Home > Blogs > Kurt Jackson > Kurt Jackson's (kurtjackson) Blog

The Blame for the Subprime Mess: The Next Target- Real Estate Agents

By Kurt Jackson

Mortgage and Lending with KJ Financial

October 18, 2007 04:55 PM

The blame for the Subprime mess has been spread across many different players- the greed of the end investor, that greed and demand being pushed to the lender, the pressure and desire for more loans and loan products by the lender being pushed to their originators or mortgage brokers, then the loan originator working either in conjunction with the borrower or working around the ignorance of the borrower. It seems that the blame game goes down hill.

Until now though I hadn't seen much in the media along the lines of real estate agents getting some of the blame too. I am sure this won't be a very popular position on AR, but sometimes the truth hurts. Real Estate agents do market themselves as the expert resource for buying and selling homes and since financing is a HUGE part of buying and selling real estate shouldn't a group of highly paid experts also be responsible for making sure that the type of financing being used by the client be something 1) the client fully understands, and 2) the client can handle now and should be able to handle in the future barring some financial disaster- (that doesn't include a 50% jump in payments due to an ARM adjusting after just 2 years).

I have spoken with several agents in my market and none of them want that responsibility, many have said they would get out of the business if this added responsibility was put on to them. Those that had in house lenders said they don't need to worry about the loans because they trust their in house lender. So if there is no oversight over this lender and real estate companies are driven by profit (just like mortgage companies, title companies, appraisal firms, etc.) then is the client really getting proper representation they should from a "real estate expert"?

Click on this link http://knowledge.wharton.upenn.edu/article.cfm?articleid=1824 to read an article put out by the Wharton School Business to see the direction of the next level of blame for this subprime mess may be heading.

I am not sure how much responsibility the real estate agent should have. If they are acting as a buyer's agent they should have a lot of responsibility in making sure the client fully understands what they are getting into, IMO they shouldn't be helping to get people in over their heads and if they aren't acting in a buyer's agency capacity then is the buyer really being represented?

Is the agent that is acting in a dual capacity really helping the buyer make sure they fully understand what they are getting into? I don't claim to know all the answers and this wasn't meant to just hammer on real estate agents because those that live in glass houses shouldn't throw stones, I guess that now all my windows are already broken out so it doesn't matter much if I throw stones or not. :) I really want to get a sense of how the real estate community feels on this topic.

What are your thoughts on this subject? What do you think about what is said in the article? Are Real Estate Agents to blame in this fiasco too?

When responding please provide two answers one from your personal perspective and how you do it, but I would also like for you to examine the entire real estate industry and see if your thoughts are the same. I know that when I look at how I do business I shouldn't be getting all the flack that the mortgage industry is getting because I didn't do these things to my clients, but I also know that a lot of folks in the mortgage business did and therefore significant changes need to be made to the mortgage industry.

We're all in this thing together so I thought it would be good to get the opinion of real estate agents and how they see what happened and what should be done going forward.

Comments(12)

Comment

Show All Comments Sort:

Lenn Harley

Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA

Real Estate Broker - Virginia & Maryland

The premise is wrong and the article from Knowledge @ Wharton is full of factual errors. This is a typical left wing rag that wants to attack the real estate industry for the umpteenth time. Their sources are left wing poverty pimps and I find this entire blame game self serving by those dedicated to the eradication of capitalization.

I'm surprised there wasn't a source by MoveOn.com.

Oct 18, 2007 01:35 AM

Kurt Jackson

KJ Financial - Kansas City, MO

Lenn,

Thanks for your insight it is always appreciated. I am holding out for the blame to get down to the Fed Ex delivery person because they delivered the loan docs on a sub prime loan. :)

I do think that by analyzing where the system failed can allow us to be able to make the system better so maybe we don't see this again. Though we don't seem to learn from our mistakes the S&L scandal wasn't that long ago.

Oct 18, 2007 01:41 AM

Victor DaGraca

Critical Home Inspections - Myrtle Beach, SC

Myrtle Beach Home Inspections

In 2004 the President of the United States, whether through an election ploy or an honest attempt at providing housing for the "have nots" put together an initiative that called upon the housing industry as a whole to bend to his wishes and created a scenario which we find ourselves in today.

Read the White House Press Release of Sept. 2nd, 2004, which I referenced in this blog, and can be found at the bottom of the page.

Is there blame enough to go around?

Place at least some of the blame where it belongs. Government initiatives and relaxed policies gone awry.

Oct 18, 2007 01:46 AM

Robert L. Brown

www.mrbrownsellsgr.com - Grand Rapids, MI

Grand Rapids Real Estate Bellabay Realty, West Mic

Maybe not on a grand scale but some real estate agents should have known. Our clients come to us for advice long before they go to a lender.

Oct 18, 2007 01:49 AM

Kurt Jackson

KJ Financial - Kansas City, MO

Victor,

That's an excellent point the only blame I have seen pointed at the government is that the Fed was too loose with monetary policy.

Robert,

Just curious why not on a grand scale? Which agents do you feel should have known? Just trying to get to the feeling of the real estate community.

Maybe we should be talking about the sources of the problem rather than assessing blame. From my perspective I have seen the mortgage industry, especially mortgage brokers, getting hammered for this and I guess I am guilty of trying to deflect the blame because even though mortgage brokers are a part of this problem they are not the only one and sometimes it feels that we are being singled out.

My ultimate goal is to try to identify a way that this can be avoided in the future so I wanted to get the views of the real estate community.

Oct 18, 2007 02:05 AM

Lenn Harley

Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA

Real Estate Broker - Virginia & Maryland

I have to disagree with some of the above.

I blame the guys who flew the planes into the World Trade Center and the ones who sent them to do it.

Minor contributors to the mortgage mess were opportunistic operators who are always around taking advantage of any situation. But, they didn't fly the planes that caused the collapse of the stock market, and the subsequent reduction in interest rates to save it which fueled the high cost of housing. Mortgage folks and real estate folks came very late to this mess.

Let's not start blaming ourselves for causes behond our control.

Oct 18, 2007 03:20 AM

Kurt Jackson

KJ Financial - Kansas City, MO

Gary,

I see you point and can't really disagree with it. Maybe blame isn't the word we should use, but mortgage originators and real estate agents could have done more to help prevent this.

Lenn,

You are right, blame isn't the right word for mortgage originators and real estate agents, but each of our industries certainly had a hand in how bad it got. More should have been done in both industries to help stop this, do we leave it only up to the borrower to be the responsible one in this whole mess?

Individually you, me and most of if not all of the professionals here (I HOPE) did all that they could to prevent these types of things from happening in their business, but that doesn't mean that there isn't some guilt by association. Each of these two industries had it within their power to stop the madness and neither did. So we do need to take some responsibility for what happened and try to do what we can to help clean up our respective industries so this doesn't happen again.

Oct 18, 2007 04:17 AM

Bill Nazur

First Lending Solutions - Riverside, CA

Kurt

We really missed you around these parts. It is a little late, as I'm on the east coast, right now, but I will come back tomorrow and read this in depth. Thought provoking, but I'm too tired to frame my thoughts right now.

Oct 18, 2007 04:54 PM

Joan Whitebook

BHG The Masiello Group - Nashua, NH

Consumer Focused Real Estate Services

Looks like there is a lot to be learned. I hope some safeguards will be put in place to prevent this type of thing in the future.

Oct 18, 2007 04:57 PM

William Johnson

Retired - La Jolla, CA

Retired

In California, many of the brokers writing sub-prime loans were also representing the Buyer in the transaction. They were crediting the buyers with the fees, discounts in the loan or other combinations. It is my belief that they used this leverage to attract the Buyer in the first place.

It is really interesting the DOJ is in favor of states changing their laws to allow Buyers to receive these incentives from discount brokers. This incentive is what drew many into the sub prime loans. In the article, I get the impression from some of the opinions, the very agents that drew them in, should have advised the changes that would take place. All this assumes that the Buyer did not get an explanation or clear picture of what changes can be expected in the loan. But Buyers in the market had the belief that they would be making a huge profit as the homes appreciated which they were doing. The market fell apart rather quickly, prior to the reset of the loan. Which came first, the greed of the Buyer with the potential for reselling or refinancing and building equity, or the poor counseling that took place that attracted the unqualified Buyer to purchase with a loan they believed at the time , they wanted to afford? Not necessarily could afford.

It is a riddle and it probably has no one answer that suits all the different scenarios that might have been.

The lenders and new licensees that did many of the sub-prime loans got into the real estate business believing that they could in fact attract many marginal buyers and that is what they set out to do. They weren't REALTORS for the most part. They were lenders with a real estate license and decided to use both ways.

Oct 18, 2007 05:26 PM

Micki OToole

PropertyADVANTAGE - Carlsbad, CA

General Manager

Kurt, I am tired of the blame game. I am tired of the blame being placed on the mortgages brokers but I wouldn't necessarily put the blame on RE agents either. I wrote a post on this last week.

THe bottom line in all this mess is GREED. Greed from the investors, Greed from the mortgage lenders/banks, greed from the loan originators and greed from the consumers.

Ridiculous loan programs and lax underwriting guidelines made it possible for anyone with a pulse to get a loan. If the programs had not been made available, the originators would not have been able to sell them! Then you have originators with no conscience putting people in homes/loans they had no business at all getting into to make a buck (where are these jokers now???) You have the average joe making $3000 a month buying a $500k house with no/little money down and no real concern with if they could really afford it and you have speculators/investors buying properties in Phase 1 of new developements hoping to turn a profit using the banks money....Remember the 100% NOO financing programs???/ Where was the risk?

Realtors were but a pawn in this mess....People wanted to buy/sell, so who do they call? However, I am fortunate to be partners with a team who DOES understand the need to be involved with their clients overall welfare and ability to afford the home they want to purchase. Not all realtors care, as long as the deal goes thru.

I do agree with you that we all DO need to police our own and hold them to the fire. I'm not sure how well it will curtail the bad apples that give us all a bad name, but at least it's a start....

Thanks for the great post!

Oct 18, 2007 06:32 PM

Kurt Jackson

KJ Financial - Kansas City, MO

Bill,

Thanks for noticing. :) I have been focusing my efforts in other areas and haven't been blogging like I should.

Joan,

I am sure there will be some additional safeguards implemented, but I doubt they will really help much, it is likely they will add more cost to the originators and thus will be passed on to the consumer. Unfortunately, the only real prevention is education and hope- hope that the people providing these services are ethical and will do what's right. I don't know that I am too optimistic about the hope part. I don't think no matter how hard you try that you can legislate ethical behavior. That's sad, but true.

William,

I know that my experience shows that the greed of the consumer almost always won out over explanations of why they shouldn't do a particular type of loan, or buy that much house. I tried to talk people into slowing down, cleaning up their credit just a little and getting FHA financing (my market FHA still works- median house price $160k max FHA loan $204k+). I lost somewhere around 40 deals or more because I wouldn't do a 2 year sub-prime ARM for people and wanted to help them do a little credit repair to get that FHA loan and they all went elsewhere to get loans from someone that was in it for a paycheck. I followed some of those folks and found that a very high percentage of them lost their homes in foreclosure. I put the blame squarely on the consumer's shoulders in those cases.

Micki,

I agree whole heartedly! A few weeks back some big wig from Wells Fargo went on the Gerri Willis show on CNN and squarely blamed the whole mess on mortgage brokers, of course the show's host readily agreed with him. She then brought on David Reed who writes for realtytimes.com he is a mortgage banker and when the host told him what the Well's guy said he disagreed and said that it was lenders like Wells that brought these stupid programs to the market, their originators were originating them and they rolled them out to their brokers too. She said come on these brokers were the problem and they need more regulation like stock brokers. David said that usually more legislation doesn't help do anything except increase costs and maybe limit lending and that licensing and education like stock brokers didn't prevent stock brokers from doing bad and unethical things. They have had quite a scandal in the financial markets with licensed and industry educated people.

We can't legislate ethics that begins from birth.

Oct 19, 2007 12:19 AM