One good deed deserves another… in deed it does

Author: Bill McAfee; owner of Empire Title

Article Published in March 2014 Edition of The Colorado Real Estate Journal

Bill McAfee, Owner and President of Empire Title

Bill McAfee, Owner and President of Empire Title

In real estate transactions buyers and sellers see many legal documents.  The documents we are going to talk about today show ownership in varying degrees.  We will discuss 3 types of conveyance deeds.  The three types of deeds are: General Warranty Deed aka Warranty Deed, Special Warranty Deed, and Quitclaim Deed.  These deeds differ only in the amount of protection that the grantor (seller) warrants to the grantee (buyer).  All three of these deeds do transfer title to real estate; they just vary in the degree of liability and protection that the seller gives to the buyer.

The definition of a Warranty Deed according to the Colorado Real Estate Manual is a deed in which the seller warrants or guarantees title against defects that existed before the seller acquired title or that arose during the sellers’ ownership.  It does not warrant against encumbrances or defects arising from the buyers own acts. There are certain covenants for warranty’s that are contained in general warranty deeds.  The usual covenants are A) Covenant of seizin, this means the seller has ownership and has the right to convey it.  In addition, the fact that the property is mortgage or has certain restrictions would not breech this covenant.    B) Covenant against encumbrances, this means seller has no liens or claims against the property except those specifically excluded in the deed.  C) covenant of quiet enjoyment, this means the sellers guarantees the buyer will not be evicted or disturbed while possessing the property.  Claims by third parties do not breech this covenant.    D) Covenant of further assurance, this guarantees that the seller will produce and deliver any other documents that are subsequently necessary to make a good title.  E) Covenant of warrant forever, seller guarantee that the buyer will have title and possession to the property (sometimes a part of quiet enjoyment).  Covenant of seizing and covenant against encumbrances will generally relate to the past and usually do not “run with land”.  This means that the current buyer can sue the seller for any breech.  Covenant of quiet enjoyment, covenant of further assurance, and covenant of warrant forever protect against any future defect and are considered to “run with the land”.  This allows any subsequent buyer to sue for breech against any previous seller.  Colorado Statute states that covenant of seizin, peaceable possession, freedom from encumbrances, and warranty contained in any conveyance of real estate or any interest there in, shall “run with the land”, and will be to the benefit of all subsequent buyers and lienors.  To sum up a warranty deed will give the most amount of protection to a purchaser of real estate, definitely a good deed.  One good deed leads to another.

Another deed to discuss is the Special Warranty Deed.  Special Warranty Deeds warrant only against defects arising after the seller bought the property and not against defects arising before that time.  This means a buyer purchasing real estate with a special warranty deed would only have guarantees and protection against those things that the seller created against the property.  Any title issues created prior to our seller acquiring the property would not be warrantied.  In simple terms, the buyer is only protected against the liens or defects which the last seller created.  Buyer has no protections from any previous owners or encumbrancers.  Sometimes one good deed does not lead to another.

A Quitclaim Deed warrants absolutely nothing.  A quitclaim deed conveys the sellers’ present interest in the land, if any.  A quitclaim deed is frequently used to clear up a technical defect in the chain of title or to release lien claims against the property.  Examples of such deeds are corrections deeds and deeds of release.  Simply put, buyer does not receive any protection or warranties from the seller.  If warranties or protection is important to you as a buyer, quitclaim deeds may not be the deed for you.

The type of deed that a buyer desires should always be based on good fundamental judgment and the advice from a real estate agent or attorney.  If the buyer desires maximum protection against past events then the warranty deed is for you.  If the buyer is ok with a warranty and protection from the current seller only then the special warranty is the deed for you.  If no warranties or protection are desired by the buyer then the quitclaim deed will satisfy your need.  As strange as it may seem the title insurance policy that a buyer receives in a typical real estate transaction is not affected by the type of deed that the seller conveys to the buyer.  Buyers may always desire a warranty deed however sellers, such as banks, asset managers, and certain other government agencies may not be willing to issue one.  In this case title insurance is very important as the buyer may not be able to get the warranties and guarantees that they want from the seller.  Title insurance can step in to the shortfalls that special warranty deed or quitclaim deeds or even general warranty deeds may not provide.  One good deed deserves another.


Colorado Real Estate Journal

Encore! Record Low Rates Return for a Second Show

This article is written by Jay Garvens and Joey Connell

extra-extraFrom spring of 2012 until the fall of 2013, it was difficult to find a mortgage product that wasn’t in the 3% range. This was a period of historically low rates, with some borrowers able to refinance in the high-2% range. Throughout the following winter and spring, however, rates started trending upward. Most industry experts believed the time of 3% mortgage had passed, with 4-5% mortgages as the new normal. Over the last couple weeks, though, rates have been trending back downward, and we are again seeing mortgages in the 3% range. The question is: What happened?
For several years, interest rates have been reacting almost exclusively to the Fed’s bond-buying program, known as QE. The Fed has signaled for several months that they would begin tapering their bond purchases, and as economic indicators improved over the last year, investors believed tapering was imminent. This drove interest rates up. However, the Fed has yet to initiate an aggressive tapering policy, reducing their bond purchases by only 25% a month from $85 billion to $65 billion.
This, coupled with weak and dismal economic news over the last two quarters, has caused rates to trend back down. The Fed has lost confidence that the economy has recovered. They consider the anemic growth in durable goods (.5%), the artificially low unemployment rate, and the housing market losing steam over the last quarter after double-digit gains earlier in the year.
As quickly as the economy stalled, it could easily pick back up. There is no telling how long this period of extraordinarily low rates will persist, so the time to act on this news is now! Recent economic developments, while leaning negative, have offered some positive news; the signals are mixed. Any negative indicators may be aberrations in the data, and future economic news could show a brighter picture, thus driving rates back up. As it stands, though, negative news dominates our economic outlook, particularly in the housing industry.
During the second half of 2013, both rates and home prices increased dramatically. By the end, many buyers—particularly young buyers—were priced out of the market. Real estate investors limited their purchases, causing demand to fall. House prices have remained essentially flat ever since.
These developments have had a severe impact on mortgage rates. But what does this mean to you? Right now, it means record low rates! A conventional 30 year fixed rate at 3.875% with no original points. It means a VA or FHA loan as low as 3.625%. It means a conventional 15 year fixed at 3.125%. With the rapid increase in housing prices throughout 2013, it also means many people who did not have the equity to refinance during the last period of historically low rates may now be able to; their homes may finally have the equity needed. This is especially urgent for anyone who presently has an interest-only or adjustable rate mortgage. These products were very popular in 2004 and 2005, and many are set to either re-adjust or recast in 2014 and 2015 into far more expensive products.
One of the most common regrets I encounter from callers to my radio show is missing the historically low rates of 2013. Many either dragged their feet and missed their opportunity, or didn’t have the equity necessary to refinance. Whatever your excuse, don’t make the same mistake twice. This is a second chance that nobody anticipated. Don’t squander this opportunity! Whether you want to refinance to a lower rate, pay off debt, purchase a new home, or purchase an investment property, now is the time to act.

What is a Tribe?

The very fact you’re reading this blog post says something profound about our modern world. Just 15 years ago, if you wanted to learn about home mortgages or financial issues, you would go first to family, friends, or a third party met through your family or friends. Today, you’re more likely to seek advice from a personality, like me, or a brand, like Wells Fargo, or a personality and brand, like Dave Ramsey. The very nature of our personal and business networks has changed, yet most people are oblivious to this fact. These new networks form the basis of the modern tribe, and that’s the topic of this week’s show.

Before the advent of the nation-state, people arranged themselves into tribes. People formed their identity less by geographical happenstance, as we do in most of the modern developed world, and more by shared characteristics and values: religion, language, culture, ethics, etc. Today our nationality forms the basis our identity. Yet many people, while appreciating their national identity, find the distinction arbitrary, so they seek out others with shared cultural, moral, and linguistic values to form small and discrete tribes of their own.

I have been a part of several tribes in my adult life. My time in the U.S. Army felt profoundly tribal; everyone shared a concrete set of customs, values, and goals. Similarly, Green Bay Packers fans, or Cheeseheads, are a tight-knit community with an established, if bizarre, code of conduct and behavior. I have been, and currently am, part of several different tribes, but underlying each is a shared sense of purpose. This—the shared sense of purpose—is the foundation of the modern tribe.

In many instances, people are part of a tribe without even knowing it. Products and brands are able to cultivate massive, dedicated followings with individual members sharing the same tastes, ideas, and goals—even if these individuals have never met one another! Consider, for example, Apple products. There is something at work besides good design that compels Apple fanatics to preach the virtues of their products, put stickers on their bumpers, and even get tattoos of the Apple logo. Similar cult-like followings exist for places like Trader Joe’s, Ikea, and Starbucks. Similarly, bands like REM and the Grateful Dead enjoy such massive, dedicated followings whose members seem to share customs and values entirely unrelated to the music of the bands.

There is tremendous value found in the tribe, separate from the value of whatever product or music or shopping experience that forms the tribe’s basis. Sharing commons goals and purpose is spiritually and emotionally fulfilling; it satisfies us at a fundamental level to know we belong somewhere, and that we can trust in the shared purpose of a collective.

This, in fact, is the decisive factor in explaining why some people love their jobs while others hate theirs. Before even considering the particulars of the job—the pay, the work, the hours—you ought to consider the entire team, from employees to management to the president, and ask whether the team functions as a mere group of people or as a tribe. All too often, companies form and grow without instilling a sense of shared purpose in new hires. This drastically changes the culture; instead of a team excited to have found this shared purpose and pursue common goals, they instead are simply concerned with receiving a paycheck. The lack of shared purpose, and the general ambivalence toward the company’s success, manifests itself in how the team members interact with one another and how they interact with customers, suppliers, venders, and so on.

Everyone should take a moment to consider their own careers in this light. Is your workplace like a tribe, or is it merely a place to work? Are you or others on your team willing to make personal sacrifices for the good of the tribe? It may sound like a cliché—probably because it is—but groups can accomplish far more together than they can separately. You should think about your workplace, ask what your team’s shared values and purpose is, and how everyone can strive for and achieve this goal through their work.

These thoughts and ideas were inspired by the extraordinary work of Seth Godin and his book “Tribal Leadership.” If you have not already, I encourage you to seek out this book and thoroughly study it. As with all the great books I have read this past year, it will inform much of what will be discussed on future shows and reinforce the ideas found in other books. It has already provoked me to consider the radio show, its audience, my mortgage company, and its clients, and how all these pieces are beginning to integrate and become its own little tribe. These effects will, I think, become more pronounced when the radio show goes lives and I can speak one-on-one with my audience—so stay tuned for that!

A Generational Look at Our World and My Week in Nashville

 Click here to Listen to the Show Jay Garvens and Dave Ramsey

For all the time and energy I expend discussing demographics, I really should know more about my audience. True, I have a general sense of who is out there listening based on who’s calling into the show, who’s stopping by my mortgage company, and so on. But there is a specific, detailed demographic profile of my audience beyond what I can see, and fully understanding that profile is my single biggest professional goal. As you should know by know from listening to this show, demographics are the key to understanding practically every trend out there.

I read a series of stories this past week stating that most new construction over the last year has been apartment complexes and not single-family homes. I don’t know why I read a series of stories on this; I already knew it. I saw this development coming years ago! The impetus for this development is demographic. As far as single-family homes are concerned, there is a housing bubble-era supply glut that is only now beginning to normalize. Likewise, as we lose members of the Greatest Generation—estimated to be about 8,000 a day—their houses end up on the market and normalize any upward demand pressures. There is simply no reason to be building new single-family homes right now.

Similarly, the Millennial generation is maturing. It hasn’t yet started to reach its peak productive years (40-60), but it has definitely entered its career stage. Normally this is when people start a career, get married, start having kids, and so on. However, the Millennial generation is postponing matrimony; they are getting married and having kids far later than any generation before them. They have moved away from home, but do not yet need—or even want—the space of a house. Thus, they are renting apartments in massive numbers. Take a drive around Colorado Springs—north on Nevada, up on Interquest—and you’ll notice several apartment and condominium projects being built.

I see the influences and effects of demographics everywhere. In the news and newspapers. In the construction and mortgage industries. Truly, the study of demographics is one of my greatest passions. And it’s a blessing to be able to share this passion through my other great passion: radio. Radio allows me to share my insights on economics and demographics with other inquisitive individuals. Whatever the demographic composition of my audience looks like, I’m sure the vast majority listeners have that quality of inquisitiveness and curiosity in common.

I share what I know with my audience because I think that anyone taking time to listen to new information is also determined to apply what they know to improve their life. But there’s a lot I don’t know! So last week, I attended Dave Ramsey’s EntreLeadership workshop in Nashville to learn as much as I could from the man whom I consider one of the most knowledgeable and practical individuals in the field.

There is no way to cover everything I learned during that week in Nashville; it was like drinking from a fire-hose! I encourage everyone who hasn’t to pick up Ramsey’s book “EntreLeadership” and study it thoroughly. But here are a few key concepts that I think everyone should be familiar with:


#1. The Law of the Lid. This basically states that an organization—whether a business or family or church—is contained by its leadership. Thus, the organization can only grow as efficiently and as large as its leadership. The leaders or leadership team acts as a lid, and is the sole limiting factor in an organization’s growth.


#2. As goes the king, so goes the kingdom. This law both complements the Law of the Lid, and stands on its own. The fate of the kingdom follows the fate of its king. Whether in a household or business or volunteer group, the whole organization takes its cues from the leadership team. If the leaders are impatient, short-sighted, or arrogant, the entire group will follow. Leaders must be certain that they not only have good, solid principles and values but also that they project these principles and values to their kids and employees.


#3. Don’t force your goals onto other people; help them discover and achieve their own goals. The single greatest thing a leader can do is to encourage their employees to fully realize their unique qualities and achieve their own unique set of goals. It’s common—and disastrous—for leaders to pursue their own goals and use their employees as tools to achieving that goal. Ideally, leaders pursue goals by utilizing the unique qualities of their team members to achieve that same goal, while simultaneously encouraging those team members to settle on and pursue their own goals.


This really only begins to scratch the surface of my week in Nashville. But it truly was a transformative weekend. As you continue to listen to the show, you’ll pick up bits and pieces of what I learned, as I’m sure I’ll graft my newfound knowledge onto what I had already known. In the meantime, I have a huge reading list of new books to read on Ramsey’s recommendation, from which I’m sure I’ll gain more new insights to share.

photo IMG_6450

Dave Ramsey being DAve

Dave Ramsey being Dave

The 1st EntreLeader

The 1st EntreLeader

Lunch time at EntreLeadership

Lunch time at EntreLeadership

Breaking Bread with Dave Ramsey

Breaking Bread with Dave Ramsey

Making friends!

Making friends!

Welcome to Nashville

Welcome to Nashville

LIVE on the Dave Ramsey Show

LIVE on the Dave Ramsey Show

The Dave Cam

The Dave Cam

Let’s Play Monopoly & How To Win at Real Estate Monopoly

family-playing-monopoly-vintageIf everything you know about residential real estate comes from playing Monopoly, this week’s show is for you. As a game, Monopoly contains illustrative parallels with the real estate market, even though the game itself has little practical relevance to the real world—although I did once win second place in a beauty contest. The first hour of today’s show uses Monopoly to explore the world of residential real estate, and the second hour explores how you can win in the real world playing Real Estate Monopoly.

First, consider what a Colorado Springs Edition of Monopoly might look like. You have the Broadmoor instead of Boardwalk, Powers instead of Indiana Avenue. I won’t risk offending anyone in the audience by renaming Mediterranean and Baltic Avenues, but you get the point.

The first thing to consider is why Oriental Avenue is so cheap while one night in a hotel at the Broadmoor might bankrupt most people. Disparities in price are largely driven by demographics: As people mature, they work their ways from Baltic Avenue to St. Charles Place to Pacific Avenue and so on. The younger generations with less disposable income will cluster at the start of the board, while the established generations will cluster toward the end.

On a city level, this has subtle but noticeable affects. Certain qualities or amenities offered by certain neighborhoods will appeal to different demographics at different times, and real estate prices will adjust accordingly. In the 1960s, when families were large, neighborhoods with an abundance of split-level homes and nearby schools were in far higher demand. Today, with people having fewer children, and having them later in life, these formerly hot neighborhoods are seeing prices drop while older neighborhoods with more spacious floor plans and fewer rooms are in higher demand.

On a national level, this has stark and profound effects. Localized real estate bubbles in San Francisco, Washington D.C., and Seattle reflect an influx of young, wealthy professionals, causing formerly lower-middle and middle class neighborhoods to gentrify into high-income neighborhood and house values to skyrocket. You can think of the national real estate market is a bag of popcorn: each kernel, or local market, heats and pops independently of all others. Different factors cause different kernels to expand and explode quickly, slowly, or not at all.

There is a strong correlation between the demographic composition of a market and its general health. Places like Utah and Texas have very young populations and generally healthy real estate markets; Florida, on the other hand, is home to the oldest population in America and, as a result, has found it difficult to recover from its turbulent housing collapse.

These and other factors show how real estate is like Monopoly. Now the question is: How do you win? I offered three suggestions on this week’s show to help you get started and ultimately succeed.

To win at Real Estate Monopoly, you have to understand how it differs from the game, which is what Rule #1 concerns. The key difference between the two is this: Life isn’t about luck. In the real world, people don’t start out with exactly $1,500 a piece; they don’t take turns; they don’t roll dice. Each individual chooses when to move, where to stop, what to buy, how many amenities to add, and so on. Everyone starts with the exact same credit score, which is a great indicator of their general access to credit, and the choices they make in life determine whether they will continue to have this access. With credit, nobody is forced out into the cold, but plenty of people choose to end up there.

The second rule is, incidentally, my approach to both Real Estate Monopoly and regular Monopoly: start the purchase process as soon as you can. I got into real estate early and have bought higher-value homes as I go along. Few people start by buying Park Place; more often they start on Oriental Avenue and work their way up. But the key is to purchase early and stop renting! That’s why I encourage everyone to get the purchasing process started as soon as possible. And understand this: Beginning the purchasing process does not mean you’ll be purchasing soon. For some, they may be ready to by instantly; for others, they may not be ready for a few years. But the key is to start preparing now.

And finally, for rule #3, get a written plan for what you want to do and accomplish for this year. This is your strategy for Real Estate Monopoly and will force you to prioritize your wants, budget your $1,500 in monopoly money, take inventory of the opportunities out there, and ultimately act to accomplish your goals.

This week’s show was stuffed with other parallels and insights. I encourage everyone to listen and re-listen to the show, which, as always, is available in the archives. Over the coming weeks and months, as we enter the spring and summer home-buying seasons, we’ll see hundreds of new players enter the game. While they’re praying for a decent “Chance” card, you’ll be better prepared to make sound, strategic decisions.

Wealthy Thinking versus Poor Thinking

Wealthy Thinking versus Poor Thinking


Click Here to Listen to Jay’s Show

If you’re reading this, great news: You’re wealthy! Or you’re on your way to being wealthy. At the very least, you have wealthy thinking versus poor thinking, a wealthy person’s temperament, which is the first step toward being wealthy. By virtue of reading this educational—and I might add highly edifying—blog post, you are exhibiting a trait that sharply separates the wealthy from the poor: reading educational material, which 88% of wealthy people do versus just 2% of poor people.

You may remember this statistic from a previous show that explored disparities in habits between the rich and the poor. As a brief recap, here are a few of the previously discussed habits, and a breakdown in the percentages of wealthy people versus poor people that practice them:


  • Focus on accomplishing single goal; 80% of wealthy versus 10% of poor
  • Exercise aerobically 4+ days a week; 75% of wealthy versus 23% of poor
  • Maintain a to-do list: 81% of wealthy versus 19% of poor
  • Believe they create good luck for themselves: 84% of wealthy versus 4% of poor


But there are some categories in which poor people excel:


  • Say what’s on their mind: 6% of wealthy versus 69% of poor
  • Watch reality TV: 6% of wealthy versus 78% of poor


This selection of habits illustrates the temperamental difference between the wealthy and the poor. This is not to suggest that if poor people exercised more and maintained a to-do list they would magically be wealthy. Rather, it suggests that one who is naturally the kind of person who would exercise and watch less reality TV is also the kind of person who would be wealthy. Wealth, along with exercising, efficiently prioritizing time, and being disciplined enough to not always says what’s on one’s mind, are all the result of thinking about the world in a certain way.

On this week’s show, we delved deeper into the thinking patterns of wealthy and poor people. By understanding how these two groups see the world, it is easy to understand why each group adopts different habits, and how these habits ultimately determine their financial fortunes. Consider the below examples of Rich Thinking versus Poor Thinking:

I create my life vs. Life happens to me

I play the money game to win vs. I play to not lose

I am committed to being rich vs. I want to be rich

I focus on opportunities vs. I focus on obstacles

I admire rich and successful people vs. I resent rich and successful people

I am willing to promote myself and my values vs. I think negatively about selling and promoting anything

I am bigger than my problems vs. I am smaller than my problems

I gladly receive constructive criticism vs. I do not accept criticism of any kind

I choose to get paid based on the results of my work vs. I choose to get paid on the time I spend on my work

I focus on my net worth vs. I focus on my working income

I can always learn something new vs. I already know everything I need to know


The differences in these modes of thinking demonstrate key personality differences between rich people and poor people. Primarily, it is the difference between being confident yet humble on one hand and insecure yet stubborn on the other. Rich people are optimistic about their potential to thrive in the world; poor people are pessimistic, and believe outside factors inhibit their potential.

These differences affect not only where these groups are but where they’re going. If your general outlook is that the odds are already against you, and you refuse to learn new things or acquire new skills—like investing skills—because you believe you know all there is to know, you have prevented yourself from not only discovering but pursuing new opportunities. You have lost the game before you even tried playing.

In the second hour of this week’s show, I used the example of renters versus owners to illustrate the differences between rich thinking and poor thinking. The impatient, imprudent, and undisciplined thinking that typically results in deciding to rent an apartment exhibits all the classic traits of a poor thinker. These will be recurring themes over the coming months, and one of the key advantages of Rich Thinking will become starkly apparent: It is able to adapt to changing circumstances, while Poor Thinking is not.

The Economics of Millennials living with their parents

Staying in the Basement

Staying in the Basement: The Spending & Borrowing of the Millennials and the Slight Edge

For a parent, the only thing worse than a grown child leaving home is a grown child not leaving home. It’s natural that children, once matured, leave the nest to build nests of their own. Today’s economic conditions, however, have kept many young adults living at home well into their twenties. This, in turn, has left both the economy and parents everywhere depressed. We spent this week’s show discussing this phenomenon, its causes, and its effects.

In 2012, according to Pew Research, 36% of Millennials were living with their parents (aged 18-31 ). This is up 4% from 2007. Of these Millennials living at home, 61% had either some college or a bachelor’s degree, and a full 50% were not in the labor force. The dismal job market, particularly for young adults, drives both these numbers. Few can find a satisfying job, and those who can’t stop searching. They either remain out of the labor force or go to college in hopes of bettering their prospects.

Unfortunately, the return on investment for college degrees has been diminishing for years. The disparity in earnings between those with and without college degrees has started to close, and the bulk of the difference can be attributed to differences in temperament rather than in the benefits of a degree; that is, an individual who would pursue a degree is one who is naturally driven, disciplined, and hard-working. They would likely make better money than their undisciplined counterparts even without a college degree.

These facts have not discouraged individuals from pursuing degrees, however. Nor has it stemmed the tide of individuals going severely into debt to pay for them. Student loan debt has increased 300% in the last 10 years. It is now worth $1 trillion and continues to grow exponentially. Student loans are the fastest-growing sector of debt in the country, and tuition has increased along with it. We are now in an inflationary spiral in which tuition increases to lower demand while student loans increase to increase supply.

Once students attain a degree and enter the workforce—or not—they are burdened with massive debt. Many cannot afford rent, let alone a mortgage, because of high debt servicing payments. And unlike other forms of debt, the US government has ensured that student loans cannot be discharged in bankruptcy. Students are committed to decades of payments.

At Garvens Mortgage Group, we see instances of this every week. Individuals either looking to buy their first home or refinance one they’ve had for years find themselves unable to qualify because of their student loans. Loan servicing can easily consume 10-15% of their gross income. Homes, cars, clothes, virtually all consumables are unattainable because of the cost of these loans. Resources are being diverted from the productive economy to colleges and loan servicers—which, increasingly, means the federal government. The quality of economic growth provided by colleges and the federal government for the broader economy is not high.

After school, with so few job prospects, Millennials increasingly take advantage of the free or low rent offered by their parents to pay down their student loans, often with wages far below what’s needed to successfully support themselves and their loans. The mythology surrounding college degrees convinced them that any degree—from political science to mime studies—will provide lucrative job opportunities after graduation, when this truly is not the case. They not only have high debt and a worthless degree, but they have forfeited 4 to 6 years that could have been spent gaining desirable skills.

Granted, many of those Millennials living at home do so not out of desperation but to build a strong financial foundation for their future. Many are paying cash for college, working part- or even fill-time, and saving money so that when they do leave home they are in stronger financial positions than most of their counterparts. This approach brought us into the second hour of the show, which discussed ‘the slight edge,’ or those with financial or personality characteristics that give them a slight edge over others in their personal and professional lives.

Undoubtedly those without student loans have a significant edge over those who do. Student loan debt will be the financial story of the next decade, and will play a prominent role in determining the successes and failures of an entire generation.

To Listen to the Full Show Click Here

The American Dream…The American Home

The American Dream The American HomeThere is something unique about the American home. In no other country or culture is the home—a mere structure—imbued with such meaning as in America. We project our hopes and dreams onto it; we depend on it for security; we leverage it to pursue our goals. We take for granted the ease with which anyone can own a home in this country; we forget that America, and America alone, has the perfect combination of ownership laws and free-market financing by which anyone can not only purchase a home but own the land beneath it. Especially in the last five years, the reputation of the American home has been tarnished. It was my hope this week to rehabilitate its reputation by speaking on its behalf.

In 2008, the American housing industry was a victim of its own success. It had promised the possibility of homeownership to virtually every American. Private banks were anxious to lend, and generous government programs ensured practically anyone, regardless or credit-worthiness, could qualify for almost any home they wanted. But, as I’ve said before: although everyone should be able to own a home, not everyone actually should. Too many people who lacked the discipline to own a home had bought one (or two or three), and eventually the entire system collapsed.

The 30 year fixed mortgage is essentially unique to America, as is the opportunity to actually own the land beneath your home. Throughout Europe and Asia, the most common mortgage products are 10-15 year adjustable rate mortgages. In many European countries, homes are purchased under leasehold agreements: the buyers owns the structure, but the land beneath the home is leased from its own, typically for 99 year terms. These facts explain why homeownership rates in the United States are far higher than in any other industrialized, modern nation. Our laws give you the opportunity to own your land, and our financial culture allows you to afford it.

In the years preceding the 2008 housing crisis, lending laws and practices were relaxed far beyond reason. Borrowers were placed into exceptionally risky products, or lent far more than they could afford. Today, people generally feel it’s homeownership itself that is risky! They have lost faith in the promise and potential of homeownership, and have instead chosen the less-risky, but less-rewarding, practice of renting.

I have taken thousands of mortgage applications throughout my career. I’ve met hundreds of past, present, and future homeowners who have shared their financial dreams, financial aspirations, and even their financial fears with me. I understand the deep distrust people have for the housing and mortgage industries. Most of that distrust is, unfortunately, well deserved. But I believe their distrust is misplaced. The financial institutions, real estate agents, and homebuilders who were responsible for the housing crisis merit most of this mistrust; and, fortunately, most of these institutions, agents, and builders are no longer in business.

I understand this mistrust and the reasons people have it. I also understand trust and the benefits people reap for placing it in the right people. I have sat through loan applications with clients in which people display the whole gamut of human emotion: worry, fear, joy, excitement. They worry about the present—about the late mortgage payments and dwindling financial reserves. They fear the future—the imminent foreclosure and the prospect of losing their home. They feel joy at the possibility of refinancing their mortgage and restructuring their debt to free up money and save their home. And, in the best cases—which also happen to be most cases—they’re excited about their new future and their brightened prospects.

These emotions only appear when dealing with a home. Few apartments can invoke such emotion. Homes can because they are significant enough to warrant such emotion. People truly put their hopes in their homes. They project their wishes for the future onto their home: of marriage, children, and all the memories that happen inside a home. But because their home cannot speak, it cannot remind them of the innumerable ways, both conscious and unconscious, that they tie their lives and their futures into the fate of their home.

This is why I spent this week assuming the personality of a home on the show. I wanted to speak as a home to homeowners everywhere. My hope is that people will consider what I said—what their own home would say, if it could speak—and appreciate the blessings made possible by homeownership.

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What in the World is Deflation and How does Deflation Effect You?

deflationFor the past several years, the greatest fear of policy-makers, investors, and bankers has been inflation. With the Federal Reserve’s unprecedented QE programs, and its massive printing of money to purchase debt, many worried whether this excess of dollars would spark a similarly unprecedented inflationary cycle. This, however, has not come to pass. Rather, there is now fear of a more pronounced, and more prolonged, deflationary cycle in the American and global economy.

The pedantic definition of deflation is: A reduction in the general level of prices in an economy. This means, for example, that a gallon of milk or gas will cost less next week than this week. A humorous indicator of deflation is: When an economy sells more adult diapers than baby diapers. That is, when an economy’s population is weighted more toward the elderly than the young, deflationary pressure will exist.

I believe we are soon entering a deflationary period. As Baby Boomers retire and downsize their lives, our economy will lose the single-greatest productive demographic it has ever seen. There will be less demand for homes, cars, furniture, and electronics, and there will be a marked shift in demand away from tangible goods and toward services. With decreasing demand, the general price level will fall.

One negative effect of a falling price level is that the real value of debt increases. Borrowers will owe more in real terms for any debt taken out when their loan comes due. This makes borrowers less likely to acquire debt, which, in turn, means fewer loans, less investment, and slower business growth. The worst-case, and not-uncommon, scenario is a deflationary spiral. The negative effects of a decrease in the utilization of debt cannot be overstated.

Japan, for example, has been in a deflationary spiral for nearly 25 years. After tremendous growth through the 1970s and 1980s, their economy went into recession in the early 1990s. They had acquired massive levels of debt, particularly in global real estate, but were unable to service this debt. Changes in demographics—namely, they weren’t having children and their population was rapidly aging—created an absence of inflationary pressure. Domestic demand was falling along with the general price level. To keep their exports competitive, Japan pursued one stimulus program after another throughout the 1990s and 2000s to keep their currency low. Their debt, while increasing in real terms, was being serviced with yen that were falling in nominal terms.

Japan’s error—which, unfortunately, is the prescription every advanced economy pursues during every recession—was to attempt to fight the natural business cycle. After a spectacular rise throughout the 1970s and 1980s, Japan was destined for a spectacular correction. The Bank of Japan’s actions in the subsequent 25 years attempted to soften this correction, but ultimately prevented organic market corrections from materializing. They essentially condemned themselves to this period of deflation rather than risk a quick but acute period of economic hardship.

With the latest financial crisis, I fear the US has pursued a similarly faulty course. We have embarked on a series of programs, from the stimulus to several rounds of quantitative easing, that were meant to keep the market from naturally correcting itself. But as history shows time and again, you cannot alter the business cycle; you can only prolong it. We have condemned ourselves to a prolonged period of low growth and high unemployment rather than endure a quicker, but more severe, course.

To prepare for this deflationary period, I advise people to do three things. First, if you’re planning to buy a new home or downsize to a smaller one, do so this year. This will be the last year that interest rates are this low, and as interest rates and deflationary pressure both increase, the value of a home’s debt will increase astronomically in both real and nominal terms. Second, diversify your portfolio. Speak with an investment firm on where to invest and what kinds of assets to hold to hedge against deflation. And finally, educate yourself on the topic. Strive to understand the mechanics of inflation and deflation, and what both can mean for your financial security both, present and future.

As always, I will discuss these topics in more detail in the coming weeks. If you haven’t yet, I encourage you to listen to this week’s show in the archives, as I went into more detail than this post allows. And stay tuned over the next few weeks as I explain how today’s news and current events are affecting, and will be affected by, the demographic changes we’re seeing today.

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