Chicago PMI (November 2018)

- Business Barometer Index 66.4. Previous was  58.4

This is a supply-side survey metric from the Institute For Supply Management.

Fires, Insurance and Mortgages

Fires, Insurance and Mortgages

With destructive wildfires burning in California this is an appropriate time to discuss the relationship between fires, disasters in general, and mortgages. One point for folks who do not live in California - California gets no rain for about 6 months each year. It gets essentially no rain from May-November and thus the brush and forest are extremely dry.

 

The last time downtown San Francisco recorded more than one-tenth of an inch of rain was April 16 (0.13 inches) with the last measurable rain falling May 23 (0.04 inches).

Paradise, CA is build adjacent to a National Forest and is fairly heavily wooded.

 

 

Getting Insurance

 

In 1998 California voters approved a ballot proposition which makes it very difficult for insurance companies to increase rates in response to perceived risks. 

If you are buying a house in a place subject to wildfire danger you may find difficulty getting fire insurance.

In general this happens in rural areas which are not close to a fire station and may have poor ingress for fire engines and no fire hydrants. In California many of these places are in the wooded foothills of the Sierras.

 

 

Because of recent fires the areas excluded will likely increase. You may find that when your policy is up for renewal your carrier says the equivalent of "Nice doing business with you but..."

 

There are insurance companies which do write policies in high-risk areas. These change with time so you need to research who writes insurance for your high-risk area.

 

If you cannot get insurance from any of these your last resort is the California FAIR plan. Details here:

 

https://www.cfpnet.com

 

 

If you outside California the following site contains information for FAIR plans in other states: https://www.iii.org/article/what-if-i-cant-get-coverage

 

As far as I know FAIR plans cover only the structure. Your personal property and appliances are not covered.

There are two types of personal property coverage: those that reimburse you for the replacement cost for an item, and those that pay for its actual cash value. A replacement cost policy typically pays the dollar amount it will take to buy a new item at the time of a claim. An actual cash value policy provides coverage based on the current and presumably depreciated value of an item.

 

If you do not have replacement cost coverage you will have to pay the difference between the present value of your personal property and the replacement cost.

 

Mortgage Payments after a Disaster

If your home is severely damaged by fire, flood, landslide, earthquake or whatever you must not ignore your mortgage payments. If your home is damaged you should first contact your insurance carrier and file a claim and get an adjuster out ASAP. You need to get on track to have your home repaired/rebuilt but understand that you still have an obligation to your mortgage holder.

The insurance of your home does not cover damages from floods or earthquakes. If the property is in a flood zone you can get flood insurance under the National Flood Insurance Program. You get flood insurance from your regular insurance agent or broker.

If you live in an earthquake prone area you need special coverage for earthquakes in your dwelling policy otherwise you are not covered for damage from the earthquake itself. Your homeowner’s policy covers fire damage even if the fire is consequent to an earthquake. Lenders do not require earthquake coverage.

In general earthquake coverage is expensive and has sizable deductibles.

 

Mortgage Forbearance as a Temporary Solution

If your home is damaged or destroyed you may be able to get forbearance which is several months break from having to make your mortgage payments. You must request this from whoever services your loan. During the forbearance period you do not have to make payments but the interest will still accrue. No mortgage late payments will appear on your credit report.

FNMA allows forbearance of up to 12 months. This page details FNMA's forbearance policies: https://www.knowyouroptions.com/modify/disaster-relief-modifications

 

It is up to you to request and, if necessary, negotiate the forbearance agreement with your present loan servicer. Neither your loan officer not the original lender (in case the servicing was transferred) can do this for you.

 

Make your mortgage payments on time until you have a forbearance agreement in writing. If that does not come, you must continue to make your mortgage payments or you will rack up mortgage lates which will have a price at a later date since these adversely affect your credit scores.

Foreclosure proceedings can be initiated if you miss several payments.

Do not believe for a second that a few years from now you can say, "Sorry about those mortgage lates - but my house burned down." People may empathize but that empathy will not be reflected on your credit report and the late payments will still show up.

Put another way: if you could ask the servicer "Do you really expect me to make my mortgage payments on a house which has burned down”, their answer would be "yes."

If your house is totally destroyed it will likely be rebuilt with funds provided by the insurance carrier in which case (to make things a bit simple) you keep your old mortgage just as if nothing happened.

The existing mortgage does not have to be paid off just because the house burned down. If the house is a total loss and you are not going to rebuild, the insurance company will pay off the mortgage holder because they are named as the "loss payee" in your policy. Until that happens you still must make the mortgage payments.

Do not underestimate the damage to your credit that will occur as a result of mortgage lates.

 

To take this to an extreme, even death does not take a holiday from mortgage holders. If a relative dies the impact on their credit will not matter but a foreclosure could still take place if the mortgage is not paid on time. If you are the executor of a decedent's estate or the beneficiary-to-be make sure that the mortgage is paid in a timely manner. In California, a non-judicial foreclosure can take as few as 111 days from start to finish.

 

This picture can be complicated by tenancies-in-common and other factors but do not expect sympathy. Defend your interests and make sure the mortgage payments are made. Having your house burn down is tragic but getting late payments on your mortgage makes things worse.

Last year 2,800 homes in Santa Rosa were destroyed in one fire. In 1991 2,843 homes were destroyed in the Oakland Hills fire. If your home is damaged or destroyed in a large fire such as happened in Santa Rosa you may find that the most difficult thing is finding a contractor to rebuild. Success here may be a matter of knowing someone who will do this and acting as quickly as possible to retain their services.

 

Be very wary of any unsolicited contacts regarding repair/rebuild after fire damage. These could be scams.

Read this warning from the California Department of Insurance http://www.insurance.ca.gov/01-consumers/105-type/95-guides/03-res/dont-get-burned.cfm

The Segmented Society

The Segmented Society

 

This is an updated version of something I wrote in 2006.  This discusses how American society became segmented and discussed the movie “Crash” which had won the Academy Award for Best Picture and the 1975 book The Segmented Society: An Introduction to the Meaning of America by Robert Wiebe.

There has been much talk lately about the United States being a divided nation.

The only Oscar nominated movie which I saw was "Crash." When I saw it I hardly thought of it as an Oscar winner but certainly felt that it was an excellent movie. Post award commentary refers to "Crash" as a movie about racism. That misses the point of this movie. Racism is nothing new. What "Crash" is about is the segmentation of society. In "Crash" racism is a surface issue. If there is racism in L.A. then everyone there is a racist. The movie stereotypes white cops, Koreans, Iranians and blacks. The people in "Crash" are clueless about race. They are clueless because they understand only those in the segment of society in which they have chosen to live. Korean grocers are referred to as "Chinamen." They do not understand that the Iranian is not an Arab. The black cop is having a fling with his Latina partner but cannot remember what country her relatives are from. Ludacris acts like a college student complaining how white folks are looking at him as if he is a criminal and then whips out a gun and does a carjacking. No one really trusts anyone outside their segment. Rodney King's "Can't we just get along?" question is answered vociferously with a resounding "No! And by the way, Rodney, we really don't want to all get along!"

"Crash" is not simply about racism. It is about the effects of segmentation - the deliberate choice of folks to isolate themselves from all but a small part of society with whom they feel comfortable. The homicide cop (David Cheadle) nailed the concept. "It's the sense of touch. In any real city, you walk, you know? You brush past people, people bump into you. In L.A., nobody touches you. We're always behind this metal and glass. I think we miss that touch so much, that we crash into each other, just so we can feel something."

Some of our modern technology is segmenting. Cars isolate us from those nearby. Cell phones make people walk down the block inattentive to those physically proximate while they talk to someone far away. Ditto instant messaging. With these technologies not only can we ignore fellow citizens in other neighborhoods but we can ignore coworkers in the same room and people we are standing next to. Technology has made segmentation easier.

For me this was not a story just about L.A. but relevant to America in general. We are a segmented society. This is a notion spelled out in Robert Wiebe's 1975 book The Segmented Society: An Introduction to the Meaning of America. The segmentation of society is most noticeable regarding politics. You can live in a community where Rush Limbaugh is regarded as the dispenser of the truth. You can live in a community where Michael Moore is regarded as a sage. You can a visit left wing web site. You can visit right wing web sites. Doing so serves to reinforce one's beliefs.

We have new segmenting forces in cable news and the internet. The folks who run cable news networks know full-well what they are doing. Segmentation exists and they are monetizing it and, by doing so, reinforcing it. Ratings = Income. No one understands segmentation better than advertisers. While Fox was always a Republican supporting network and MSNBC was a Democrat supporting network what has happened recently is that CNN, which had been closer to the center, decided to monetize Trump. As Larry King recently said:  CNN no longer does news, they do Trump.

The Internet has become a bizarre example of segmentation. I find this strange because the Internet should be a desegmenting force. It is an equal opportunity, equal access thing. The internet has become a sort of alternate reality where segmentation is blatant.  Not so much an alternate reality but a small subset of reality in which only certain opinions are tolerated. People use social media to have their opinions reinforced.  That makes no sense to me.  If you want to grow and expand you do so by exposing yourself to people with ideas different from those you hold.

Getting back to Wiebe, his point was that segmentation has almost always been part of American society. The exception was the period from the 1940's to the 1960's. There was largely a single popular culture with nationwide appeal then. Everyone loved Lucy. My own personal experience is that this acceptance of culture somehow ended the day that President John Kennedy was assassinated. In fact I would offer that the cohesive American cultural society lasted precisely from the day Pearl Harbor was attacked until the day Kennedy was shot. There was shock that this Southerner (LBJ) who was really from a different culture than Kennedy had come to power in such tragic circumstances.

The 1960s' encouraged segmentation: black power, hippies and the woman's movement. Instead of trying to all get along and think of ourselves as one group (Americans) we were encouraged to choose our segment. This segmentation has economic and political values.

The segmentation American society has a simple and obvious root. We are a nation of immigrants. In the early 20th Century Italian and Irish immigrants segmented themselves by choosing to live in certain neighborhoods in the cities. It felt safer to be around people who spoke the same language and could relate to the "old country." More recently we see Latin immigrants doing the same thing. "Crash" worked because segmentation in L.A. is so blatant. Latinos, Koreans, blacks and whites all in their neighborhoods not quite trusting each another. The immigration of Mexicans into the U.S. may be a different issue than these previous examples of immigration because, for some, it is a temporary thing - they go back and forth.  But one truth is that all immigrants came here seeking a better life.

This segmentation is not merely about skin color or ancestry. There is political/social segmentation. There arose a segment of what are  Progressives a group fueled by University intellectual elites and the professional middle class which was espousing an ideal that government had to protect the consuming public against the inherent evils of greedy capitalistic robber barons.

The person who best expressed this is Camille Paglia: "The basic Leftist premise, descending from Marxism, is that all problems in human life stem from an unjust society and that corrections and fine-tunings of that social mechanism will eventually bring utopia. Progressives have unquestioned faith in the perfectibility of mankind. The horrors and atrocities of history have been edited out of primary and secondary education except where they can be blamed on racism, sexism, and imperialism — toxins embedded in oppressive outside structures that must be smashed and remade. But the real problem resides in human nature, which religion as well as great art sees as eternally torn by a war between the forces of darkness and light."

We preach the wonderful multicultural nature of American society but like the multicultural folks in "Crash" we then voluntarily decide to live in segmented sub-societies. These are determined by personal choices and deliberately maintained. The fact is that any of these places may be penetrated by anyone who chooses to live there. The only barrier is real estate prices.

This notion of segmented society is many times more serious in nations such as Afghanistan or Iraq than it is here in the U.S. Strangely, while not recognizing the reality of segmentation here we have attempted to establish something resembling democracies in two of the most segmented countries on the planet. Of course this was not an "out of the blue whim" but a reaction to a dramatic event here with little mind to the cultural difficulty of these tasks.

Here we openly discuss our differences, argue, vote and then argue some more but I do not think that we are in serious danger of a civil war among the segments. Better the battle is fought in cyberspace than at Gettysburg.

Segmentation has economic value. If folks chose to identify with a subset of society it makes it easier to decide how to market a product to them. This is a large part of why Facebook and Google make money.

Segmentation has political value. A politician can be given a punch list of what the constituents want to hear and parrot those values. 

There are instances in which the rules of segmentation change. When we go to a baseball or football game we set aside the notions of segments which exist outside the stadium and we all root for our team. We do not care about the race, age or economic status of our fellow fans. We have a common agenda: root, root, root for the home team. The enemy segment is the other team and, sometimes, the officials.

For now and in the near future segmentation will exist and have its embarrassingly awkward moments captured nearly perfectly by "Crash." For me there is one foolish thing about choosing to be segmented - it makes you ignorant. The irony is that a simple guy like Rodney King would have asked the right question. Strange. Very strange.