I usually try not to add fuel to the pessimistic fire that has engulfed the housing market over the last year and a half, but some stories need to be told.  According to a February 13 article in the Detroit News, by Louis Aguilar, Wayne County posted the highest rate of home foreclosures among major metro areas in the nation during the month of January.  The foreclosure rate was so high in fact, that it was 7 times more than the national average.  Oakland and Macomb Counties have been hit pretty badly as well, and when you combine the foreclosure rates of Michigan's three major metropolitan areas, it is enough to push Michigan to 2^nd Place among foreclosure rates for all 50 States.  This apparently represents an increase of 147% over last years numbers, and the stagnant Michigan economy isn't helping matters either as every day we hear more and more discouraging news from the dying heart of Michigan's economy...the Big 3.

The Banking and Insurance Industries are scrambling to cover their um...losses and every day we are hearing new policies regarding Michigan loans...Some investors have decided to pull out of the Michigan market all together, and I've even been told informally and off the record of course by some local account executives that their companies are looking for anyway they can to deny loans with Detroit zip codes.

As Banks are deciding how they are going to deal with this problem, consumers are just trying to figure out a way to pay their mortgage payments.  To help combat rising foreclosure rates across the country and to help keep people from losing their homes, the non-profit group ACORN, is introducing a new program called Home Equity Loss Prevention, or HELP.  The ACORN website explains that "if you fall behind on your mortgage, a housing counselor may be able to intervene on your behalf with your lender in order to come to a resolution that will ultimately bring your loan current."  Last year they helped 4,800 families across the country save their homes.  Click here to view a list of lenders that participate in the program, or to get more information about ACORN Housing's HELP Program.

Olympia Development has been selected to refurbish and renovate the long-mothballed Grand Army of the Republic building in downtown Detroit.

In 1866 Benjamin Franklin Stephenson and The Rev. W.J. Rutledge founded the first chapter of the Grand Army of the Republic in Decatur, Ill., with 13 fellow soldiers. At its height in the 1890s the organization boasted more than 400,000 members. Detroit was home to several flourishing and colorful Posts of the GAR.  The GAR was a wonderful organization where Union Veterans of the Civil War could not only socialize with their fellow veterans, but also could perpetuate the memory of their fallen comrades, aid fellow soldiers who had fallen on hard times, and extend help to widows and orphans of the war, similar to the modern VFW or the American Legion.

The Grand Army of the Republic is responsible for among other things, the creation of Memorial Day as a national holiday and The Grand Army also fought hard to win pensions first for disabled veterans and eventually for all veterans.

Detroit was home to the Grand Army of the Republic's F.U. Farquhar Post, Fairbanks Post, John Brown Post, O.M. Poe Post, and The Detroit Post.  The GAR built its own building in 1898, the castle-like structure, bounded by Cass, Grand River and West Adams, was completed in 1901 and it sits on land that had been willed to the city by General Lewis Cass. The cost of the building was $44,000, $38,000 of which was given by the city and $6,000 by public subscription. The building still stands, though it has fallen on hard times.

Since the demise of the GAR it served as offices of the WPA during the thirties and at some point as a police lockup.  The GAR Building was used to house city offices until 1982. The next year, the city gave the property to one developer but reclaimed the parcel in 1993 after no progress had been made.  Since then, the city has tried unsuccessfully to find someone to rehabilitate the building. 

Until now that is...like many of Detroit's once crumbling old jewels, the GAR building is the next to be reborn.  A recent Detroit News article explained that "In the plan the company submitted to city officials, Olympia said it would build a memorial honoring Civil War veterans on the first floor of the building as well as create public space that would showcase other Olympia Development projects; the second and third floors would have office space; and the fourth floor could have a club or cafe."  As part of that deal, the city required that Olympia must maintain its architectural details, such as a mosaic that illustrates its history.

This is the kind of news we love to hear.  The city of Detroit is one of the greatest cities in this country's history.  From Motown to the auto industry Detroit defined cool and we can't wait to see it restored to its former glory. 

Stated Income Loans Gets Originator Indicted - That was the eye catching title of a December 20^th 2006 article by a staff writer at the Originator Times.  Was I shocked, or I was appalled, and sick to my stomach... and just a little bit curious. 

While the few kindred spirits of Active Rain who know me, and actually take valuable time out of their day to read some of my long and exhausting blog posts probably already know my feelings about the mortgage industry's growing problem that is stated income loans, I was still slightly shocked, and a little bit frightened, to find out somebody in my industry, has been indicted and charged with a crime for doing something that thousands of loan originators do every day, knowingly lying about a borrowers income in order to get them approved for a mortgage.

The Originator Times article was brief and to the point, and read like a eulogy.  "Kourosh Partow, a former originator and branch manager for American Home Mortgage and Countrywide Home Loans was indicted last week for allegedly inflating incomes of borrowers that applied through him for financing."

I'll say it again...I was frightened, and I wasn't the only one.  Headlines like this one were jumping around the message boards over at the Broker Outpost: "Disturbing!!!  Are banks setting up loan officers?" Even though I don't use these loans very often, I do still use them for the reasons they were intended; self employed borrowers, borrowers who are in predominantly cash businesses, like waitresses or bartenders,  or maybe the occasional married couple where a spouse works, but has poor credit and can't qualify on the loan.  I ran into my co-worker Mario Rea's office and screamed..."did you read this?"  "How can they arrest one of us for doing something that many of us do on a regular basis...something that is basically encouraged by our industry?"  The article gave me no answers, and I think it was written in as deliberate a method as to not offer any.  So I started doing one of my favorite things...researching the TRUTH.

It didn't take me this long to find this article in the Anchorage Alaska Daily News, from a week earlier by Richard Richtmyer entitled: A seventh linked to mortgage fraud ring.  It seems Mr. Partow wasn't indicted for simply originating "stated income loans" as the previous articled explained so simply, but in fact Kourosh Partow was part of a 7 person "mortgage fraud ring,"  To be more specific, "Prosecutors allege that Partow overstated income and assets on the mortgage applications of 6 co-conspirators, and also for  falsifying documents."  A June of 2006 article at JuneauEmpire.com written well before the indictment shed even more light on the situation by explaining according to public records Partow had his license revoked in Wisconsin 4 years ago for forging loan documents as well, but found a job again in Alaska which is the only state to not regulate the lending industry.

And so it appears for now the mortgage industry is still safe, There isn't a  stated income witch hunt going on and I won't be arrested anytime soon for originating a "stated income loan," but this might be a taste of what is coming down the pipeline and I can say I'm not frightened anymore, not even a little bit, because when used properly, these are an excellent tool to help people by houses, but  I still strongly feel that until lenders severely scrutinize and limit the process of stated income loans, then we are still light years away from fixing the growing mortgage problem in this country.

Who doesn't hate private mortgage insurance?  For years lenders have charged PMI fees to borrowers who couldn't afford to put 20% down when purchasing their home, and why not?  Private Mortgage Insurance or PMI makes complete sense from a lenders perspective.  When they agree to lend money to borrowers with little or nothing down, they are assuming all the risk on a loan, and when a borrower doesn't put any of their own money into a transaction, that risk can be great.  Enter Private Mortgage Insurance.  Companies like Radian and Genworth Financial offer Private Mortgage Insurance Policies to banks that cover the lender's loss in the event of foreclosure.  The Lender of course graciously passes this cost on to the borrower.  Unfortunately from a Borrower's perspective, PMI doesn't make a whole lot of sense, because the cost of putting less than 20% down when you buy a house can mean hundreds of dollars per month in private mortgage insurance premiums.

Creative mortgage professionals, who actually care about their client's best interests, figured out early on that there were a lot of very creative ways to save borrowers thousands of dollars by utilizing mortgage options that don't require a borrower to pay PMI.  The most common of these options is to split your total mortgage into 2 separate mortgages, called an 80/20 or an 80/15/5 Piggy Back Loan, but there are dozens of other creative ways to avoid PMI.  Even though the piggyback options often came with higher interest rates on the second mortgage, the benefit of choosing one of these creative options were great.  First in almost every situation, the total monthly mortgage payment of the 80/20 or piggyback option is less than the total payment of a traditional mortgage with private mortgage insurance.  But more importantly, the interest you pay on the piggyback's second mortgage is entirely tax deductible, while the monthly private mortgage insurance premiums are not.  The tax savings made the choice a no-brainer!

As always, recent changes to the status quo are promising to turn conventional wisdom on its head.  Recently,  congress has passed tax legislation that would renew for two years a host of expired business tax credits and popular individual tax breaks, and introduce a new, one-year itemized deduction for mortgage insurance premiums.  A CNN Money article explained:  "The legislation allows taxpayers who itemize their deductions to deduct premiums paid for mortgage insurance - which typically is required when home buyers purchase their homes with less than 20 percent down. Currently, only the interest paid on one's mortgage is deductible if the taxpayer itemizes deductions. The new insurance premiums deduction will only apply to mortgage insurance contracts issued in 2007 and is only available to taxpayers whose adjusted gross incomes do not exceed $110,000 ($55,000 for married taxpayers filing separately)."

It's still too early to think paying PMI is the better bet though, and I would consult your mortgage professional and tax accountant about what is the best option for your situation.  As of right now, the new deduction only applies to mortgages that close in 2007 and for right now, that's it.  It's a one shot, one year deal.  Congress may chose to extend it, but right now I think they are testing it out.  Also there are income limits, so if you make more than $100,000 per year, this won't even apply to you.  Finally if you usually take a standard deduction, you would have to have a pretty decent size mortgage to even make itemizing worth your while.  According to a Bankrate.com article, quoting the chief economist of a large internet mortgage company ( I won't use their name because I used to work there and won't add fuel their SEO machine) this particular chief economist said: "You need to have a mortgage of about $130,000 or so to even pay enough interest to hurdle the standard deduction.  In practice, he says, this means that the deduction is available to households with incomes between $50,000 and $100,000."

Well it's that time of year again and if you grew up in the Motor City, then you should already know what I'm talking about.  Saturday marked the public opening of the 2007 North American International Auto Show at Cobo Hall in downtown Detroit, Michigan. The auto show is the premier annual event for the city. This is a post I really wanted to get out earlier considering I have been lucky enough to have a sneak peak at the 2007 NAIAS for the past 2 weeks but I have been so busy it just didn't happen until today. 

Some of my best friends in the world own and operate Viviano Flower Shop Inc, in St. Clair Shores, Michigan.  Viviano Flower Shop is one of the largest florists in the country and their reputation as one of the best florists has helped them work with corporate accounts all over the country, including many of the auto accounts for the Detroit Auto Show.  I of course volunteer to help my friends build and set up the displays every year so I can get an early look at the show, and not to mention tickets to the infamous Charity Preview Party. 

The rich history of the North American International Auto Show is as much a part of the history of Detroit as the automobile itself.  The Detroit Auto Dealers Association (DADA) was founded in 1907 by a group of five Detroit-area auto dealers after they hosted the very first Detroit Auto Show in the same year.  Since then, the show has grown from a regional event with 17 exhibitors to a world-class showcase featuring more than 60 exhibitors.  As the years passed, the show became increasingly popular as the demand and interest for automobiles grew.  The show grew and moved to several new locations, including the Light Guard Armory on Eight Mile, the Wayne Gardens Pavilion and the Michigan State Fairgrounds, to name a few.  In 1965 The Detroit Auto Show moved to its present location at Cobo Conference/Exhibition Center in downtown Detroit.  

This year's show was an excellent as usual, you can view my complete collection of photos of this years NAIAS at http://good-times.webshots.com/album/557056876nlLNhN.  If you haven't checked the actual show out yet, I suggest you do. If you want to beat the traffic, try parking in the Greek Town Casino Parking Garage and getting your parking validated for free.  You can ride the people mover to Cobo Hall from Greektown and avoid the parking rush.  Admission is $12 for adults and the show runs from now until Sunday January 21, 2007.  Click here for more information.

Click Here for Detroit News Coverage of the 2007 Detroit Auto Show

Martin Luther King, Jr., an African-American clergyman, is considered a great American because of his tireless efforts to win civil rights for all people through nonviolent means. Since his assassination in 1968, memorial services have marked his birthday on January 15. In 1986, that day was replaced by the third Monday of January, which was declared a national holiday. --

From the Speech at the Great March On Detroit:  June 23, 1963

"And so I go back to the South not in despair. I go back to the South not with a feeling that we are caught in a dark dungeon that will never lead to a way out. I go back believing that the new day is coming. And so this afternoon, I have a dream. (Go ahead) It is a dream deeply rooted in the American dream.

I have a dream that one day, right down in Georgia and Mississippi and Alabama, the sons of former slaves and the sons of former slave owners will be able to live together as brothers.

I have a dream this afternoon (I have a dream) that one day, [Applause] one day little white children and little Negro children will be able to join hands as brothers and sisters.

I have a dream this afternoon that one day, [Applause] that one day men will no longer burn down houses and the church of God simply because people want to be free.

I have a dream this afternoon (I have a dream) that there will be a day that we will no longer face the atrocities that Emmett Till had to face or Medgar Evers had to face, that all men can live with dignity.

I have a dream this afternoon (Yeah) that my four little children, that my four little children will not come up in the same young days that I came up within, but they will be judged on the basis of the content of their character, not the color of their skin. [Applause]

I have a dream this afternoon that one day right here in Detroit, Negroes will be able to buy a house or rent a house anywhere that their money will carry them and they will be able to get a job. [Applause] (That's right)

Yes, I have a dream this afternoon that one day in this land the words of Amos will become real and "justice will roll down like waters, and righteousness like a mighty stream."

I have a dream this evening that one day we will recognize the words of Jefferson that "all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness." I have a dream this afternoon. [Applause]

I have a dream that one day every valley shall be exalted, and "every valley shall be exalted, and every hill shall be made low; the crooked places shall be made straight, and the rough places plain; and the glory of the Lord shall be revealed, and all flesh shall see it together." [Applause]

I have a dream this afternoon that the brotherhood of man will become a reality in this day.

And with this faith I will go out and carve a tunnel of hope through the mountain of despair. With this faith, I will go out with you and transform dark yesterdays into bright tomorrows. With this faith, we will be able to achieve this new day when all of God's children, black men and white men, Jews and Gentiles, Protestants and Catholics, will be able to join hands and sing with the Negroes in the spiritual of old:

Free at last! Free at last!

Thank God almighty, we are free at last!"

This weeks question for Just Ask Josh comes to us from Maureen Francis, Birmingham Michigan's leading Realtor and author of the mioaklandcounty blog.  We've been hanging onto this question for a while, waiting for a good week to post it.

"Our mortgage bank just sent a letter that they will give us a refi loan
with no fees and no closing costs.  Is that really possible, or am I
just paying through a higher interest rate or something?  Isn't there "no
such thing as a free lunch?"

Maureen,

This is a very good question, because in this situation, like many others, there are some instances where this makes sense and other instances where it makes no sense at all.  To understand how an offer like this works, you must first understand how mortgage originators and brokers are paid.  This is an industry trade secret, so if I disappear after sharing this with you, then you should know why.

Mortgage brokers are paid by whatever bank they originate your loan through.    In order to encourage mortgage brokers and bankers to originate loans with their institution, banks offer brokers compensation in return for the business.  This compensation is known as basis points or Yield Spread Premium.  The yield spread premium that a broker earns for originating a loan is usually a certain percentage of your entire loan amount.   The higher the rate the more money the broker makes on your loan.  Because Yield Spread Premium is a percentage of your total loan amount, it also stands to reason that the larger your loan amount, the more money a broker will make on your loan.  (1% of 300,000 is a lot more than 1% of 80,000.)

Whenever a lender or broker offers to "pay your closing costs" or offers a "no closing cost loan" they are simply taking their yield spread premium and using it to cover the costs associated with your loan.  While some lenders are willing to make less money on your loan in order to offer you a no-cost loan option, others may offer you a higher interest rate in return for this option.  In order to tell if a no-cost loan really makes sense for you, you must know how to compare it to a traditional loan where you pay the closing costs.

Most people refinance their mortgages in order to save money.  If you are considering refinancing to save money, you must always remember that there are costs associated with a mortgage.  This means if it costs you money in order to save money, you have to compare the cost with the savings in a sort of cost/savings analysis to determine when you will break even and to see if the refinance actually makes sense.  While I suggest you see a professional mortgage banker or financial planner to determine an accurate "break even point," you can do a simple calculation yourself to get a basic idea.  Simply take the cost and divide it by how much money you are saving per month by refinancing.  This will tell you how many months it will take you to "break even."  Now all you need to do is compare it to how long you think you will stay in the house and if the break even is less than the amount of time you plan to stay in the house, then the refi makes sense.  It is obvious reasoning that if you do a "no cost" loan then the "break even" point is immediate and it usually starts making sense much quicker than a loan that costs money.  I usually recommend a no cost loan if at all possible, even if the rate is slightly higher.  If you want to be really accurate, you must also compare how much interest you will pay by refinancing if you are resetting your loan back at day one when you may have already paid 2, 5 or 10 years off of your current loan, but for the purposes of this discussion, that is irrelevant.

Usually, (but not always) a no cost loan comes with a slightly higher interest rate than one with a cost.  Let's look at an example. Let's say you currently have a $100,000 mortgage at 7% and you pay $665 per month for this loan, but you are considering refinancing it.  You can get 6.25% and roll $1500 in closing costs into your loan, or you can get 6.5% and get a no-cost loan.  If you take the 6.5%, your new monthly mortgage payment would be $632 per month, but if you take the lower rate 6.25% your payment would be a lower $624 per month.  Your savings on the loan is marked by how much less interest you are paying.  The difference in the interest between these two loan amounts is about $12 per month.  But if you have to pay $1500 in order to save $12 per month, it will take you 125 months or almost 10.5 years before you break even.  This "break even" point is drawn out even farther if you have recently refinanced and you paid closing costs last time as well.  While over the life of the loan, the $12 per month could amount to a savings of $4,320, if you don't keep the loan for longer than 10.5 years (most people keep a loan an average of 5-7 years) or if you sell the home before your 10.5 year period is up, (think about this if you are in your "starter home" or if you are planning on growing your family, or if your job moves you often.) then it might not always make sense to take the lowest rate.

I usually recommend no-cost loans whenever they are available.  Especially in the following situations:

You only plan on keeping the home a short time, or you are unsure how long you will stay in the house.

You have recently refinanced and paid closing costs recently,

You are only lowering your interest rate a very small percentage from your current rate.

You have a pre-payment penalty on your current loan

You owe as much as your house is worth, or very close to it.

While some mortgage companies may give you a higher rate in order to offer you a no cost loan, if you remember to check your break even point and compare it with how long you plan on keeping your home, a no cost loan is often your best option!

I came across an article by the associated press in the MSNBC Real Estate Section, back in October entitled "First-time homebuyers being left out."  The article went on to quote a poll stating that "Eighty percent of Americans believe it is difficult for most first-time buyers to afford a home, according to an AP-AOL Real Estate poll. Many people - 59 percent - believe the situation is worse now than five years ago." Even in the Midwest, the real estate market in my own backyard, over 50 percent of those first time homebuyers surveyed feel it is more difficult for first-time buyers to afford a home than it was five years ago. As I read this article, I chewed it, and swirled it around in my mouth, but I just couldn't swallow it, and I will tell you why.  

I personally feel you will never find a better time to purchase a new home than right now, and I want to bold and underline the fact that first-time-homebuyers can especially benefit from the current real estate market.  Sometimes first time homebuyers just need a little bit of help finding their way through all of the junk and misinformation out there about mortgages.

First of all NAR Statistics have been saying, that "The share of first-time home buyers dropped earlier this year to its lowest level since 1987,"  but now a Wall Street Journal Article by Rush Simon is saying "First-Timers are looking at homes again!"  It's a lot of confusion if you ask me, especially for first time homebuyers who are already intimidated by a confusing process they have never experienced before, but the truth is simple.

Interest rates are still at historically low levels.  As of the time I am writing this post, they are hovering right around 6.00% for a 30 year fixed mortgage.  According to Freddie Mac the average 30 year mortgage rate in July 1976 was 8.93%, in July 1986 it was 10.51%, and in July 1996 the average 30 year fixed mortgage rate was 8.25%.  So what if they are a little bit higher than they were last year or the year before, they are still lower than they have been in 30 years!  To be fair though, the article claims that many first time homebuyers feel it is more difficult to afford a home than it was just 5 years ago.

According to Freddie Mac, the average 30 year mortgage rate in 2000 was about 8.05% so the mortgage on a $113,900 loan in 2000 (the median home price) would be about $835 per month.  Even though median house prices are about 32% higher today than they were in the year 2000, interest rates are about 2% lower.  This means a $113,900 home in the year 2000 would cost about $167,500 today. (Current median home value)  So a $167,500 loan would have a 2% lower interest rate today, and a monthly mortgage payment of only about $1004 per month!  A whole $169 more than 5 years ago!  According to Census Bureau statistics, the median household makes about $4,336 more in 2005 than they did in 2000.  Now I am no economist and I don't want to get into a statistical debate about inflation, but I think it is safe to say that the cost of every other durable good and service didn't rise at the same rate as median housing prices. In fact the Consumer Price Index or CPI which measures the cost of several goods and services, among them the cost of housing (rent, mortgage payments, utilities, and furniture) only increased by about 13% over the same time period.  This is much more in line with the roughly 10% increase in median household income over the same time period.  To make a long story short, even though the median price of a new home has increased, low interest rates and relatively low inflation has kept housing prices extremely affordable.  This is before we even take into consideration the introduction of all the new mortgage programs that were either not available or not widely used in 2000.  Options like the 40 and 50 year term mortgages, interest only options and low minimum payment "option arms."

Which brings us to the next reason;  There are thousands of new mortgage products introduced every day that help make home loans more affordable for first time homebuyers.  We are in the generation of 40 and even 50 year mortgages, Interest only, and negatively amortizing "pay-option arms."  These programs make affording a mortgage payment very cheap in many cases.  Not to mention the myriad of zero down loans available have all but eliminated the need for a large down-payment.

First time homebuyers also find themselves with a lot of options not previously available to 1^st time homebuyers in the past.  They can get into a home with little or zero money out of their pocket.  Zero down loans are very easy to qualify for these days, and FHA, Fannie Mae, and Freddie Mac offer affordable loan solutions that allow homeowners to buy a home with little or zero down.  There are also a number grants available, like the American Dream Down-payment Initiative that offer qualified first time homebuyers up to $10,000 in down-payment and closing cost assistance to cover their out-of-pocket expenses on the loan.  Finally in this market, with housing inventories growing and growing, many sellers are desperate and will often agree to pay for all of a buyer's closing costs, or other costs in order to entice them to purchase a home.

Homes are actually more affordable than you think in some markets. While median home prices have risen sharply in the last 5 years, we are now starting to see a cooling in many markets, and in some areas even depreciation in home values.  Certain areas of the country are already very affordable. Houses in my market in Michigan are some of the most affordable in the country.  According to the National Association of Homebuilders/Wells Fargo Opportunity Index, Michigan cities lead the nation in housing affordability.  It seems like a contradiction to for 51% of people in the Midwest to feel that housing is not affordable, but to have the Midwest lead the nation in affordably priced housing.

Finally if everything above isn't enough to show that a first time homebuyer will never find a better time than right now to purchase a home, consider these last two pieces of information in parting.  A mortgage on a decent size "starter-home" in most real estate markets, not only is often just as affordable as paying rent, but you can deduct mortgage interest you pay toward your home loan on your income taxes at the end of the year.  The tax savings alone is enough for most people to consider owning vs. renting.

"It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages."

Adam Smith

The Wealth of Nations

I have been so busy in the last few weeks that I haven't been browsing the Active Rain Blogs as religiously as I used to. Because of my hiatus, I am not really sure if anybody has addressed this yet, there may have been somebody brave enough to touch it, but then again, this might be something a lot of people in the Real Estate industry might prefer gets swept under the rug.  I know the media has been ultra-quiet about it.  Because of the length, a lot of people will never read this, and I hope they won't because it will save me time from all the people who take everything I say as some kind of a personal assault all the time.  All I ever really aim to do is create intense and intelligent debate.  You all know me though...I never was afraid to put myself out there.

On October 16, 2006 I read a very interesting article in the Wall Street Journal's online Real Estate Section, entitled "Real Estate Services Face FTC complaint on Web Policy."  Now I am sure most Realtors are far more up-to date on info like this than I am, because of the NAR and other local trade groups keep them in-the-know about these kinds of things. In fact I think my favorite Realtor Maureen Francis at the mioaklandcountyblog gets regular updates as most of you probably do.  Maureen has even posted about it on her blog, but the average consumer really should know more about what is going on in our business. When I read this article I have to say I wasn't the least bit shocked, and being from the Metro-Detroit area and working in the Real Estate Industry I was interested to say the least.

It seems The Federal Trade Commission accused two local Detroit area (MLS) multiple listing services of restraining competition by discriminating against a type of service commonly known as "discount real-estate brokers."  The two Michigan MLS operators charged by the FTC are Realcomp II Ltd. and MIRealSource Inc. Since I started writing this monstrosity of a post, one of the two MLS providers, MIRealSource has already settled with the FTC, but the fall-out from this new movement isn't going away anytime soon.  The FTC has already reached consent agreements with MLS services operating in other states, including Colorado, New Hampshire, New Jersey, Virginia, and Wisconsin, to discontinue use of the policies in question.  The FTC claims that the various MLS services owned and operated by the Real Estate Brokers are intended to block the listings of certain homes for sale from being displayed on Realtor.com and other web sites often used by consumers to search for homes.  The listings that are blocked from reaching consumers are typically the listings of homes for sale that are being offered by certain "discount real-estate brokers." 

The far reaching implications of these proceedings in the real estate industry are everywhere and promise not to be going away anytime soon.  Just look at the Law suit the government has brought against the standard oil company, I mean the National Association of Realtors.  Peter Coy over at Business Week's Hot Property Blog, posted back on November 30^th that:  "There was big news this week in the government's antitrust case against the National Association of Realtors, but the press missed it. The news is that a federal court in Chicago on Nov. 27 allowed the Department of Justice's antitrust suit against the Realtors to proceed. The DOJ argues that the Realtors' rules illegally limit competition from brokers who use the Internet."    "Consumers who work with brokers that operate Discounted Real Estate Service Brokerages are better able to educate themselves about available properties that may meet their requirements. By working with a discount broker, customers can search the database of local property listings on their own, using their home computers to obtain the same information other brokers provide by less convenient means, such as by hand at their office or via fax, mail or e-mail. Because these alternative service providers enable consumers to research and learn about the marketplace at their own pace and on their own time, brokers who provide this service can, in turn, lower their costs by reducing the time that their agents spend searching the Multiple Listing Service (MLS) database or showing homes the customer dislikes, the Department alleged. Because the Internet can be used to deliver brokerage services more efficiently ­ resulting in better service and lower prices to consumers ­ brokers who utilize the Internet represent a competitive challenge to traditional brokers, the Department said."

What has been the NAR's response to this festering, expanding mess?  A revised policy.  The policy, approved by directors of the NAR at the convention in New Orleans, involves information about homes that real-estate brokers get from their local MLS for their individual websites.   "The revised policy states that brokers must use "objective criteria" if they screen out some listings. The criteria could include location, type of property, compensation offered for agents who find a buyer, or the level of service provided by the listing company. Thus, listings from brokers providing limited service for lower fees could be excluded from other brokers' sites...By contrast; the policy now states that multiple-listing services must make all types of listings available to the Web sites of participating brokers. It would be up to brokers -- not the MLS -- to decide which listings are used on individual brokers' sites."  This is the NAR's response, to take a step back and tell the justice department and the FTC," hey. As a group we no-longer are encouraging unfair trade practices, we are now leaving it up to our individual members, and if they want to restrict competition and ultimately hurt the American consumer, well that is up to them on an individual level.

It is a widely documented fact that the majority of consumers begin their search for a new home on the internet.  (Estimates indicate that something like 80% of new-homebuyers start looking online)  By limiting or restricting what houses can actually be found on the internet, they can control what houses consumers see and therefore what houses they ultimately buy. Since the Real Estate Industry controls the primary means by which this information is shared, but then restricts any listings that are offered with a "discounted" commission, then we could have a major problem. A reasonable person might agree that the Real Estate industry is engaging in anything from a kind of ex-post-facto price fixing or other violations of the Sherman and Clayton Anti-Trust Acts.  I am not quite sure that I agree with the FTC entirely, but more on that later.

The various multiple listing services are owned and operated by the local area Real Estate Brokerages.  While these MLS systems claim to have a right to set up rules that are favorable to the interests of the brokers who operate and own the systems, The FTC maintains that restrictions on certain listings deprive consumers of the right to save money by using limited-service brokers.  While I agree that as privately owned and operate service, MLS providers do have the right to make rules that are favorable to the interests of the brokers who operate and own the systems, They need to understand that even though Craig's List and Google and Yahoo Real Estate, and other internet portals are tapping into the real estate realm, the majority of internet listings still come from the same place:  Industry operated sites like Realtor.Com or the individual broker and Realtor sites in the smaller geographic areas.  They therefore control the market, and have a responsibility to the consumer to not only make available all the listings within their databases, regardless of compensation offered, but to also make all listings available to all paying members of the MLS, regardless of what these members decide to charge for their own real estate services.

 I think that with the NAR's new policies, in full swing, it will be much more difficult for the government to pin any anti-trust conspiracy on them, either illicit or tacit, but even though in my opinion their new policies mean they technically no longer will be violating any rules, I am not so sure the consumer will ultimately benefit.  In my own industry, the mortgage industry, the bank I work for severely limits the amount of compensation I can make on a given loan, but there are still many brokerages nationwide that can make as much or as little as they want, provided the cost is disclosed.  My industry has been turned-upside down though in the last 10 years with all of the "Internet based lenders" who offer the lowest rates around, discounted services, and flat fees for mortgages.  Many clients decide to go there, and many still come back for my services, after they have a poor experience with a discount or online lender.  They are usually unhappy, because the discounted fee is not worth the poor service they received.  Every Realtor I know is an expert in their field and I would never work with them if they weren't.  They are worth every penny they charge and I would never think twice about recommending them to any of my friends, family or clients.  I guess what I am trying to say is this:  There is room for many, many different business models in our market.  Supply and demand and competition ultimately bring out the best of all possible outcomes for consumers...the best service possible for the best price, determined by the market, not by the individuals providing the goods and service.  There is no reason to fear competition, if the demand for your service is that great, and you are worth the price you charge, then the consumer will forgo all other options and pay any price for it.  I don't fear my competition, I am confident in the product and service I provide, and you shouldn't fear your's either.

"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings by any law which either could be executed, or would be consistent with liberty and justice."

--Adam Smith

The Wealth of Nations

Designed in 1923 by architect Louis Kamper, the Book Cadillac Hotel is one of the most famous buildings in the city of Detroit.  The history of the Book Cadillac Hotel is almost as significant as its list of past guests.  Baseball greats like Joe DiMaggio and Babe Ruth have stayed in the hotel, as well as Katherine Hepburn and Martin Luther King.  It is a place where President John F. Kennedy spoke and "generations of Detroiters celebrated weddings, bar-mitzvahs, retirements, and other milestones."

The continuing economic destabilization and deterioration of Detroit following World War II and leading into the 1980s took its toll on the hotel as it changed names and owners through the years before closing in 1984.  Unlike many famous Detroit landmarks, the Book Cadillac has escaped the wrecking ball on several occasions.  It is truly sad how many once great and historically significant buildings have been raped, ravaged, pillaged, neglected and ultimately destroyed in the city of Detroit over the past 50 years.

Previous efforts at renovating the hotel have failed, and prevailing racist and negative attitudes about the city of Detroit have kept many in-state developers away from the city, but Detroit's current rebirth is attracting young professionals and empty-nesters alike back to the city and new groups of out-of-state investors are taking notice.  In June of 2006 the Ferchill Group, a Cleveland based developer announced plans for a 176 million dollar renovation of the hotel.  Barring any future problems, the hotel will re-open as the Westin Book Cadillac by summer or fall of 2008.  The property will feature 455 hotel rooms and 67 luxury condominiums.

People are already lined up to purchase a piece of the landmark.  The great news is the Luxury Condos are almost sold out already.  Jon Grabowski, president of Esquire properties recently announced that 40 of the 67 units were sold on Saturday October 14^th, during the first exclusive, invitation only sales event at the Detroit Athletic Club, and even more were purchased recently at the December 2 Public Sales Event.  Prices range from about $280,000 to $1.5 million, with most of the remaining condos between $300,000 and $450,000.