Mortgage Reform - A Long Road Ahead

By
Real Estate Broker/Owner with Mission Grove Realty Inc.

fleecing homebuyersRate reductions, loosened lending guidelines, An increase in the FHA maximum?

Will any of this change the market?

I DON'T THINK SO!

The re-education of the American home buying public will have to come first. When we continue to see, on the front page of MSN and in every major media, advertisements claiming that someone can "BUY" a $500,000.00 home for less than $1500.00 per month SOMETHING IS SERIOUSLY WRONG.

No one, and I repeat....NO ONE can "BUY" a $500,000.00 home for only, less than, or somewhere around $1500.00 per month. Rent one....maybe but not "buy". 

Advertising this type of loan should not be allowed and confuses the American public yet, it is still being done today....everyday. Should it even be allowed?

Is there any intelligent life left on this planet? Do you think these folks, if they can actually fund a loan like this in todays market, are actually explaining the true loan terms to the borrower. Did they ever?

Sure, lenders can state that they had it all in writing and the borrower simply didn't read their paperwork. ALL 125 pages of it? How many of us here have actually read every word? Certainly a great defense but, buyers place a huge amount of "trust" in their choice of lender. Something lenders, each and every day, in my opinion, take advantage of.

Do the math yourself: 1500.00 per month x 360 months = $540,000.00. Is it conceivable that the "average American home-buyer" has done this math and thought....seems right to me: Lets see, 500k x 7% = $35000.00, add in the lenders fees etc....yeah, that seems right. Possible? I say it is what these folks actually thought and may continue to believe. Do the math. Uneducated consumers have. Attempts to re-educate them after their "consultation" with their lender are usually fruitless. Some listen, the majority do not. These "programs" are simply too attrative and, the tactics used to convince them that they are the best thing since sliced bread are  even "better".

We all know that, based on the average consumers debt load that they do not do the math correctly. We have all had buyers who, when signing loan docs, have said " Seven Hundred Thousand dollars! That is what I have to pay? For a 350,000 house? Who is getting all that money?". The "average" home buyer has nary a clue that, over 30 years, that a loan of that size will have a LOT of interest. In the past, many never bought a home because of the cost over time. Still a good investment, when done correctly. Yet, they simply do not understand.

Along comes neg am and teaser loans. NOW THAT MAKES SENSE! Finally a loan that makes sense! Look at the math above. Think that many of these folks didn't? Think that many lenders did not take advantage of this? Think they wont continue to do this? Now more than ever, this type of lending must be stopped.

The fleecing of the average American has to stop and educating the American public has to start today!

Tomorrow.....the lending industry must be forced to change.

Instead of the DOJ focusing on the "lending crisis", they are debating the fees that Real Estate Professionals charge. Barking up the wrong tree, at the wrong time! Temporarily takes them off the scent of the lending scum while they head off to Switzerland.

Not all lenders  or lender-agents (which should be banned) are bad. Most have your best interests at heart and will direct home buyers in the right direction.  The average will tend to lean towards the biggest liar when it comes to choosing and agent or a lender. An issue that might be helped with the re-education of the average American home buyer.

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Rainmaker
655,882
Bob & Carolin Benjamin
Benjamin Realty LLC - Gold Canyon, AZ
East Phoenix Arizona Homes
Yes, lots of reform is going to have to take place. Things will all even out over time.
Aug 17, 2007 05:59 PM #9
Anonymous
Anonymous

Hi Christopher,

On target!  I remember two years ago arguing with a loan rep in front of my office building for one hour about they, the loan industry, selling a product to the consumer instead of a loan package which would be in the best interest for the  consumer over the long haul.  Unfortunately my fears have come true with what we are reading and seeing in our communities today.

Aug 17, 2007 06:51 PM #10
Rainmaker
149,087
Gary Miljour
Lend Smart Mortgage NMLS#207208 - Southern Pines, NC
Mortgage Originator NMLS Licensed in AZ and NC

Chris,

What is ironic, is that these type of lenders are running ad on google and yahoo for loan programs that do not exist anymore.  These big companies have lots of wasted advertising dollars being spent down the drain and they are wondering why they are closing their doors.  I remember when long term relationships with our clients was the only way to build a business.  Most of these lenders are now trying to go back to conforming guidelines to survive.  I say let them DIE.  They brought it upon themselves.  If they truly cared about their clients, they would of thought twice before before putting a homeowner in a Stated Income/Stated Asset Option ARM. 

Leo is right.  However, I feel regulation will be forced on the lending community like a ton of bricks.  Its just a matter of time before all loan orginators will need to be licensed.   

Aug 17, 2007 06:53 PM #11
Rainmaker
509,660
Tom Burris
NMLS# 335055 - Baton Rouge, LA
Texas/Louisiana Mortgage Pro - 13 YRS Experience

education on our credit system and how to responsibly use credit should indeed be required before leaving high school.

and i want industry experts t draw up the curriculum.

Aug 18, 2007 12:09 AM #12
Rainer
44,523
Sondra Sheckler Realtor,ABR,SRES,Historic Home Specialst
Coldwell Banker, Award Of Excellence & Million $$ Producer - Knoxville, TN
Christopher, what happened to the old saying "If its too good to be true, it usually is!"?  What are we to do other than educate those that we come into contact with, work with reputable, trusted mortgage companies and educate as we go along.  Love the house by the way!  That looks like what one of my clients is going to have to settle in for her $89k that she is trying to buy a house with.  I wouldn't need to hire a home inspector for that one, I say "bull doze it" and start over!  :-)
Aug 18, 2007 12:33 AM #13
Rainmaker
123,457
Rebecca Savitski
BSR Real Estate Group - Cary, NC
NC Real Estate Listings
You don't mix your words thats what I like about your posts
Aug 18, 2007 02:04 AM #14
Anonymous
Valerie Van de Zilver
Amen!  If "Fixed Rate Loans at 1.00%" really existed, they wouldn't even need to advertise...we would all take one!  Reform is needed, but raising limits and reducing rates isn't the big solution.  People have to realize that there is no free lunch.  If you get to pay 1% while everyone else is paying 6.5%, there is something missing!  I have people in my office every day who were "taken" by a lender or realtor.  The lenders need to disclose, and borrowers and buyers need to be smart and responsible enough to ask questions. 
Aug 18, 2007 02:51 AM #15
Rainmaker
702,489
Bill Roberts
Brooks and Dunphy Real Estate - Oceanside, CA
"Baby Boomer" Retirement Planner

Chris, you want the "buyer" to be educated about math and money while one of your agents tells me it is not his responsibility to know anything about this either.

Don't you think that if the "basic" real estate agent had a little training in this area and the duty to explain it to his client that a lot of the problems would go away?

Now do the right thing. Talk to your own agents.

Bill Roberts

Aug 18, 2007 03:24 AM #16
Rainmaker
268,578
Christopher Walker
Mission Grove Realty Inc. - Hemet, CA
Local Broker and Realtor - Hemet & San Jacinto, CA

Bill and Michael: I do not pretend to be a "Loan Officer" and do not expect "my agents" to be. Although I, and our agents, may be educated in basic lending principles, we can only do so much. As for myself, I have provided additional information to buyers about different types of loans and what to look for. I have also seen many of them go a completely opposite route after speaking with their "loan officer".  A loan officer we will steer clients from in the future.

I went to my family physician yesterday. He wanted me to have an EMG done and referred me to a Neurologist. When I asked for details about the exam, he said that it would be better to speak with the Neurologist directly. Should I assume he was uneducated and incompetent as a physician or practicing good medicine? He is a Dr for goddness sake and should know about medicine. I wasnt asking about a loan or boundry disputes. Bad medicine or...a true professional?

I choose to focus on residential real estate and land (Puchase and sale). I do not originate loans, I am not an attorney and do not give legal advice either. I practice real estate and, when it comes to loans, law and other related aspects of real estate. I recommend the services of a "professional", that should be an expert in that area. Part of our problem is that agents, agent-loan officers ,  agent-loan officer-wanna be attorney and agent-loan officer-auto mechanic's are attempting to be all things to all people. Jack of all trades and master of none. Most will BS their way through all aspects of real estate rather than finding the right answer, deferring to a professional in that area or simply letting the client know that you do not know and will help them find the right answer. I agree that education is key...for all professionals. part of that education is knowing when to deferr to a professional in their field rather tha BSing your way through it as so many choose to do. Because if you dont, some will say that you are to blame.

If one of "My Agents" advises a client to speak with an appropriate professional about a specific issue and the client thinks our agent is uneducated or inadequate as a result...so be it. I will advise the client to seek the services of their mechanic come real estate guru for their future needs. At least when that client goes bust and is living out of their car...they will be able to have someone to take their house to for repairs...a true professional they can count on in all situations. I will send the a bottle of Armorall at Christmas though. I like them to feel good about having that "clean look" to their new found home. I hope their agent throws in an oil change for their friend the investor!

Aug 18, 2007 05:24 AM #18
Anonymous
Shari Posey

I have a seller who got an offer for a 4.78% fixed jumbo interest-only 5-year ARM. I told him to get it in writing and I would call the broker to ask some tough questions. I spoke with the broker and he professed up and down that it was a full interest payment of 4.78% and not one penny of interest is deferred for the full 5 years and there was no balloon payment. Other than going to the extent of getting the actual loan docs it seemed legitimate although I can't see how.

Also, about the dumbing down of America...I disagree! I think some people truly got taken for a ride with their loan, but I think foundation of the problem is that our current American society expects everything and we want it now. We don't want to wait for the latest greatest thing until we can afford it, so we charge it or take whatever loan we can get in the house now. We don't want to deprive ourselves of anything our friends and neighbors have, no matter what the cost to our financial future. I think deep down we all know that maintaining this lifestyle is impossible but we can't live without it so we keep living in denial.

Aug 18, 2007 05:40 AM #19
Rainmaker
702,489
Bill Roberts
Brooks and Dunphy Real Estate - Oceanside, CA
"Baby Boomer" Retirement Planner

Chris, I don't care how much you say "it is not my job." The truth of the matter is that it is your job. You are deemed an "expert" under the law and you have a fiduciary duty to your client that is not met by passing the buck. Just a little education and responsibility goes a long way.

Bill Roberts

Aug 18, 2007 05:42 AM #20
Rainmaker
268,578
Christopher Walker
Mission Grove Realty Inc. - Hemet, CA
Local Broker and Realtor - Hemet & San Jacinto, CA

Bill: Sorry that our opinions seem to differ. It is what makes this country great. I cant change your opinion and you certainly wont be able to change mine. I guess the DRE will be knocking on my door for not having affiliated service agreements and providing expert loan advice that is certain to be to the advantage of the consumer.....Lord knows that those doing this are only doing it as a service to the consumer without regards to profit.. Oh well, worse things could happen. Until then, we WILL provide the best possible real estate services for buyers and sellers of homes, land and investment property. No loans, no escrow, no bull. If you want anything other than our opinions and good advice on those services, you will have to go....someplace else. Want to know about homes, land or investment property? We have some pretty talented professionals working with us and if we don't have the answer...we will find it or direct you to a professional that can.

Shari: You are right. Educating the consumer, at a VERY early age (Throughout their school lives ) may help to change this. Our current culture is all about NOW as you say. With the Internet, they can...us too...can be as smart, or as dumb as we choose. We had an "investor" recently who demanded information about loan products that exist in the minds of some yet, in reality, simply do not. It is simple to find over 1,000,000 references to what this person wants do do (fraud) YET...there were 2 sources on the web that say you can. Which one does the "investor" hang on to? No, not the million references pointing to the right path....the 2 that dont. I do not have the answer to this "current crisis" but, we may be able to find it by working together.

Aug 18, 2007 09:24 AM #21
Rainer
54,864
Art Blanchet
On the Outside Lookin' In - Sebastian, FL
Stranger in a Warm Land
I listen to Quicken Loans commercials (the Quicken Advantage loan) constantly touting their version of the Option ARM - even now amidst this horrible mess.  Legislators are scrambling for the quick fix - eliminating "stated" programs  - while the foreclosure-generating loans (the true culprit) continue ad infinitum.  Go figure.
Aug 18, 2007 09:32 AM #22
Rainmaker
268,578
Christopher Walker
Mission Grove Realty Inc. - Hemet, CA
Local Broker and Realtor - Hemet & San Jacinto, CA
Art: Amazing but true. Continue to confuse them and????
Aug 18, 2007 09:35 AM #23
Rainmaker
325,871
Esko Kiuru
Bethesda, MD

Christopher,

Well put. Your first point is an excellent example where things are still going wrong. These major websites keep blasting ads about super-cheap mortgages that possibly can't be done in 99% of the time. That's one thing. Now, how do we educate the public? That's a tough one. It's everyone's personal responsibility to understand the mortgage he's signing for.

Aug 18, 2007 10:39 AM #24
Rainmaker
323,757
Graham Holmes - Yucaipa Homes Listing Agent
Reviron Realty - RDCPro e-Pro Listing Broker - Yucaipa, CA
When Experience Matters

Bill - You are wrong my fiducial responsibility is to get the best financial advice for my client. That is why I refer them to an expert. Not because I am ignorant but because loans are not my area of expertise and shouldnt be. I choose an expert who is part of my team that has a track record of honesty, integrity and will fulfill my fiducial responsibility to my client.

Chris - Great post you are so right.

Aug 18, 2007 11:39 AM #25
Rainmaker
183,180
Janet Guilbault
Guild Mortgage - Walnut Creek, CA
San Francisco Bay Area Direct Mortgage Lender

LENDING SCUM? Gosh, now I know for sure it is the weekend at ActiveRain. We have to at least have one mortgage bashing rant be featured.

I for one am not really sure what you're so mad about, but I will guess it is a lot more than just misleading advertising.

I remember when I was buying a house with my younger brother, long before there were option ARMS. He kept pointing out payment ads that were ultra low on new houses. Although I kept trying to explain to him they were only low because of the large downpayment required,(disclosed in the fine print) he did not want to listen, he just wanted that payment.

These ads were doing exactly what they were supposed to do: GET THE BUYER INTERESTED. This is why car dealers advertise lease payments (which are always lower than purchase payments) This is why real estate ads for the less prestigious neighborhood are often placed in the more prestigious neighborhood (yes, real estate agents do their own share of teasing)

My point is this: Lenders offer option arms. Advertisers know low payments sell. Even if every neg am loan became illegal tomorrow, there would still be low payment (misleading) ads, and buyers would still be attracted to them. It isn't about lending scum, its about what kind of advertising has proven to work.

All neg am loans are not bad. Hard for the average guy to understand, yes. Abused? I am certain this has been the case because there are unethical people in all kinds of businesses. But to make a broad sweeping statement that the American public is being fleeced by the "lending scum"? Not true, and you are barking up the wrong tree.

AR gods, I ask you again, "Did this post help or hurt the real estate industry?"

 

Aug 18, 2007 12:32 PM #26
Rainmaker
1,765,826
John Novak
Keller Williams Realty The Marketplace - Las Vegas, NV
Henderson, Las Vegas and Summerlin Real Estate

Right after the 'Truth in Lending' info there should be a section titled 'Reality in Lending'. Educating homebuyers is a great beginning. Agents and lenders also need to work together to insure that buyers completely understand the terms of their loans AND have the financial skill to manage their household, both before and after the purchase.

Aug 18, 2007 04:35 PM #27
Rainmaker
268,578
Christopher Walker
Mission Grove Realty Inc. - Hemet, CA
Local Broker and Realtor - Hemet & San Jacinto, CA

Janet: My broad sweeping statement of, as you quote, "the American public is being fleeced by the lending scum"  was not a correct "quote". I can re-arrange the words in your comment to equate to just about anything yet, it is easy for all to see that the two statements you combined to make your quote were:

  1. "The fleecing of the average American has to stop and educating the American public has to start today! "(Has the "average" homebuyer not been fleeced? It is my opinion that they have. THE AVERGAGE. The "average" homeowners are the ones that are now in the worst position.)
  2. "Temporarily takes them off the scent of the lending scum while they head off to Switzerland." (I believe that the "scum of the industry" may end up in foriegn countries to avoid prosecution. It is also my opinion that thier spoils are, most likely, in offshore banks. Not the whole industry....the scum of the industry. NOT the average, the majority or the etical majority....the low end. I do not feel that protecting that class of individual is warranted by the "AR Gods"..or You)

Combine the 2 and we get a nice warm blanket to wrap the American public in. Nice and warm.

Nothing wrong other than a little bit of misleading advertising? Problems created by only a very small number of lenders and agent-lenders? No different that what is done in the car business?  Oh my, Houston...we certainly do have a long way to go. I dont feel mad. Do I seem mad? Cant say I am a "mad" sort of person. At least in the context you speak of. Must be some deep rooted agression that I have been holding in and finally found the perfect outlet for....Nope, not it either. Maybe it is just simple and true concern? Could it be that ignoring this issue and not briging it to the publics attention may be worse than saying nothing at all...simply to "protect" the industry?

John: Reality in realty and lending. Very good. Pretending that this is a little problem and it will simply go away if we ignore it wont work. We do need to work together to move forward. I do not believe there is anyone on the lending side who will even come close to admitting there is a real problem that needs to be addressed.

"I do not have the answer to this "current crisis" but, we may be able to find it by working together"

Could be re-arranged to read:

"Not working together - The answer to this current crisis"

"The MAD Broker"

Aug 18, 2007 07:32 PM #28
Anonymous
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Christopher Walker

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