Our Fifty States: Really United?

Roger Schlesinger
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Posted: Aug 03, 2009 9:12 PM
Our Fifty States: Really United?

I was struggling with the answer to the question of state unity, and the only clue I have that stopped me from saying “no” unequivocally is the fact that we can travel from state to state without a passport... for now!

I can't actually think of another example that would make me feel they are remotely united. Look at the big topics: presidential elections, the Electoral College, gun control, tobacco, derivatives, abortion, gay marriage, education, time, ethnic makeup, and my favorite: the mortgage industry. I would mention weather, but then Al Gore and I would have to start splitting hairs, and quite frankly I am follically challenged.

Before I sat down to write this article, I thought it was just the mortgage industry that suffered under the 50 state separation (autonomy) and the rest of life in these United States was fine. Maybe not.

Let’s look at the Electoral College in presidential elections. Those who live in smaller states have a greater influence with their vote than those who live in the larger states. That is because the Electoral College adds the representatives of a given state and the Senators and that is the number of votes out of that state. If you live in a smaller state, adding two Senators to 3 or 4 representatives gives you greater influence than the bigger states where you add two senators to 30 to 50 representatives.

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Gun control laws differ dramatically when you compare, for example, Texas and California. When it comes to smoking, the "other" smoke is getting a hard look by states hard pressed to balance their budgets. I needn't spend much time on gay marriage or abortions, as everyone above the age of my new granddaughter has the info on the states that favor their views. I do believe, however, if government couldn't make money on marriage they would get out of it and the question would be left to the various religions, where it belongs.

When it comes to education, some states have an automatic entrance to the state university if you graduate from high school in that state. In California, though, you can graduate with a 4.0 (straight A), get a 1500 on the SAT's, be captain of your sports team, student body president of your high school, a volunteer at the local hospital, regularly attend your religious community for worship, and be a relative of the earliest residents of the state, and you are sure to make the waiting list for a spot in the next semester's class.

Time begins and ends on the east coast. Even if you are watching television, which I try not to, every important occurrence is given in Eastern Time: President's speech, Rose Bowl game, Bernie Madoff's sentencing and the next negative story on Sarah Palin. Two of the four that I mentioned actually happen in the western part of this country, but this doesn't matter. As for ethnic makeup, I have to believe that the states with the greatest Hispanic population are the states where the Hispanics lived before we “took over” (or should I say “purchased the territory”) and they have returned, quietly, under cover of daylight, to live where they once did. The Indians, who we also booted, have fought back the American way, lured the general population with wine and song into their new and modern "game of chance" arenas, and have reclaimed their ancestral right to America's riches. Geography dictates that more Europeans immigrate to the East coast and more Asians to the West coast, although that is more of a guess than an actual fact. The bottom line is the diversity that has made America the land of all is changing through the ethnic makeup of the states.

The mortgage industry, and those who use the services of said industry, have been wronged or at least harmed by those who profess to have the knowledge and expertise to govern and run the industry: the bureaucrats and elected officials from the states and the federal government. I could write for a lifetime on the problems with the 50 serfdoms that masquerade as states, but here are the big three, unless you think there should be a big four or big five: different loan limits for different states (and even within states as well), different regulations for different states, and different pricing for different states. What else do you need to demonstrate the lack of unity?

We have had two classes of conventional loans since Fannie Mae and Freddie Mac began buying loans. They were conforming loans (those loans that conformed to the rules of Fannie and Freddie) and jumbo loans. Jumbo loans began where conforming left off, which for the most part is $417,000 currently.

The first change was to set up our new states, Hawaii and Alaska , as high cost areas with loan limits 150% higher on conforming loans than the continental U.S. Add Guam and the Virgin Islands to the two new states (we don't do business there) and you have two classes of conforming loans. The high cost areas now go to $625,000 for a single family residence, and both classes go higher for duplexes, tri-plexes and four-plexes. Just recently, I believe last year, Congress was enticed to raise about 9 or 10 more states to the high cost limits, California and New York as an example, but instead they did something I believe to be bordering on insanity (it certainly makes us, in the business, insane) by adding a new designation: conforming jumbos. These loans are based on another formula that will take a county, within a state, up to as high as $729,750, and give it conforming jumbo pricing. This pricing is worse than conforming but better than jumbo. I can sum up the problem with this idea by giving you the name of three cities in California who all have different conforming jumbo limits: Santa Barbara , Beverly Hills and La Jolla . What these cities have in common is that most people can't afford to park there, let alone own a house.

Minnesota and Texas do not have one county designated as a conforming jumbo county, so if you have a million dollar house or a house with a $419,000 loan on it, they both require true jumbo loans. The problem today, of course, is most banks and lenders do not offer any or very few jumbo loans. If they do offer them in certain states, they are generally ARMs, and they usually only offer 15 year fixed rates, not 30 year fixed.

The second problem is the different regulations for different states. A mortgage company can only lend in the states where they have licenses and in some states, they must have a physical presence to get said license. In some states such as California , you must have a real estate license to be a loan officer, with one exception, and in other states no license is needed at all if you reside there. FDIC insured banks are exempt in every state and if a loan officer works for a mortgage bank or commercial bank, no license is needed to sell the bank's products. Some states will allow a company to do 5 loans a year, but I have never figured out who or how anyone keeps track of that. Therefore, I count those states in the must have a license category. A few states, and I mean a few, do not require licensing, but that is disappearing. Strange amalgamations have been formed for companies who wish to service every state in the country which to me is not the best answer. Everyone sells the same loans from the same lenders in every state. Unfortunately states do not want to pass up the chance to build a bigger bureaucracy and garner more fees by having uniform laws and most important, uniform licenses?

The last situation is the fact that all states do not get the same rates. Twenty nine states get some help with their rates, twenty one states do not. California , Colorado and Hawaii do not get help, Texas gets the most help, followed by Florida and Pennsylvania . The help is in the cost of the loan which might improve the rates by an eighth of a point. Those who get the help have quicker ways to get the property back, in case of default, than the states that do not. It just adds to the evidence that states take their sovereignty seriously and the mortgage industry is one of their favorite "cans to kick around".

I will leave you with the thought that most states don't actually even offer mortgages, but Hawaii does. I will save that story for another time.