Should You Prepay?

Thought I’d post this since I’m having conversations with a large number of people about the Home Ownership Accelerator loan program we’ve been mentioning.

Should you prepay your mortgage?  The conclusion is: maybe.  And that’s what we’ve been saying.  It depends on what you want to do, and whether there is something better you could do with your money, and – especially – whether you’re going to have some way to get your money back if you need it.

And we have a way.  Give the above a read.  Then read this.

The Times That Try Men's Souls

A couple days ago I posted about how the rewards of much of the work we do only come at the end.  Today I got the following from Michael, one of my faithful readers (there really are some!), and a truly swell guy:

I'm a regular on your blog.  Your last post about distribution of labor vs. return rings very true.  That is exactly how our home sale in Phoenix was.  Tons of work and worry up front with little reward, but finally it was all worth it in the end.  It seems like some problems/activities in life have a fulcrum point.  Once you have passed a certain point, momentum benefits rather than restrains.  Question is always where that point resides.  This concept has merit in many other aspects of life... enduring to the end.

Michael is correct, and I have no quibble with his note, but I do hear something in there that I want to caution against, since I started it and would hate to not have been clear.

C.S. Lewis wrote an excellent, though oft overlooked, story called The Great Divorce, in which a busload of the damned take a holiday to the doorstep of Heaven.  And, not surprisingly, very few of them want to stay there.  If they were, in fact, the kinds of people that would enjoy being in Heaven, then they would have been there all along, wouldn't they?  Among the many parts of that book that struck me as obviously true is this gem:

"...[M]ortals misunderstand.  They say of some tempoal suffering, 'No future bliss can make up for it,' not knowing that Heaven, once attained, will work backwards and turn even that agony into a glory.  And of some sinful pleasure they say 'Let me have but this and I'll take the consequences': little dreaming how damnation will spread back and back into their past and contaminate even the pleasure of the sin.  Both processes begin even before death.  The good man's past begins to change so that his forgiven sins and remembered sorrows take on the quality of Heaven: the bad man's past already conforms to his badness and is filled only with dreariness.  And that is why, at the end of all things...the Blessed will say 'We have never lived anywhere except in Heaven' and the Lost, 'We wwere always in Hell.'  And both will speak truly."

There's the famous story about the man sitting along the road not far from a town.  A traveler approaches him and asks "what sort of people live in the next town there?"  The man replies with a question: "what are the people like where you come from?" and the traveler proceeds to tell him of the most horrible, nasty, vicious people he used to live with.  The man sadly informs the traveler, "you'll find the same sort of people in the next town."  A few minutes later, another traveler comes by and asks the man the same question.  "What are the people like where you come from?" asks the man in reply.  "Oh," says the traveler, "they are the kindest and best of people, always cheerful and witty, and I hated to leave them."  The man smiles and says "You will find the very same people in the next town, son, and you're very welcome."  The moral of the tale is that you should always remember that the common thread among all your failed relationships is you.I mention these things almost by way of contradicting my earlier post on the rewards coming only at the end.  What I wrote was true up to a point; there are certainly rewards that are not available at the beginning and the middle that only become available at the end.  But those that do not seek the rewards of the beginning and the middle will not find them at the end, either.  No one that says "I'll be happy when..." or "If only thus and so, and that will put my mind at rest..." will actually be able to BE happy when, and his mind will never rest.  If you are not looking at the blessings in front of you right now, you will find that you cannot see any later on.Humans are not very good at this.  I am certainly not going to give anyone lessons on how to do it; they would see immediately how poor at it I am.  But I do occasionally see that rolling around on the floor with my 2-year-old had better be good whether or not I have closed an important deal today, or I am going to be one wretched man most of my life.  My tomatoes are growing, and I need to delight at them now, even before there is a hint of red on any of the fruit, or I will find that the fruit itself is not what I anticipated.

Truly there are times that try men’s souls.  Perhaps in these times we can remember to good effect that much of the reward we seek is going to be deferred ‘til the crisis is past, and that, as Lewis says, Heaven will work backward and make even this Hell a glory.  We ought therefore to take the more cheer from the now, knowing that all things work together for good for them that believe.We all know those that are hardly ever happy with what they get, and those that seem happy no matter what.  We ought to be more careful to be some of the latter sort; those that are happy right now are always happy, those that are not happy now will find that now is the only time there is to be happy in.

Turn Out the Lights

I hate being right. Ghana beats us 2-1 thanks to the extremely questionable refereeing and some absolutely abysmal attacking by the US. Meanwhile, Italy brings the hammer and gets a lucky goal late to win 2-0.

I’m sick.

World Cup Predictions

Most of us here understand how big a US victory in the World Cup would be.  For the uninitiated, the US is playing Ghana tomorrow (sad for me; my parents-in-law just came back from 18 months there and it’s a wonderful nation) and must win and have Italy beat the Czech Republic in order to advance to the second round.

Unfortunately, the US performance could end up being directly correlated to a bad result in the other game.  To wit:

Italy does not need to win.  A tie guarantees them to go through.  The good news here is that Ghana could still win the group, so Italy has to play for the win or face Brazil in the next phase.  So Italy comes out playing for the win, but the stronger the US performance, the less incentive there will be for Italy to press for it.  If the US wins, Italy needs only a tie to win the group.

Czech Republic also do not have to win to go through.  In fact, beating Italy seems quite unlikely, and pushing to do that leaves CR open to defeat, which puts the next round seriously in doubt.  Therefore CR will come out early looking for the tie, and will watch the scoreboard closely to determine whether tactics have to change.  Unless the US beats Ghana by 4, they are in no danger from us.  Again, the stronger we are, to a point, the less hard CR will push for the win.

Worst case scenario: US comes out and scores a quick goal, but nothing else for 30 minutes.  This practically guarantees a listless, draw-oriented match in the other game.

Best-case scenario: US scores 5 goals in the first 5 minutes.  CR then has to play for the win, and Italy have to respond or face the possibility of losing out altogether.

Likeliest scenario for a US second-round berth: Ghana scores an early goal.  This forces both CR and Italy to play for the win.  Neither wants to play Brazil, and playing for a draw with the risk of losing could cost them the next round altogether.    Italy is likely to be more successful at this, and should get a goal or two.  Then the US scores in the 80th and 91st minutes and wins the game.  Italy beats CR 2-0.

Likeliest scenario considering that the US will likely have to score more goals in this game that it has SHOTS on goal so far in the entire World Cup: Ghana gets a goal in the first half and scores again on a quick counter late in the second, while the US manages a goal at some point.  Italy and CR play to a 1-1 draw.

Sorry.

Stumbling on Happiness

I learned something interesting today about the way humans perceive things.  This is from the so far (I’m not finished yet) excellent book Stumbling on Happiness by Daniel Gilbert:

We agree to babysit the nephews and nieces next month, and we look forward to that obligation even as we jot it down in our diary.  Then, when it actually becomes time to buy the Happy Meals, set up the Barbie playset, hide the bong, and ignore the fact that the NBA playoffs are on at one o’clock, we wonder what we were thinking when we said yes.  Well, here’s what we were thinking: When we said yes we were thinking about babysitting in terms of why instead of how, in terms of causes and consequences instead of execution, and we failed to consider the fact that the detail-free babysitting we were imagining would not be the detail-laden babysitting we would ultimately experience.  Babysitting next month is an “act of love”, whereas babysitting right now is an “act of lunch”, and expressing affection is spiritually rewarding in a way that buying French fries simply isn’t.

This little example is familiar to most of us, I think, but its significance was very much enhanced for me this morning.  We at The Chris Jones Group are in the process of putting together our plan for the next year, and part of that plan calls for the upgrading of our systems to produce better experiences for those we’re doing loans for.  Almost inevitably, what starts out as a very pleasant association turns, in the middle of the complicated and difficult details of the last couple of weeks of the loan, into something stressful and distasteful.  The fact is that the mortgage process is very often highly convoluted and almost always frustrating at one point or another.  It is hard work for us.  Some of that work can be seen and a great deal cannot.  Some of that work can be spared the client and some cannot.  That there will be friction is practically inevitable.

But what the client imagines at the beginning, and in fact what we here also imagine, is the end of the deal, where the client has money and/or a new house, and we have a fat check for our trouble of getting it to them.  In the end, most of the time, we have those things, and we ought therefore to be happy about them.  But we frequently forget that for 99% of the time from the start to the finish, we will have none of those things.  What we will have instead is a lot of work, time expended, dozens of phone calls and an inch-thick stack of paper, coupled with a growing annoyance and even concern that things are taking this long and we still have nothing to show for it.  We’re working on a loan right now that has taken 19 months.  We’ve been paid in that time $1000.  Yes, we have a large bill outstanding.  But we’re not going to get any of it if we don’t close the loan eventually.  Similarly, the client wants something he doesn’t have yet, and he’s not happy about it either.  In the end, I think we will all be thrilled.  But right now, things are tense.

Much of life is like this.  We look forward to something happening, and imagine how we will feel when it has happened.  What we practically never imagine is the amount of trouble it will take to make that thing happen, and almost all the time the thing we desire cannot be obtained little by little.  One does not buy a car by going to the dealer every week for a year and returning with a bumper or a headlight each time.  The car comes all at once.  It’s very binary – either you have a car or you don’t.  Similarly, you either have the cash from the loan or you don’t.  All the work you put in before that has, until you get the cash, produced nothing except headache.

But there’s a way out of this trap.  Once in a while (this is so rare I didn’t even think of it until just now), we get a loan that seriously threatens not to close.  In that moment, the house itself, the cash, all the things we were imagining at the beginning come back into focus, because the serious possibility exists that we will never get them.  Well, then, magically, the desirability of those things rises up and eclipses the troubles we’re having now to the point that not only do we not mind our present difficulties, we are willing to endure far more of them if only, at the end, we can have the thing we originally desired.  Lots of self-help gurus have discussed this, talking about “keeping the end in mind” and “focusing on the goal” and things like that, and that is precisely what we’re talking about here.  The question for my business is then – how can I help?

Bonds and Footie

Bond markets reacted very negatively to the inflation data this morning, despite the fact that only one of the four numbers was above expectations, it is generally conceded that now the Fed will have to raise rates for the 18th consecutive time at its next meeting in late June.  That’s bad for bonds, which sold off, though this time stocks actually saw this as a good thing (market uncertainty is very bad for stocks) and rallied.  That put the Dow back in positive territory for the year.

What does this mean for mortgage rates?  Well, it’s interesting.  Week before last when the employment data came in negative, bonds rallied strongly, and that ordinarily means hat mortgage rates dive.  But they didn’t.  There was no move whatever in the bond runup.  So today, when bonds crashed back to where they were before, what happened?  Nothing.  My rate sheets today look exactly the same as they did yesterday.  I got no reprice notices at all during the day.  Now, tomorrow, things might change, and the bond move might be priced in, pushing the 30-year back up to 6.625%.  But I wonder.  I’ll post when we see what’s occurred.

On to football/soccer.

I read an article at TheSportsEconomist discussing the recent performance of the US national team at the World Cup.  Most of you know I am a great enthusiast of the sport, and was very disappointed by the US performance against Czech Republic.  The article contends that this is a systemic problem – the US team has no players that can create in packed space - and that those teams that play the way the Czechs do (and the Italians do, for that matter, looking ahead to Saturday) will beat the US pretty much at will.  This could explain why the US has NEVER won a match on European soil.  The Chris Jones Group is saddened, but not surprised.

So why do we not have such players?  Well, I have a theory.

For a number of years, I've had a nagging suspicion that the way the US develops its players has a great deal to do with what we get from said development - namely, that at a very young age we put tiny little players on very large fields with adult-sized goals.  What we get from this is very fast players who are good on counterattack and in the air, and the world's largest supply of top-flight goalkeepers.  What we do not get is quality distribution of the ball in midfield or creativity in tight spaces, and we do not get quality finishing with either foot from our strikers.  That, it seems to me, pretty much exactly describes this incarnation of the US national side.

In South America particularly, but in Europe and increasingly in Africa, the fields and goals are very much smaller for very much longer.  This is especially true of the playgrounds where most of the youth spend their pickup time.  The average European playground is no larger than half a basketball floor and the goal size resembles the back of a park bench (and frequently IS the back of a park bench).  What you get from this is Brazil and Argentina, France and Germany.  You get Beckenbauer and Zidane and Ronaldinho.

It's a theory.  I'm far from expert in such matters.  But it appears to me to be an explanation for the continuing state of US football vis-a-vis the rest of the planet.

The next serious football threat to South America, incidentally, seems to me to  be coming from Africa, not Europe.  Their wide-open, high-work-rate, offensive-minded game is very fun to watch and increasingly competitive on the world stage.

That said, the Saudi Arabia/Tunisia match was the best so far for drama and passion, and there might never have been a better footballing atmosphere anywhere on earth than what we saw in the Germany/Poland match.  Absolutely crackling.

I Don't Drink

I don’t drink. But I do know a great blog post when I see one. Opinion Journal has one today:

A Cure for What Ales You
"A main ingredient in beer may help prevent prostate cancer and enlargement, according to a new study," the Associated Press reports from Corvallis, Ore.:

But researchers say don't rush out to stock the refrigerator because the ingredient is present in such small amounts that a person would have to drink more than 17 beers to benefit.

Boy is the AP ever confused. Quite obviously if you have to drink 17 beers, that would mean you do need to rush out to stock the fridge. Some journalists just don't understand science.

Back in the world as we know it, bond markets are flat even though inflation data are benign. Brazil beat a very, very game Croatia 1-0. France turned in the worst offensive performance in the history of the World Cup in their draw with Switzerland, even worse than the US yesterday, which is saying something.

And Cars, apparently, is absolutely marvelous.

Oh The Humanity!

I love soccer.  I loved it when I was a kid and played it, I loved it in Hungary when I lived there, and I loved coaching it as an adult.

Today’s 3-0 defeat to the Czech Republic is the worst thing I have seen on the pitch from the USA.  Ever.

Yes, 1990 was bad.  I laughed at us over that (I was just back from Hungary and knew what good football looked like – and we didn’t play any).  1998 was really bad in France, but we had a bad coach and an old, divided team, so that was about what I was expecting.  Today, though, we have an experienced, solid team that played quite simply the worst match in the entire World Cup.

I’m also watching the Ghana/Italy match, and it is absolutely possible that we will lose to everyone we play this year.

Markets are flat, waiting for some sort of direction from the Fed.  Why not?  Nothing else seems to make any difference.  The economy appears to be good, most of the numbers look good, but there’s this sense of malaise that just doesn’t seem to go away.  I’m afraid it’s going to get worse before it gets better.

Meantime, the 30-year is hanging out at 6.625% and the 15-year is at 6.375%, with the ARMs back in play, especially the 7-year ARM, which is at 6.5%.

Just by way of getting started, I want to post an article from the Deseret News from Sunday’s edition, which I found profoundly moving. Most of you know that I did not go to college for a degree in finance – in fact, I never took a college-level math class and spent only one semester anywhere near the business/economics building. I studied Classical Civilization, and emphasized Roman History.

Why did I do this? Because if you can think, if you can write, if you can speak, you can do anything. Not perhaps literally anything, for instance, I would be loath to attempt neurosurgery, but it is also true that the world’s greatest neurosurgeon is going to need someone like me if he is going to pass on any of his knowledge. To think clearly is to touch the face of God. To create literature is to become God, for however brief a moment in however tiny a way.

This article expresses a truth I want very much to share on this Monday morning – there are lots of ways to be poor. And the worst ones have nothing to do with money.

More later.

Careful What You Wish For

As we’ve discussed in this forum many times, economic data and your mortgage interest rate are closely linked.  If you are purchasing a house, which is roughly half the planet right now, then the link is almost a direct one.  If you have an adjustable rate mortgage, and there are some of you out there that do, then there is a similar connection.  At any given moment, we here at The Chris Jones Group are working half a dozen new loans and watching a dozen or so older ones for indications about refinances or rate locks.  I have on my computer the latest bond market data, updated every 5 minutes.  Ray keeps a similarly close eye on things at his desk.  If the bond begins an aggressive move, which lenders define as about .03 on the 10-year bond, then we immediately have to make a call about whether we want to lock the rate for the new loans we’re working.

A word about rate locks as an aside, then back to the original thrust of this post.  Like many mortgage terms, “lock” means different things to different people.  It means different things to us than it does to you.  But in general, rate sheets are posted with a standard lock term, that is, a number of days that the rate is guaranteed.  Most lenders use 30 days, but some use 25, and our current favorite lender, First National, uses 15.  If we send in a “lock sheet” on a loan, that loan’s rate is guaranteed for the term of the lock.  Locks can be extended, but that costs money.  The longer the term of the lock, the more it costs to get it.  For a more comprehensive explanation of this, see this post from a while back.

Na.  When I tell a client that his loan is locked, that means that the Good Faith Estimate he got from me has the rate he’s going to see at the closing table.  Locking with us means that we guarantee the rate.  It does not, incidentally, mean that we have submitted a lock sheet to the lender.  Not sure why I’m telling you this.  We will, after consultation, occasionally decide to roll the dice and not lock a loan.  If the rates rise, then we’re going to eat the loss, but if they decline, we get to make more money.  We take the risk, though, not the client.  “I assume all the risk, is it not fair that I should assume some dough?”, one might say if one were Nathan Detroit.

What this means on a daily basis is that we find ourselves wishing for bad economic news.  Bad news makes bond traders happy (and, because the Fed is bonkers, it means good things for stocks, too) and that increases bond prices and that drops mortgage interest rates.  On at least two loans that we’re working right now, that’s an unmitigated good thing.  One of them we locked with the client, but rolled the dice on with the lender.  One of them is my own home loan.  So the very weak economic news from the past two days means that we’re going to be a couple thousand dollars richer than we might otherwise have been.

But there’s a dark side, and this morning it really bothered me.  I found myself, as I booted up my computer on the market open, wanting to pray that the employment data (as we’ve discussed, employment data and core CPI numbers more than anything else drive the bond) would come in weak.  Normal enough.  But those employment data represent something.  They represent people trying to get jobs.  And here I am, seriously considering asking God to make sure they hadn’t found them, just so I can make another few bucks and possibly get 1/8% better interest rate on my home loan.

So, in the end, I didn’t ask Him.  I’m trying to become a better person, and that didn’t seem to fit with the program.  As it is, the data is weak, meaning that 100,000 fewer people found jobs in April than the markets were expecting.  This is not a good thing.  But bonds are soaring, which is driving pricing for mortgage rates up, meaning that “rates” will drop later this morning.  That’s good news for me.  But I can’t help wondering if one of those 100,000 that are still looking for work might be just down the street, a friend of mine, one of my relatives.  Or one of yours.  I promise you, whatever it means for interest rates, I’m going to be much more careful about getting in their way in the future.

You have to be very careful what you wish for.

P.S. I do absolutely without reservation wish my sister Elizabeth a happy birthday.

P.P.S. I do also without reservation invite all of you to the American Cancer Society Relay for Life tonight at 5:30 (until Saturday roughly noon) at Lehi High School, just off the Lehi Main Street Exit off I-15.  There will be games, prizes, fun galore, and oh, by the way, we’re raising money to stop people from dying of cancer, just as an aside.  Come to the school, look for the checkered flags (that’s our campsite), and party with us.  Walk a lap.  5 minutes.  That’s all we’re asking.

Official Confirmation: THE FED IS CRAZY

Want to know just how screwed-up the markets are with regard to the Fed?  Consider this amazing statement from today’s CNNMoney:
"Bad news is good news for the market vis-a-vis the Fed," said Bryan Piskorowski, a market analyst at Wachovia Securities. "We're basically just in a real uncertain time."
Investors are looking for any signs that the Federal Reserve might be under less pressure to raise interest rates again when the central bank's policy-makers meet later this month after 16 rate hikes over 22 months.
In other words, the markets are currently being driven by Ben Bernanke, not by actual events.  This is, in a word, insane.  It is further evidence that the Fed is completely out of control and needs to be at least severely curtailed in its activities, if not abolished outright.  I mean, here’s a fun one – if the Fed is not completely nuts, how is it that weak manufacturing data is GOOD for stocks?  But that’s what happened this morning.  Weak data comes in, stocks rally.

Sigh.