Kudlow talks to Christian Weller, Center for American Progress and Dan Mitchell, Cato Institute on the topic of debt relief and mortgages in the USA, the argument for straight out write-downs on mortgages is compelling, and yet so too is the argument for allowing the market to work. Sometimes believing in the free market is seen as a ‘dirty thing’, but the side effect of trying to manage an economy from every aspect is also a bad thing (look no further than the former Eastern Bloc). Somewhere in the middle is a fair and sustainable path, but ideology bias is usually in the way before the conversation passes go, for that reason you will favour one speaker over the other quite often from the outset. However, ideology doesn’t actually get results, it is merely the platform from which a concept is launched and the better path would be to have an operational model to prove the point – although that isn’t always practical.
Q: I am a first time buyer and am hoping to purchase a property this year with my partner who is also a first time buyer. I was just enquiring what are your fees for your service and what does the process involve?
A: Generally we don’t charge fees. We are paid commission by the Mortgage Lender and Insurance Company you choose to proceed with. We will advise you what each Lender and Insurer has to offer and try to secure the deal that suits your needs.
When you have chosen a suitable property we will take you through the process from putting down your booking deposit through to getting the keys to your new home.
There has been so much progress in the mortgage market, and nowadays so many companies have your information on file that many people reckon you can easily apply for a mortgage online, surely it wouldn’t be that big a deal right? In many cases you should also be able to get your conveyancing done in a similar manner with minimal upset, but in every respect there is almost no progress in terms of online trading for mortgages.
There are several software solutions that send information to a lender but none of them offer an actual ‘suite’ solution, by that we mean sending information, property auto-tagged pdf scans of documents, and the ability to synchronise updates so that a person can effectively deal with a lender over the web.
Every site you go to that says ‘apply online‘ is really saying ‘fill in our form and we’ll call you’ because there isn’t a way to fully apply for a mortgage online at present, and the job of …
Roger Bootle notes that markets do quite well at the end of a recession and at the start of a recovery by drawing the benefits of the future down into the present. Roger has a lot to say on the topic of banks, in particular that of banker bonuses – he states (and we agree) that when banks become ‘too big to fail’ they essentially are oligopolies and hence they are able to pay so well. From an Irish perspective the domination of AIB and BOI put some stock in this theory.
Joe Saluzzi of Themis Trading (I mistakenly read the link initially as ‘the mistrading’!) have recently published a paper which accuses traders of intentionally trading huge volumes where they buy and sell for the same price and in the process make a half a cent per share. The volume of trading is fictitious ‘high frequency traders’, what they do is buy and sell and collect liquidity rebates from the exchange (note: 50 milliseconds is a huge amount of time) in this game. Do it 8 billion times and it really starts to add up.
This is just depressing, actual investors don’t get to join in because the firms engaged in this are doing it within the actual exchanges using the fastest computer technology available. They also have an unfair advantage in how they trade because they use rules intended to match buyers and sellers to their advantage, they find hidden liquidity and in essence remove it from the market as profit.
The most powerful deterrent would be to make a rule …
Banks are restricting credit, in a market economy rationing is generally a mistake, but at the same time they can’t come out and say ‘we are restricting who we will lend to’ particularly when the taxpayer is playing such a fundamental role to their survival.
How are banks achieving this? Thus far they have used several tools to do this…
1. Interest rates: This is often referred to as a ‘blunt tool’, and when a lender wants to pull back from the market they look at what the best prices are and ensure that in almost every case they are far more expensive than the other players in the market at that time. It would be like a shop owner wanting to slow the sale of chocolate bars, if they were to charge significantly more than the shop next door then their stock would move much slower than the other persons. This has two effects – it makes their money available for lending last longer, and when it is lent out …
The following figures factor in real life examples taken from existing lending rates/rental prices and the forward estimation on rates is taken from presumptions in the current yield curve (chart is below). The terms applied in each example are 30 years, and the purchase is assumed to be a couple buying together, we can examine the impact for a single person in a separate post.
If you were to take a price of €313,000 for a two bed property (current average taken as a mean of prices in todays daft report – this figure is the Dublin average price across all geographic areas, the figures can be determined for any county the same way) and do the following.
1. Compare the total cost of ownership (we are not factoring in house insurance, bin …
Another video from the Khan Academy, talking about the working reality of the Geithner Plan. Really it seems that the plans sole purpose is to allow investors to use taxpayer money to buy assets with all upside and little or no downside by using a credit default swap to insure the deal. Even a zero return isn’t to be balked at when investing during a period of deflation, the way it’s described here puts it out in plain english.
Lenders will underwrite loans. That is part of the process, it is a natural and normal occurrence in finance, to underwrite, to ensure that you are researching the proposed deal to the extent that you can be sure that you are not taking a pointless risk, but when is it ‘too much’?
Traditionally an employee would be asked to give several forms of documentation as evidence of their position so that they could be considered for a loan. Normally this would have been a straight forward process, and one that generally works.
However, as of late we are seeing ‘forensic underwriting’ becoming more prevalent. The degree to which a lender wants to delve into a persons situation is rising beyond the traditional norms and in some cases we believe it is going well beyond the call of duty.
Let’s be frank, we need banks, who else will lend money to a stranger to buy an asset? Without banks it would only occur between people who have a lot of money personally …