Sunday, January 31, 2016

Is A HomeReady Mortgage Worth It?

Welcome back!  There is a special type of feeling that comes when closing on your first home.  A mix of fear and accomplishment, obtaining a mortgage is very much like marrying the person you fell in love with.  Your partner after 30 years will have enriched your own life beyond what you could've experienced alone.  That's if you married the right person.  Your home after 30 years will have also enriched your life, but financially, if...

  • You bought it at the right price, and
  • You made changes to improve its value in the dollar for (almost) dollar zone, i.e., the kitchen, bathroom, extra bedroom, extra bathroom, e.g., and
  • You managed to pay off the entire loan balance.

Now if you didn't marry the right person, statistics will prevail and you will most likely end up divorcing.  The same goes with a home purchase.  If you paid too much and got the wrong type of financing, you will rue the day you signed the loan docs.

What I am trying to say is this:  Qualifying for a home loan is only half of the courtship.  The other half is finding the right partner.  Just because you can get married, doesn't mean you should, right?

I just finished reviewing the HomeReady Mortgage lender fact sheet.  Before I break it down, a little bit of background.  Fannie Mae, the quasi-government mortgage finance behemoth, let this dog loose in December.  Its goal is to get low- to moderate-income borrowers in a dwelling by allowing you to use everyone's money except your own for the down payment and closing costs.  Sounds pretty gravy, doesn't it?  Until you read the terms.

For starters, you still have to be credit worthy.  Isn't that the problem these days?  Most low- to moderate-income folks have poor credit because they rely on their credit cards to get by month to month.  Then there's Fannie's bold move to lure you into breaking real estate's cardinal slogan: Location, location, location.  The program insists you choose a home from the fine selection that exists in the hood.  That's slang for ghetto.  I grew up in San Jose's east side.  As a beginning (low-paid) teacher, the last thing I wanted to do was purchase a home anywhere near the neighborhoods I grew up in.

Fannie's trying to get good, hard working people to spruce up poor neighborhoods.  I get it.  But unless your city is on the up and up, I would not think with my heart here.  You can go elsewhere, meaning, buying in a better neighborhood is allowed provided your income isn't greater than 80% of the area's median income (AMI).  Say the neighborhood you want to buy in has a median income of $100K.  Your income can't exceed $80K.  Since your income is what it is, unless you get a raise, you're stuck with downgrading the target neighborhood to qualify.

HomeReady will finance up to 97% of the purchase price.  You know what comes with that?  Mortgage insurance!  But wait...they'll help a brother out by reducing your coverage requirement below industry standard.  Right now you'll pay between 0.5% to 1.0% of the entire loan amount a year so maybe Fannie will hook you up with a rate on the low end. Instead of paying $1,000 a year on a $100K loan, it'll be $500 or an extra $41.75 per month.

You know what this HomeReady program reminds me of?  An arranged marriage.  We see these being the most vile of hardships on the main character in Disney movies: Aladdin (Princess Jasmine being forced to marry a Prince by her country's laws), Cinderella (Prince Charming being presented with Lady after Lady of this House and that House), and so on.  That's not how it should be.  One should marry for love.  And one should buy a house with the goal of one day turning a liability into an asset.  For this reason, I give the HomeReady program an "A" for effort in trying to screw people with more financial engineering.

Stay clear of this program and don't buy a home unless you have a 20% down payment, great credit, and a stable well-paying job.  This has been another installment of CCM blog.

Gov. Rick Snyder for prison!

Sunday, January 24, 2016

Why You're Keeping Too Much In Your Checking Account And What Is the Right Amount

Welcome back!  I read an interesting report this weekend on consumer checking.  The one page document called, Consumer Checking - Reflects the Times: High Average Balances Mean Difficult Economy, reports that the current average balance in people's checking account is $5,459.  As can be deduced from the title of this report, this amount is high compared to past years.  From 1994 to 2008, the "normal" average was about $2,000.  What was happening in our economy that lessened American's grip on their cash reserves during this time period?

The 7 Best Online Checking Accounts of 2020

Well, of course!  The average American was feeling rich back then because of real estate.  Why save cash when you can invest what you make in a subprime mortgage?  We all know how that played out.  Now it is obvious that people are frightened.  The average American doesn't invest in securities and that is probably a good thing right now.  Many of them don't have the credit to qualify for a home loan.  Rates on CDs and Money Market accounts have been pathetic for a very long time.  All of this to say:  Well, duh!

Where is the average American to turn to with the extra cash they save each month, beyond their monthly needs?  A retirement account!

First, lets qualify how much is too much to keep in your checking account.  If you have done leg one of your finances, keeping a budget, then you should know how much goes out each month.  Roughly $5,150 total goes out each month in expenses in my household.  To give ourselves a cushion, should we accidentally overspend, we keep an extra 15%, or a little over $700 in our checking account.  But I'm an aggressive investor and I have great credit.  Meaning, I deploy as much available cash on hand to buying equities in my various accounts.  I also already have two retirement accounts working on automatic, my teacher's pension and a 403b.

If you keep more than 20% of your total expenses as a reserve in your checking account, then you probably are saving too much!  As an easy example, lets say you spend $4000 a month on all things.  Let's also say that your take home is $5,450.  Keeping only $800 (20%) in your account, or $4800, means you can put $650 to work!

If you have an emergency, like your hot-water heater breaks, use some of that $800 and put the rest on a credit card.  The following month you can adjust, reduce, how much you will put aside for retirement or a high-yield savings account to cover the entirety of what you have left to pay on the hot-water heater, i.e., pay the credit card in full.  Now you've also kept your credit history from gathering dust.

I know many of you are barely getting by.  This article isn't for you.  This is for the majority of Americans, who apparently are keeping too much cash in their checking account.  Stop doing it!  If you're worried you will need the money, then at minimum place the extra savings in a high-yield money market account.  You can withdraw what you need and have it available to you within a day or two.  A six-month CD is an alternative for people who are more comfortable with their situation.  Finally, a Roth IRA is the perfect place for anyone who doesn't have a retirement account and wants their money available to them at some point.  Cash contributions can be withdrawn penalty free from a Roth IRA.

If you want to read the report, you can find it here: Moebs Services Study on Checking Accounts.  Don't miss out on higher returns elsewhere worrying about the future.  Fear is the enemy of living and risk-taking.  So stop listening to your inner cautious voice and take action.  You'll soon be on your way to becoming rich.

Thanks for reading.  See you next time.     

Sunday, January 17, 2016

Makerthreads Wants To Teach You To Code And More With A SCIO

My name is Dan Graboi. I'm the founder and CEO of Makerthreads.  Makerthreads is an education company dedicated to developing products that make learning about programming and STEM (Science, Technology, Engineering, and Mathematics) easy, fun, engaging, and accessible to everyone.
Before starting Makerthreads, I was a consultant for 20 years in the health technology industry.  I developed machines to rapidly synthesize potential new drugs (“candidates”), and confirm their molecular structure using fast supercritical fluid chromatography (SFC) instrumentation.  Moving on, I helped develop and test medical devices for life support (ventilators) and pulmonary function testing (PFT).  During those years I held titles of Chief Scientist and Principal Scientist.  It was very satisfying, working to help keep people alive.
As a child I was attracted to science and technology.  I was lucky to have a dad that took the cars out of the garage and created a workshop-laboratory instead so I could work on my hobby - electronics.  In high school, I designed an electronic teaching machine.  In college, I put the radio station together. The graduate school I attended was called The Center for Cognitive Processing (CHIP) at the University of California, San Diego.  There I did experiments to learn more about how human perception, memory, and attention work.  I took a year's leave of absence from graduate school to work for IBM at the Boston Programming Center.  We worked on the development of a new computer language called FORMAC.  There I learned extensively about programming, including assembly language, and the internals of programming languages and compilers. IBM gave me the keys to the 7th floor of the building that housed the giant mainframe that ran the entire building.  I would come in at night, turn the whole thing on, get the wall of tape drives going, the rows and rows of disk drives, and the high-speed chain printer which could pump pages and pages of print out per second!  That was fun.
The Ellen B Scripps

I learned about today's electronics while working at Scripps Institute of Geophysics and Planetary Physics (IGPP); we made underwater and on land capsules that would record seismic events.  While on the Ellen B Scripps ship, we would drop the capsules overboard.  Weeks later, explosive bolts would release them from their ocean-bottom tripod mounts, and they would float to the surface.  We found them using radio direction finders.  That too was fun.
I always loved learning and thought I would one day become a teacher.  My career has given me several teaching opportunities.  With instructional videos, I taught engineers how to service a pre-Internet communications program on the Control Data CYBER 18 mini-computer.  At another time I was the Director of Education at a San Diego company called, Action Instruments, one of the first makers of computers specifically for industrial use.  There I put together and taught a course on industrial computers.  And I had several years of work on a dolphin communications project headed by Dr. John Lilly, who said that ‘We don't have to look in outer space for aliens to communicate with, dolphins are right here on our own planet and we should learn to communicate with them.’
The Epiphany:
A few years ago I came to a realization that I wanted to give back in some way.  I've had my wonderful garage-laboratory in my home in Encinitas, CA all this time.  I thought, I can make anything tech that I want!  I decided to create an educational product.
Today, Americans have incredible electronic components.  But there is a critical shortage in our country of young people who understand how to program them.  Makerthreads was founded in order to provide a spark to ignite passion in all people who may have an inclination towards science and technology.
In order to teach something, I know you must make every step along the way easy and interesting.  After working with perhaps 30 different computer languages, I always come back to BASIC as the absolute simplest language to introduce people to the concepts of programming.  Bill Gates also loves BASIC.  The SFC system I mentioned above was done entirely in VISUAL BASIC 6, perhaps one of the greatest languages of all time, now gone.  When I discovered the BASIC PRO language developed by Mikroelektronika, and saw how it performed on the fabulous "PIC" microcontrollers made by Microchip, it was clear that the product I would make to teach programming of real-time systems, of microcontroller-based devices that work on the Internet of Things, would be first programmed in BASIC PRO.
Mitchell, my adult son, came up with the name for our first product, “SCIO,” pronounced, “SKEE-oh.”  It is the root of the word “SCIENCE” and means, “to know.” Designing SCIO was challenging since it had to be more than simply a printed circuit board that plugged into a computer. It had to have an environment on the PC that allowed developing programs for the Microchip PIC microcontroller as well as allowing the PIC to perform operations that would involve the Internet as well as the Windows operating system (and also permitting battery operation).  And, beyond that, it had to integrate education at every step.
Fortuitously, Mitchell had a great professor at Mira Costa College.  Mitchell mentioned to him that he was involved in a start-up that could "change everything" in the field of technology education.  When we met and explained SCIO to professor Eric Robertson, he decided to become a part of the effort, supplying much needed assistance in marketing and other areas where Mitchell and I lacked experience.
So far, being entrepreneurs has been immensely rewarding.  The events that happen are often surprising and go beyond what we ever imagined.  We are meeting interesting people, learning new things every day, and are energized by the thought that what we are doing will help people grow.
But, the proof will be in the pudding.  So far, this adventure has cost money. And, so far, no money has been made!  Eric pointed out to us (paraphrasing the Bhagavad Gita) that, "We are entitled to our labor, but not necessarily the fruits of our labor" -- an important principle.  We have many more ideas we would like to productize and insert into the culture of the world. But first things first - we are starting with SCIO and will measure our ability to do more with its success.

From left to right: Eric, Mitchell, and Dan with SCIO

Our vision for our company is to move out of the garage and into our own campus.  We have already picked out the perfect location for the campus.  We know that the "campus" will likely start with one or two rooms in a building.  We want to attract the highest quality of educators, presenters, skilled videographers, scientists, programmers and engineers.  This will require more funds.  Our first step is to launch our product on Kickstarter.  We are poised to grow and can't wait to see what happens!
For more information, contact:

Visit our website:

Sunday, January 10, 2016

What's More Surprising Than The Stock Market's Performance So Far?

The stock market is off to the worst start of the year ever.  It took us all by surprise.  When the price of the two equities I own (Alcoa and GM) fell below my cost basis for each, I did some buying.  A concentrated portfolio of only two to three equities has worked for me, someone with only $100-$200 of cash available to invest at the start of each month.  I don't have a lot of money in my Brokerage account these days, so spreading what little I do have diminishes the impact of any successful trade.  Here's how I did last year: 

I made a whopping $645.47, only a little better than my net gains for 2014.  I would be laughing at this amount, if it weren't for the fact that 2015 was an extremely difficult year in the market for every investor, and I am proud to have traded all year and actually netted a profit, albeit a small one.

The past is the past.  2016 has surprised indeed.  I'm hanging tough, despite seeing unrealized losses add up like everyone else.  My advice to you is simple...take what the market gives you.  Long-term investors have opportunities in the making in any market.  Now onto bigger surprises of the year so far.  I've ranked them in order from most to least surprising.

1.  El Chapo gets captured...alive!  The most powerful drug boss in the world was apparently comfortable enough in his home state to host Sean Penn at one of his ranch homes.  I'd like to call his residence a hideout, but let's be honest, he wasn't trying really hard to stay concealed.  That he wasn't killed in the raid that led to his capture is a huge surprise.  This man has enough dirt on a country, its political and business leaders, to make Edward Snowden look like a high schooler overhearing two gossipy teachers.

2.  The government gives the Bundy's another (Cliven Bundy was first) free pass.  Ammon Bundy and his militia men take federal property (the Malheur National Wildlife Refuge), are squatting on it, and get to live to tell about it.  What makes these men so special that they have earned the restraint of government guns and helicopters?  Well...they're heavily armed, ready to die in a shoot-out (at least that's what they claim) for their beliefs, anti-government, and white.  When this is all over, the surprise will be if anyone gets arrested and has to serve time.

3.  Many gullible people still believing Donald Trump would put the American people ahead of himself, his personal brand, and businesses.  The Presidency would not stop Donald Trump from putting in time to preserve and grow his wealth.  Money making is in his DNA!  Of course, The Donald would be the first to tell us all that his personal business would never get in the way of leading us.  Trump supporter:  Go ahead and vote for Trump.  Just realize you're not going to get a full-time President if he should win.

4.  A Powerball jackpot that is over a billion!  It is rare for a jackpot to go beyond 800 million.  That's because as the jackpot grows, so do the number of players, obviously, increasing the odds of someone winning (not your odds...just the odds of someone getting the right combination of numbers).  Someone will win the Powerball billion next week...and I won't be surprised if they spend all of that money and go broke.

Thanks for reading!             

Saturday, January 2, 2016

Review of Movie, The Big Short

Last night I convinced my wife, Jessica, to see the movie, The Big Short.  She's a fan of Christian Bale, Steve Carell, and Brad Pitt, so I didn't have to twist her arm or anything.  I was curious, having skipped the reviews already online, as to how the movie would make the financial collapse of 2007 interesting to the public.  Specifically, how it would make the foresight of a few individuals and the steps they took to make loads of money, entertaining to "middle-class" people like you and me.

The Big Short movie is based on Michael Lewis's best-seller of 2010, The Big Short: Inside the Doomsday Machine.  After seeing the movie, I can see why the book spent 28 weeks on The New York Times best-seller list.  Lewis was gifted with a set of unbelievable, real people to write about.  Mike Burry, the hedge fund manager first to call bullshit on all the banks has a glass eye, Aspergers, and was a former neurologist.  Bale did a phenomenal job playing him.  If that's how the real Mike Burry is, smart, unwavering, and family oriented, I'd love to meet him.

I didn't buy how Steve Eisman (a former lawyer) was portrayed by Steve Carell (as Mark Baum).  I think Carell went a bit too far down the righteous path.  Case in point: toward the end of the flick, Carell sits down with a long-time acquaintance and supporter of FrontPoint Partners, LLC, at Morgan Stanley.  She reluctantly explains that MS is up shit creek without a paddle.  Carell's line is something like...So all this time, I was betting against Morgan Stanley.  It seemed disingenuous.  I would be willing to bet that Eisman knew he was screwing Morgan Stanley, the bank that allowed him and his hedge fund outfit, FrontPoint, to operate as an independent unit.  Several scenes have Carell seemingly in pain, morally conflicted about his decision to finally pull the trigger and sell his short positions.  A little too much "holier-than-though" for me.  It almost makes Eisman seem un-driven by money.  No doubt he enjoyed sticking it to the banks.

Brad Pitt's character, Ben Rickert, is based on Ben Hockett, a partner at Cornwall Capital.  Ben Rickert is this weird, NSA fearing character that admits to peeing in his backyard to make the soil perfect for cultivating his vegetables.  His main role in the movie was enabling two small time, yet brilliant traders, to get in on the credit default swap action as they did not have enough funds to play with the big boys.  Pitt was like the father figure to these two, young, clever, and ambitious characters, scolding them at the end for celebrating their incredible gains at the expense of the demise of the U.S. economy.  One of Pitt's lines was a "Did You Know?" statistic on the mortality rate for every X % decline in unemployment.  I can't remember it verbatim, but apparently many more people die when things are bad.  Makes sense to me!

Lastly, I really appreciated how the movie stopped within scenes and cut to cameo appearances in order to explain the awfully complex securities instruments mentioned throughout.  Having, for example, Anthony Bourdain, use a fish stew metaphor to teach the audience what a Collateralized Debt Obligation (CDO) is, was pure genius.

The moral of the story, so to speak, for me, was how truly complicit we all really are, allowing Wall Street and the government, to get away with such tyranny.  We all know about the fraud, it was uncovered shortly after the crisis began.  We all know how Bush and Obama conceded to the Fed (Greenspan and Bernanke) and their solution: bailing out banks and failing companies with billions of our tax money, attaching a crafty name like, The Troubled Asset Relief Program (TARP), to make it sound kosher.  Only one person was jailed out of the hundreds of Mortgage Backed Securities bankers working the scheme.  The SEC, supposed to have been policing heists like this, remains intact today when it should've been overhauled.  The moral of the story for me wins again, and little sheep like us will continue to be fleeced until we morph into wolves.  By the wife liked the movie.  As did I.

Thanks for reading!  Until next time.