Tuesday, May 8, 2012
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How Long Before a Bubble Finishes Bursting?
Bank of America today announced details of how it will honor its part of the $25 billion settlement reached this year with federal and state agencies over fraudulent foreclosure document processing.
In a first of its kind, the mega bank will offer 200,000 certain mortgage customers an opportunity to reduce the principal balance of their loan. An eligible borrower could get as much as $150,000 of their outstanding balance reduced.
Customers must respond to their letter to take advantage of this offer. Those who mistake it for junk mail and toss it out will be sorry.
The borrower still must qualify for the reduction. They must be 60 days late on their mortgage payment as of January 31, 2012. The mortgage has to be for more than the home is currently worth and held by Bank of America or serviced by them.
The borrower must document their income to show that they can make the monthly payments under the new terms. Certain other requirements apply. These are mainly borrowers who fall between the cracks of existing modification programs.
Borrowers who qualify will see their monthly mortgage payment reduced to 25 percent of their gross income, achieved by lowering the principal balance to whatever it takes to equate that monthly payment. If enough people qualify, it could cost Bank of America more than they are committed to in the settlement.
The housing market is finally beginning to stabilize according to economic indicators. So how do we assure nothing like this happens again?
One answer may be to reconsider the appraisal process. It could stabilize the true value of a property and be an early indicator of impending crisis.
Here's an example. I live in a resort area. It's a fairly small island with a comparable sized population. There aren't many appraisers to choose from when need arises.
Our area was among the first to benefit from skyrocketing property values. So we called an appraiser out as the trend peaked. We were shocked to hear the results. It was great news to us that our home was worth four times what we paid for it only five years earlier.
Yet there was a level of discomfort. This appraiser was the founder of one of the town's first real estate offices. His family owned a good deal of the island. Might he have motive to inflate home values?
Properties were scoffed up by house-flippers quicker than you could get your boat in the water. The earlier ones made a fortune. Those that got on the bandwagon too late lost a bundle. Average people didn't have the money to buy at inflated prices.
The bubble burst, foreclosure season began. Current valuation methods rely heavily on comparable sales.
Is this same home, located on the same property and with considerable upgrades performed over those years now worth less because a similar sized home three streets over sold at a foreclosure price?
Standard models indicate so. We're fortunate that our locale keeps values comparatively stable in relation to the rest of the country. Mortgage News Daily reports 28 percent of U.S. homes are underwater as of March 2012.
How many would be so if their value were more accurately assessed?
Former Fannie Mae executive Edward Pinto and his new organization, American Enterprise Institute, is co-sponsoring a conference with the Collateral Risk Network in Washington, D.C. in August to address this issue.
Pinto believes that relying too much on comparable prices to assess home values played a large role in the housing bubble. He believes rental income and replacement cost studies should be re-introduced to the formula as they were pre-1980s. House prices rising significantly faster than rental rates and construction costs could signal an impending bubble.
Revamping appraisal criteria could help establish a stabilized value. Local economic conditions and market trends could also be used in determining stabilized value. Banks could more easily size their loan with confidence of being repaid.
Whether or not new appraisal models would have helped the housing crisis is debatable. Certainly policies; such as encouraging people who couldn't afford homes to buy them, risky mortgage products and regulators turning a blind eye played a major role.
But stabilizing home values can sure make a difference to those innocent homeowners caught up in the aftermath.
There are many designs for the paper clip. Global Sources, a major sales liaison between manufacturers and businesses, list 587 different paper clip products offered by 52 separate suppliers.
The most popular is the simple Gem paper clip featuring a wire bent into a double oval. It was made around 1870 by England's Gem Manufacturing and introduced to America 20 years later.
Gem patented the name of their company, but never the invention of the paper clip. Nobody knows who to credit for this masterful concept that has truly withstood the test of time.
Its popularity skyrocketed in 1899 when William D. Middlebrook of Waterbury, CT patented a machine to produce the paper clip efficiently. It allowed for mass production, therefore, offered inexpensively.
Patents exist for dozens of other paper clip designs. But the inventor of the most popular of all will never reap from its design.
Most great ideas are built on a product that already exists. You can only once introduce the wheel or fire.
Necessity spurs creative design. So the most efficient ideas will likely come from someone currently operating a piece of machinery or facilitating a process rather than a high-priced mechanical engineer contracted to solve a problem.
Does this sound like you? Have you ever worked with a piece of machinery and thought it would work so much better if only ...? Or managed a process to realize more efficiency could be achieved if it were streamlined in a particular manner? Used a tool or device that might work easier or serve multiple purposes with a little tweaking?
Patent it! If you noticed something, another user might stumble on that same concept. Why should they reap the benefits?
What is a patent? As defined by the U.S. Patent and Trademark Office (USPTO) website:
A patent is a property right granted by the Government of the United States of America to an inventor "to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States" for a limited time in exchange for public disclosure of the invention when the patent is granted.
The actual inventor is the only one who can apply for a patent. It must be a new, non-obvious and useful process, machine, article of manufacture, composition of matter or improvement of any of the above.
Laws of nature, physical phenomena, abstract ideas and non-useful inventions such as perpetual motion machines or anything offensive to public morality may not be patented.
Literary, dramatic, musical and artistic works need Copyright protection, not a patent.
Utility and plant patents are granted for a 20 year term based on the date you applied for the patent. Design patents last 14 years from the date the patent is granted.
A patent is granted by the U.S. government. Read that to mean there are fees involved. There's a provisional application fee assessed to cover the cost of the USPTO examination of your claim. They need to research whether a similar product already holds rights before granting your claim. This is non-refundable whether or not your claim is approved.
If it is granted, there's an issue fee along with maintenance fees due at three designated intervals after your patent is approved. Additional fees may be required. Find the current fee schedule and frequently asked questions about fees here.
Companies willing to help you with the filing process are advertised everywhere. You may want to contact them after reviewing the fee schedule to gain a good idea of what services you'll actually get for your money.
But you can skip the middleman and file yourself. A flow chart detailing the steps to take along with a link to file electronically can be found on the USPTO website mentioned above.
The markets sold off sharply today as investors worried that the European debt crisis may not yet be over. The French elected Socialist Francois Hollande over incumbent Nicolas Sarkozy. This rattled the markets. The cold hard fact is France is bankrupt - the result of years of deficit spending on a ballooning welfare state. Sarkozy was making the hard decisions required by the other members of the European Union, namely Germany, in order to arrange a bailout. But the austerity measures proved too tough for the French electorate, who voted for a return to the reckless spending that got the country into the mess.
If that weren't enough, weekend elections in Greece caused loss of control by the two leading coalitions that were enforcing the same tough fiscal medicine on that bankrupt country. The Greeks, like the French, don't appear ready to pay their own way, preferring that the country's wealthy and the Germans pay the entire tab. The country's wealthy may have no choice, but it remains to be seen if the Germans are so generous, and many analysts are predicting the EU to fall apart as a result. If an EU collapse were to occur, it would have worldwide implications, and the potential for the U.S. to dip back into recession is almost a certainty.
"An equal share is usually a very small share." - Former British Prime Minister Margaret Thatcher on Socialism
Now for the finale we've all been waiting for:
Then it happened. Another horse stumbled, slamming Seabiscuit into the rail. Seabiscuit nearly went down, but managed to struggle on. He flattened his ears and snorted in protest. Jammed against the rail - the duo was now surrounded by straining horses - with the churning hindquarters of leaders Whichcee and Wedding Call dead ahead. They were trapped! As they approached the final turn, Red measured the distance to pull back and maneuver around the outside of the pack. It was too far. Not even Seabiscuit could pull off that feat. Red again cursed himself, if it hadn't been for his pathetic start, if Woolf had been aboard, Seabiscuit would be way out in front by this point. They were trapped with no way out. Suddenly, Red was aware of the cool touch of the St. Christopher medal around his neck, given to him by his wife to wear for luck during the race. Another jockey would later tell of hearing a chilling, plaintive wail and then realizing it was Pollard shouting out a prayer. "Dear God, oh please dear God, don't let us lose because we are trapped. Oh please God, please - just give us a break!"
And then it came: As Smith had predicted, Whichcee faltered, sagging into the rail. At the same instant, Wedding Call began his final drive, going slightly wide in the final turn. A sliver of daylight opened between the two leaders. Red measured it. Maybe it was wide enough. Maybe not.
Seabiscuit saw it too and snorted and tugged at the reins. Pollard's mind raced, as once again he measured the long way around. Too far, not enough race left. He eyed the sliver of daylight one last time and made his decision. He would need every last ounce of Seabiscuit's remaining stamina to sneak through the slender gap that almost certainly would close within seconds. Still barely able to stay aboard, above the roar of the churning horses and shrieking jockeys, Red shouted two words: "Now, Pops!"
Seabiscuit responded emphatically, surging forward through the narrow gap. The jockeys aboard Wedding Call and Whichcee saw what was happening and desperately tried to close the gap. But it was too late. In three strides, Seabiscuit filled the gap.
Seabiscuit dispensed with his usual custom of slowing to taunt his challengers, and in another three strides burst into the lead. Red watched as his fragile leg passed within inches of Whichee's straining body. The noise from the crowd reached a deafening roar as Seabisuit charged for the finish line - alone.
On his feet in his private box, Charles Howard's legs failed him as he slumped forward - barely caught from falling over the railing by members of his entourage. Tears streamed down his face.
Marcela Howard, having believed she had talked her husband into the riskiest decision of his life, had stayed in the paddock, to nervous to watch the race. Yet when she heard the announcer calling Seabiscuit's name, she could stand it no longer. She leapt aboard a nearby fire truck to try to get a view. Tears flowing she screamed "Go Biscuit! Go Red!"
Aboard Seabiscuit, Pollard thought "We're alone now." Two furlongs to go and the roar from the crowd reached an even higher crescendo as a closer broke from the pack and bore down on the duo. Red could hear the approaching footsteps from behind - but never looked back - he knew who it was. Buddy Haas drove Kayak II for all he was worth. Then Red felt a subtle pausing, a shortening of stride - a barely perceptible slowing.
One announcer calling the race, with a skilled eye was one of the few others who recognized Seabiscuit's change in stride - and determined it was fatigue. From his vantage point on the rail, Tom Smith saw it too. Smith didn't think too much of most announcers, but always strategically located himself close to a radio speaker. Although not often, announcers occasionally relayed things from their special vantage point that were hard to detect from the rail. Tom heard the announcer saying, "Looks like ole Seabiscuit is tiring. Looks like Kayak II will catch him, but what a great race! The Howard stable can be proud..."
Smith trained his field glasses on the dueling horses on the homestretch - now side by side - "his" horses. First he studied Kayak II and Buddy. Kayak's ears were flat on his head, and Buddy's arms were full forward - an all out effort.
And then he focused on Seabiscuit whose one ear was cocked to the side - seemingly to playfully watch his opponent. Smith broke into a wide grin. "He's taunting him," Smith whispered aloud. This was confirmed by the beaming smile on Pollard's face. Smith's own eyes now grew misty, as he turned and began his long walk to the winner's circle - one of three who already knew the race's outcome.
Aboard Seabiscuit, Pollard had allowed his mount to indulge in taunting his final victim - one last time. Up ahead he could see the finish wire fast approaching, and knew the end was near. And then, one final time, Red Pollard "asked" Seabiscuit for more - and was rewarded with what author Laura Hildenbrand described as "the sweet press of sudden acceleration." With just four good legs between them, against all odds and with a medal of St. Christopher, the two soul mates swept under the wire first - alone - and into the history books....
After the race, Wedding Call's jockey would describe Seabiscuit's astonishing surge through the narrow gap and quip, "It was almost as if, as if Seabiscuit had wings!" Perhaps on this day, he did.
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