OK, Renee I'm going to step out on a limb and probably get burned by a lot of people on here but, oh well. I agree on just about everything. Except:

I think as buyers agents we have an ethical responsibility to "try" and make sure our buyers are not buying something they can't afford. But we also are not the ultimate source to make that decision. In the case of representing the Seller I don't think we have a responsibility at all if the buyer can afford the home or not. We do have a responsibility to the seller to make them understand that the person may not qualify and the contract is subject to being broken before closing because of it. Obviously the stronger content of the contract the better overall for the seller.

I agree with you!  Many subprime shops are closing doors and leaving loans that just need funding sitting in a folder and the buyers/lenders/list agents/ selling agents are scrambling to find the buyer a new loan at acceptable terms and throwing contract extension addendums through fax machines left and right. 

I personally do not judge if my clients can afford something, that is up to the lender to decide.  What I am mainly concerned about is with the new lending guidelines being shaped each and every day.  Many legitimate buyers may be squeezed out of our market inadvertently. 

On a side note:  Someone that may have been pre-approved for a product last week, writing an offer this week, may find themselves without the product PERIOD or a similar product an unaffordable interest rate. 

The key is to stay in touch with lenders the day you are making an offer and shorten due diligence and contingecy periods to the shortest amount of time.  I am talking complete underwriting within 7 days.  SO both buyer/seller knows if the loan will fly or not fly.  THis goes along with you saying to strengthen the contract.

I just don't want any puppy dog tears when someone puts an offer on any of *my* listings and I counter with the above.  It would be to protect my sellers from having their property in contingency status for a long amount of time.

Remember this if you ever get into a situation with a buyer who places a contract down on a home and is in the loan approval process. Then the buyer suddenly backs out of the contract and decides to go with another home. The loan approval process starts over as each home has to go through a separate approval. So your right the buyer may qualify for a totally different loan package that may jeopardize his capability's of obtaining an loan.

I had a lady this last summer that did just that. We had her approved on one property for a loan with 10% down. She decided to back out and place a contract on another home. The new home had to go through the same approval process. This time she could only qualify for a loan with 25% down because she had been out spending money like a banshee!

I think as buyers agents we have an ethical responsibility to "try" and make sure our buyers are not buying something they can't afford

Danny, that's a refreshing perspective.  I'm glad you said this. 

Danny:  OUCH!

Brian:  Absolutely.

Thanks for the entry in The "Carnival of the Economics of Real Estate".  I'll be posting the entries and winners by Friday and will be sure to notify the winner about his/her new Forbes subscription.  We had fifteen entries; two from new Active Rain members.  You can see all the entries here with a star next to them.

Each entry was masterful.  One person will win the Forbes subscription but all of you won something from your well thought out posts; increased knowledge.  Be sure to comment on each other's posts.  There is a lot to learn from each other.

You made some good points, Renee  - 

• the tipping economy
• responsibility for determining "true" affordability
• verifying continued qualification (now vs last week or last month)

Yeah... I get all that but don't overanalyze the subprime fallout as a BUYER issue.  It is more of a PAST BUYER issue because during the past 5 years, there were a LOT of "Subprime" loans under 6%...

The problem is that they had margins of 5-6% i.e. SUBPRIME... now with the ARMs adjusting, people are refinancing.  The problem for the subprime lenders is that THEY ARE NO LONGER NEEDED BY THESE PEOPLE.

Either:

They are foreclosing which while there is a huge wave of foreclosures, it is still not the majority

or

They have utilized the mortgage as a credit building tool and are now worthy of an A Paper rate.

So... in sum... if the loan base of these borrowers is getting paid off or they are foreclosing, the interest is not accruing.  With the bad press due to the ARMs adjusting, people aren't going out on a limb as far.  Also with rates rising, people are no longer as receptive to these subprime loans... they were spoiled hearing about the 5.75%-6% loans with 600 credit scores and won't take a 7.5%+... so they simply aren't adding new loans to the system as quickly.

All the while, the refi boom is definitely coming AGAIN.

Brian:  Thank you for running that contest!  I love the group!

Sharon:  I think  you are the only one who "got it" about the unique economy.  Probably because you live in Florida where the economy may be similar?  The variable of the tipped worker differs from market to market.

David:  I hope people are not cashing out on the refi boom at the rate they seemed to before...EEEK!

renee...it isn't about cash out always - sometimes it is just rate and term...

or heloc

or home improvement/debt consolidation

but I do wish more people would take advantage of the opportunity as realtors to work with their past clients to make sure they don't fall into those traps!

So I ask, where are we headed? Is the industry going to see inventories dropping or just prices dropping? I am having a harder time selling my listings.

Renee: Great comments about the state of the industry!  I think the reactionary and inflamed lending community will settle down, realign guidelines and rates to coincide with true risk profiles versus what the media or Washington wants ... and we'll see business begin to rebuild and steamroll away ...

I do like David A. Podgursky, MBA The Mortgage Go To Guy! comments above -- because the consequences are either the foreclosures (which are a direct result of higher risk borrowers -- unfortunate but true) or the movement to prime / A paper borrowers (which was the original selling point of many of these original loans!).

The trend will likely be towards industry consolidation (larger companies acquiring the stronger small players) and increased market share / profitability for the survivors!  

Customers, Realtors and everyone touching the Real Estate market will win ... we're just going through a rough patch ... and the media has jumped on this story worse than the non-stop coverage of Anna Nicole's demise.  Just like that story was no surprise to those who followed her "career," the rise of foreclosures and the temporary slowdown of this business were inevitable to those who paid attention to the indicators.  "Irrational exuberance" characterized the Internet Mania several years ago ... this too will pass.

David:  Great points!

Michael:  Haven't a clue.  I do know there are too many non motivated sellers out there right now which is putting the squeeze on motivated sellers and in return it drops their price!

John:  Thank you for your insight and thoughtful comments!