This isn't an argument. Yes it is. No it isn't.

The following is what is known in ancient times as an argument. An argument, as advanced in a very funny Monty Python sketch, is a series of statements meant to support a proposition. In this case, one of our readers has advanced an argument, and I have rebutted, with supporting evidence. I tis not an argument in the modern sense, which is two or more people yelling at each other interrupted by commercials. Comments one way or the other are invited.

IP Freely (his own moniker) comments (paragraphing edits have been made for readability):

Hey Chris, I have a small comment, and a question; and please do not think I am trying to put you down, but man, are you insane? I have read a few of your blogs, and frankly, I think that you are a nice guy, but you seem to do two very opposite things at the same time no less; you in one hand are putting yourself out there as a good loan officer, as someone that knows the system, the programs, and all that jazz on the mortgage business, and in the other hand, you put yourself down all the time, you say things like: "this guy helped me out with money when I was broke" or "I was closer to forclosue than I would like to admit" and many other things (I don't have the time to look them up).

I admire your blunt honesty and cander[sic] on those matters, but in my opinion, if you want more people to call you up and trust you with their finances, then you should try a bit more to be the guy that someone would trust with their financial issues, and believe me, people pick up on these things, if you do not look like someone that has his own finances taken care of, then what kind of advice can you give? you can't have it both ways, how can you ask your readers to give you advice on how to run your own business (you did just that in a couple of your blogs) and then expect them to trust you to take care of their financing.

[I]t's counterproductive, you need to look like that guy that doesn't need anyone elses advice, you need to be the guy that knows so much about finances that not only he has a thriving and expanding business but that his advice is worth more than gold!!!!!!! not like that guy who doesn't know what to do next.

[L]ike I said before, I think you are a nice guy, I am telling you this because some times I read your blog and think: "is this guy self-destructive? doesn't he realize that to attract business he HAS to be a rock or at least appear to be one?"

[A]nyways, I hope you take this comment for what it is and in the spirit it was written on[sic].
I P freely | 03.28.07 - 12:33 pm

I do, IP, and I'm very glad you commented. I can see that you are trying to help me, and I appreciate it.

In my experience, there are two ways you can behave as a businessman. You can attempt to control the message and act as if you have all the answers, or you can admit you're pretty much like everyone else and give up the illusion of being in control of everything, and allow your clients to invest themselves in assisting you (like, say, posting critical things on your blog). For some, the first way works. For me, the second does. It's just about that simple.

I may turn out to be utterly up in the night about this, but it seems to me that our clients are not stupid, and they have a fast read on who I am - and who I am not. I have myriad weaknesses, some of which are readily apparent. Why attempt to hide them?

I also have strengths, many of which are also readily apparent. I don't try to hide those, either. I don't claim to be a poor writer or speaker. I also don't claim to be OCD about organization. I am someone that people readily follow. I have also in the past led some of those followers into places they'd rather not have gone (though I always made sure they could get back out again, even if I couldn't). I made the same mistakes lots of people make with money. I know what those mistakes cost. I know how to repair them, and how to avoid them, and best of all how to live with them and not feel like the world is coming to an end.

Here's a question for you, Mr. IP Freely: you've seen the film "You've Got Mail", right? In that film, a dear, hardworking, intelligent and resourceful lady has to shut down her shop. We get to see deeply into her emotional state when she does it, and we get to see that she's not the best businesswoman on earth (consider the staff she hires). If that woman came to you with a book recommendation, would you take it? Does the fact that she's "failed" at business make her less of a compelling person? Less trustworthy?

No, it makes her more human. Since humans are, presumably, the target market, that would seem to be a good thing. Most people prefer to do business with people who are like them. Do you like her less because she's not perfect, or more?

You make a good point that people also want to do business with those that are competent to advise them in their area of concern. But do you think that regular readers of this blog will believe, because I know what it's like to lose a business, that I therefore am less able to explain to them that their 580 credit score is only going to be good for a 95% loan, and then only under certain conditions? Do you think that because I mentioned that I once found myself in a desperate financial position because I invested my professional life in a longshot startup company that this makes me less likely to be able to sort out the last 3 years' business tax returns on a self-employed borrower with two companies? Maybe you do think this. Maybe the general public thinks this. I don't see many signs of it, frankly.

Perhaps it's simply my long exposure to politics, where your skeletons are going to come out of the closet singing and dancing, so it's better to give them some time on the floor right up front. Perhaps it's an attempt to remind myself that although things look pretty good now, there are many men of better brain and character who worked much harder and got far less, and I ought to have a little humility about what success we've acheived. Perhaps this costs us business.

Perhaps.

We get all of our business from referrals. We don't do any advertising. Our clients are a fairly exclusive group of people that have one thing in common - they like us. Our letters of recommendation routinely make mention of the fact that we will do whatever it takes to make the deal work, that we assisted the writer out of what seemed like a hopeless situation. Guess why they know we can do that. We've been there. The pressure of it doesn't scare us. Neither do we look down on them because they made mistakes, because we made the same ones.

I freely admit that because of this we do not get to sit in a big office behind a fancy desk and have a servant wheel us around. We do not get to take over the bank in a crisis. But then, I never wanted to be Mr. Potter.

This is the Bailey Building and Loan, here, and I decided fairly recently to just be George Bailey, since that was undeniably who I was inside. And then I decided that like George, I'd try to be the same outside as I was inside, because that left me less to keep track of. I might not present to the world a perfect picture of a successful, brilliant businessman, but that suits me, because what you see is true.

I did try it the other way before, incidentally. Back when I ran a branch office for a major securities broker/dealer, I was the King of the Universe. You were lucky just to get into the same room with me, let alone be the beneficiary of my brilliant investment advice. But it was a crock and I knew it and so did everyone else. It felt false because it was false.

Despite the fact that I am fallible and imperfect, the fact is that I am the fellow you want to see if you need help. There is no one that will work harder or with greater skill and persistence to get you the loan that you need. But I don't want to say this; I want my clients to say it. And they are saying it, or we wouldn't be in business. More briefly, what they are saying is "I trust this guy." Maybe that doesn't get me mortgage business from millionaires. But I'd rather be the richest man in town.

Apropos of that, I ask for the business advice of my clients because they are brilliant people. A good portion of my clients are members of the Lehi Area Chamber of Commerce and run their own businesses themselves. My experience is that not only do my clients have a huge number of great ideas, but they also refer us more when they feel that they have a vested interest in the business, when we implement their ideas - and even when we don't but we asked for their opinion. Again, I COULD pretend to be The Man, but who would I be kidding? And how much great advice would I miss out on?

Honestly, I'm glad you posted your comment. You aren't the first one to comment on this rather odd way of positioning ourselves. Thanks for giving me a chance to explain.

And as always, if you think I'm all wet, the comments are open.

Chris Jones Watch

Just so we can keep up on these things, The Chris Jones Group is now #1 and #2 on Google under "Chris Jones Group", and Chris Jones (our Chris Jones) has moved up to #45 under "Chris Jones".

Thanks to all of you.

On the Chris Jones Watch, the #1 Chris Jones continues to be the Chris Jones Coalition, a bluegrass band that sadly, I don't like. I like bluegrass, but not this bluegrass, mostly because it appears I don't sing well. Moving into the top 10 is Chris Jones the wildlife artist (#5) - careful, my art is creepy and weird - and a brand-new Chris Jones that does a webcomic (#9). A bad one. Apparently, I can draw, but I have no sense of humor or taste. The same one of me at #7 also does a site of children's illustrations, much more tasteful.

Keeping the Keys to the Castle

Here's a service we can offer that we don't often talk about, but that is directly related to what we've been discussing with regard to subprime mortgages: how to keep from being foreclosed on.

Now, we here don't have a great deal of experience with foreclosure personally (although we got closer once than we'd like to admit, so it's not as if it's a totally foreign experience), but we are connected with a great outfit that specializes in loss mitigation, which is a fancy term for "how to keep your house when the bank wants you out of it". Surprise, the best way to deflect this sort of unwanted attention is communication with the lender.

But not with just anyone at the lender. There are two parts of a lender's operation, and one of them is not going to be friendly. Talk to the other one. In the even that you should need to, call us (801) 787-2162 and we'll connect you with Karen Eggett, the resident expert on the subject. She's fantastic.

And we have other resources, too. We can help.

Just in time, here's a CNN article on the subject with some tips at the end.

http://money.cnn.com/2007/03/26/real_estate/losing_the_house/index.htm

Blaming the Victim

Another foray into subprime mortgage absurdities.

The top 5 subprime lenders in the US are going to have to testify before Congress, and no doubt they are going to be castigated for ripping people off. No doubt they will be threatened with anti-"predatory lending" legislation. No doubt they will be blasted with data like this (from this article from CNN):

Throughout the nation, the subprime loans recently made are performing very poorly. "What we're seeing is subprime 2006 loan originations are going delinquent much more quickly," said Bob Visini, vice president of marketing for First American LoanPerformance. "2006 is way ahead of previous years."

And that sounds horrible, doesn't it? But here's the truly absurd part of this - this CANNOT be the lenders' fault. This is the fault of the BORROWERS who are lying to the lenders about their capacity to pay. How do I know this? Because subprime loans are almost universally 2/28 loans, that is, they are fixed for 2 years before they adjust. Quickly, what is 2006 + 2? Well, it isn't March of 2007. In other words, these defaults are not the work of nefarious lenders that trap borrowers into loans that adjust and kill them. These defaults are the work of nefarious borrowers, and the lenders are actually the ones being harmed the most by them. Well, the lenders and the other borrowers that would like to get credit but now cannot find anyone to lend to them (they should call us; we know where the money still is).

Sen. Chris Dodd is going to be blaming someone in his hearings. Which group is going to take the blame? I'll bet it won't be the one that can vote.

Am I the Only One That Gets the Irony?

More of the sky is falling, and the collateral damage is getting larger. And sillier.

Here's this gem from CNBC today:

For the sake of argument, let's set aside the issue of whether lenders were deceitful or predatory, or whether the government encouraged this kind of behavior. I know I'm going to get lots of comments about 25-year-old idiots with $45,000 salaries buying McMansions and giant plasma screens and fancy cars that they couldn't afford. But I suspect that many people who are in trouble now were mostly trying to buy into a safe, stable neighborhood with good schools. The real-life choice for many families in bubble markets isn't between a fancy McMansion and a modest older home. It's between a house in a school district that works, and a house in one that doesn't.

Hey, as long as we're going to force people to send their kids to crappy schools, why don't we give the government control of more stuff so that these same people can shop at crappy grocery stores, too? And when they try to escape, we can blame the lenders for trying to get their money back.

Here's a quick-and-dirty on this deal. The government is being asked (politely, and not insistently at this point) to bail out homeowners who default on their mortgages. Why are they defaulting? Because, as the terminally confused Berkely economist Brad DeLong argues, there is some sort of "systemic failure" in the mortgage industry. What that failure is is totally unclear to me, and I do this for a living. Of course, it might be hard for me to see because none of my clients have ever been even 30 days late on their mortgage (and this is no accident), but I digress.

But I agree with the quote above that most people who are defaulting were really not trying to buy into something outrageous. A top mover of families in my experience is how good the school is that their kids will be going to. Houses in poor neighborhoods usually have bad schools, which depresses their property values, which brings in more low-income people, which further reduces the quality of the schools, and so on. This is a hugely negative spiral aimed directly at starter families and people who are struggling. And the spiral is at least exacerbated, if not outright CAUSED, by the lack of school choice - the ability of poorer families to get their kids into better schools without having to pay private school freight to do it.

In other words, the government is now being asked to step in and fix a problem its own monopoly caused. Oh, the irony. So, so easily fixed. Of course, the people most interested in supporting the NEA and the public-school monopoly are the same ones screaming for the government to do something about mortgage defaults, and the same ones that claim most vociferously that they are on the side of the poor and downtrodden. Bull.

I'm not going to dispute that these people CARE about the poor, but I am going to contend that the policies they advocate seem almost perfectly designed to make sure those that are poor stay poor, and to make the consequences of their poverty as harsh as possible. Quick quiz: where is it more livable for the poor, Detroit or Delhi? That would be Detroit, for those scoring at home. And why is it more livable in Detroit? A) because of massive US government handouts to the poor or B) because Bill Gates and his entrepreneurial ilk essentially tripled the US economy by making the PC so easy to use my 3-year-old can do it. And that would be B. The case can convincingly be made that US entrepreneurs are the only people making things better for the poor in Delhi, too, but this isn't the space to do that.

The US government should not be in the business of bailing people out of their mortgages. It should, however, be in the business of removing those ridiculous and counter-productive regulations and monopolies that make it so much harder for people to afford the things they want to buy. Start with dismantling the public-school monopoly. That'd be a great start right there.

We Have Nothing to Fear but Fear Itself

Lots of chatter about the crashing housing market. Time for some perspective.

Market booms and market panics are caused by the media. Left to themselves, most investors will do different things. There are market herds, and market trends, but there rarely will be panics or booms unless CNBC (or what have you) is fueling them. So it is with this.

Since most of the readership of this blog is resident in Utah, let's talk Utah (feel free to ask in the comments or at chris@thechrisjonesgroup.com about other states or situations).

The only thing that could cause a major housing downturn in Utah is panic over a 15% decline in markets where the average gain over the past 4 years is over 30%.

Stay with me here:

House starts at $100,000
30% increase in 2003 is $130,000
30% increase in 2004 is $169,000
50% increase in 2005 is $219,000
50% increase in 2006 is $286,000
15% decrease in 2007 is $243,000

Pardon me while I weep uncontrollably for investors in Phoenix. Or even St. George. All I see in the part of Utah where people actually live is a solid, if unspectacular, housing market where there are still an unholy number of buyers out there for houses where families actually live (as opposed to, say, Herriman). We never had 50% increases here, and we're not going to have massive declines.

Please to remember a couple of things: one, the VALUE of your house is irrelevant unless you're selling it, and two, the payment is not tied to the value of the house. If you could make the payment when you bought it, you still can. We're not seeing falling wages anywhere.

The ARM thing is massively overblown. Most ARMs are fixed for longer than a year (and sub-prime ARMs are 2 years at a minimum), so the housing speculation that drove buying last year is not having any but a tiny impact on default rates today. Today's defaults are the product of buying two years ago, and there is NO MARKET IN THE USA where default rates are high and home values are lower now than in spring 2005.

I'm struggling to figure out what the reason for panic is. And I do business with New Century. Or did.

An Early-Morning Ramble

Harry Rodas, Realtor extraordinaire, tells me he's in blog withdrawal because it's been three weeks since I posted. Harry, this one's for you.

As most of you know, I have two blogs: The MortgageBlogger, which is mainly about (what else) mortgage and real-estate-related stuff, and The Chris Jones Group Blog, which is almost an online diary of what's going on in my head. I leave it to you which is more interesting, but both blogs have about the same readership, which rises and falls with the frequency of my posts. It's been some time since I was able to get to posting, so readership is understandably off quite a bit.

This makes me sad, because I know there are a fair number of regular readers, and I know how hard it is to acquire them in the first place, and how difficult it is to re-acquire them once they're gone. The fact that this has been an incredibly hard month business-wise is not particularly relevant. It's like I tell my appraisers: I'm sorry that your brother is in the hospital and that your car broke down and that your computer crashed. I have a client that needs the appraisal done right now - can you do it or not? I'm sure everyone is concerned about the business trying to purchase a building and hire three new staff and finish two investment projects and wrap up a major charity event, while restructuring internally and deciding whether to become a full-fledged brokerage (with all the licensing and regulation that entails), but the bottom line is, if I'm not posting, there's nothing to read.

This morning, my 9-month-old has decided that he can't go back to sleep at 5:30, so I'm up at the kitchen table and there's not really anyone to call, even on the east coast, and I'm just not into reviewing the pipeline and checking the status of the loans there, especially since nothing's going to have changed since I left the office at 10:10 last night, so why not blog?

I've discussed in the past several issues that have come back to the forefront recently, such as the need for an offseason in the rythym of life (read the post after that in September last year as well), and the one that most currently plagues me, the curse of the Big Idea. In short, that one is outlined neatly by the plot from Family Man and other movies of the same ilk. High-powered, relatively self-absorbed executive gets chance to see what he's missing by being stranded either in a remote location or an alternate reality, and discovers that there's more virtue in changing diapers than changing Wall Street.

On the surface, how could anyone disagree with that? I have seven children (one of whom is at this moment destroying the family computer), and I like doing things with them and am never happier than when I am. I do not and have not for a long time needed to be a high-powered executive of anything. I don't drive a fancy car and I don't have cheap women and yes-men following me about. I don't live in a huge, sprawling mansion. We don't have a lot of money and what we have we give away with both hands and a smile. So what's the problem?

The problem is this: someone has to make the diapers. That's it. Family Man gets stranded in an alternate reality and has to change diapers and drop kids off at school, then go to his job at the tire store instead of going from boardroom to boardroom putting together a multibillion-dollar merger. Perhaps this is a noble calling. But the question remains: who, then, is making the diapers? Not changing them. Making them. Who is it that put together the giant conglomerate that makes the diapers so cheap that a guy who sells tires can afford them? And why is it that his work is less noble than the fellow's that profits from it?

I've gone back and forth on this stuff until I'm raw from thinking about it. I once desired to be a multi-millionaire and have fast cars and expensive penthouse office space. Jets, that sort of thing. I grew out of that after child number three. But I also spent month after bleak month out on the campaign trail away from my family trying to get a good man elected President. The compensation was on the thin side of fair, but it was important work and someone had to do it. Meantime, my kids started exhibiting psychological problems and I saw my wife once in five months. So should I have bagged it and gone home? But who would have replaced me? Who would have done what needed to be done so that hundreds and thousands of other men could stay home with their kids instead of having to be out working?

When I last started a business, I did it for the purpose of helping my brother, mainly. It was, at its peak, a relatively growing concern. It looked for a while like it might make it. It didn't. Honestly, I didn't work hard enough at it. I should have done more of the crap work that protects businesses from the government - the threat that kills more businesses than any other. But I didn't. I stayed home. I piddled. I did the important work of changing diapers. In consequence several dozen people ended up out of a job when the doors closed.

Swearing that I would never do that again, I took up being a loan officer full time, working for other people. First it was a large company, then a smaller one, and finally a company that essentially allowed me to be a Company of One. That suited me. Of course, within a short period, I had to hire some staff, because I really am good at this, and the more loans you have, the harder it is to do them all yourself. If I work, I get loans. I worked.

So the Group swelled to three, and stayed there for two years, until one particularly rough patch last February when it seemed to me that the Group needed to restructure to accomodate the growing side-businesses of the members, and that essentially made the Group a one-man band again. There's a freedom in that, knowing that the only person, the only family depending on me to do my job is my own. Nobody else's kids need me to get out of bed in the morning, or to stay at work instead of taking my kids fishing.

I got to do more fishing. That was good.

It was too good to last. Problem is that there's no "off" switch, and the volume knob is really more like a directional switch - it's either rising all the way to infinity or it's falling to nothing. It's pretty hard to figure out how to get just a couple of loans. Do what you have to to get a couple of loans and if you are good at it, you'll get seven instead, with more coming. This is a good problem to have, but it's a problem, make no mistake. The hours get longer, the fishing trips shorter and then they stop altogether. And if I do flip the "off" switch, I better have pleanty saved up to prime the pump again until I can get more loans in - it takes at least 60 days from the first expression of interest to the check in the bank.

The way out, of course, is to grow. Hire staff. Change locations. Become a player. Run, in fact, a business. Despite being burned over 80% of my body last time, I felt compelled to do it. I like creation. The prospect of building something that lasts and that is excellent excites me. I feel that the Group can really become something like that. With grave reservations, I decided last December to start looking at becoming a full brokerage, buying a building, and hiring the people necessary to build a company that was the best in the world at something.

Those reservations were not unfounded. My father and I scheduled four times to go ice fishing this winter, and never went. There were lots of reasons, not all of them work-related, but work always factored. Last night my wife pried me out of the office at 10, where I'd been since 7am (metaphorically, since some of my work takes me out and about). I ate dinner with the family and went right back to work. Spent no time with the kids. That's been the pattern for more than a month. Why would I do this?

For many reasons, some of them selfish, some of them not. But in essence, I'd do this so that 19 (currently) families will have someone they can trust and count on to watch over their money and get it to them when they need it so they can keep their houses. I'd do this so that five other families besides my own will have a job that allows them flexibility to take care of their families and enough money to make that possible. SOMEONE has to do this. Is there no nobility in it, whatever the Hollywonks say?

I wonder. Maybe it's the fatigue talking.