Friday, September 19, 2008

The Wheels of Globalization Could Use a Little Grease

The following was published in The Commonwealth Times.

The Wheels of Globalization Could Use a Little Grease -  

The Wheels of Globalization Could Use a Little Grease

By John S. Wilson

Posted: 4/10/08

Barack Obama, Hillary Clinton and 200,000 residents of Ohio don't like the North American Free Trade Agreement. Which of the two presidential candidates dislikes NAFTA more is still up for debate (and there already have been more than 200 of those). Regardless of one's political leanings, two things are certain: NAFTA creates jobs, and NAFTA causes job losses. The jobs that are lost are the kind of blue-collar jobs that "aren't coming back," as Sen. John McCain stated in a recent trip to Michigan. McCain is right.

Veterans and their Mortgages

The following was published earlier this year in The Daily Californian.

The Daily Californian

Mortgage Choice for Veterans -

Mortages For Veteran Members

By John S. Wilson

Picture this: You're a veteran of the armed forces, and you have recently refinanced your home. You had a choice between two mortgages; both had 30-year terms, fixed interest rates and were being offered by the same lender. The difference lay in the interest rate. One mortgage was one percent higher. You chose the lesser rate but then you started having doubts. It had felt like it was an easy decision to make, though, didn't it? After all it wasn't even hidden. You didn't need to examine the requisite Good Faith Estimate that accompanies all mortgage offers and lays out the costs to realize one rate was higher than the other. 

Your lender told you upfront. He then asked you to sign the dotted line. The higher rate loan was a VA loan and the other was a conventional loan, which is the industry standard. With the lower rate you figured you couldn't go wrong. But you did. The VA mortgage loan is specifically for veterans and current members of the armed forces. It's administered by the Veteran Affairs Department, hence the term VA loan, and allows for no down payment borrowing, low closing costs and a streamlined refinancing. Moreover, when veterans are having trouble making loan payments the Veterans Affairs Department willingly negotiates on veterans' behalf to modify the loan in case of default. These modifications relax the terms of the mortgage into a more favorable payment structure for the veteran. VA loans are thus safer than conventional loans and are less likely to enter foreclosure or default. Typically, because of the inherent benefits VA loans are priced one percent higher than conventional loans.

During 2003 and 2004, I drove over 100,000 miles throughout the state of Florida refinancing $20 million in VA mortgages. As I traveled, some of the veterans I spoke with were not even aware they no longer had a VA loan. Others had willingly accepted a conventional mortgage but had those nagging doubts I illustrated earlier. It wasn't until I drove to veterans' homes, pet their dogs and had cups of coffee with them at their kitchen table-which was dotted with mortgage documents-were they able to realize the significance of no longer having a VA loan. Some were hurt and angry but most were despondent. No longer were they guaranteed freedom from paying prepayment penalties (which would be triggered if veterans decided to refinance or sell their home) or from paying for private mortgage insurance (also known as PMI) or, more importantly, capable of receiving loan modification assistance from the Veterans Affairs Department if they fell behind on making their mortgage payments. So while conventional loans may seem less expensive, they cost a lot. Too much, in fact. As of December 2007, there were 2.2 million VA loans outstanding in the United States. Poor and relatively uninformed mortgage decisions are made by veterans all over the country. In addition, areas like California with its high concentration of veterans are disproportionately affected when an inherently riskier and less forgiving loan is the choice du jour-California alone has 2.2 million veterans, the largest population of any state. And according to US News & World Report, three out of four homes in nearby Stockton, which is roughly an hour east of Berkeley, are either in foreclosure or entering foreclosure.

Unfortunately, the Veterans Affairs Department does not track how many veterans "crossover" into conventional loans by way of refinance or initial purchase. But according to the Mortgage Bankers Association, in 2007 the foreclosure rate for all types of loans outstanding had nearly doubled to 1.69 percent from the year prior. That was the highest rate they had surveyed since 1986. Of those loans that entered foreclosure, 55 percent were subprime conventional loans (those made to the riskiest of borrowers), 36.3 percent were prime conventional loans (those made to the safest of borrowers), and only 8.7 percent constituted VA and FHA (Federal Housing Administration) loans. Conventional mortgage loans have increasingly become more "exotic," sporting adjustable rates that are set based on various indices that the majority of borrowers are not even familiar with. In 2003, the Consumer Federation of America found that "only two percent of Americans knew their credit score" and "only three percent could, unprompted, name the three major credit bureaus." So if consumers don't know their credit score, which directly impacts the interest rates they are offered on loans, how could they possibly keep track of the LIBOR (London Interbank Offered Rate), constant-maturity treasury or cost of funds indices? VA loans are inherently safer due to the Veterans Affairs Department insuring the majority of the loan. Unlike the rest of us civilians, veterans have an option and a lifeline in a VA loan and the Veterans Affairs Department. I spent two years ensuring they were aware of their benefits and how necessary it was that those benefits work for them. Veterans should never have to come home to a home that is no longer theirs.

War To the Max

The following was published by The Commonwealth Times earlier this year.

War To the Max

By John S. Wilson

Have you checked your credit score lately? I usually check mine about twice a year, and discrepancies are somewhat common. I've seen some little stuff (an old hospital bill-that can wait), and I've seen some big stuff (the Internal Revenue Service-whoa, that can't be me). What I had yet to see - until now - was my share of a trillion-dollar war.
The Bush administration continues to tell the American people we are going to reap the benefits of our continued operations in Iraq-regardless of the Defense Department noting 30,000 injuries and more than 4,000 casualties, the escalation of conflicts between Sunni and Shiite insurgents, no weapons of mass destruction (nope, no nukes) found and insufficient evidence of a credible threat to national interests (no Yellow-cake uranium bought in Nigeria, either). And amid all the administration's talking, there has been no mention of how we will pay for everything.
After Sept. 11, the country was in a malaise, and Americans felt Bush empathized with them. Bush traveled to New York's ground zero, put on a hard hat and gave a speech. It was all very touching. The political capital Bush developed was immense, and - in 2003 - he decided to do a little shopping.
Congress passed a joint resolution authorizing "the use of force against terrorists" and appropriated the necessary funds to make this action possible. The administration estimated the war would cost $50 billion, and Iraqis would pay their share of reconstruction costs by using oil revenues.

I certainly wanted to believe the administration. This was why I felt confident enough in Bush to vote for him in 2004. Unfortunately, five years after the beginning of the War in Iraq, according to the nonpartisan Congressional Budget Office, America has spent about $845 billion on the war. Iraqis have yet to contribute any significant amount of funds, and my generation disproportionately will bear the brunt of the costs.
During Bill Clinton's administration, Joseph Stiglitz was former chairman of the Council of Economic Advisers, the group responsible for the president's economic policy. Stiglitz estimated the cost of operations will total $3 trillion. Worse yet, Stiglitz calls this a low estimate.

Undoubtedly, this debt will not be a problem for Bush, who exits office in less than a year, or - more specifically - for his generation. The baby-boomer generation - which includes my parents and other nice folks - will not be asked to foot the bill for this debt. In 20 years, the last wave of baby boomers will reach retirement age, yet this debt will still exist. If U.S. Sen. John McCain has his way, we'll still be in Iraq, too.
While baby boomers received tax cuts during the past seven years, the national debt continued to increase at a phenomenal rate.

The U.S. Treasury notes that U.S. debt rose from $2 trillion in 2001, when Bush took office, to more than $9 trillion today. According to the Federal Reserve System, the U.S. spent nearly $430 billion on interest payments this past year alone. And the interest will continue to rise.

My generation, named the "Millenials" generation by authors Neil Howe and William Strauss, will be paying for this war and its to-be-determined aftermath. We in this generation will pay for the troops who have become stationed permanently in Iraq "securing democracy" for the future; we will pay for the physical rehabilitation and mental-health care of Iraq War veterans, who return home as a shell of their former selves; we will pay for the increased interest rates of the war debt and the national debt as a whole.

We will pay the staggering costs incurred by having a less-educated, less-skilled and less-healthy citizenry that has developed because of a lack of educational parity among our youth. This inequality has been exacerbated by an endemic bureaucratic mismanagement that chronically underfunds our public-school system and by an overburdened health-care system that disproportionately disenfranchises the poor.
No longer should neoconservatives and "lame ducks" habituating Washington, D.C., solely determine how much longer this war should last. If my generation is going to foot the bill, then we deserve to be heard, too.
Next time Bush asks Congress to swipe our charge card yet again, I yearn to hear: "Sorry, Mr. President-it's been declined."