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Front Page of the CHarlotte Observer...Foreclosures!!

This is the headline on this morning's newspaper. It is a series of six articles on how and why the foreclosure rates are sooooo high in some neighborhoods. It is also a comment on how it affects us all, not just the individual home owners.

Let's start with the embarrassing information. Charlotte has the highest foreclosure rates in the state. Yikes!! These are our clients. Why aren't we protecting them?

Oh wait, maybe they aren't...there isn't mention of one single REALTOR anywhere in any of the articles. In fact, there is only mention of people driving by a big sign "$1 down gets you in." The article tracked four families. The overwhelming trend in thought seemed to be, "A dollar? Dang, let's do this!"

The builder, which, in this case, was Beazer Homes, (I want to interject something here. These articles happen to be on a Beazer neighborhood but we all know this isn't a problem that is centralized on one particular builder. This is a problem with the system which is currently in place) would take care of your down payment, take care of your closing costs, and assist you in the first two years of payments, by which time, you should be able to go it alone. You should have moved on up into a higher income in order to be able to afford your own financing.

Long story, short: 406 homes sold, 84% arranged financing through Beazer Mortgage, and, so far, 77 foreclosures. 29 of those foreclosures happened during the year the majority of folks in the neighborhood were assuming full responsibility for the loan payment.

Of the four families who were interviewed, all four families provided correct income information on the W-2s provided and discussed their debts with the loan officers. There ended up being discrepancies with each of the loan applications. Several had inflated income on the application, which was correct on the W-2s. Several say they were instructed to leave off various payments, such as a car payment, in order to qualify for the FHA loans.

Please,please, if you are a consumer looking to buy a home and you are unsure of what you can and can't afford, please take the following advice:

Talk to your own lender FIRST. In fact, talk to several lenders. Get information in writing. This is called a GFE or Good Faith Estimate. It is an estimate but they are required by law to be honest and very close to correct. Work with a lender you trust. Work with a person. Have a name, not just an 800 number and a file number. Talk to them on a personal level to get to know how they operate in life and run their business.
BE honest!!! Don't let your lender discount anything you feel is important. I had a lender tell me, during the purchase of my first home, "You monthly payment for daycare doesn't count." Shoot, have you priced daycare for a month. We were putting out $760 a month 10 years ago for daycare. IT COUNTS!! If you have a question whether something counts or not, ask yourself, "Will this affect my ability to pay a monthly payment?" If it will then count it!
Don't get in over what you are comfortable with!! Chances are real good that you will qualify for much more money than you care to spend. Don't spend it. Decide what is a comfortable monthly payment for you and stick with it. You can tell a lender what the home costs, how much money you have in hand for closing, and what you want your monthly payment to be (including tax and insurance), and your lender can tell you what price range will keep you there.
Remember the neighbors. How do I put this delicately? If it costs $1 to get in the neighborhood then all of your neighbors have, likely, done the same. This doesn't bode well for the outcome of your neighborhood. Take the time and have the discipline to save up for your down payment. You have to have this discipline to own a home. It doesn't stop with the monthly payment. If the water heater goes out then you must call a plumber , not the front office of the complex. Even if you can't afford a more expensive neighborhood, you can afford to buy the best neighborhood for your money. This is an investment, not a trap.
Have a REALTOR!! Ask your REALTOR for a CMA of the neighborhood before you buy. Ask for a foreclosure history of the neighborhood before you buy. 35 starter neighborhoods were identified in the Charlotte Observer study as having a foreclosure rate of at least 20%. Protect your money. Protect your investment by making yourself aware fo these statistics before you buy.
EVEN NEW CONSTRUCTION...HAVE A REALTOR - Builders are typically good people. Their on-site agents are good people generally. The on-site rep (we do not call them agents unless they really are a real estate agent. MANY ARE NOT REAL ESTATE AGENTS) has a job to sell the homes in the neighborhood. They are to be honest with you and sell, sell, sell! The on-site rep works for the builder. Get your own representation. The builder pays the commission and is 99% of the time already included in the price of the home whether you bring an agent or not. have someone being more than honest with you. Taking your best interest to heart.
Read the paperwork. Understand what you are signing before you sign it. Ask questions.

Many of the home owners identified in the articles written are now "upside down in their homes." What that means is they took out 100% or more financing on the home. they can't afford the monthly payments because the builder incentives have stopped. They can't afford to move because the home has decreased in value instead of increasing in value so they owe more on the home than they can sell it for. Be smart. Look after your money and your investment. Don't let this happen to you.

Posted by Virginia Halter Broker, ABR, CRS on 03/19/2007 09:52 AM

Comments (58)

foreclosure, new buyers, first time buyers, buyer representation

This post has been included in North Carolina Information

58 Comments on Front Page of the CHarlotte Observer...Foreclosures!!

MAR

2007

Thanks for the insight , this is becoming a problem the foreclosures, it happenning acrosss the nation,part of it due to lenders giving people with bad or not good credit a 100% financing and putting no money down and now their arm is up they can't even refinance or be able to pay the high interest reates. Great post Virginia.

Suprise! Someone should be going to jail. Most agents could smell this from a mile away.

Here we go again with the 100% financing! I know it is allowing people who couldn't otherwise live the "American Dream", but come on people! Save a stitch before you get in over your heads. Yeah, Real Estate is the best investment, but it should be taken seriously and not until you get all the facts. Thanks for a great post!

Amazing how the same thing is happening all over! During boom years some make lots of money off the unknowing. The shame here is that the mortgage folks who falsified or omitted key information made their money. Hopefully some now have guilty consciences!

Wow, That is bad. We have a neighborhood here that is the same way....Guess the Predatory Lending practices are alive and well. I have had several clients come to me already approved, and in talking to them (and reading between the lines in speaking with their LO they were well on the way to being upside down right at the start.... Needless to say, I had found them other housing that didnt require the moon to be right and the stars all in alignment to get. I think after the initial disappointment (they all had hearts set on more expensive properties...) they were glad that I took the time to explain things., and that I worked against setting them up to fail....

Virginia..... some great information here. I only have one problem with the article though. If they were told to leave car payments off and such to qualify for an FHA loan... what happened to the credit reports? Just curious. Besides, if this builder had his own mortgage company... they either underwrote the loans themselves or sent them out. My whole point is, something is missing in this.

In regards to your suggestions, these are some good ones. People need to talk to others.The one thing they need to be careful about though is that just because it's a good faith estimate, doesn't mean it's always true. I just wanted to add... get 4 to 5... and take the average. If one is very low, usually it's too good to be true. Do some research on that particular company then. Check with the BBB... with the state, etc etc.

Overall... this will be popping up more and more as we head threw the summer. My question to the paper and to to Charlotte is..... already this builder has shown 77 foreclosures? What happened to the red flags telling people in regards to the 1st 25? I would love to see this whole article so I could possibly better understand it. I would love to see if they mentioned how many of these were FHA loans.... is there a link? Online? thanks.

Last... I wanted to Congratulate on your 1st featured post.... Congrats....

featured

jeff b

Unfortunately, I am hearing more and more of the same. Because of what is happening new buyers are going to pay the price for these bad deals. They already need higher scores to get the best rates and the rates are up too.

Virginia- Good post..This is what will ultimately bring down lenders.. not the foreclosures as much as the fraud involved in their applications.. when fraud rears it's ugly head the FBI tends to get involved and then you are looking at jail time..

Hi Virginia:

Seems as though the problem, which it is, is cropping up everywhere. The front page of The Globe and Mail business section has a big fat sign "Foreclosures". Obviously its being felt up here in Canada as well. In our province we counselled clients not to go the 100% route but did they listen - no. I know of cases where I thought the client would not be able to manage financing and amazingly the lender approved the mortgage. I don't think Realtors are responsible for the mess some folks are in.

yippee-you got a gold star! Go you!

That article grabbed me because I think it's the first time the news media has admitted that the folks who are being foreclosed on are at least partially at fault. These folks who are losing the houses need to point the finger at themselves first and foremost.

Thank you for the great comments!!

Jeff -Yes, the builder had their mortgage folk set up the mortgages but they didn't underwrite the loans. They were sent out. I agree that GFEs aren't set in stone. I have two lenders i work pretty closely with and they are VERY close to target. But it is a great idea to get 4 or 5 and average them. I have no idea how the credit report went around the monthly debt ratios with car payments and what not. The title is the link to the articles. The Observer is doing a series this week. The articles I am referring to were in yesterday's paper. Today was more elaboration on the same. They have an interactive map to show how many foreclosures are in different neighborhoods but it has been down each time I have tried to access it.

These folks need some jail time. Some people just aren't ready to buy homes. It doesn't mean they won't be able to buy a home but they should prepare themselves for buying a home.

Leigh - Yep, there is some personal responsibility for all of this. I completely agree. One of the interviewees even said he was irresponsible enough to get the mess he is in. People do know what is in their pockets and should be able to control how it goes out of their pockets. I think people get sucked into the "American Dream" scenario without thinking it through properly when everything is being given to them upfront. no one tells them that in two years there will be an increase of $250 a month on your payments. Good luck! Of course, discipline is a learned behavior. there ought to be a law that you have discipline before you can own the money.

Virginia,

Great post, congratulations on the featured post. Our eldest son bought last year in Charlotte at a Beazer site, north of downtown Charlotte, will have to see if I can find the article on line. I am going to let him know about it.

Nick

Nick - The article is linked to the title "sold a nightmare" in the post. What neighborhood is it? I'd love to look it up.

Wow, that's pretty slimy business practice.

We too are in one of the top foreclosure areas-Riverside County in S California. I just heard the same story about a Beazer Devlopment in my farm area. I had heard of some scam going through our area where homes were bought way over market-suspect appraisers were brought in-the home buyer was rebated back money to make the payment for a year----You could always tell what happened when a home in a $549,000 (average price home in our area) neighborhood showed up closing for $695,000 or even $749,000! I don't see how the scams went on as long as they did. Our company was warned early on to watch out for this--and several realtors were approached by generally lenders groups working as realtors.

Sandra - Julie said it all in the comment above yours, "that's a pretty slimy business practice."

What blows me away with this is that it takes more than one person to make it work. And, the folks pulling this stuff off must be pretty bright to be able to bring everyone together and hide from the right people right under their noses.

We have been fortunate here in the greater Seattle region. We were recently ranked fifth among major markets least affected by increased foreclosure rates. Nonetheless, it important that continue to do our part to ensure our clients are making informed decisions. As an agent, be sure to track how increased foreclosures are affecting your market. National trends are important but this is a local business and local trends matter most.

Honesty is, despite what any one may say, still the best policy... It is refreshing to hear this from a Realtor... Yes, Virginia, you have said somethings here that I long to hear my agents tell their clients... and they do... but I hear so many agents out there saying things that are SOOOOO misleading as to be criminal... and loan officers who will do almost anything to get a loan through...

The result? Foreclosures up the wazzoo...

And what of the families that once owned these homes?

There was a show on this past weekend on TV that showed a homeless shelter in Providence, near one of our offices, with the residents most of them fully employed at long standing jobs, who are homeless and in the shelter because of Option ARM mortgages they took out on home purchases, instigated by the realtor, and supported by the loan officer, which in as short a time as a year or two has put the owners in the poor house, litterally.

Sad, yes, but I have to say that you make a very good point... the buyer/owner should be more cautious, and the professionals should be more honest and have more integrity...

We are not used car salesmen, and we should not act like it.

Great post...

Great post Virginia. I especially liked the point about expenses that don't appear on one's credit report- like daycare.

Also, I love your picture! That is really cool.

~Karen

Hi Virgina, I wrote a recent post titled Yes, Losing Sub-Prime Loans Is A Good Thing-Bring Pride Back Into Home Ownershp In that post I refer to the problem with sub-prime lending and why 100% financing has not only hurt the national economy but taken away the desire to save money and be responsible from many americans. I mentioned that many yound kids (I understand not all) but a home with no money down and then go out and purchase expense vehicles and toys. They want these toys because mom and dad have them and they want them too. They can easily purchase them with all the free credit floating around so they do. The first time they get in financial trouble they let the home go. Why? because they had no money of their own to speak of. Make people responsible again by requiring them to save for the 3, 5 or 10% down payment and not only well we see less foreclosures but we will see people that are much more responsible citizens.

Pride in ownership. That is what we are missing. There is an entitlement to ownership that seems to be felt but not pride. you can't have pride in something unless you work hard for it. You know the difference. But, people shouldn't dangle these carrots in front of people.

It comes down to what we have always known to be true. If it sounds too good to be true then it is too good to be true.

Hi Virginia - good to see you posting again. There's just so many things that have contributed to the foreclosure market. Sorry to hear that Charlotte is as bad as Indianapolis. Our papers have been writing articles about this and the sub-prime market too. Everything I've heard says it'll get worse before it gets better. I'm ready for the better.

Cynthia - I am ready for thefkfl better myself. I am paying particular attention to theareas my clients are looking in, regardless of the price range. We have a blue zillion $100,000 neighborhoods but we have somewhere around ten neighborhoods in that price range that you can really feel good about. Of course, that is an exaggeration but the point being that in Charlotte you used to be able to spend $150,000 and know you were in a good neighborhood with staying power. You felt good about growing your equity. Now to be sure you are getting in a decent neighborhood you have to spend $250,000 and you still don't have any assurances.

Charlotte does have a huge amount of positive growth. We have to get these guys weeded out!

I don't believe that this is a matter of the 100% loan. This is a case of mortgage fraud.

I and my agents have sold over 100 homes with 100% loans in the past 2 years and I have not heard of a single one with financial problems making the mortgage payments. I send mail out regularly and I'd know if that were the case. In fact, I'd be the first to hear if it were one of my buyers.

Something was going on in Charlotte that isn't going on here. This would be first page news here if it were to occur.

Put the rascals in jail and have sue the mortgage company and the builder and compensate the purchasers for their loss of credit. This will cost them for years and years.

Lenn - I don't even think 100% financing is so much the issue as the true hidden costs of owning a home. Example: the builder paying the closing costs, paying the down payment, assisting with payments for two years. Also, the numbers changing between application and close for figures such as income and debt ratio; that says fraud to me.

Yes, front page news! A four part series. The one thing evident in the articles that have been written so far is that these folks didn't seem to have REALTORS working for them. They were going through the builder reps for the purchases. Throughout the articles, the comments are pointed directly at the on-site reps and mortgage reps from the builder's mortgage company.

It is so sad what has happened to some buyers. But I agree with Virginia - if it sounds to good to be true... And why did the buyers not think it was odd that they were being instructed to leave out certain information?

High hopes Heather. They had high hopes.

I think we go through these cycles where lenders will give a loan to anyone -- and the consumers think they will be okay. Often their are others involved -- e.g., the appraisers -- and then everything goes down the tubes -- Everyone tightens the standards -- prohibits the banks from choosing the appraisers etc. and thing get back on track -- Then, somehow, everyone cries too many regulations and the whole cycle begins again -- each time with a little different version of what went on before.

What amazes me is that the lender groups or companies themselves can't regulate their own systems enough to catch loan fraud in progress. There must be patterns.

Not everyone needs a house just yet.

Great advice! Hopefully this reaches multiple consumers out there and they don't fall into the same boat...

Someone said that someone should be going to jail. Well, no one is blameless in this situation, especially the consumer. That is, unless the schools have gotten so bad that people can no longer read or reason. I've long been a thorn in a sales persons side because if I am sighing a contract, I read all of the small print and ask questions for clarification when needed. This is not complicated - if fact it's so easy a Neanderthal could do it.

I always tell the clients to take what the lender has to say with a grain of salt. Their own budget constraints are much more

The statistics you have quoted regarding the capture rate of Beazer Mortgage are astronomical! A good capture rate for a CBA is about 30-40%. Great Post.

Roger - I agree that there is a great deal of personal responsibility on the part of the home owners. Again, it comes down to a carrot dangling, "Buy the house for a dollar..." Unfortunately, much of the population is not able to read and interpret contract-eese. And many sales people can be intimidating. These folks really needed representation so they could actually have someone looking out for them, not just a builder rep telling them they were looking out for them. It also sounded like much of the altered numbers and what not happened after contract and before the closing table. That sounds like fraud and if it is then someone should go to jail over it.

Chris - That is why i love my lenders I work with. They don't try to stretch your budget. They are honest. If we have to postpone a purchase for six months, that's okay. I still have the buyer. I can wait.

Randal - I wonder how many of those loans could have gone through withsomeone other than Beazer Mortgage.

Sadly, the mortgage fraud can happen anywhere. Here in the KC area we use seperate forms for counter offers. They are three pages with signatures on the third page. So mortgage guys got blank copies, would fill in the first two pages as they saw fit and attached to the third page. Then they would send that CO form to the investor/lender. The investor/lender bases his loan on false information. The Buyer doesn't even know (and quite probably the inexperience real estate agent) false information has been used to help him get the loan. Only upon very close inspection of the HUD1 would you even notice.

Hi Virgina,

I can remember seeing commercials on a company over in Evansville; they offered the same scenario and for the life of me I cannot recall the name but will keep my eyes open and try to track them down to see if I can find out how their buyers are doing now.

A dumb question maybe but --- how do you get a foreclosure history? Is this information public and if so where would I look?

-- Jenn
American Dream Realty, Spencer County Indiana

This is a story I know too well, especially with Atlanta being in the top nationally in terms of BOTH mortgage fraud and foreclosures.

Many builders are to blame, you are correct, with the limited time interest rate buy downs, $1 moves you in, 6 months no payments, etc.

Unfortunately the end is no where in sight IMPO

I also do not believe that 100% financing is the problem. Altering figures to qualify is a crime. Home ownership is a good thing. The more people we can get into homes the better.

AWESOME post - I am printing it for my clients. Thank You!

Great post. Nothing to add, I hear the same thing. Wait until 2008. I am afraid it is going to get worse before it gets better

MAR

2007

Jennifer, In Charlotte's MLS, you can look at what has sold in the last 10 years and search for comments related to foreclosure listings. This probably isn't the MOST accurate. Worst case scenario is that your underestimate the issue in a given neighborhood.

Virginia, you did a great job on bringing home the global issue of affordability. You bring out many points that buyers do not consider when looking to purchase a home.

One point you may want to consider is - emotion vs reason. Too often, people let their emotional side of their brain take control and reason is pushed to the back.

One of the things we as real estate agents can bring to the table is an objective point of view. Too often an objective point of view is missing from a buyer.

Glenn - You are correct sir! I tell people daily that this is a very emotional purchase,try not to personalize issues. Keep your head on the business of the transaction. Someone wrote a post before about "Sexy Houses." That is right on target. A home makes people feel good. It raises them up a notch. I would love to see everyone reach that level!! I would love to represent them all BUT a lot of personal repsonsibility is involved in homeownership. When a house becomes sexy, enticing, and "attainable" it is hard to focus on that responsibility.

Hi Virginia, As a mortgage broker I agree completely with what you've written. Thankfully, the "system which is currently in place" has and is changing to bring more reality into the process. 100% or "No Money Down" loans are getting much tougher to qualify for. That is a big first step. I'd also like to see significantly more prosecution and "de-licensing" of loan originators and mortgage brokers who file fraudulent paperwork with lenders. They are a black eye to me and the rest of the ethical mortgage professionals out there.

I also want to echo you emphasis on having a Realtor involved as a buyer's agent. Very few buyers have the training to do what Realtors do in a purchase transaction, and even fewer have the time to learn what's needed to competentlly negotiate a successful transaction. I would add your caveat regarding lenders to mine regarding Realtors - don't sign the buyers agency until you are comfortable with the Realtor and his/her ability to represent yopu competently, honestly, and clearly.

Thanks for the article.

Virginia - Many years ago a chairman of the board for a bank said the following about approving a loan to purchase a house - "Does the person(s) show responsibility in paying their bills timely? Does the person(s) have enough income to pay for the loan? And lastly, "Is there enough equity in the property should the person(s) not pay and we have to foreclose?"

Seems words of wisdom from years ago are now pearls of wisdom.

One of the issues that faces people is that they may not budget their money. It is unfortunate that we don't teach some basic life skills in our schools.

Terry - I totally agree with you regarding a more pro-active approach to the identification and enforcement. Unfortunately, the legal system does not put too put of an emphasis on those that have few transactions or low dollar volumes. The legal system looks for the "big fish." The bigger cases are worth the time and expenditures for authorities to pursue. I wonder if only the tip of iceberg is showing?

I know and probably many that have commented here have sincere feelings for those facing foreclosure - after all the American Dream of homeownership is slipping through their fingers.

we have the same thing going on over here on the West Coast. It is going to get too. It is a cyclical market that rears its ugly head every 8-10 years. Short Sales are huge and coming back around too.

Virginia,

Thank you for sharing that article with everyone. Horrifying as it is, it seems to be happening everywhere and with many, many different lenders. I'm located around the corner from you, in Lincolnton and we have a lot of homeowners in this area that have now been plagued by foreclosures, for any number of reasons, but much of the problem has stemmed from buyers not fully understanding what their financing plan actually was. In addition, this situation has hit home to a lot of Hispanic folks in this area.......... they thought they understood what they were being told and either they didn't or they were not told of the reality in full. While a large portion of my business is the foreclosure home market, I never forget when I am assigned a foreclosure listing, it means that most likely, a person or more likely, persons have had to endure what was likely a traumatic event in their life. PLEASE make buyers aware of what is out there! I so agree that the first place to go is a buyers "home" bank. Who knows them better? Thanks again for a great post!

Glenn, I appreciate your comments. One simple truth in this business though is that most of us know who the bad apples are (at least some of them), and can report them to the local regulatory and licensing agencies. Too often that still doesn't make much difference, but we can only be responsible for doing what we can and morally/ethically should. And, you're right, the law only seem to want the big fish. It would be interesting to see the total numbers of fraud generated by the little guys in comparison to what regulators have gone after.

The media is loving the foreclosure rates right now. Something new to scare people with. There is definitely a problem there although it's mainly in the sub-prime market. Maybe it is the first time predatory lending has been on the front pages nationwide. I feel for some of these consumers because they are not savvy to all the terminology and Americans finances are at an all time worst, it all comes down to educating the consumer, that's the job of a lender and agent.

Brian - You are correct. We have to educate folks on the process and on the meaning behind the process. The media has done a disservice, in my opinion, to people by scaring them away from REALTORS. Sadly, without us to educate them and help them, buyers and sellers have no place to learn.

MAR

2007

Tish - last night I showed properties to a Hispanic couple and you can not believe the misconceptions they had. From our discussions they learned that there were other financing options available to them other than ARM's or a 15 year fixed. No one told them about a 30 year fixed rate.

Terry you might want to visit the FBI's web site - sometimes they issue a report for the big fish, just to put things maybe into perspective.

APR

2007

Virginia, we are having the same issues here in Indianapolis, In. I am so upset, being a Mortgage Consultant has always been my profession I am proud to be associated with. I think the big building companies need to take a look at the practices of lending they are taking control of. The company mentioned here is also in Indianapolis, we know what is going on, and we also know the lending they do on site is a direct violation of the consumers rights. They are also providing "inducements to purchase" to the buyers which is a violation of FHA guidelines. I could go on and on about this subject. Enough said. There are reputable builders out there, and things are going to tighten up, its coming soon to our State. Thanks for sharing.

APR

2007

I think the same company mentioned here has a problem in the Miami Florida area as well. Too bad the government does not realize the issues associated with bundling all the services under one corporate umbrella. BTW - I think there is a major lender that owns 51% of the mortgage operation.

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