P-A 1 CMYK • SPI -- THURSDAY, NOVEMBER 20, 2008 PAGE: A 1 EDITION: THIRD ★★★ REPLATE:

P-A 1 • CMYK

SEATTLEPI.COM 75¢
TRAVEL MOVIES Fans flock to Forks
to soak up the fantasy
Pry open
some fun A BIG BITE British heartthrob talks

OF ‘TWILIGHT’
about fame and vampires
for ‘Oyster
New Year’ Review: Despite its star,
GETAWAYS LIFE AND ARTS D1 the film’s a bit anemic

T H U R S D AY, N O V E M B E R 2 0 , 2 0 0 8

TOP STORIES “This will be ugly.” – Rep. Ross Hunter, D-Medina, chairman of the House Revenue Committee

Obama’s HHS
selection
President-elect Barack Obama has
picked former Senate Democratic
Leader Tom Daschle to be his
secretary of Health and Human
Services, Democrats say. Daschle is
the third Washington insider
chosen in Cabinet-building by a
candidate who vowed change. A2
Microsoft to
Budget deficit: $5.1 billion
Nearly $2 billion more than
state expected 2 months ago
BY AMY ROLPH
P-I reporter
Washington’s projected bud-
get deficit has ballooned to $5.1
billion, nearly $2 billion more
than predicted just two months
ago.
That means when lawmakers
convene in January to assemble
the next two-year spending plan
they’ll have to drastically cut
state programs or raise taxes,
something Gov. Chris Gregoire
has said she won’t do.
Ross Hunter, D-Medina, chair-
man of the House Revenue Com-
mittee. “It’s much larger than I
expected it to be.”
Tax revenues are expected to
drop $1.9 billion below the
state’s former projections, mean-
ing a possible doomsday for
some programs – and substantial
belt-tightening just about every-
where else.
In September, the state’s pro-
jected deficit for the 2009-2011
biennium was pinpointed at $3.2
billion. Now, not only has that
but the state’s current budget is
also suffering a $500 million
shortfall.
STATE DEFICIT GROWS
Gov. Chris Gregoire must deal with a projected $5.1 billion budget hole.
Technically, revenue will
grow between this biennium and
To put that in perspective the entire operating budget for the state for
2007-2009 was about $30 billion. To balance the budget lawmakers will
the one that starts in July – it just have to cut programs, raise taxes or do some combination of both.
won’t grow fast enough, said
Arun Raha, the state’s chief reve- State general fund operating budget
nue forecaster. Eight percent For 2007-2009, in billions $12.1 billion
growth between this budget cy- K-12 education
cle and the next was predicted in Social and health services $9.0
September, and now that growth Higher education $3.3
looks more like 5 percent. Corrections $1.7
The nation’s economy has Bond retirement and interest $1.6
been widely blamed for Wash- $1.0
Other
ington’s growing deficit. As fi-
nancial markets continue to ex- Governmental operations $.53
perience record measures of vo- Natural resources $.46
latility, consumers aren’t spend-
ing like they used to – and that Projected deficit $5.1

slow growth “This will be ugly,” said Rep. deficit burgeoned to $4.6 billion, SEE BUDGET, A9 Source: The Office of Financial Management SEATTLE P-I

CEO Steve Ballmer said the

company, responding to economic

NEW M’S MANAGER STEPS UP TO PLATE

conditions, will impose “much,
much slower” growth in the size
of its work force. C1

Dow sinks to
2003 levels
Poor economic reports pushed the
Dow Jones industrials under 8,000,
the lowest close in nearly six years.
The reason? A growing fear of
economic deflation. C1

ALSO IN
THE NEWS
WORLD / NATION
Want a woolly?: Scientists have
deciphered much of the genetic
code of the woolly mammoth,
which could one day allow them to
re-create the prehistoric beast. A6
Al-Qaida on Obama: Osama bin
Laden’s deputy used a racial slur to
condemn President-elect Barack
Obama, and urged his followers to
inflict “harm” on America. A7
Iraq parliament chaos: A
heated parliamentary debate on
the U.S.-Iraq security treaty was
halted as lawmakers opposed to
the pact scuffled with guards. A7

SEATTLE
Illegal dumping: Those who
dispose of trash illegally in
ELAINE THOMPSON / AP
unincorporated and rural King
County will face stricter penalties New Seattle Mariners manager Don Wakamatsu holds up a note from his 10-year-old daughter, Jadyn, at a news conference Wednesday announcing his
under a recently adopted law. B1
hiring, as general manager Jack Zduriencik looks on. Wakamatsu is the first Asian-American manager in major league baseball. The 14th M’s manager, he
Eyeing mayor’s job: Seattle was bench coach for the Oakland A’s last season. Before that he spent five years with the Texas Rangers. In Sports, Jim Moore takes a look at Wakamatsu at
developer Greg Smith is seriously home, E5; the new manager acknowledges making history, then looks to build winner, E1; and Art Thiel says Zduriencik made all the right moves, E1.
considering a run against two-term
Mayor Greg Nickels. B1

BUSINESS

All those hours on Web aren’t wasted

New WaMu execs: Washington
Mutual – parent of the former
WaMu banking operations – has
Subprime
hired a president and a CFO. C1
DHL layoffs here: DHL Express Teenagers learn while
mortgage
plans to cut about 225 employees
in King County next month. C4 socializing, study finds ‘rip-off’ has
INDEX
BY TAMAR LEWIN legitimate
roots
The New York Times

TODAY’S WEATHER Good news for worried parents: All

Rainy, breezy throughout the day. those hours their teenagers spend social- BY AUBREY COHEN
High 51. Low 42. B8 izing on the Internet are not a bad thing, P-I reporter
according to a new study by the MacAr-
Comics D6,7 thur Foundation. At the height of the real es-
Crosswords D6,7 “It may look as though kids are wast- tate boom, lenders paid mort-
Editorial B6,7
ing a lot of time hanging out with new me- gage brokers as much as $15,000
dia, whether it’s on MySpace or sending or more to steer borrowers into
Horoscope D2 instant messages,” said Mizuko Ito, lead overpriced loans.
Lottery B2 researcher on the study, “Living and Called yield-spread premi-
Obituaries B4 Learning With New Media.” ums, these kickbacks increase
Television D4 “But their participation is giving them with the gap between what loan
the technological skills and literacy they borrowers qualify for, and the
★★★ need to succeed in the contemporary higher interest rates and terms
world. They’re learning how to get along NICOLE BENGIVENO / THE NEW YORK TIMES
they actually accept. And they
with others, how to manage a public iden- are part of nearly all subprime
tity, how to create a home page.” The hours teenagers spend on Facebook, MySpace and other social networking sites mortgages, noted David Leen, a

(FJECD|14000X
The P-I and seattlepi.com reach
1.3 million readers a week in
Western Washington, including
three-quarters of a million
Monday through Saturday. To
subscribe, call 206-464-2121.
© 2008 SEATTLE POST-INTELLIGENCER
The study, conducted from 2005 to
last summer, describes new-media usage
but does not measure its effects.
“It certainly rings true that new media
are inextricably woven into young peo-
ple’s lives,” said Vicki Rideout, vice presi-
dent of the Kaiser Family Foundation, and
director of its program for the study of me-
dia and health. “Ethnographic studies like
this are good at describing how young
people fit social media into their lives.
aren’t such a bad thing after all, according to a new MacArthur Foundation study.
What they can’t do is document effects.
This highlights the need for larger, nation-
ally representative studies.”
Ito, a research scientist in the depart-
ment of informatics at the University of
California-Irvine, said that some parental
concern about the dangers of Internet so-
SEE TEENS, A9
Seattle lawyer who represents
borrowers.
“As soon as I get home, “The payment of yield-
spread premiums is the single
I turn on my computer. . . . most important problem relating
It’s not an obsession, it’s to the mortgage meltdown.”
While brokers defend them
a necessity.” as a way to allow more people to
buy homes, critics say they’ve
– Ruben, 15, who started his
MySpace page four years ago SEE SUBPRIME, A8

P-A 1 CMYK • •
P-A 1 CMYK
 P-A 8
• SPI -- THURSDAY, NOVEMBER 20, 2008 PAGE: A 8 EDITION: FIRST
A8
SUBPRIME:
Senate did not
act on ban bill
FROM A1
gone way beyond that role.
“It’s a classic example of how
they use a legitimate thing to rip
people off,” Seattle bankruptcy
lawyer Melissa Huelsman said.
Last week, the U.S. Depart-
ment of Housing and Urban De-
velopment released new re-
quirements for disclosing the
premiums, aimed at helping
borrowers figure out if they’re
worthwhile.
Yield-spread premiums
Yield-spread premiums be-
came widespread in the early
1990s, according to a 2002 Har-
vard Law School report.
The legitimate idea is that
borrowers who don’t have the
cash for brokers’ fees, or don’t
want to pay the fees up front,
agree to a higher interest rate
and, in exchange, the lender
that issues the loan pays the bro-
ker.
“Yield-spread premiums are
a very useful tool in helping a
consumer, a borrower, get into a
property with less money up
front, less money for closing
costs, less money for down pay-
ment,” Marc Savitt, president-
elect of the National Association
of Mortgage Brokers testified to
the House Financial Services
Committee in October 2007.
Having bigger premiums for
bigger rate spreads is necessary
to cover broker fees on smaller
loans, since the premiums corre-
spond to percentage points on
the loan, said Jason Bloom,
chairman of Elliott Bay Mort-
gage in Bellevue and president
of the Washington Association
of Mortgage Professionals.
But the premiums no longer
replace cash fees, particularly in
the subprime market, Leen said.
“In the last five years, they’ve al-
ways been in addition to the
origination fee, the processing
fee and all the other fees that
they disclose.”
Rodney Tom, a Realtor and
Democratic state senator from
Bellevue, has seen premiums in
excess of $15,000. “It’s the big-
gest dirty secret in the real estate
industry,” he said.
In fact, yield-spread premi-
ums generally cost borrowers an
extra $1,046 per loan that isn’t
recouped by reducing fees,
bringing the borrower only 25
cents of value for every dollar
paid, the Harvard report found.
A HUD study earlier this
year found borrowers got only 7
cents of benefit for every dollar
of premiums paid to mortgage
brokers and 29 cents per dollar
for similar premiums to large
banks. It also found that African-
Americans, Hispanics and peo-
ple without college degrees paid
more for their mortgages, as-
suming all other factors are
equal.
Prime mortgage interest
rates tend to be set for the life of
the loan or for a certain number
of years, after which they adjust
with standard industry indexes.
Subprime mortgages often have
artificially low teaser rates to
start with and then adjust up to
much higher payments.
Brokers get premiums for
selling loans with higher rates
and prepayment penalties, and
for selling certain types, such as
mortgages with options to pay
less than the accrued interest
each month, said Michael Cal-
houn, president and chief oper-
ating officer of the Center for Re-
sponsible Lending. “This market
sold the most complex, riskiest
products to the least sophisticat-
ed borrowers.”
Leen has clients who would
have qualified for prime loans
but were talked into subprime
mortgages with higher rates, he
said. About half his subprime cli-
ents are senior citizens.
Kevin Lisota, president of
Seattle real estate brokerage
Findwell, said he personally had
a loan where he was paying all
broker fees, then found out the
broker also was getting a yield-
spread premium, disclosed be-
fore the final settlement state-
ment.
“He was essentially hiding
an extra $3,500 from me,” Liso-
ta said.
The same thing has hap-
pened to Findwell clients, he
said. “That’s where I think the
abuse occurs, because it’s a fee
that’s easy to sneak by the bor-
rower.”
Industry response
Brokers continue to defend
yield-spread premiums as use-
ful, particularly because tighter
loan standards have driven up
required down payments.
“Someone may be very tight
and just have the money to
make that down payment, but
they don’t have the money for
their closing costs,” Bloom said.
But for first-time buyers,
having to pay closing costs out of
pocket may encourage responsi-
bility, Huelsman said. “If $3,000
in closing costs is going to put
you over the edge, then you
need to wait another six months
• •
P-A 8
REPLATE: P-A 8 •
SEATTLE POS T-INTELLIGENCER | THURSDAY, NOVEMBER 20, 2008
THE PROBLEM WITH YIELD-SPREAD PREMIUMS
Yield-spread premiums (YSPs) are intended to help borrowers who can’t afford to pay mortgage brokers fees, White House
rushes to weaken
such as closing costs, get a loan.
The legitimate idea
Borrower Mortgage broker Lender
Can’t afford
to pay
broker’s fees.
Finds lender who will pay
broker’s fees in exchange for a
higher interest rate on the loan.
YSP
Pays broker YSP based on the difference
between the interest rate the borrower
qualifies for and the higher rate they accept.
species protection
The loan Rules would quash If the rules go into effect be-
fore Obama takes office, they will
The borrower doesn’t pay any broker fees but pays back the loan at a higher interest rate. scientists’ input be difficult to overturn since it
would require the new adminis-
tration to restart the rule-making
What has happened BY DINA CAPPIELLO process. Congress, however,
The Associated Press could reverse the rules through
Borrower Mortgage broker Lender the Congressional Review Act – a
WASHINGTON – Animals law that allows review of new
Assumes broker Steers the borrower to a loan at an increased The YSP becomes a and plants in danger of becoming federal regulations.
is working in interest rate, knowing that the wider the gap YSP kickback to brokers for extinct could lose the protection It’s been used once in the last
their best between what the borrower qualifies for and what steering borrowers of government experts who 12 years. But Rep. Nick Rahall, D-
interest. they accept will mean a bigger YSP for the them. into overpriced loans. make sure that dams, highways W.Va., chairman of the House
and other projects don’t pose a Natural Resources Committee,
The loan threat, under regulations the said Wednesday that he and oth-
Bush administration is set to put er Democrats were committed to
The higher interest rate may contribute to the borrower defaulting on the loan. in place before President-elect “the change that is needed.”
Barack Obama can reverse them. Drew Hammill, a spokesman
The rules must be published for House Speaker Nancy Pelosi,
An example: A borrower wants a $400,000, 30-year loan Friday to take effect before Oba- D-Calif., said the House will be
Payments don’t include property taxes or PMI ma is sworn in Jan. 20. Other- looking at ways to overturn the
FOR THE BANKS
FOR THE BROKERS wise, he can undo them with the endangered species rules and
Increasing a 6 percent interest rate by 0.5 percent can
If the lender pays a YSP of 1 percent, the broker gets stroke of a pen. other midnight regulations.
add $130 to the monthly payment. Over 30 years, it can The Interior Department “The House, in consultation
$4,000 to cover fees and keeps what’s left over. If the add more than $46,000 to the total cost of the loan.
rushed to complete the rules in with the incoming administra-
fees were $3,000, they keep an additional $1,000. The MONTHLY three months over tion and relevant
higher the YSP, the more money the brokers keep. INCREASE
Monthly payments FROM 6% the objections of If successful, committees, will re-
lawmakers and en- view what oversight
Yield-spread premium 6% $2,398.20 –
vironmentalists the Bush tools are at our dis-
6.25% $2,462.87 $64.67
Broker’s fees Extra money 6.5% $2,528.27 $130.07 who argued they administration posal regarding this
Rate to broker would weaken how and other last mi-
30-year total
ANNUAL
INCREASE a landmark conser-
will end some nute attempts to in-
1%
1.25% 6% $863,352 – vation law is ap- environmental flict severe damage
1.5% 6.25% $886,633 $23,281 plied. reviews that to the law in the
0 $2,000 $4,000 $6,000 6.5% $910,178 $46,826 A Nov. 12 ver- waning moments of
sion of the final developers and the Bush adminis-
Source: P-I reporting SEATTLE P-I
rules obtained by other federal tration,” Hammill
The Associated said.
and save up that $3,000.” car for me, I don’t expect them to ban on yield-spread premiums. Press has changed agencies blame The Bush ad-
Brokers acknowledge there get an additional fee from the “I’ve been in real estate for little from the origi- for delays and ministration has
are bad apples – not that yield- dealer for raising my price.” 19 years and disclosures just nal proposal, de- cost increases. made no secret of its
spread premiums are a particu- In comments made to HUD don’t get read,” he said. “I think spite the more than intent to complete
lar problem. in June, Federal Trade Commis- you’re better off with an outright 250,000 comments the endangered spe-
“In any industry you’re go- sion staffers argued the best so- ban.” received since it was first pro- cies changes quickly.
ing to have bad practitioners lution would be a disclosure that Yield-spread premiums posed in August. When the proposal was first
that are making egregious tran- “just like direct lenders, brokers should be banned for subprime The rules eliminate the input announced in August, the public
sactions,” said Adam Stein, pres- seek to maximize their own pro- mortgages, whose pricing tends of federal wildlife scientists in was given 30 days to comment.
ident of Integrated Mortgage fits and may not provide the to be much less transparent than some endangered species cases, That period was later doubled af-
Origination Systems in Auburn least expensive loan for which that of prime loans, Calhoun allowing the federal agency in ter Democratic lawmakers com-
and past president of the Wash- the consumer qualifies.” said. “In the subprime market charge of building, authorizing plained. Last month, the head of
ington Association of Mortgage they have shown to be just hor- or funding a project to determine the endangered species program
Professionals. “It happens on a What to do rifically abusive.” for itself if it is likely to harm en- corralled 15 experts in Washing-
much bigger and broader scale Last November, the House of Bloom said the state’s new dangered wildlife and plants. ton to sort through 200,000 com-
outside the mortgage broker in- Representatives passed a mort- one-page summary disclosure Current regulations require ments in 32 hours.
dustry.” gage bill with a ban on most form clearly lays out yield- independent wildlife biologists “This is definitely lightning
Retail lenders, such as yield-spread premiums, but the spread premiums. But Stein said to sign off on these decisions be- quick,” said John Kostyack, exec-
banks, charge higher rates for Senate did not act on the mea- the best thing would be for bor- fore a project can go forward, at utive director of the National
low- or no-fee loans and then get sure. rowers to compare rates and times modifying the design to Wildlife Federation’s Wildlife
a service-release premium for The new good-faith esti- terms without worrying about better protect species. Conservation and Global Warm-
this spread when they sell the mate form and settlement state- lender payments to brokers. The regulations also bar fed- ing initiative.
loans to investors on the second- ment that HUD released “I honestly think that it’s eas- eral agencies from assessing If successful, the Bush ad-
ary market, brokers note. It’s a Wednesday and plans to require ier for the consumer to not really emissions of the gases blamed for ministration will accomplish
sore point that federal rules re- as of Jan. 1, 2010, include more see any of the back-end compen- global warming on species and through rules what conservative
quire disclosure of yield-spread disclosure of premiums. Specifi- sation,” he said. habitats, a tactic environmental- Republicans have been unable to
premiums but not service-re- cally, they show the origination New regulations are not ists have tried to use to block new achieve in Congress: ending
lease premiums. charge, with adjustments up or needed to curb problem mort- coal-fired power plants. some environmental reviews
The Federal Trade Commis- down depending on whether gages, Stein argued. “We’ve got Tina Kreisher, an Interior De- that developers and other federal
sion reported in 2004 that dis- there’s a premium for a higher a ton of regulation out there al- partment spokeswoman, could agencies blame for delays and
closure of yield-spread premi- rate or points paid for a lower ready. I think you’ve got to crack not confirm whether the rule cost increases on many projects.
ums caused many borrowers to one. The good-faith estimate down on predatory lending with would be published before the
choose bank-originated loans also has a table for comparing enforcement.” deadline, saying only that the
over broker loans that actually options. White House was still reviewing HARDWOOD FLOORING 99¢sq.ft.
FROM
were cheaper. But bankers and Washington state added a P-I reporter Aubrey Cohen it. But she said changes were be- Exotics • Bellawood Prefinished • Bamboo
consumer advocates counter premium disclosure require- can be reached at 206-448-8362 ing made based on the com-
that borrowers think brokers ment earlier this year. The state or aubreycohen@seattlepi.com. ments received.
work to find them the best loan, Senate passed a requirement for Read his Real Estate News blog at “We started this; we want to 3300 1ST AVE. S., SEATTLE • 206-625-5200
1720 PIKE ST. NW, AUBURN • 253-333-9830
though they don’t have the same a more-detailed disclosure that blog.seattlepi.com/realestatenews. finish this,” said Kreisher. 11338 MUKILTEO SPEEDWAY, EVERETT • 425-320-3980
expectation of banks. would spell out the cost of add-
“If I’m going around to used- ed interest versus the benefit of
car lots shopping for a car, I’m reduced fees, but the House
expecting it’s an adversarial sit- didn’t act on the bill.
uation,” Calhoun said. “But if I Tom, who proposed the bill,
hire somebody and pay them a said earlier this month that he
fee to go around shopping for a was leaning toward proposing a
How did my hips and knees get so much older
than the rest of me?
The price some of us pay for a long and active life are joints that wear
out before the rest of us does. Fortunately, you can get new ones. And the
expert surgeons at the Swedish Orthopedic Institute do more total joint
replacements than any other medical center in the state.
Come meet one of our surgeons, learn about our new, dedicated
orthopedic hospital, and ask any questions that are on your mind. So join us.
You have nothing to lose, except for a life of pain.
FREE HIP AND KNEE REPLACEMENT SEMINAR
Wednesday, Dec. 10, 6–8 p.m.
Swedish Orthopedic Institute
601 Broadway, Seattle
To reserve your spot, call 206-386-2502 or visit swedishortho.org
P-A 8