How a Bill is Passed

With this new stimulus bill, you might be asking yourself how it is passed. I am sure we all saw this as children.




"When a bill is being voted upon in either house of Congress, a majority of Yes votes out of all the votes being cast is required to pass the bill. The bill must be passed in identical form by a majority in each house, and then it is sent to the President. If he signs the bill, it will become a law. If he exercises his right to veto the bill, he will refuse to sign it, give his reasons, and send it back to the house in which it was first introduced. Congress has the power to override a Presidential veto if they can muster a 2/3 vote in each house, but this is extremely hard to do. "

Foreign Countries who own our Mortgage Backed Securities

Thanks to a reader of this blog and the New York Times. These are not treasury bonds that everyone talks about China owning (they own much more in billions of dollars).

It also says "About one-fifth of securities issued by Fannie, Freddie and a handful of much smaller quasi-governmental agencies, some $1.5 trillion worth, were held by foreign investors at the end of March" (Timmons 2008).

http://www.nytimes.com/2008/07/21/business/21bank.html?_r=1&scp=1&sq=countries%20mortgages%20July%2021,%202008&st=cse

Commentary on Initial Youtube Video

Almost 40,000 hits and many comments...here are my thoughts on some of them:

1) Option ARMs: Yes, they were created for the rich who had enough in the bank to beat interest. Then, standards got more lax.
2) Politics: Obama is against mindset of increased quarterly profits on Wall St. which contributed to lax standards for higher revenue (Option ARM). McCain is about moral and responsible borrowing. Both are good. We need to read more.
3) Rich get richer - there is a metric called the "Gini Coefficient." Google it :) It lists by country
4) Home appreciation - we have so many other examples in history. A look at Japan's housing decline in the 1990s would provide some insight
5) Inflation - I always thought that the inevitable way to repay these ubiquitous loans were through massive inflation and devaluation of the dollar (i.e. bailouts)
6) Common Sense: Mortgage salespersons had less regulation/education/licenses (or none in practice) than your personal stock broker. Why would you trust that person with the largest investment of your life - a magnitude 10 to 1000 times greater than a mutual fund investment. And the mutual fund managers trusted them :)
7) Simple Math: U.S. students lag behind other countries' students in math, science, and technology. Make math a priority & fun. Invest in math education.

Update: Sorry for Not Posting

I realized that I now have over 20,000 hits on youtube, so...
If anyone needs to contact me or would like to chat about mortgages: keepitsimplemath@gmail.com
I check about every week or so now, busy getting a PhD -

Well, it looks like all our worst fears regarding mortgages are starting to come true. Sad.
Google "The subprime primer" - pretty funny slideshow. Talks about the homeowner-broker-hedgefund-international investor point of view in a comedic fashion.

Here is one thing I am looking for: Does anyone know what countries own our mortgage back securities in terms of type, $$$, etc. ? Any good sources?

Option ARM is still going strong!

Ads I gathered from major news websites on Sept. 8th, 2007.

Sept 2007 - The Option ARM cannot be stopped!

$145,000 Mortgage for Under $499/Month!*

Ad Linked from http://www.yahoo.com/ on Sept. 8, 2007:

LowerMyBills.com

The Fine Print

• *The $483.00 payment is based on the borrower selecting the minimum monthly payment option on a $145,000 adjustable first mortgage loan using a minimum payment interest of 4.00% (which is calculated by taking the actual interest rate minus 3.00%). The actual interest rate is 7.000% with a 7.469% APR.

• By selecting this option, the loan has the potential for negative amortization. The minimum payment does not cover all of the interest that is owed for the month and, therefore, you will incur deferred interest that is added on to the balance of the mortgage. You may make the minimum monthly payment for up to 5 years or until your new mortgage balance is 115% of the original mortgage amount. The borrower also has the option of making an interest-only payment or making principal and interest payments amortized over 30 years. For example, if the borrower selects to make principal and interest payments amortized over 30 years, the monthly payment will be $964.69. These terms are available for first mortgage loans. To qualify for this monthly payment, the property must be owner occupied single family residence and a loan-to-value ratio of 80%. Credit restrictions may apply. Rate is variable and subject to change daily without notice.

• Social Security Number is required for home purchase.

• LowerMyBills, Inc. is not acting as a lender or broker. The information provided by you to LowerMyBills is not an application for a mortgage loan, nor is it used to pre-qualify you with any lender. If you are contacted by a lender or broker advertising within our network, your quoted rate may be higher, depending on your property location, credit score, loan-to-value ratio, debt-to-income ratio, and other factors. Not available in all states. Not all service providers in the LowerMyBills network offer this or other products with interest-only options.

Accredited Home Lenders to fire 65% of employees and stop loan originations!

Remember - Accredited was considered to be the most financially sound Sub Prime lender!

Lessons Learned:

• Being the "best of the worst" still means you are pretty bad
• #1 IPO of 2003 on Nasdaq. Short-term success, long-term failure
• If your business doesn't benefit the consumer in the long-run (3o years), it might not be around. Foreclosures and late payments are not beneficial to the consumer
• They had much higher rates than all of the other Sub Prime lenders. When pricing for risk - higher rates don't mean squat if you are over the consumer's threshold to pay.
• As far as I know, they did not do the Option ARMs. Types of loans that they did do: Stated Income, 100% financing ARMs

Sample Guidelines during 2005/2006:

• 580 Credit Score - Full Documentation (W-2's) - 100% financing loan
• 620 Credit Score - Stated Income - 100% combo financing loan
• 600 Credit Score - 1 day out of Bankcruptcy, 90 days late on mortgage, Full Doc - 100% financing loan
• They required more credit tradelines and rental verification than most other companies for these credit score thresholds.

Ethics:

• Heads of Corporate admitted that they had a former employee in 2004/2005 who closed multi-million dollars of loans per month actively committing fraud (creating false income documents) on a certain percentage of these. Employee was fired and began to work for another company. As far as I know, this was not reported to authorities. At least they fired him...

Source: http://biz.yahoo.com/ap/070822/accredited_home_lenders_restructuring.html?.v=2
Source: http://www.accredhome.com/