Chad McDowell

A couple of small tweaks and the Sub-Prime industry could, and SHOULD, be right back in business. OK, OK, so maybe it has a bad rep right now, turn on the news and Sub-Prime lending is to blame for the entire financial state of the world economy somehow. But lets be honest...it has its place and NEEDS to come back.

The premise behind Sub-Prime loans was rock solid. You cant qualify for a conventional or FHA loan...fine. You go Sub-Prime and pay a higher rate. What's wrong with that? Risk based pricingis a great idea. The problem wasnt the premise of risk based pricing, it was the products! You dont put first time home buyers in a Negative Am, Pay-option-ARM loan. You dont have MASSIVE adjustments on Adjustable Rate Mortgages. You dont do Stated Income loansjust because someone doesnt make enough money to qualify! And you dont give ZERO Down financing to someone who has never paid a bill on time in their life!

A couple quick changes and the industry would be back in business. First...NO Adjustable Rate Mortgages. Every Sub-Prime client gets a fixed rate. If Conventional rates are at 5%, Sub-Prime borrowers get 7.5% or so. They pay for their inability to qualify conventionally through a higher interest rate. Nothing unfair about that. They all get Pre-Payment Penalties. Ohh, that will go over good I know. But think about it, what bank is going to loan the money if there is no guarantee that they will receive a decent return on the investment. Pre-payment penalties are their guarantee. We have to have profitable banks or there is no industry. Next, Stated Loans are ONLY for Self Employed borrowers. That's how it started and how it should have stayed. If you have a client with a W2 making $30k a year and that isnt enough to buy the house he wants, sell him a smaller house!! Dont go STATED and put him in a house you KNOW he cant afford! ARM's and W2 Stated loans are two of the BIGGEST reasons this industry collapsed. And last...NO Zero Down loans. People walk away from houses a whole lot easier when they have no vested interest. Now, I'm not saying everyone should have to put down 20%, we'd never close another loan. But keep it on par with FHA, 3.5% down, with a higher interest rate. That's enough money for people to actually have to save, but not so much that they'll never buy a home.

If I had a bank option with those three changes, I could find ten buyers tomorrow. Sub-Prime loans have their place, and if you REALLY want to see the market come around fast, that would certainly do it. We just need to learn from past mistakes, take to good from Sub-Prime mortgages and get rid of all the garbage that caused all the foreclosures in the first place.

I know Sub-Prime loans will come back eventually. Anytime there is an industry with the ability to be THATprofitable, entrepreneurs will figure out a way to make it work. I, for one, hope they figure it out sooner then later.

follow me on Twitter @mcdowellchad

Well, it's probably optimistic to start saying the worst is over in this recession...or is it? Traditionally with recessions, one of the primary indicators that we are coming out of it is that goods for sale(in this case housing, since that is one of the primary reasons for the recession in the first place)reach a floor in prices and start selling again.

Basically, that's what's happening. Home prices have dipped to levels unseen for quite some time. As a homeowner, its bad news to know the average sales price in the United States in DOWN 15%. But from a home BUYER point of view...it's a great time to buy a home for considerably less then two years ago. So again...does that mean the recession is receding?

One of the other significant indicators in Unemployment Rates. Unfortunately unemployment usually doesnt decrease until the END of a recession, so its a bit early to say. We didnt have any major layoffs last week...that's the first in awhile. But unemployment rates are still high and will continue to be until businesses start hiring again...a major sign that the worst is over.

But one of the joys of blogging is...I get to give MY opinion. And, if you ask me...I think we still have a ways to go. The last few Sub-Prime borrowers that took out 2year adjustable rate mortgages will have their first adjustment this year, that has been a major reason for the foreclosure rates. Those initial adjustments are significant and can cause mortgage payments to increase HUNDREDS of dollars. Also, there were some(less, but some)3year ARM's and those will be coming up on their adjustment period as well. So, expect another year of foreclosures BUT if people are buying anyway, the impact wont be as much as the last two years.

Banks continue to be tight with their money BUT they are lending to qualified buyers, and with the tax incentives and low prices, this is an incredible opportunity for people to get into a house!

Follow Me On Twitter! @mcdowellchad

This has to be the ultimate "two wrongs dont make a right" scenario! Did I say "Two Wrongs"? I've lost track to how many wrongs it's taken to get here!

In an attempt to withhold the $165 Million in bonuses for AIG, Congress has decided to pass legislation allowing them to TAX those bonuses at a rate of 90%! What?!? Ok, maybe you have an ethical issue with AIG...fine. But there is a more SERIOUS ethical issue with rushing legislation against one particular group of people and doing and end run around the constitution for one reason...we're mad.

I dont like the bonuses. Hell, I dont like the bailouts. But this is actually kind of scary, and an egregious abuse of power.

It's almost hard to remember how we got to this point, but this is NOT the answer. Those AIG employees who got taxed will end up in court in a heartbeat. And although no one wants to see them get paid, its overall in every ones best interests to see the courts rule in their favor.

This is NO way to win this fight.

Ok, so maybe I should be mad too. And depending on a few answers maybe I will be. But right now I feel like it's premature of me to be upset at AIG for paying bonuses. Because BEFORE I get mad, I want to know WHO got the money!

Look, AIG has its hand in A LOT! That company has been described as an Octopus because there are SO many aspects of what AIG does. SO...lets use this analogy. I, Chad McDowell, working for Elite Home Loans in Nashville, TN agreed to work under the condition that if I closed X amount of loans for the year I would be compensated with an additonal bonus. And lets say that I closed that number. Now, we also have ReMax Elite downstairs. If ReMax Elite doesnt carry their weight or even risks the profitability of the company, that doesnt void my contract. I still deserve the bonus I earned.

Every body seems to look at AIG as some huge monster, and to a big degree it's certainly a pariah now. But, you do NOT get that big without good employees, working hard for BIG BONUSES! And if they dont get that money from AIG, they will get it somewhere else. Does losing their top producers help their chances of success? And you and I might feel that the bonuses paid are ridiculously high...but that's the going rate! Its just like athletes or entertainers, they make the big bucks. If we think its too high, maybe we should have invested more then two weeks and $350 into our job training and gone to a better school and competed for THOSE jobs!

All this being said, I dont believe that we should have ever bailed them out in the first place. There should be no such thing as "too big to fail". It didnt work for the Titanic, shouldnt work for AIG. BUT, since we did keep them in business I dont see that they have much choice then to honor the contracts that were already in place.

I know it wont be a popular opinion. Everybody hates rich people until they become one. Why did we get into the business that we're in? It wasnt to go broke right? All of us had some kind of vision of the kind of money that could be made in real estate. We also know how hard we work, and if it takes THIS much work to make THIS much money, imagine what the job requirement is for an employee making THOSE kinds of checks...do you REALLY think its that easy? Too many people think that "Hard Working American" only describes the middle class. But hey, rich people didnt get rich by being lazy. And yes, the middle class absolutely is the backbone of this country, but there would be no middle class without the rich. Everyone with a job works for someone, right?

follow me on Twitter @mcdowellchad

Ok, so the housing market isnt what it used to be. Stock market is under 7000...been awhile since we've seen that. Unemployment is up...again. Foreclosures are at all time highs. Nothing another Trillion or so cant fix right?

So, what about those Tennesseans that WANT to buy a house? Prices are low, good investment right? But all you hear about is that NOBODY is lending money. Banks are holding on too it with both hands!

Lets separate truth and rumor. You can STILL get a home loan. You can STILL get a loan for very little or NO money down!

The downside...you actually have to qualify for it! What a concept! Banks finally figured out that lending money to folks that cant pay it back was bad business. So, they went old school. Now, you have to have a job. Even a reasonable, but not outstanding, credit report. Oh...and you have to make enough money to afford the house that you want. I know, I know...sounds pretty strict right? Truth is...it's really not. Its the way that it should be.

Where is the pride in buying a home, if the only requirement for home ownership was the ability to fog a mirror and sign on the dotted line.

Oh, and one of the best parts about buying a home in a down economy...interest rates are historically low! Nice, right!?

And I was going to save this for another blog post...but you know all that money that they are throwing away(um...I mean spending to stimulate the economy...my bad), they actually are throwing some your way! At least they are if you have never bought a home before! First Time Home Buyers in Tennessee receive 10%(up too $8000) of the price of their home in a CASH refund next time you do your taxes! That means any First Time Home Buyer in Tennessee buying BEFORE December will get $8000 CASH(as long as the price is over $80k).

Hey, the stimulus wont last forever(Thank God), so take advantage of what opportunities there are in a down market.

Happy Home Shopping!