2008 December

Mortgage Negotiation Tips
12-17-2008 by dan
I learned a lot about the mortgage process when I got the mortgage on the house I just bought. Some of it was stuff that you could pick up just about anywhere, and some of it I had to really get crafty about. Here is a bunch of information that would be useful to have when searching for a mortgage:
- There are several places you can go to get a mortgage. You can go to a retail bank and ask about their mortgage products (Bank of America is an example). You can go to a mortgage broker and ask them to help you find a mortgage through a wholesale mortgage dealer (Spruce Mortgage in VT is a broker, and Northeast Home Loan in VT is a wholesaler). You could go to a credit union and ask them about their mortgage products.
- Forget about the interest rate and the APR. All you should care about is whether the monthly payment, including taxes, insurance, PMI, utilities, etc is affordable. Once you have figured out what the payment you can afford is, then work on getting the rate lower. A good rule of thumb is that $200,000 will cost about $1200 a month (fixed rate, 30 year mortgage) when interest rates are around 6%. Now, add on taxes, insurance, PMI, etc. and your payments will easily be about $1800 a month. And that is before utilities!
- Know how the mortgage pricing structure works! Interest rate is not the full story! There are actually two interest rates: a base rate and a markup rate — these add up to the “market rate” (which is what you can see tracked at Freddie Mac’s Weekly Survey) the lenders will quote you.
  - The base rate is always lower than what the lenders quote you as “the rate”. This is the rate they expect to earn on the loan. This is basically determined by the market and the efficiencies at the lender, so is probably non-negotiable.
  - The markup rate is the difference between the base rate and the “market rate”. A good chunk of this number can be negotiated!
- By law, mortgage brokers MUST disclose what their markup rate is to you — but they will do everything they can to not draw attention to it, and emphasize that you don’t have to worry about it because you are not paying it. They have fancy words for it like “Yield Spread Premium (YSP)” or “Spread”. It is a good idea to talk to a mortgage broker, even if you never plan to borrow from one, because knowing the YSP is a tool for negotiation. My experience is that the YSP is somewhere between 1 and 1.5% on top of the base rate. (so if a broker says the rate is 6%, then the rate they are actually seeing is somewhere between 4.5 and 5%) You do not pay the broker the YSP, the lender pays it to the broker as a reward. The reward is due to the fact that you are now paying 6% interest instead of 4.5%.
- There are some mortgage brokers who will not screw around with the YSP, they actually tell you all information, including the base rates they are actually seeing. These guys are called “Upfront Mortgage Brokers” and if you are lucky enough to find one, this might be your best bet.
- The retail banks have something similar to YSP, but they do not disclose it to you. It may be harder to negotiate with them as a result. Having a ballpark idea of what the equivalent of YSP is would definitely be useful.
- I had good luck with asking the broker to pay a bunch of the lender’s fees from their YSP. This works like this: Part of your closing costs are fees. There is a lender’s application fee, underwriting fee, administrative fee, etc. There are also broker’s application, administrative, etc fees. The broker is going to pocket the YSP, so you might as well ask them to work for it. Tell the broker that you don’t want to pay any broker’s fees whatsoever, seeing as they are getting that big YSP check. Then, say that you think the YSP is too big, and that you would be more comfortable if they would pay the lenders fees, too. Your good faith estimate will give you an idea of what fees there are, and you should try to negotiate for the broker to pay as many of them as possible. The important thing to keep in mind is that 1-1.5% of your loan is a big number. A few hundred dollars in fees is not going to be a big deal to the broker.
Tags: House, Money | Comments (0)
Retail Prices Down… or Up?
12-16-2008 by dan
There is an article over at the New York Times that tells us that retail prices had a super-steep decline for November, and fell at a “record rate”. From the article: “Prices at cash registers and gas pumps across the country were a seasonally adjusted 1.7 percent lower in November from the month before”. Note that this is talking about consumer prices.

This is the sort of article that all news organizations are always touting — some broad summary statistic that claims some kind of doomsday scenario. I think, though, that this number is not the whole story.

At the bottom of the article, the Times says: “Energy prices led the dip in producer prices, with the cost of home-heating oil, natural gas and gasoline dropping by double digits. But excluding volatile food and energy prices, core producer prices grew at 0.1 percent, their slowest rate all year.” Note that we are now talking about PRODUCER prices.

So if you ignore the massive decline in fuel prices, the producer prices actually ROSE?! What if we were to ignore the massive decline in fuel prices on the consumer side? Would we also see an INCREASE? It is definitely a reality that fuel prices are falling. I agree that they should factor in to these sorts of calculations, but we should point out the components that drive the calculation when they are this significant.

I’d even be inclined to argue that the price of a barrel of crude has actually been in a bubble, due to booming economies and irrational exuberance, a ridiculous war in the middle east and possibly even corporate greed allowed to run amok by a lousy administration. Take away these factors, and the price of a barrel of crude comes back to a more “normal” level, and so these price declines we are seeing are actually just prices coming down out of a bubble. The effect of price drops are real (on the Alaska state budget, for example), but I don’t think that the adjustment in fuel prices is bad for the economy.

It probably is bad for energy companies and alternative energy research, but Obama may be able to spend on alternative energy anyway given the economic conditions, and the energy companies have been doing pretty well for quite some time.
Tags: Business, Money | Comments (0)
Graphs in Illustrator
by dan
This is pretty neat. I love when someone takes some time to actually outline the steps they use to create something cool on the web, especially in data visualization (half of the fun of data visualization, to me, is trying to figure out how someone made a visualization). I’d like to get into that a bit here, but I am still trying to settle on the scope of this blog.

The only criticism I have here is that this is done in Illustrator. I have tried (unsuccessfully) to find a good open-source replacement for Illustrator. There don’t seem to be any good one-stop-shops to switch to. I haven’t used Photoshop in years, because years ago I found the Gimp. Now, if Adobe were to offer Illustrator for free, that would be a different story!
Tags: Data Visualization | Comments (0)
Bad Modeling
12-15-2008 by dan
When I was at Berkeley, one of the professors was doing some research into the effect of having the wrong model describing the phenomenon you are trying to model. Obviously, you don’t set out to use the wrong model, you pick one that looks like it fits your data well. But, because you are fitting a model to PAST data, and not FUTURE data, your model may in fact be wrong, despite fitting well to the past.

This concept matters most to “predictive” modeling, because your modeled prediction can be vastly different than observed reality, and you may be making decisions based on that model. In fact, when you are trying to model inherently “rare” events, the model might break down no matter how “correct” it actually is! This is where a really solid understanding of statistics (something I am always striving towards) comes in handy — being able to say:
1. The model’s results are significant
2. Using the model is actually statistically different (and in a positive way!) than not using the model
3. The “average” or “expected” values you calculate actually approximate the thing you are trying to approximate
I’m not very good at these things yet. I read articles like this one, though, and I get really excited about the idea of being able to say when you ARE on shaky ground vs. when you are not. In my everyday work, being able to say this with confidence (while still giving any results at all) would make a very large difference.
Tags: Business, Quantitative | Comments (0)
Refinancing after only 2 weeks!?
12-12-2008 by dan
I bought a house. I closed on it on December 1. I’ve only lived in the house a bit under 2 weeks. Why on earth would I consider refinancing!? Didn’t I just go through all the horrors of closing?

Well, since I closed, interest rates appear to have dropped almost an entire percentage point. Of course, Murphy’s Law dictates that this would have happened to me no matter what, but the interesting thing is that refinancing is an option.

Here are the costs as near as I can figure them:
- The fees and expenses would be about $1,800.
- My lender doesn’t want me to refinance so soon. I borrowed through a mortgage broker, and the lender can take back the Yield Spread Premium (YSP). Of course, the new loan would also have a YSP, so it’s possible they will just cancel each other out. I’m working on getting an estimate of how much this would be.
- I would need to prepay taxes, insurance, and some interest again. I have already prepaid these for this year, so presumably they would cancel each other out. The interest prepay may not net out, though.
The amount that this would cost me, then would be Expenses + YSP + Prepaid Interest.

Let’s just suppose for a second that those costs are $2,000. My current monthly payments (mortgage only) are $1,226 for a 6.125% rate. The rate right now is 5.35%, which translates to about $1,130 a month. Let’s just call that $100 saved per month. This would take 20 months to break even, and then after that I’d be saving $100 a month.

It’s really tempting to think about this. If rates get closer to 5%, I think I might just have to pull the trigger. That could be as much as $150 a month saved!
Tags: House, Money | Comments (0)
Building an Mp3 Database
by dan
Why reinvent the wheel? Why reinvent half a wheel for that matter?

I have found a promising looking project that reads data from ID3 tags on Mp3′s. The project is called getID3, and is written in PHP. It comes with an example of a “browser” that scans and indexes Mp3 files from a filesystem directory. This may also be the same library that Jinzora is using. If you are using Debian/Ubuntu, the package is called “php-getid3″, which is what I just installed on my server.

The key here will be to have this library read (and continuously scan for new) Mp3 files from specific directories on my server filesystem. It will then take any new Mp3 it finds and extract the data from the ID3 tag for cataloging in a MySQL database. Luckily, PHP has lots of easy to use functions for controlling MySQL.

So, to continue on my quest of not-reinventing-wheels, I will now look for PHP code that takes data read in from the ID3 tags and inserts it into MySQL. I imagine this will be easy to implement myself if I can’t find a good pre-built package.
Tags: Data Collection, Flex Mp3 Jukebox | Comments (0)
Flex MP3 Jukebox
12-11-2008 by dan
Here is a project idea that I will be working on: building a Flex (Flash) Mp3 jukebox. In an ideal world, it would work just like iTunes, but would be a flash interface to my music library. Here’s the kicker, though: I’d put the application on my server, along with my entire Mp3 library, and I could login and listen to my library streamed from the server.

I don’t want to do this as an “internet radio” station; it should be much more interactive than that. I want to do this so I can have a central repository for music in my house, but any computer in the network can listen to it (and maybe even a few outside the network). It would also be nice if I could send the music to the server’s soundcard instead of the internet, all using the same flash interface.

Essentially, I want to build something like Jinzora, but less clunky for managing the music playlists and more streamlined in the interface (one flash app to control/build playlists/and playback the music).

Here are the parts I envision needing to create:
- A database of music ID3 tags
- A set of controls for playback (pause, next, play, previous, maybe a scrubber for skipping around in a song)
- An Mp3 player/streamer (I know there are issues with streaming, so maybe individual songs should be played one at a time)
- A playlist creator that works like iTunes drag n’ drop, with logical groupings of songs by attributes stored in the database
The playlist management system seems like it will be the most difficult part. I am hoping that someone has already built the Mp3 database interface. I have gotten Flex to play Mp3′s, but not from a playlist.
Tags: Flex Mp3 Jukebox | Comments (0)
Utilities Data Collection
by dan
As I sit here in my home office, with the heat turned down to an economical 62 degrees, I can’t help but wonder if I couldn’t just raise that thermostat 1 degree and be slightly more comfortable. I’m sure everyone has experienced this at some point.

If I were running a utility company, I’d come up with a way for the customer to monitor her daily (or even hourly!) utility consumption. You could log in to the utility company’s website, look at line graphs of your usage by hour,day, week, month, year. You could look at averages. Compare yourself to other homes in your neighborhood or city, or even to other homes with similar characteristics to your home. Estimate your costs based on a marginal change in usage and your current usage patterns.

If there were only a way to read the utility meters into a computer, this would be very simple to put together. It might even be profitable to the Utility company, because they could sell partnership deals or ad space to other companies that would help you lower your utility consumption. (think about calculating your heating cost per square foot, and if it’s higher than the average, a little ad shows up next to the report for a local weather sealing company) Having all that data in hand would also help the company understand its own demand better.
Tags: Business, Data Collection | Comments (0)
Prioritizing
by dan
When I was at the Fed, we always poo-pooed any one in “business”. We talked about “MBA speak” and “empty buzzwords”. No one in business actually did anything useful! They just sort of talk about other people’s ideas and don’t add anything themselves!

Well, my mind has changed somewhat. I now work at a small company, and I am still one of the people who “gets things done” — ie, I am the poor bastard who has to write code, “dig in” to the datasets, “figure out” why something isn’t working, etc. There are a bunch of business leaning people here. It turns out that there actually is some value in being able to look at a project, figure out which parts are essential, and prioritize them accordingly.

Lots of people will try to prioritize things, but not many people are acutally GOOD at prioritizing. There are even a lot of people who don’t understand at all when they are working on something superfluous.

When I was at the Fed, and there was no real need for profit maximizing prioritization, it was easy to say that “business” was fluffy stuff that didn’t add anything of any worth. But the reality is that when you don’t have infinite resources, prioritization is almost all that matters. Now if only we could figure a way to see who really is good at prioritization and who just has an MBA from Harvard….
Tags: Business | Comments (0)