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WHO'S AT FAULT?

By
Mortgage and Lending with Independent Financial Services

WHO'S AT FAULT?

  

The negative media regarding our industry is on the hunt.  They are looking for a scapegoat and they seem to be willing to point the finger at anybody.  There is no question that the market is currently suffering but that's true of all market's and business cycles.  From time to time, each of them experiences a slowdown.  Now come's the blame game.

 

In some ways, the media is right; there is plenty of blame to go around.  The strong economy and low interest rates helped spark a real estate boom, lenders loosened their guidelines so more people could achieve the American Dream, Wall Street was happy, everything was great.

 

Is the subprime market the reason all of this is happening?  I don't believe that subprime is the major culprit.  Negative media caused a knee jerk reaction that made some of the financial district decide to move their money elsewhere and that led to a great deal of trouble for subprime lenders and a ripple effect began.  It wasn't necessarily that foreclosures in subprime had spiked significantly over previous years, they were up but only marginally so.  The largest spike in foreclosures occurred in the investor market and 100% financing for those properties.  Instead of being able to flip these properties, investors needed to hold them and as the market took a technical correction, they were holding properties that did not have the same value as when purchased.  Beyond that, many of these investors bought several properties multiplying the problem.  These investors were not subprime borrowers and they're not all to blame either.

 

A lot of new and inexperienced mortgage brokers and realtors helped.  Not understanding the tried and true practices of success, many deals were put together and run through the system that never should have even gone to contract for the pure and simple reason that there was no advice to be given.  Real estate has always sounded like a good deal but if it's not structured with the guidance and experience of career professionals then deals get done that probably weren't good deals to begin with.

 

What's the bottom line?  It is always a better idea to use and sometimes pay extra to get sound advice from career professionals in the industry.  Realtors and mortgage brokers that have formed strong relationships built on the foundations of trust and responsibility are always worth extra.  You can't buy a Cadillac with VW money.....

Comments (7)

Michael Roberts
Real Estate Professionals of Glynn - Saint Simons Island, GA
I agree with you conclusion entirely.  Too many investors do not know what they are doing and assume that just because they bought it, threw money at it that the property should sell.  What they fail to realize is that there are additional factors which impact the time on market and all of them are not the condition of the property.  From my experience with investors I've seen them go against information presented as related to the demographics of an area and over invest in their enhancements.  I'm watching such a thing happen now with a first time referral investor.  Paid the right money for a property, but has put too much into it as related to the neighborhood and is crying that she's not going to make any money on the property.  First off she's preaching to the choir.  I know what she paid and have a pretty good idea of what she put in it.  It will sell but she won't make the home run she wanted.... Greed a necessary evil has raised its head and refuses to keep it down...  we all see folks just like this.... all victims of their greed which makes them have selective hearing.... shame on them.... All I can do is offer my advise... if they won't listen... it is the investors fault.... along with their buddy  Mr. Greed!
Aug 14, 2007 01:14 AM
Jim McGrath
Roseland, NJ
The issue is pretty global and not really easy for the common home buyer / owner to understand.  The root of the problem is the sub prime boom of 2003, but the investors are to blame not the broker who followed their guidelines.
Aug 14, 2007 01:28 AM
Dale Garner
Independent Financial Services - Orlando, FL

Thanks for the comments Michael and Jim.

I think many of us have been tempted to just go ahead and do what an investor tells us especially if they're buying.  It takes tremendous resolve to tell someone the truth when we know they're going to do the deal with someone else.  The issue goes back to building our referrals business.  If this investor, seller or buyer's deal goes south down the road, we're the ones that will be blamed for their unwillingness to listen and them we become the bad meal they tell everyone about......

Aug 14, 2007 01:38 AM
R. B. "Bob" Mitchell - Loan Officer Raleigh/Durham
Bank of England (NMLS#418481) - Raleigh, NC
Bob Mitchell (NMLS#1046286)

I think that there is a lot of blame to be dished out in this mess.  That blame should be focused squarely on the Wall Street brokerage houses who sold B, C and D grade mortgages as if they were AAA paper.  Also, the fund managers who were more than willing to believe the tripe that the brokerage houses were putting out deserve some of the blame as well.

The politicians who are pointing the finger at mortgage brokers are dead wrong on this one.  Who developed these programs?  Who funded them?  Lastly, the people who went for some of the more exotic programs on the hope that they would be able to figure SOMETHING out when this day came, they aren't off the hook in my book either!

 

Bob Mitchell

ValueList Real Estate Services, Inc. 

Aug 14, 2007 02:05 AM
Seth Callen
Farmers Insurance - Lawton, OK
If the liberal underwriting guidelines and wild programs would not have been offered, they would not have been used.  Now, beyond that, I think we all live in the same glass house(brokers, realtors, investors and lenders)so what's the point of casting the blame stone?   Now, "the market" is correcting itself so it's a moot point........do you really think that we'll see programs like 100% LTV no doc purchase for investment properties any time in the near or distant future??  
Aug 14, 2007 02:24 AM
Dale Garner
Independent Financial Services - Orlando, FL

Thanks for your comments Bob and Seth.

I believe that the point is that it's pointless to play the blame game.  All sectors carry some of it.  Will some of these programs come back?  Probably but with altogether different guidelines and when that occurs is anybody's guess.  I doubt it's any time soon.

Aug 14, 2007 02:32 AM
Andy Brown
Climer School of Real Estate - Arctic Bay, YN
Best Real Estate Training in Florida

Dale, I agree 100%. Great article,

Andy Brown www.OnlineFloridaMortgage.com

Aug 26, 2010 11:34 AM