Filed under: General Motors (GM)

In that latest sign that the company is desperate for cash, General Motors (NYSE: GM) is suing some of its employees and retirees, alleging that they improperly granted the company’s family discount to non-relatives, costing the company $450,000 in sales.

Now hold up: last month GM announced that it was extending the employee/family discount to everyone, and it’s simultaneously suing a handful of employees for extending the discounts to friends. Cognitive dissonance, anyone?

Given all of the problems the company has — like billions in losses and a rapidly deteriorating balance sheet — you’d think they’d have better things to do than chase down workers for a few thousand dollars in discounts. And then there’s the fact that it’s unclear whether GM really lost anything: would people have bought the cars without the discount?

It’s puzzling — and amusing — that GM is going after employees who did exactly what the company is doing, but on a much smaller scale.

But in the world of farce and inadvertent parody, GM is the gift that keeps on giving.

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Filed under: Deals, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO), Marketing and advertising

Sheldon suggested the other day that Microsoft Corp. (NASDAQ: MSFT) should split off its web search and services arm so that it could fit better with a possible Yahoo, Inc. (NASDAQ: YHOO) combination. Instead of entertaining that notion, Microsoft still has some cash to spend to ensure, for now at least, it still has a growing presence in the web search and e-commerce arena.

To that end, the company announced this morning that it will spend $486 million to purchase Greenfield Online, Inc. (NASDAQ: SRVY) as it swiped an earlier takeover offer from the Quadrangle Group with its $15.50 per share offer. Microsoft’s offer of $17.50 per share is a 10% premium over Greenfield’s closing price this past Monday, when the offer was received without Greenfield knowing the origin. That is, until today.

Microsoft wants control of www.ciao.com, one of Europe’s leading price comparison shopping search engines. Does Microsoft really think owning a leading consumer review and price shopping search engine will bolster its Microsoft Live platform? Since it couldn’t compete in the U.S. against Google, Inc. (NASDAQ: GOOG), perhaps Microsoft is turning to international purchases as a second competitive act. Greenfield also has an “internet survey solutions” division that Microsoft will sell to an undisclosed buyer.

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Filed under: Earnings reports, Forecasts, Bad news, Apple Inc (AAPL), Dell (DELL), Hewlett-Packard (HPQ), Stocks to Sell

I have been following Dell (NASDAQ: DELL) since its 1988 IPO. No question, this was a mega-gamechanger company for years. The vision of Michael Dell creating this company from his University of Texas dorm room is inspiring. The dorm room became the new substitute for company creation as the Hewlett-Packard (NYSE: HPQ) garage served beforehand. Dell was a great American success story—but the key here is WAS.

Dell remains a sell. I wrote back in early 2007 that this company is doomed because of the total commoditization of its product line. Desk tops, laptops and servers were judged more by pricing than by functionality. Hewlett-Packard took market share away from Dell these past five years, and even the return of founder Michael Dell to the CEO role was not going to save this company.

Continue reading Once again: DELL is a sell

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The spin is out in full force folks. The Southern California housing numbers are now out and once again they show a dismal and pathetic market. Yet even in the face of falling prices ala the Wal-Mart commercials, you can rest assured that some are going to spin the data for all it […]
Related Posts:
■Foreclosures? Housing Bubble? In Southern California? Impossible!
■Real Homes of Genius: Today we Salute you Compton. Once, Twice, Three times a Short Sale.
■Emerging Economic Trends: Housing Swaps, Frugality, and Selling Homes in Lower Priced Areas.
■C.A.R. says 2007 will see a -2% Drop in California. Does This Feel like a 2% Yearly Drop?
■Doing The Housing Bubble Math Dance for California.

The spin is out in full force folks. The Southern California housing numbers are now out and once again they show a dismal and pathetic market. Yet even in the face of falling prices ala the Wal-Mart commercials, you can rest assured that some are going to spin the data for all it is worth. You also need to remember that the recent data on Southern California is for the month of July, a historically strong month simply because of seasonal factors. In addition, the month of August should look similar to this month but expect the report for September due out in October to show the actual pay option ARM smack down.

But even with seasonality the spinsters are going to use the current minor bump in home sales as a major positive:

“(DQNews) La Jolla, CA—The number of Southern California homes sold last month edged up to its highest level in more than a year as bargain hunters swept up foreclosure properties in affordable neighborhoods, a real estate information service reported.

A total of 20,329 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was up 16.7 percent from 17,424 the previous month and up 13.8 percent from 17,867 for July a year ago, according to San Diego-based MDA DataQuick.

Last month’s sales count was the highest since 21,856 homes were sold in March 2007, though it still fell 23 percent short of the average July sales total since 1988, when MDA DataQuick’s statistics begin. From last September through June, sales for each month were at an all-time low for that particular calendar month, with the exception of April which was the next lowest. Last month’s sales total was the first since September 2005 to rise above the year-ago level.”

Bargain hunters? Foreclosures in affordable neighborhoods? Isn’t that an oxymoron? If the neighborhood was affordable in the first place you wouldn’t be seeing large number of foreclosures but that is an entirely different subject. Even though this report is trying to spin the 21,856 sales as a significant jump it is nowhere close to the sales that occurred during the bubble frenzy. Take a look at this data:

July 2004: 32,988

July 2005: 31,069

July 2006: 25,628

July 2007: 17,867

July 2008: 20,329

It helps to put things in perspective doesn’t it? Of course they aren’t going to say that sales for Southern California are off by 38% from their peak July month only a few years ago. And when they say that the jump was bolstered by “affordable neighborhoods” what they mean is that the majority of the sales were fueled by the Inland Empire were homes are being sold for whatever the market will take. Let us look at the details of the report:

I first direct your attention to the stunning jump in sales for Riverside and San Bernardino Counties. These two counties make up the Inland Empire. But what the report doesn’t highlight is the actual median price of both these counties. They are now down 34 and 35 percent on a year over year basis and carry a median price of $260,000 and $230,000. Do you realize that Riverside County for example hit a high median price of $432,000 in December of 2006? So if we take that peak price to the current median price we get:

$430,000 - $260,000 = $170,000 (A 39% Discount)

Los Angeles County hit a peak of $550,000 and is now at $400,000. Nice $150,000 discount. Orange County? Orange County had a median price of $645,000 in June of 2007. That is a drop of $184,000 in one year. Would you wait a year for $184,000? I think most would.

Across the board prices are getting hammered. The reason sales jumped last month was in large part to the big jump in the Inland Empire. And of course homes are now selling for 50 to 60 percent off peak sales prices. To think this won’t happen in Los Angeles County and Orange County is simply unrealistic. It will happen. Just wait until the pay option ARM loans in these areas hit their anniversary dates.

You’ll love some of the reasons given for the fall off in prices:

“What we’re looking at is a fire sale of properties in newer affordable neighborhoods that were bought or refinanced near the price peak with lousy mortgages. What we’re still not seeing is this level of distress spreading to more expensive or established neighborhoods,” said John Walsh, MDA DataQuick president.

The median price paid for a Southland home was $348,000 last month, down 2.0 percent from $355,000 in June and down 31.1 percent from $505,000 for July 2007. That peak of $505,000 was reached in March, April, May and July of last year.

The median has fallen because of depreciation, especially in inland markets, and because of the steep drop off in home financing in the so-called jumbo category, which until recently was defined as loans above $417,000.

Before the credit crunch hit in August 2007, nearly 40 percent of Southland sales were financed with jumbo loans. Jumbos last month accounted for 15.8 percent of Southland sales.”

First, what qualifies as a more established neighborhood? Are we talking about Malibu or Newport Coast? Sure, those areas are positive but only a fraction of the entire 20,000,000+ people that live in Southern California live there. That reminds me of something said during the Crash of 1929. Mr. Rockefeller during the crash of the Great Depression announced that he was buying stocks while everyone was selling. To paraphrase a market observer, “of course he is buying. He’s the only one left with money.” Well of course these areas are doing fine! They always do well irrespective of the economy. Yet I draw your attention to the chart above again. Every single county is down from 26.9% to 35.2%. That is a major correction in one year and we are yet to see the truly “lousy” mortgages hit the actual market.

Another interesting part of the report is the implication that jumbo loans are somehow hurting the market. Did you look at the overall Southern California median price? It’s at $348,000! You don’t need a stinking jumbo loan anymore. What you need is good credit and a solid income to buy a home and not some banana republic mortgage from the bubble days. Given that our unemployment rate is at 7.3% who really wants to buy a home when their income is at risk? You think those 200,000 state workers are hungry to buy a home given that Arnold is trying to cut them down to the minimum wage? What about all the jobs in housing that are now no longer bringing in good paychecks? If you connect the dots prices are going down because the entire state was turned into a housing casino and mortgages were used as chips.

I recall clearly a few months ago hearing on the radio here in Southern California, these permabull brokers talking about how great the Hope Now program would be for buyers. When this failed, it was going to be the fantastic Fannie Mae and Freddie Mac bailout. Well of course all these idiotic programs failed because they missed one simple yet obvious fact. The economy is in distress! This is like offering lobster to a person with no taste buds. Or offering someone that lives in Palm Springs an Eskimo jacket. They don’t need gimmicks. What we need is for the state to get its budget in order and not offer tax breaks for subprime lenders. We need an infrastructure that is sustainable and not one built around finance, insurance, and real estate. Did people really think that we were going to trade homes to one another ad infinitum? Sure makes that $729,500 loan limit seem like an absolute boneheaded move.

I was going through some of the historical “help” that was going to save the market and have compiled a list here for your mental historical note keeping:

Of course these programs are all failing because they fail to address the structural problems of the system. That is, this was a bubble of epic proportions and the only way to sustain it is to bring back the toxic credit that fueled the market. I was digging through some images I have saved and found this screenshot of Hank Paulson on CNN from December of 2007:

Subprime help is indeed on the way. On the way out the door that is.

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Post from: Dr. Housing Bubble Blog

Southern California Housing Report: New Housing Motto: Foreclosure Data is so Bad, it has to be Good! Median Price Down 31% to $348,000.

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Related Posts:
■Foreclosures? Housing Bubble? In Southern California? Impossible!
■Real Homes of Genius: Today we Salute you Compton. Once, Twice, Three times a Short Sale.
■Emerging Economic Trends: Housing Swaps, Frugality, and Selling Homes in Lower Priced Areas.
■C.A.R. says 2007 will see a -2% Drop in California. Does This Feel like a 2% Yearly Drop?
■Doing The Housing Bubble Math Dance for California.

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Filed under: Good news, Options, Technical Analysis

Phillip Morris International (NYSE: PM - option chain) shares are relatively flat today in the face of a bearish market as the company announced it will raise its regular quarterly dividend to 54 cents. As long as they pay that dividend quarterly, then this makes a tidy 4% yield.If you think that the stock won’t fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on PM that can take advantage of that dividend.

PM opened this morning at $53.76. So far today the stock has hit a low of $53.66 and a high of $54.46. As of 12:35, PM is trading at $53.96, up 4 cents(0.1%). The chart for PM looks bullish and S&P gives PM a positive 4 STARS (out of 5) buy ranking.

For a bullish hedged play on this stock, I would consider a March covered call at the $60 level. A covered call is an options position that combines the purchase of stock with the sale of call options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we will make an 8.4% return in 7 months if PM is above $60 at March expiration. But unlike our normal credit spread trades, that is not the goal here. This position turns out strictly better than buying and holding the stock if it is below $61.25 at March expiration, and it makes a reasonable return in the unlikely event that the stock rises to that level. Plus, you can probably expect to catch at least two dividend payments over that time. We get about 2% of downside protection on this pretty stable stock by using a covered call. Learn more about this type of trade here.

PM has shown support just below $54 recently.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in PM.

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Here is another guest post by Raoul Badde. Raoul Badde is an Ambassador to CAMB and has worked in all aspects of mortgage lending for over 8 years. He currently works with and advises mortgage brokers through www.your-ae.com. Enjoy! If you’d like to submit an article for publication here email me directly.

Before we get started I would like to direct you to two excellent posts:

• The 7 most important questions to ask your loan agent before starting the mortgage process
• 5 Ways to Know You Have a Legitimate Good Faith Estimate

These are perfect starting points for your basic loan originator interview.

Since the passing of the recent housing bill (HR3221) many of you may be asking more questions about FHA financing as an option. For those of you in the market for a new home you’ve likely been presented an FHA loan as a financing option.

If you currently have a mortgage and were looking to consolidate debt or get a little bit of cash-out, you might have been shown an FHA loan as a possible option.

If you are shopping for a mortgage of some kind right now and you have some “dings” on your credit, a loan officer may have brought this loan up as an option for you.

This post is going to be a little lengthy but it will all be useful information and will help you to navigate through the myriad of pieces comprised in an FHA loan.

1. Where did FHA Come from:

The FHA (Federal Housing Administration) was originally established in 1933-34 to give jobs to the Trades people of this country immediately following the Great Depression. It did so by encouraging existing home owners to take out home improvement loans for and put this group of people back to work. The original program was a tremendous success putting over $250 million dollars back into the Economy and working to stabilize the economy and workforces of our country.

In 1934 The FHA expanded its program to include financing for First Time home buyers and homebuyers of properties in distressed neighborhoods to help bring jobs and people back into areas deserted during the Depression. The FHA and its lending programs is once again looking to bring a similar stabilizing effect to our Housing market. We’ll see if it works.

2. Screen Your Broker/Loan Officer:

First: you need to familiarize yourselves with this little engine brought to you by HUD for people wanting to look up Authorized FHA Lenders (brokers). HUD requires that every loan officer that is working on an FHA loan is licensed, paid W-2 wages and works for a HUD sanctioned company.

However, there’s a little loop hole that allows a loan officer who is not “HUD Approved” to work as an assistant to the actual loan officer but they may not earn over $1000 or 1% AND by HUD’s definition and RESPA’s requirements you’re supposed to pay these assistance fees out of pocket (not out of proceeds or from broker credits).

My Advice: Stay away from these assistant led transactions.

If you can’t find the company you’re talking to on this search engine then you need to thank them for their time, inform of this fact, and move on.

What we’re seeing is a significantly more committed loan officer and company owner that is working above board and originating HUD business. These are people that will ace your 7 questions and point out the 5 ways listed above for you. Another piece to consider when selecting a broker for your transaction is whether or not they are a member of their state broker association. Members of these organizations are properly licensed, have taken the required continuing education courses for their state and are required to follow a code of ethics that they will be happy to share with you. Here in California the group is called: CAMB (California Association of Mortgage Brokers), they carry other similar such names in your states. You can start by looking for them here on the National Association of Mortgage Brokers (NAMB) site if you’re in another state.

3. Financing Options for FHA loans:

There are many different options available for you as a borrower when it comes to using & utilizing an FHA loan.

• You could obtain a cash-out loan for 95% of the value your home
• If you’re in a high cost area, depending on your loan amount, it could be lower @ 85%
• You could refinance an existing 1st and 2nd lien (both of which had been open for 12 months) together into a rate & term loan for 97% of the value of your home.
• You could in theory refinance a 1st lien and subordinate (leave in place) an existing 2nd lien if that lien holder would oblige your request (there is no CLTV cap under FHA).
• You could purchase a home with as little as 3% down (increasing to 3.5% on October 1st)
• You could get a gift for your down payment on your house
• You would still be able to obtain financing for a refinance or purchase even with some credit “dings” or lower fico scores (the market floor is around 580) without any big adjustments to your interest rate.
• You could leave collections and old delinquent cards in place in order to get your mortgage financing in place without having to pay off these items
• Your Program options include:
• 1/3/5/&7 year ARM’s
• 30 year fixed rate
• 15 year fixed rate
• This loan is only for 1st Time Homebuyers, Owner Occupant Homeowners and in some cases move-up buyers

4. The Truth about Mortgage Insurance:

Whether you have 40% equity in your home or you are buying a new house with 3% down you are going to be faced with Mortgage insurance. Now, the reason that FHA is able to offer some of the products it offers is because it is basically an insurance program. In fact, it’s insured twice: once up front at the closing of the loan and again every year, paid monthly, throughout the life of the loan.
As someone who is looking at FHA as a financing option, you have to be aware of the Mortgage Insurance.

1st: the Up Front Mortgage Insurance Premium (UFMIP) will always be 1.5% of the loan (Beginning October 1st- currently varies on FICO & LTV).

2nd: the Annual Mortgage Insurance or Monthly Mortgage Insurance (MMI) of .50% of the balance of your loan over a 12 month period will be with you for (nearly) the life of the loan.

There are two instances when you can remove the Monthly Mortgage Insurance coverage required by the FHA.

1. you have paid your MMI for a total of 60 months from date of closing
2. you have paid the original loan you took out down to 78% of what was originally borrowed.

There is a third quasi instance of removal whereby you obtain a streamline refinance (or FHA to FHA) loan within 3 years of your original loan and then you get a factor of your UFMIP returned to you but your clock starts over with respect to MMI.

If you obtain a loan with an amortization period of 15 years (15yr Fixed) then your MMI would be cut in half to .25% of your loan amount over a 12 month period.

When considering the options for the UFMIP you have the right to finance this additional cost and NOT affect your Loan to Value calculation. This would then be added to your loan balance and you would calculate your payment based on the new higher loan amount over a 30 or 15 year term.

You may also pay this UFMIP at closing out of your proceeds or as a closing cost. It may also be paid for by any credits you may have obtained in writing your purchase contract.

It will show up on your HUD (final settlement statement) as a closing cost charged to you as the borrower whether you are financing it or not.

5. The Real Deal about Points/Discount/Yield or rebate:

Your lender has many options when working on your loan and itemizing charges for your loan is just one of them. Closing costs for these FHA loans can, in some instances, be higher than on conventional loans. Appraisals are most definitely going to be a little more expensive because of certain requirements. Also, as there is a significant amount of additional paperwork required by your loan officer, you may find these loans to carry higher associative fees then on conventional loans.

In California lenders/brokers aren’t allowed to charge more than 5% in total fee inclusive of Title & Escrow, recording and other settlement charges. In HUD’s rule book, the limit for an Origination point is 1%. However, your lender or broker may be charging you a discount fee of up to 2% OR if you walk into a Bank Of America or Wells Fargo branch they may be collecting “yield or rebate” and not even disclose it to you. Brokers (especially in California) are required to show you every single fee that they earn, charge or deliver with respect to your loan closing. Retail (BofA, Wells etc.) aren’t required to show you many of these associated fees, so it can be very confusing to properly determine the true cost of your loan.

If you come across a Good Faith Estimate showing discount points being charged to you keep in mind that these may not be used to buy down the interest rate for your loan, your loan officer or broker could simply be pocketing these fees for themselves. So: make sure on your final settlement statement that if there are discount points AND you have agreed they are for the purposes of obtaining a lower rate that they are being paid out to the provider of the end financing and not to the broker/loan officer.

Appraisals typically cost about $500 in California because your appraiser is acting as a “mini” home inspector for the final lender. The appraisal will never substitute an actual inspection, but you will notice the appraiser poking and prodding where you may have never seen him do such things before. Don’t worry, it’s normal.

All other charges are the same as with any other type of loan. There are not special recording or processing fees involved with funding an FHA loan, if your lender/broker tells you otherwise you may do well to find another option. Typical Lender fees range from $700-1100 and typical broker processing fees range from $450-$600 per transaction.

As we head full steam into the wind that is the housing market of 2009 and beyond you can be assured that you will see many more Government loan programs in any many instances these will be the best priced, lowest cost option for your needs.

As with any financial lending product it is important to remember: do your homework and only work with those brokers most forthcoming about the process, their costs and the timing of the transaction.
Brokers that carry the seal of CAMB/NAMB or the Lending Integrity Seal should be given extra consideration for their willingness to uphold the ethics and best practices in their industry.

Raoul Badde
CAMB Ambassador

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Here’s another guest post, this one comes from Josh Lewis. Josh and I have sparred over many topics in the mortgage space and through that conversation I’ve learned a lot from Josh. I have tremendous respect for him and his understanding of the mortgage industry.

Josh Lewis has assisted California homeowners as a Certified Mortgage Planner, Certified Liability Advisor and licensed real estate broker since 1995. Josh is a recognized expert on mortgage planning, equity management and the cyclical trends in real estate. You can learn more at his website www.JoshLewis.net or contact him via email at info@JoshLewis.net.

Lost in all of the hoopla and back patting after the passage of the recent housing bill is an important provision that makes it illegal as of October 1 for sellers to fund the down payment for buyers of their homes by funneling the money through a non-profit third party. These down payment assistance programs (DAP’s) have been a huge support and source of liquidity in the current market. FHA originations are at their highest levels in over a decade an currently 2/3rds of all FHA loans make use of down payment assistance programs to effectively create an FHA 100% financing program.

Banning DAP’s has been on HUD’s radar for several years due to the fact that loans with seller funded assistance default at nearly 3 times the rate of traditional FHA loans where the buyer provides their own funds to close. This isn’t exactly an apples to apples comparison because HUD will continue allowing down payment assistance from 3rd parties not related to the transaction which can mean family members, employers and government entities among others.

When comparing FHA loans with 3rd party down payment assistance and seller funded down payment assistance the default rate is pretty similar. Seller funded assistance results in a 94% success rate while 3rd party assistance yields a marginally better 95% success rate.

At the end of the day, it’s great that the government is looking out for the bottom line and seeking to minimize losses from FHA loans in a declining housing market. However, there are a few important things to consider. First, we must recognize that this will have a further negative impact on an already weak housing market. Second, we must remember that the GNMA bonds that all FHA and VA loans are placed in have only resulted in a loss one time in their history when HUD made an ill timed attempt at a negative amortization program during a housing downturn.

These are full doc loans with a proven system of mortgage insurance that protects against losses even in periods like the early 90’s when home prices took a pounding. With that in mind a bill has already been introduced in Congress to authorize the use of seller funded DAP’s with some precautions. The new program will allow assistance to anyone with a credit score above 680 (which correlates to a higher likelihood of repayment mitigating the higher default rate of loans with seller assistance.) Borrowers with scores from 620 to 680 would also be able to use seller assistance but would be subject to higher mortgage insurance premiums to cover the losses from a higher default rate. The bill leaves open the possibility of opening the program to those with scores below 620 but doesn’t specifically authorize it.

The bottom line is that FHA currently funds nearly 20% of all loans in the US. If 2/3rds of those loans disappear with the banning of DAP’s you’ll see almost 15% of the liquidity sapped from an already credit starved market. If half of these borrowers manage to scrounge up a down payment from somewhere else, you are still looking at 7-8% of current buyers being taken out of the market.

If we’re going to outlaw DAP’s, how about we wait for a healthy market that can handle a punch to the gut. Until then, I recommend supporting HR 6694 to allow down payment assistance with proper safeguards to protect the long term viability of FHA loans.

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