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The Metrics of a Market Correction

The housing crises, as many of you know, has been the topic of recent interest on Active Rain. I've weighed in with a couple of posts knowing full well that my opinions are far different than most who gravitate to this site. My perspective is unpopular here. Still, 2007 was a year of extensive travel that put me face to face with title agents and underwriter executives from many different states. In one prolific instance, my meeting was with elected officials from across the land. Unquestionably, the dubious creed of personal responsibility among borrowers is part of the problem. But, let's not forget the professional responsibility of real estate professionals!

A comment made yesterday by a consumer is emblematic, in my estimation, of the situation nationally. She works as a paralegal, her husband as an electrician. I'll speculate that this couple is representative of the demographic that most of you serve.

Gilda wrote:

"My husband and I were victimized by our mortgage broker, appraiser and lender. Our Good Faith Estimate showed a fixed rate loan; when we got to closing on a Friday at 4 p.m., we received an adjustable rate, interest only mortgage and a second mortgage/equity line of credit! We were past the closing date due to the lender, and the seller said if we did not sign then they would keep our $11,000.00 deposit ... and recently we found out that the appraisal was inflated by approximately $25,000!"

While it's obviously a complicated situation with any number of moving parts, there's no reason to distrust the woman. Why would she lie? Why would she make blatant accusations of appraiser fraud that weren't true? Why would she paint a broad canvas of predatory lending practices if they didn't occur? Are all buyers liars? It's doubtful!

For 20 years I conducted closings referred by real estate agents and loan originators.   More than once I was compelled to seek a legal opinion after hours to determine my own liability because a deal turned ugly at the table. More than once I had buyers accept unfavorable loan terms, angrily and reluctantly, because their possessions were stowed on a moving van and they had nowhere to go. More than once I heard licensed professionals lie like hell to earn a commission or a fee.

It's undeniably convenient to blame irresponsible borrowers for the woes of the industry such as they are.   It implies that someone else, anyone else, is at fault. Gilda's narrative doesn't suggest the presence of real estate agents in her transaction. Perhaps, if good agents were involved the abuse wouldn't have occurred. But, what about all those times appraisers were asked, or threatened, by industry insiders to be a bit lenient by inching a value upwards by $1,500 or $2,500 to make a deal work. It's a far cry from $25,000, but we can't ignore the cumulative reality. Is it possible that a little cheat here and a little cheat there contributed in a big way to the problem we now face? Could it be that the same mentality of cheating a little to make life easier found its way into every aspect of real estate protocol?

At times the truth is painful!

As a "card carrying" capitalist, I embrace the wisdom of free markets while denouncing government intervention in all its hideous forms. Like most of you, my formative education leads me to believe that imbalanced markets need time to correct themselves. How much time, though? My heart and intuition lead me in an entirely different direction. I recognize the need for intrusive medical treatment when a patient's health is in immediate and eminent danger. Our neighbors, family members, and friends are suffering horribly. Once the bleeding has stopped, we can look for solutions.

Our domestic housing crises stands center stage in the theater of international opinion. Even the likes of Osama bin Laden recognized its potent psychological affects by mentioning the crises in a stream of anti-American rhetoric. Public officials will hear the cries of consumers in Gilda's predicament because it's their mandate. The free market itself will incorporate Gilda's plight into its corrective gyrations because it has to.

Yes, everyone holds a degree of culpability. But the fact remains: Once a business model fails to protect the interests of vast numbers of consumers, it's no longer viable!

It would be exceedingly naive to expect that in three years the real estate industry will look the way it does today.

Why you ask?

Because ... even if the crises miraculously resolved itself today, the catalysts that caused it are still alive and well!

For a well written and provocative post see Obtaining Housing Meltdown Absolution with a Holiday Round of the "Caveat Emptor Chorus." Rosemarie Hicks explores the paradigm of esoteric dishonesty that miserably failed trusting consumers and real estate markets in general.

Posted by Ed Rybczynski on 11/26/2007 01:25 PM

Comments (72)

housing crises, foreclosure crises

72 Comments on The Metrics of a Market Correction

NOV

2007

I don't have an answer either but I know I don't want the politicians involved.

Ed, I think you are right on. Unpopular opinion or not.

Personally I believe all parties are responsible. Today I fear it's more a matter of the squeaky wheel getting the grease.

The consumer cries that they are victims of those greedy lenders, appraisers, mortgage brokers, and agents.

The politicians upon hearing those cries, hop up on their soapbox and denounce all evil and institute laws and regulations that will forever do away with the bad guys.

The brokers, originators, appraisers and agents rally behind the storm against the bad guys, "I've never done a subprime loan, I've never asked for a higher appraisal, I've never ..."

The Lenders seeing the townsfolk with their torches ablaze advancing to their castles, come out and say they are doing all they can to fix the problem.

Is Gilda really to blame? No

How about her crooked LO? Maybe.

Then again maybe not. Did Gilda originally apply for a fixed rate loan on a much smaller house? Did the loan officer then quote her in his initial GFE a real fixed rate payment based on that house? Did she then balk at the payment and also buy a much bigger house? Maybe. Was the only way to get the deal done by using a subprime combo loan? Maybe. Did the Agent push the LO to get the deal done or else? Maybe. How about the wholesale rep that pushed the deal past the underwriter? What about the appraiser? So many people, so much blame to go around. No one person but a whole culture needs to change.

I'm with you!

Ed, I just think you're brilliant. You've grabbed the good, bad and ugly subject matter and stuffed it in the internet so the consumer and learn and help themselves. You're a good Samaritan.

The most significant part of your post, to me, was the very accurate statement that the market forces which brought about the mortgage crisis "are still alive and well".

While I have seen some examples of ridiculous, knee-jerk reaction by members of Congress to the crisis, it is naive to believe that the real estate and mortgage industries will miraculously self-correct things. It's easy to shout "I hate government". It takes more effort to get involved in constructive change.

The free market needs regulation. Regulation is not merely needed to protect consumers from industry professionals, but to protect those in the industry from unscrupulous colleagues.

Ed,

Great post!!!

Your perspective may not be popular but it's as close to the truth as most people are comfortable with...I remember closings as well where less than admirable behavior by brokers, lenders, even attorneys was witnessed by me...early on I would turn a dumb ear and attest I was only the narrator there...I'm not so sure now, however!

All I know is if our industry can't police itself, then it is inviting the government intervention to which all of us are opposed. Either 'clean up' or 'be cleaned up'. are there other choices?

Thanks, Fran

John - Even worse than legislation, I'm worried about judicial interpretation.

Mike - I think you and I agree. Every time something about the mess seems to make sense, another causation factors tends to rear its ugly head.

Chris - Finally, a comment of biblical proportion. You now understand me, it's about the consumer and only the consumer. The corrected market will not look with favor upon the real estate professional.

Eric - I love your summation, " Regulation is not merely needed to protect consumers from industry professionals, but to protect those in the industry from unscrupulous colleagues." That pretty much says it all.

Fran

I knew you would get it and agree that this is as close to the truth that most people can get. I've got an article being published next month that's a bit more robust and descriptive. I'll share it with you, but I'm afraid an AR lynch mob might form if my words ever make it to this forum : ) I might need your protection.

Ha! You just go ahead and post your truths Ed. From what I have seen lately from other writers at least yours does not border ethics violations...just plain simple truths. Okay, not simple but it sure as heck is the truth!

Sally

Thank you, my friend. Yours and Chris' support mean a great deal.

Fran - I know that I can always count on you to watch my back during a brawl.

wow...i need a few hours to chew on this post. you have done your homework. as an ar newbie seeing posts like this one is why i came here in the first place...thanks, trevor

Just say it like it is, Ed. I enjoy your thoughtful posts. There is plenty of blame to around. AR a lynch mob...nah.

Mike Mueller said it well - "a whole culture needs to change." Instead of an attitude of immediate entitlement and doing whatever has to be done to complete the deal, we need to move more towards actually earning things and simply doing what's right.

Thanks for getting my brain working after the tryptophan from this weekend.

I believe it is our responsablilty as agents to guide our clients through the process. If something doesn't seem right (appraisal, loan program) we need to question it. Our industry's reputation will only change if we change it. But, we must understand our industry includes Appraiser, Loan officers, Title reps. We are all consider to be in the real estate industry. Don't push blame back to the consumer or the other parties involved in a transaction. We all have a part. Most consumers come to Agents/Brokers first because they believe we are the experts. We need to make sure we give them proper guidance.

If we can't make it right, then the government will step in. I would rather not see that happen. But, integrity has to be part of your daily business.

Ed,

I agree that the underlying problems have not been resolved. I agree that it is mutli-faceted and I think that it has become part of our culture to walk away from debts.

I think we have buyers that have learned that keeping up with the Jonses can occur easily with credit cards and home equity lines. They are pushing themselves too hard to keep up and many have failed. I have seen many $300,000 homes (a nice house out here in Salem, OR) in foreclosure. I am seeing buyers refuse to take any responsibility in their own demise.

They blame agents for showing them houses they can't afford. They blame the appraisers for inflating values to meet the loan. I worked with several lenders, while representing the sellers, who shopped until "they found some love." They blame the lender for not explaining their loan to them.

Now, they want to walk away with a complete write off. It sounds harsh, but saving for a house has value. It forces people to buy within their means. Banks are writing off loans left and right, for what I would consider "non-hardship" cases. Buying a champagne house on a beer budget is never a good thing.

There is no 100% group to point fingers at, but the bottom line is that buyers need to think through what they are doing. If more buyers had taken some time to churn the numbers for those ARM's, we wouldn't be in quite as big a mess. I agree with Ryan that if more agents took the time to crunch the numbers with their clients and helped them understand what they were doing, we could have prevented some unnecessary foreclosures. Sometimes I wonder what buyer agents think they are getting paid for.

Ed, all of the information over the last few days has been superb. There's a very real difference in mortgage fraud and speculative behaviour. I know Montgomery County had predatory lending legislation pending but tabled it. But isn't that different legislation than what is being discussed as a temporary fix to the current situation? Clearly if we can't or won't police ourselves somthing needs to be done to protect buyers against the exact situation you define. In markets like Atlanta when this was done systematically on a wide scale the results are devastating.

But can we really stop the bleeding? Or is it a temporary halt that will be replayed after the temporary aid is lifted? Why not let the market forces take care of themselves? It seems to me the lender recognizes that it's foolish for them not to work out a plan with a paying consumer so they should be working towards that end in their own best interests. It's just as foolish to think that a consumer who can't make their payments today, will do any better in the future and then we deal with the next wave.

I couldn't agree more that higher standards for realtors need to be in place to help curb this behaviour. But I realize what an uphill battle that is and why given the current brokerage models it's hard to push through both higher barriers to entry and ongoing requirements for real knowledge. In my little corner, I can just try to be the best I can be and know each day I did it without that little cheat. That my clients had enough information to make good decisions for themselves. And if that decision was not to buy a house now, that's okay as well. One commission is not ever worth the potential disastrous result.

Keep writing majority opinion or not.

Ed, Thanks - I have met Gilda, many Gildas. I worked in Escrow for 3 years during the boom in CA and what I saw on most days just made me plain angry.

Good, if scary, post. I had just finished reading a similar post on the Florida Association of Realtors website, which paints a dismal picture. Monday morning quarterbacking comes too late, but it can still deliver important news.

Ed,

I've only been in realestate for two years so I didn't get to see the good years, but I can tell you this whole industry could use alot more truth. Keep speaking your mindIt shows integrity, and intelligence

Well, I'm having a hard time getting my head around this anecdote. First of all, I don't like anecdotes. They do not represent anything other than one consumer and I have never heard a consumer take responsibility for their own mistakes in making real estate decisions. Some things that trouble me about the case referenced are:

1. Is there an agent involved? If no one knows, why not? If there was not an agent involved, then the buyers were flying without a parachute. Even with an incompetent agent involved, lenders, builders, etc. tend to be more careful about how they perform. I do not ever condone perfidy on the part of lenders, appraisers, title officers or agents if they are involved in a transaction. But, when hundreds of thousands of dollars are involved, buyers who what to play real estate have to take the responsibility for the outcome when they lose the game. An unrepresented home buyer is like a lamb going to the slaughter.

2. The GFE is required by law. If the term or rate of a loan changes, a new GFE is required by law. If, the events are as described in your scenario, the parties involved have violated the law, committed mortgage fraud, and probably conspired to commit mortgage fraud and possibly commit commit racketeering. The offenses are so grave they defy description. Which is why I believe that there is more to it than you were told. It's not too late. If the buyers didn't get timely GFEs and Truth in Lending, they have a claim against the lender and should pursue it. If the lender can't produce the documents signed by the borrower, they are in trouble.

2. The bar for real estate representation must be raised so that licensees cannot take the responsibility of representation and then play "three monkeys". I see no evil because I don't go to home inspections. I hear no evil because I don't participate in loan applications. I tell no evil because I am a passive walking key pad. Anything more would put me at risk. I practice risk aversion by not getting involved in my buyer/client's real estate transaction.

3. The regulatory entities have got to get out of the board room and start following the law and monitoring mortgage practitioners and weed out the companies, officers, supervisors and SALES persons who practice false advertising, avoidance of RESPA and FDIC, banking and other regulatory rules and laws already on the books.

I've been criticized mightily because I very much control the buying process for my buyers. However, I can promise you that the scenario as you described would NEVER occur with a buyer working with me. In fact, knowing what I know, I am not sure I even believe the story. Not that you were not told the story. Of course, I believe that. But, that the events are as described. The fact situation described leads to too many questions. How do they know the appraisal was inflated by $25,000?

Further, I would be willing to bet a crisp dollar bill against a fresh donut that 90% of the defaulting home owners who apply for relief when it's offered and I've not doubt that it will be offered, the present political atmosphere will demand that the politicians outbid each other for fixes, will relate experiences just like the one in this post.

Trevor - The pleasure was entirely mine. I'd love to know your thoughts of the post after they've crystallized.

Missy - Had you seen the original draft of this post's concluding sentence, you would understand my mob theory.

John - Beyond a shadow of any doubt, the problem is cultural. I'm speaking broadly in a societal sense and narrowly about the real estate industry. I believe that changing the culture of our industry is the key. It's easier said than done.

Michael - Amen! I'm grateful to hear those words from an appraiser.

Hi Ed,

Now why don't you tell us how you really feel? LOL! This has been a pretty interesting turn of events that the public has had to endure these past few years. The world is waiting with baited breath and the sigh of relief that is needed to calm the waters of change is long overdue. Thank you for speaking so eloquently about the ugly under belly of what many have candy coated. You go where many don't dare dwell and for that I say to you "BRAVO"!

Another great post Ed. I think I'll add this one to my resource post as well.

Personally I think we all need to quit looking for the cause and start looking for solutions. I too sat through many closings in 2005 where I knew for a fact the buyer would not be able to afford the house they were closing on. I know of a couple of buyers that were in foreclosure within 6 months. BUT I wasn't their agent. I work for sellers. Not much I could do about it.

Today I spoke with two sellers on the phone about listing their properties. Both are in jeopardy of being foreclosed on. The first one bought their house in 2004 for $134,000. It's now worth $200,000. They owe $210,000!!! The second one bought in 2003 for $97,000. It's now worth $159,000 and she owes $150,000!

In both cases they have pulled out ALL of their equity plus some and now they can't afford the payments. I also talk to many sellers who bought at the peak of the market with the sole intent of flipping. Now they owe more than the house is worth. It was a bad investment.

My market was sub-prime territory big time. However, I rarely talk to a seller who needs to sell because their loan is adjusting. In almost all cases they were flips that flopped or they have refinanced and spent all of their equity.

So from my perspective, even though abuse and fraud certainly happened, by far, lack of personal responsibility reigns.

Ryan - I believe we have a responsibly to promote dialog among other professionals. It's the practical role of blogging in my opinion. Basically, you're describing the role of a fiduciary in your comment. The dependency of consumers is the crux of fiduciary duty for real estate practitioners. There's also an inherent expectation of integrity, judgment, and expertise in return for a professional fee.

Melina - We're on the same page. Of course buyers need to accept responsibility for their decisions. But, highly paid professionals have a serious obligation to properly guide and advice sellers and buyers.

Josette - Your wise words are music to my ears. I was deeply saddened last year when a circuit court judge in Montgomery County didn't have the courage to endorse legislation that truly advocated consumer rights. Is it really a pioneering initiative for loan officers to work in the best interest of borrowers? Would it had really mattered if 40, or so, "B - Paper" lenders pulled out of one of the most prosperous counties in the nation?

I think we need to evolve beyond senseless continuing education into the realm of substantive professional development. Thanks for your thoughtful comment.

I believe there are a number of people across our industry that contributed to "the bleeding," but if anyone assumes that Real Estate Agents, Appraisers, or Mortgage Brokers are the "primary" contributors they are wrong... The group responsible for the begining and the continual decline of "the bleeding" is the group that controls the money... The bankers... The bankers determined the guidelines that have allowed some people to purchase homes that should've never purchased them in the first place and made the situation worse by placing these people in exotic loans...

Jo - Thank you for sharing your past anger. I too was angered at countless settlements while I bit my tongue and acted like nothing was wrong. How does a title person tell an important source of business to stop lying to consumers? We should collaborate on a post. Like you, I know Gilda very well even though we've never met.

Carol - Thank you! It's my sincere hope that this is more the post of an activist than it is the post of a Monday morning quarterback. I fear, like you, that it may be a little late to make the needed difference. But, you never know.

Hugh - Thank you for the kind words. I intend to keep singing my song to anyone and everyone that will listen.

Ed,

Whether people want to acknowledge it or not, this post is totally honest and truthful. That story definitely shows a lack of a Realtor, or at least the lack of a good one. I am always aware of what my clients mortgages look like and am careful to offer advice if I see that it doesn't appear to be in their best interests. I think there are so many opportunities for a little bit of cheating that it definitely adds up to trouble in the end, if someone doesn't step up to do the right thing.

Great post. Thanks for always posting the truth as you see it. Yours is a voice and opinion that I know I can respect.

Lenn

I agree that theres a fair amount of anecdotal information in this post. As you say, it's hard to account for a $25,000 disparity in value, but I know it happens Gilda's narrative, in my opinion, is basically couched in a truth that's been experienced by many consumers. Gilda didn't mention or implicate real estate agents. As I said in the post, a good agent would have made the difference. Undeniably, this wouldn't had happened to Gilda and her husband had you represented them. I don't think it's possible for a real estate professional to exert too much control, especially after a contract has been executed.

I've actually met a Maryland couple who went on the offensive after being defrauded by a lender during a refinance. I worked closely with their attorneys, there were two of them, during the ordeal. It was a classic example of predatory lending that included a misrepresented GFE and an inflated appraisal. The lender raised payments to an unsustainable level even though it was contrary to the expressed terms in the note and all documents executed at closing. The lender retained expensive local council who extended the case for years. In the end, the couple wound up with a reformed deed of trust with a favorable fixed interest rate. Regrettably, it cost them roughly $17,000 in legal expenses which they didn't recover.

I realize that there's more to Gilda's story than we know. I also realize that some consumers will improperly game any concerned efforts by legislators to offer relief. But, I also know that far too many consumers have been victimized and something has to be done.

It's entirely your fault, Lenn, that I've been compelled to write as much as I have over the past several days. LOL

WOW! I just posted a blog on this topic and wish I had read yours FIRST. Mine was pretty rough as well and I sited your previous post about "A coin only has two sides" as one of the influences. One of the negative influences that I didn't sight was the blog that had a person in a hammock under palm trees and indicated everything would be perfectly FINE - just let the foreclosure carnage run its course.

Interestingly, before becoming an agent, I had a bait-and -switch on a refi. I walked! They were trying to put me in a 5-year ARM. They called back and renegotiated the fixed-rate with me. But not everyone has the knowledge to stand up to that. They talked up the ARM - told me how wonderful it would be to save that money for 5 years. We were a week from closing and I didn't relish starting all over again - but would have if necessary. Point is - that bait- and - switch isn't that uncommon.

As to the appraisals...OH BOY! I entered the market in the summer of 2005. So I'm a relative newbie. I watched agents gather comps to "nudge" the appraisal up $5000-10,000 to get the deal to "work." (In our market $5-10k isn't that much.) I wondered at the time how ethical this was. The backlash has been significant. I had a ridiculous appraisal last summer and another one last spring. The one last spring was based on an internal family sale that was never in the MLS. It was a transfer from parent to child! So of COURSE the sale was ridiculous - it caused an under appraisal of about $10k on a cooperative. A MESS. So it has gone too far the other way in some cases. But that's what happens when you take liberties during the good times..

I'm subscribing .....

Ed. It isn't just you and me and all of the interest by ActiveRain members. It's all over the news, intruding in the political campaigns. Didn't Ben Ladin mention our housing crisis in one of his verbal missives???

Geez. Our dirty linen is all over the world.

Lenn

Osama bin Laden absolutely used our domestic housing crises to rally the Muslin world against a culture they perceive as hedonistic. We are definitely center stage in a global theater on this one. That's why I think there will be a swift and furious reaction by the feds, especially with a presidential election pending.

Ed, there is a little change upcoming Jan 1 in Colorado. That is that we as lenders must provide to the borrower a complete copy of all the documents that they will be signing at least 24 hours before closing. Not that this will stop storys like the one that happen to Gilda, but it may allow everyone a bit of time to make sure that what is being delivered has been discussed and disclosed to the borrower. And for the few that still wind up in ARM's, I will bet Lenn's donut to a nice fresh triple mocha that they borrower will still say they did not know that they had an ARM.

Lisa or Robert - You're very welcome and thanks for the supportive comment. Next time I won't hold back.

Bryant - Thanks. While the causes are debatable, it's sounds like your area is under heavy fire at this time. I hope it calms down soon.

Billy - I appreciate your thoughtful comment though I'm not sure we agree. There's no question of malfeasance by lending sources and Wall Street. It was in direct response to a misdirected monetary policy initiated by the federal reserve. But, we need to acknowledge that serious abuse occurred at street level. It took an army of foot soldiers to create the unmitigated destruction that we now have on our hands. Thanks again.

Andrew - Thanks. I think we have an accord on this one.

Ed, I recently acquired a client that had been victimized, both by the lender and the real estate agent three years ago. We went on to put the house as a short sale and the agent from three years ago had the nerve to bring an offer for 100K, 35K less than what she sold the house for three years ago. How do these people sleep at night? I stay up worrying about my clients and making sure I'm doing everything I can to market their properties affectively, and other agents are all about the money.... Same for lenders..... Unfortunately we can't legislate a conscience. Too bad!

Ruthmarie - I've read your post and love it. The word "nudge" is such an appropriate verb to describe the intimidation used with appraisers. I think that ultimately statistics will reveal that the entire nation has suffered a devaluation effect similar to your area. Greenspan might refer to it as equity extraction.

As for the subscription, I'd be careful. This is a place where controversy thrives.

Joe - Thanks for the heads up about the new Colorado statute. The problem:For 33 years RESPA has given borrowers a right to demand loan docs at least 24 hours prior to close. The industry has collectively chosen to ignore the act since the day it was promulgated. Then again, Erin Toll is something of a crusader and may have the courage to make a difference in your state. I'm curious to learn of the outcome, please let me know.

You're right about borrowers categorically disclaiming any knowledge of having signed ARM documents. Some things will never change.

Ed,

I wrote a very eloquent comment about covering your back in the event of a brawl only to lose it in cyberspace! Suffice it to say that the Gilda story is anecdotal and is only a part of the mosaic that this post attempts to portray IMHO...

Step back and refocus to see clearly the abuses that Ed is trying to highlight...some are in denial and refuse to admit the inadequacies that are rife within our industry...until Ed's mosaic can be seen clearly the need for sweeping and comprehensive reform will leave our industry suspect amongst consumers who are aching for professional representation and ethics to return to our industry.

Thanks, Fran

I need a better description of "victimized". It is a very strong word to use and call out without facts to back it up.. By using the word victim you are contributing to the continuous problem if this is not a real victim. A true victimization will no doubt be cleared up in court. IF these people are not victims and just were irresponsible when it was all there on the first page then lets start over again with a true victim and follow it through to the end including the litigation process.. Your story does not seem to explain it all..... It scares me how much moral hazard is being built into America on a daily basis and I myself question everyday if I was correct in not taking advantage of this free money.. What I don't understand is how the people in california who put 20 percent down and locked in a good rate for 30 years can live next door to someone who put nothing down and will now benefit from a much lower interest rate.. Or for that fact how the people who never bought and were priced out of the market but yet more money than this one lucky california dude who gets to live in a million dollar house with no money down and a teaser rate locked in for 7 years.. I don't get it...

Ed - you say: I've weighed in with a couple of posts knowing full well that my opinions are far different than most who gravitate to this site. Count me out of "most" if this is true. I've always appreciated what you've had to say.

Most experienced and professional agents can smell fraud and advise their sellers to run when they see something like a high offer with monies going to Runaway Jack Construction. But we've also seen times when, as you mention, a buyer is at the closing table with furniture in a truck outside and a seller who's ready to take their deposit when they're faced with a change in mortgage terms. They can't afford to turn away. It's generally those who can least afford it who are faced with this situation. Naturally, everyone doesn't fall into this category, but some do.

Thanks for once again bringing your experience and opinions to the group.

Chris - Thanks for sharing. And, your right, we can't legislate a conscience or professional demeanor for that matter. I hope that your clients fares well. They did well to select you for this go round.

Fran - Thanks for flying cover today. It's hard for many to understand that small, seemingly harmless acts have been internalized as part of our industry's culture. Title agents are positioned best to witness the abuse. Collectively, the misbehavior has metastasized into a destructive force with an insatiable appetite and a life of it's own. I don't claim to know a thing about ethics, but I do know how to take time to truly listen to consumers and understand their fears and needs. We all need to step back and take a look at the greater picture.

I guess I am l lucky enough to be involved with lenders of high moral standards and haven't personaly seen any of these unethical dealings.

As for Gilda, if I were in her shoes I would probably have signed as well and headed straight to an attorney.

Keep up the good writing Ed, You bring alot to the forum.

Ed - Don't take my word for it... Read it for yourself by someone that testified before congress... www.house.gov/apps/list/hearing/financialsvcs_dem/bass.pdf

Billy - We're all entitled to our opinion and I do respect yours. We just disagree on this one, that's all. I looked over the testimony and find no reference that real estate agents, title agents, appraisers, and loan originators aren't primarily responsible for the crises in conjunction with other causation factors.

Please correct me if I'm wrong. Thanks for the link.

Anon - For the sake of argument, I propose that we subvert the culpability of any one borrower and talk generally about all borrowers. It was a business model built on a mantle of dishonestly that failed all consumers regardless of their individual motives. While it's true that many dug their own holes through hedonism and an indisputable lack of personal accountability, an entire economy is about to tremble due in part to a lack of standards among highly paid professionals. With that being said, all borrowers have been victimized in a sense and I realize that it's an exceedingly strong word. Lending criteria were relaxed to criminally low levels over the past decade. Loan originators sought their own gain at the expense of their clients. It's a doubled edged sword and some consumers were most certainly innocent of any wrong doing.

As for your questioning yourself about not grabbing for the easy money, I often ask myself the same question. Maybe we should have joined in the adventure.

Thanks for stopping by.

Ed, does that post i made make me look like I shrink from controversy???

Sharon - It's always nice to run into you in this ever expanding forum. Thank you for your comment and support. I was concerned that this post would anger many and modified the original draft ... just a little.

Michael - I agree, Gilda should retain an attorney. I don't know her particular circumstances, but many simply can't afford legal representation. Predatory lending is a sophisticated crime that requires specialized legal experience and knowledge to properly pursue a resolution in court. I wish there was another answer. Thank you for commenting, my friend.

Ed~

I just spent half an hour reading your post...and then reading each of the comments. I have little to add that has not been said...except THANKS...and that this post is bookmarked and is being sent to all the folks on my team at the Firm...because it is hugely educational and monumentally authentic. Thanks again.

Ed,

You forgot about the incessantly chirping voice of the media. Recall in 2004 and 2005 when the headlines read very differently regarding housing and mortgages. If you weren't buying or refinancing to leverage and buy more (whether it was real estate or that sweet ski boat down the street), you were missing out. The same individuals that are currently overwhelmed with their mountain of debt were tripping over themselves to amass it during the housing frenzy. If "we" didn't get it for them under their terms, well there was somebody right next door that would gladly take our place. I welcome the coming reform!

Accurate and helpful information should be relayed one transaction, and one client at a time specific to their situation. We all need to avoid taking orders.

Thanks for your post...I too am now a subscriber.

Good old fashioned american GREED! It will never go away.

As a mortgage broker I never once switched loans on a client. I was closing less loans than many of my co-workers as they did many things I would never do. It was hard to watch as they made a lot of commission dollars.

I was also pressured by many real estate agents to get a loan done. If I did not get that stated income loan done, some other mortgage broker would - I lost a few referral partners on that one.

Greed, can't be stopped and can't be regulated.

Always enjoy reading your posts. Thanks for sharing.

NOV

2007

Thank you for always adding a new perspective to these issues.

Duane Hosek in the Black Hills of South Dakota

Amen! Great perspective.

Just a couple of comments:

1. I saw this coming in 2000. Realistically, the price of real estate cannot rise faster than the average income of Americans. Investors drove the market up beyond sustainable levels...much like the stock market of the 1990's. I can tell you where the bottom of this market is....take the average price of a home before the boom in 2000, and then multiply it by the increase in average income since 2000. To this add about 5% for the influence of speculators, and that is where the bottom is. This is exactly the correction the stock market took in the early 2000's, only it was faster, because stock market money is not mortgaged(think about that one for awhile...how much will it delay the correction?)

*Do not underestimate the role of babybooming investors in this mess. That is where the problem started. The number of babyboomers is unbelievably large, and they drive a number of markets including healthcare, the stock market, vacations and travel.....the list goes on and on.

2. Okay so it was only one comment.

Ed,

You and I have discussed this before. I can tell you this....being mostly on the sellers side as the listing agent ...I do not control who the buyers lender..LO or mortgage broker is. I can only push to close and close on time. I have been at the closing table more than a few times and have seen the faces of the buyers sitting there upset with the loan.

I would question what the problem was and they all came back with the same reason...the rate and terms were changed at the table. I remember even seeing this one in particular.... on a VA loan done about 5 yrs ago.you would think a VA loan? yup... I do not have any documented proof as I was on the sellers side but it seems very interesting that it would always be blaming the consumer for not reading what they signed. I'm sure that might also be a possibility but it seems a coincidence that it was an ongoing issue. This is one reason why I am reluctant to give referrals. Not that I do not trust the Mortgage broker but because I am seeing it on the other end of the spectrum. I always get blasted by other in the industry here if I write what they call a negative post and then they say that maybe I am working with the wrong people. That's just another excuse. How do I decided...I'm not the buyers agent and I'm not the person who works on the loan.

If I make error on my side then I have to take blame. We all know about possible fraudualnt activities that went on in the lending industry and I know it is still going on but on a smaller venue and this is only part of the problem we are facing. The blame is not just from one entity but the blame goes to all....the LO's...Mortgage brokers..the Realtors(R),appraisers..title companies...even the buyers for not really reading carefully enough. This is why it is a lot more difficult for some to get loans and really qualify...they definatley more strict and unfortunately for the buyers it will hurt then and our market...but I beleive it is kind of like a cleansing.

janeAnne - Thank you! Your kind words are greatly appreciated. I hope your team finds the post useful.

Jesse - Without a doubt, the media is irresponsible more often than not. While, the media clearly had an effect in fueling the boom, I'm not sure it's been instrumental in initiating the recent negative frenzy. I don't think that reporters understand the situation and shy away from it when possible. I expected far more coverage than has actually occurred. Thanks for commenting.

James - I agree that greed is unstoppable and will plague us to the end of time. However, I believe that proper training would cure many of the ills confronting the industry. I feel that consumers need to be enlightened as well.

Bob or Carolin - You're very welcome!

Duane - I appreciate your kind words.

Doug - Thank you!

Brian

Thank you for such an insightful comment. Like you, I suspect that we'll experience a devaluation to price levels as they were in the late 1990's. The stock market downturn offers a worthwhile analogy, but the housing market is much different in many respects. For one thing, a house can't be sold quickly when the market signals distress as is the case with stocks. Astute investors in the stock market are able to mitigate losses. Also, we need to factor in the new phenomena where mortgages exceed home values in many instances. This is a problem that could conceivably take decades to resolve and could greatly impact wealth distribution.

Unquestionably, the aggregate behavior of baby boomers will significantly affect the potential recovery. At the same time, we need to work with generation X and generation Y by educating them about the realistic benefits of homeownership. We need to include the young people for this to work.

Neal

I understand what you're saying about a backlash when writing posts that are perceived as negative. I think there's an expectation that all posts should be somewhat giddy and always portray a rosy, floral backdrop. That's simply not real life and I won't participate.

Without a doubt we're watching a highly dysfunctional market attempt to diagnose its own symptoms and possibly try to correct itself. A holistic approach to healing won't work in this case as there are too many dimensions to the problem that have managed somehow to collide right here, right now. The effects will be devastating as I believe we're uniquely positioned to witness the death throws of an enormous and outdated business model.

I'm very curious to see where we are in June of 2008. I think we're going to see a glimpse of the future by then or shortly thereafter. I think big is going to replace small. I think commissions and fees will become something entirely different than they are at this time. The key will be the control of information followed by the control of technology.

Don't forget to integrate the "know it all" and "blow hard" factor, too Ed. Some people just like to argue for the sake of arguing.

Chris

That would be me : )

You're going to wreck my illusion that you're a sweet little cupcake!

I think a bitter, angry man is a more realistic characterization.

I don't believe!

Hi, Ed

It's very easy to simply blame borrowers for this mess; both those that overreached in their purchase and those investors that drove the prices at a fevered pitch. That's only part of the story. Agents, lenders, buyers, appraisers... we all share culpalibility for this disaster in almost equal parts. I think we have to add one name to the list of those responsible and that's a reckless FED chairman who held the purse strings open for far too long. The relaxing in lending guidelines was predicated by an abundance of inexpensive money, the relaxing of underwriting led to more borrowers being steered toward loans they ultimately couldn't afford, more sales drove the market up, agents and appraisers did their part in hitting those inflated numbers to meet buyer demand... then one day in mid '06 someone sneezed and the house of cards began to topple. Great post, btw.

Jesse or Kathy

I'm glad you stopped by. Validation helps when you write a strongly opinionated post such as this. Without a doubt, it was federal policy that opened the doors to loose lending criteria and cheap money. Your comment is great.

IF government does try to step in on our housing dilema, it will only postpone it. Most of the foreclosure people I talk to have made poor decisions and didn't have any savings to begin with. Yes the lenders never should have allowed them to get the loan, but the borrowers should have had some common sense to realize they couldn't afford it. It's tough to change behavior. People will continue to make mistakes. If government bails them out they are only postponing their future failure.

Part of the housing dilema occured because Borrowing Interest rates were too low, suddenly a much more expensive house was now affordable in the terms of monthly payments. Demand increased, and home prices shot up. If the FED continues to lower interest rates just to help the housing market, they will continue to remain low and once they go up to a more healthy rate again people will panic and housing will become way to affordable then.

The natural market driven correction is really the only way the issue will be really resolved.

The whole thing just makes me want to vomit.

It's like the teacher left the room and all the kids just went crazy. Leaders in mortgage lending and title insurance are the culprits. They tossed good practice OUT the window in a quest for volume and loads of cash.

Loan originators, consumers, and real estate agents have ALWAYS had to be controlled by management, underwriters, and settlement officers. Management gagged underwriters and then hogtied settlement officers. The entire self-policing mechanism was absent.

I actually have a hard time blaming the security dealers because they depended on the reps and warranties which included due diligence. Due diligence has real meaning in investment banking circles. I think they were clueless about the lack of quality control and the degradation of underwriting standards. Fair Issac sold everyone on the techno FICO matrix and end of story - WE ARE HERE - PUKESVLLE MAN.

NOV

2007

Alan

Within the context of a historical market correction, federal assistance would do nothing but delay the inevitable for many struggling borrowers if not all. This isn't, in my opinion, a normal market shake-down. I believe it's the collapse of a business model that no longer works.

I also believe that a bail-out is a viable option to assist those caught up in the mess. Sure people made the mistake of wanting larger homes because money was cheap, but is that reason enough to destroy their futures. America's most important industry "blew a circuit" and now the devastation is untenable.

Thanks for the great comment.

Diane

It's like the policing mechanism that once existed had somehow vanished. Lenders and title insurers are definitely to blame because lax standards where more than tolerated, they were rewarded and anticipated.

Your thoughts concerning the role of due diligence by investment banks makes perfectly good sense. Still, there were market signals of looming disaster that should have been detected by someone. I first noticed them during the summer of 2000.

The question: Where investment banks deceived or where they a part of the deceit? I'm not all sure of the answer. I'm thinking that like everyone else, investment bankers turned a blind eye and hoped for the best while raking in the bucks.

Super post Ed, the info you provide is morth than helpful, it's insightful. Thanks

Frank

Thanks. I'm glad you find this stuff useful and I hope that others do as well.

Ed,

I was pleased to find one of your most enlightening posts here. I haven't seen you posting lately but that may been my mistake. Anyway, a great post--I totally agree.

Diane

Thank you! I'm posting occasionally.

Hey, Ed, thanks to Andrew Trevino's recent blog, I found yours. What a wonderfully written post. I have to say, you are bringing up some excellent posts. We were almost in that situation in Dec 2005/Jan 2006. Luckily, careful review of the updated GFE raised some red flags and we immediately switched lenders. The first lender thought that the 3 wk time-line to close would keep us with them. I can't imagine going to closing and having a moving van waiting and accepting a raw deal. That's rotten...

NOV

2007

Natilie

Thanks for the kind words. I've been to Winchester on a number of occasions and love it there.

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