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Looking at the past to predict the future.

By Bryant Tutas

Real Estate Broker/Owner with Tutas Towne Realty, Inc and Garden Views Realty, LLC BK607690

September 26, 2008 03:53 AM

I wrote this article in July of 2006. In light of where we are at today I'd say my concerns were valid.

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Someone's dream gone bad

Negotiated a deal on one of my listings yesterday. The Buyer is purchasing using 100% financing with the Seller paying closing costs. My market is affordable housing with the majority of homes priced from $190s to $250s and it seems like most of the Buyers lately have been purchasing with no money down.

Now don't get me wrong I am in favor of home ownership for everyone but I fear a lot of the Buyers are going to have financial difficulties in the near future. With high insurance costs, property taxes and mortgage payments I am seeing payments of close to $2,000 per month for a starter home. That's a pretty big nut to crack every month, in my area, where most families are regular working class people and don't have any reserve funds if they should encounter a financial setback.

Also, a good number of these purchases are being made with ARMs with the Buyers basing their ability to pay on future raises at work or a part time job that they may or may not be getting. In my opinion Mortgage Brokers and Realtors are being overly aggressive in selling these folks on the advantages of home ownership without really taking the time to counsel the Buyers on the true costs involved. And since they don't have to come up with any money at closing they are sitting ducks for Mortgage Brokers who are charging them sometimes outrageous fees for doing these types of loans.

So my challenge to REALTORS(R) who are dealing with first time Home buyers, with a little or no money down, is to really take the time to explain the pros and cons of purchasing a home. If the Buyers are fully informed and are wanting to move forward then help them to negotiate fees or guide them to the myriad of programs available that can help them with financial assistance. Placing a Buyer in a home he can't afford can damage them for years. It can cause bankruptcies, divorces and even illnesses. So let's "Protect the public" it's what REALTORS(R) are supposed to do.

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Larry Estabrooks

Independent Real Estate Agent - Moncton, NB

100% representation means NEVER DUAL AGENCY !

Bryant, your re-post makes me think of what Yogi berra said - "This is like deja vu all over again."

Sep 26, 2008 03:34 PM

William J. Archambault, Jr.

The Real Estate Investment Institute - Houston, TX

Bryant,

I'm guilty!

I saw "The Buyer is purchasing using 100% financing with the Seller paying closing costs." Then reading the rest, I made an assumption. In my defense we've had the 100% debate before.

Where did this come from? "Shouldn't a buyer know that they may qualify for a $56,000 grant that they don't even have to pay back?"

Maybe I'm not the only one reading between the lines.

All my best.

Bill

Sep 26, 2008 04:22 PM

Everard Korthals

---Preferred Lifestyle Advisors--- - Lancaster, PA

Mountain Realty

History always repeats itself....

Sep 26, 2008 04:57 PM

Bryant Tutas

Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL

Selling Florida one home at a time

That's OK Bill...I knew you were reading it wrong :) In my area there are county grants available for lower income buyers. As a REALTOR(R) it is my job to make sure I have explored these options of the buyer qualifies. My post is about properly counseling our customer/clients. If my buyer qualified fror a grant and I didn't let them know about it and instead placed them in a home they couldn't afford I would be negligent in my duties as REALTOR(R) who has taken an oath to "protect the public"

Here' an excerpt from the preamble to our CoE:

In recognition and appreciation of their obligations to clients, customers, the public, and each other, REALTORS^® continuously strive to become and remain informed on issues affecting real estate and, as knowledgeable professionals, they willingly share the fruit of their experience and study with others. They identify and take steps, through enforcement of this Code of Ethics and by assisting appropriate regulatory bodies, to eliminate practices which may damage the public or which might discredit or bring dishonor to the real estate profession. REALTORS^® having direct personal knowledge of conduct that may violate the Code of Ethics involving misappropriation of client or customer funds or property, willful discrimination, or fraud resulting in substantial economic harm, bring such matters to the attention of the appropriate Board or Association of REALTORS^®. (Amended 1/00)

Sep 27, 2008 12:16 AM

Anonymous

rrsafety

Thanks for the info Bryant. I'd imagine that it might be close to calling a bottom on some of those foreclosure prices. Unfortunately, there are probably many many folks who simply cannot afford to sell at that bottom prices.

Banks would be very wise to work out any kind of loan that keep folks in these homes as the banks must be getting crushed in these foreclosures as the prices just continue to drop. Seems to me the bankers aren't so smart, they kick folks out of there homes which pushes prices down which only makes the banks entire asset base worth less. Really really stupid....

Keep posting these prices. I'm a member of a sports message board in Boston and everytime you post a bargain, I spread the good news to a couple of thousand posters up here in New England.

Sep 27, 2008 12:22 AM

#59

Bryant Tutas

Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL

Selling Florida one home at a time

Kathryn, Thanks fro sharing your story. It's a story that has played out 1,000s of times across the country. I counseled one of my investors to walk away from a $30,000 deposit last year. Fortunately he, like you, took the wise move and let it go.

Hey Stan good to see you.

Hey everyone. I appreciate all the great comments. Even though I am not responding to all of them please know I have read each and every comment. They really add a lot to the conversation. Thanks

Sep 27, 2008 12:23 AM

James Wexler

wexzilla.com - Scottsdale, AZ

as realtors, it has to become our resposnibility to advise clients a bit more on what they can and cannot afford. It is tough postiion, however, it has hurt our industry and credibility

Sep 27, 2008 04:06 AM

Patricia Kennedy

RLAH@properties - Washington, DC

Home in the Capital

Bryant, really well said! I think a lot of people who are in a pickle now didn't understand what they were getting into.

Sep 27, 2008 06:09 AM

Rob Arnold

Sand Dollar Realty Group, Inc. - Altamonte Springs, FL

Metro Orlando Full Service - Investor Friendly & F

Seems like your thoughts were right on the mark. Those 190K houses are probably now selling for 100K or less, I assume.

Sep 27, 2008 06:50 AM

Gary White~Grand Rapids Home Selling Pro Call: 616-821-9375

Flexit Realty "Flexible Home Selling Solutions" - Grand Rapids, MI

Real Estate Services You can Trust!

Hi Bryant, I read it back then and I have to say it couldn't ring truer. The only different it is our future for a while. Nice post Bryant.

Sep 27, 2008 08:00 AM

William J. Archambault, Jr.

The Real Estate Investment Institute - Houston, TX

Stan,

Are you in the real estate bussiness or an English teacher?

You're right, I'm a very poor speller, it often gets worse with the spell checker on AR because I have trouble reading the small type.

Just who's the ass?

"Rental Prison".....Puh-Leeze, what an asinine statement. NO COMPANY should loan money on any asset w/o a down payment and additional collateral; such as old fashioned notions of valid employment, proof of income, etc. We still don't know how much damage has been done to the economy due to policies and opinions such as the ones you express."

VA has been writing no money down loans since WW2. FHA ask for little or nothing. Many of my early loans 39 years ago were for down payments. No money down has been with us for longer than any one can remember. We may do it diffrently but it has always been leagaly there!

If you look beyound the political retoric, you'll see that the overwelliming majority of these loans have succeeded. That is no comfort to those who've lost a home, but it is true. We've put more people into their own homes than any country in the world. And, that's good!

We have some major problems. Not the least of which is the simplistic PC desire to blame easy targets. It doesn't matter how much money a person puts down if they stop making their payments, they lose the house. In so many markets values have fallen 10 / 20 / 30 % or more so what's the down payment matter? Even with 30% donw many have no equity.

No one with the power to do any thing has studied the problem. They don't want to know the real cause! Even you would rather study my spelling problems and call names rather than the issue. This is a real estate forum, I'm sure the Englishs teachers have their own forum and they can feel free to use me as a bad example.

We are about to be handed a 700 billion dollar bill because people like you would rather call names than solve problems.

God help us.

Bill

William J archambault Jr

Sep 27, 2008 11:47 AM

Lane Bailey

Century 21 Results Realty - Suwanee, GA

Realtor & Car Guy

I'm having a homeowner situation today. I wanted to buy a little pop-up camper to take the family camping... but after coming home from a birthday party, we found our fridge not "fridging"... So, instead of a camper, I'll be buying a fridge and delaying the purchase of a new toy.

Too many people for too many years have thought that the would just swipe the card in the ATM and do both... no regard for the consequences.

Sep 27, 2008 03:04 PM

Katrina Madewell

Charles Rutenberg Rlty- More than 5,000 agents(813) 777-1196 - Tampa, FL

Tampa FL Homes for sale | Tampa Bay - (813) 777-1196

The biggest issue with 100% financing started when they were lending 100% to someone with a 580 credit score, and stated income because being a cook at Denny's wouldn't show enough income, after child support, to qualify for the loan.

Now, after less than 1 year later, this NEW home, now with a HOUSE on it get reassessed through the nose and the Denny's cook that almost had a 1st payment default to begin with says "well maybe I should just RENT instead".

There is where the many issues started!

Sep 27, 2008 05:58 PM

Bryant Tutas

Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL

Selling Florida one home at a time

I'll be back

Sep 28, 2008 01:47 AM

Anonymous

Stan

Bill,

My O My, talk about going off on a tangent! Please re-read my comments. Your original post was so incoherent, one had to assume your meaning. There, I've done it again, used a word that contains the word "ass". :)

**NO COMPANY or agency should loan money to anyone w/o solid collateral to back the transaction. If market conditions don't allow such protection.....don't make the loan. By anyone's definition, a sound fiscal and business principle.**

Hate to disappoint you, but I won't stoop to your level and use BB's blog for personal attacks. However, I am happy you posted what you did.....speaks volumes about you.

I will agree with your "Rule # 5. Avoid Whores!" Sound advice for everyone!!!!! You sir, are a piece of work. ROFL

Sep 28, 2008 03:46 AM

#69

Gail Robinson

William Raveis Real Estate - Southport, CT

CRS, GRI, e-PRO Fairfield County, CT

BB - I'm curious about the $56,000 grant money? Can you explain how that program works and who would qualify? Between the low price of homes in your area and the grant money, that could be an incredible incentive for folks whose retirement accounts have declined thanks to the financial crisis to relocate to your area. Thanks.

Sep 28, 2008 05:01 AM

Bryant Tutas

Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL

Selling Florida one home at a time

Gail, We have a progarn called S.H.I.P. This is actually a State program to assist low to moderate income people purchase a home.

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Must be secured with a second (soft) recorded mortgage, if additional public funding is obtain, SHIP mortgage will go into 3rd position.
Required maximum 10-year loan with deferred payments and a 20% penalty if refinanced with cash out.

SHIP loan is forgiven after 10 years of owner occupancy. Repayment of the loan becomes due if:

Borrower defaults on the first mortgage.
The house is sold refinanced with equity cashed out.
The house is rented, leased, subleased or ceases to be owner-occupied prior to the end of the loan period.
No Home Equity Line of Credit borrowed against the property

Sep 28, 2008 10:10 AM

Gail Robinson

William Raveis Real Estate - Southport, CT

CRS, GRI, e-PRO Fairfield County, CT

BB - It sounds like a good program. Thanks for explaining it.

Sep 28, 2008 04:07 PM

Todd Clark - Retired

eXp Realty LLC - Tigard, OR

Principle Broker Oregon

Can you tell me the lottery numbers for next January?