the law.

That’s not why I like this law so much.  I support open borders.   As far as I’m concerned, let anyone come into this country…only after we have abolished all the silly federal subsidies like health care, public education, and welfare for all.  Until we do that, we have to ration those silly programs and the litmus test of citizenship seems a reasonable enough hurdle for that rationing.

I like it because a state had a problem, couldn’t get the Federal Government to enforce its laws, and decided to take matters into its own hands.  This law was more powerful than nullification or secession because it asserted the state’s sovereignty, while being in full compliance with the Federal statute. It worked within the system and exposed the system for the folly that it is.

I like it because it is the Bunker Hill of the American Evolution.  Notice I didn’t use an R in that word.  I’m optimistic that reason will triumph over irrational thought in The American Evolution.  There will be no violence nor bloodshed in the American Evolution but there will be a test of wills.  I’m watching it unfold right now:

Arizona made a law.   A few California cities and a Texas city decided to boycott Arizona, for enacting that law.  No conventions, no trade, no money whatsover, from these “progressive” cities, for the “racists” in Arizona.  Sadly, my city followed San Francisco, Los Angeles, and Austin in the boycott.  Pretty stupid, huh?  Well,  California politicians live in a narcissistic bubble.  The past California influence on the world’s economy has afforded them the luxury of doing what they want, in SPITE of local businesses.

…until today.

San Diegans are yelling  “Psyche” to Read more

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Sarah Palin is so suspiciously quiet this week as is President Obama.  We’re all kind of holding our breath, as the oil spreads throughout the Gulf of Mexico, with hopes and prayers that it doesn’t reach the Panhandle beaches.  This oil spill is big and its effects might be catastrophic.

This is not a failure of the free market rather it is a failure of government.

Greg Swann beat me to this yesterday, encouraged by an email from Sara P,. Miller, but I’ve been talking about this on Facebook for a few days:

There is no need to ban offshore drilling. Present BP with the cleanup bill and hold them responsible for the secondary damages, and other oil companies will think long and hard about the costs associated with offshore drilling. If the US Gov’t “bails out” BP by socializing costs, it will be one more example of how gov’t makes the world a less safe place than the free market can

This may be a hard pill for government groupies to swallow but the response to the Exxon Valdez oil spill (more government regulations and a limit on liability) is what caused this disaster.  Regulations offer a false sense of security.  Moreover, when the State manages risk for private industry, private industry will take as much risk as they are legally permitted.  It happened in the housing market and now its happening to our environment.  This is what free market supporters call “moral hazard” which is a fancy way of saying “with reward comes responsibility”.

We didn’t like the Valdez oil spill but let’s face it:  that was in Alaska.  It affected far fewer people and its cold there so you (and I) didn’t think too much about it.  Now that the chocolate milk is threatening our prettiest beaches, in a warm clime, with millions of people affected, we’re nervous….and it might have been averted had the State not encouraged what might be VERY risky behavior but we’ll never know…

…because that risk was socialized by the taxpayer.

Let me show you how it happens:

Senator Sara  is elected from a Read more

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

I’m going to say something very unpopular… again:

We gotta get the Government out of the mortgage business.

That’s not going to happen anytime soon but we, as responsible free market advocates of our respective industries, must never stop saying “I told you so” when the whole thing implodes again.  After repeated admonitions, they’ll start listening.  When they start listening, we’ll experience a brutal but swift decline followed by a healthy and sustainable restoration of private mortgage banking.

Everyone is worried about Wall Street securitizing the paper.  The prevailing thought is that without a government guarantee, no clear-thinking investment banker will ever take a risk on the American homeowner again.  I know how to solve that problem;

Make ’em an offer they can’t refuse.

If a housing capital drought reduces housing prices to a stoopid low level, those investment bankers will be back.  Investment bankers have the memory of a four-year old.  We have to remove the current arbitrage game they’re playing so that they can get back into the business of doing what they should be doing; analyzing and pricing risk.

Right now, your mouth is probably shaped like an “O”.  You’re most likely  thinking “mortgage rates will skyrocket to 10% and NOBODY will buy a house! ”  Your conclusion would be wrong and I’ll prove it to you:

Today, a $300,000 30-year, fixed-rate loan, at 5% requires a monthly principal and interest payment of $1610.  If mortgage rates skyrocketed to 10%, the loan amount, for the same payment, would drop to $183,500.

That’s an offer Wall Street can’t refuse.

PS:  If I’m sounding like a broken record, it’s because I’m going to keep saying” I told you”, as my battle cry, until they start listening.  For those of you who believe in “spreading the wealth around”, believe me when I tell you that price deflation redistributes wealth to its proper stewards.

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Anyone who has read this satirical piece knows that my writing turned macabre this past year.  One weekend, one book,  one article, and one website dramatically changed the way I look at the world and it inhabitants.  It has been painful to watch my political party regress from Bob Taft to Teddy Roosevelt in less than 25 years.  It is crushing to watch REALTORs and mortgage originators cheer for professional slavery rather than to muster up the courage associated with the rugged individualism that made this country great.

It has been said that it’s always darkest before dawn so while it was pitch black this past summer, I remained confident that Morning in America was nigh.  Rick Santelli fired the outburst heard ’round the continent and glimmers of light came by way of tea parties and election upsets.  As the economy sputtered, the previous and current administration acted like looters amidst a blackout but people have caught on to their theft- and they don’t like it.

It’s gonna get a lot darker before the dawn and I’ve never been so optimistic in my life. Here’s why- collectivism is a failed philosophy.  For all its noble efforts,  the unintended consequences of collectivism stifle the indomitable American spirit of reward for creativity, ingenuity, and innovation.  We saw collectivism fail here, here, and most recently here.  Now, the average guy in the street knows it, too.

Remember the Stockdale Paradox and you’ll remain optimistic with a keen eye to the circumstances as they unfold.  Now, hold on to your hat because…

It’s gonna get uglier so be prepared. I think great opportunities will go to the prepared. The day that emerges from the dawn will be so bright you’ll swear that global warming isn’t a hoax.  Here’s how I see the next cuppla years playing out:

1. Real estate may decline, even more. While the lower end of the market has already declined to utilitarian value, the affordable housing organizations will (finally) attack that which artificially inflates markets; zoning regulations.  Rather than convert old military bases to detention FEMA camps, the impending currency crisis will force the Federal government to Read more