CAN THE GOVERNMENT FIX THE MORTGAGE MESS??

By
Real Estate Agent with Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate 303829;0225082372

THE MORTGAGE MESS AND THE GOVERNMENT FIXES.

Fellow ActiveRain member Ken Montville speculates on the likelihood of significant losses in market value for home owners.  Of course, it's all speculation.  We can't see into the future.  We can, however, speculate and the 30% decline in market value doesn't seem out of range to me.  Further, the speculation that the government can prevent such a loss of market value by "saving" home owners from foreclosure or loss of their home through short sale, is, I believe, unlikely, simply because there just isn't enough money for them to do so.  Any government fix, I believe, would simply do what all government "fixes" do, they favor some groups over others.  For one thing, the government still has some "fixing" to do in Iraq.  That's the classic example of "You break it, you fix it".   

So far, all of the government "fixes" have reminded me of the proverbial "Gnat on the Elephant's back". 

DON'T UNDERESTIMATE THE DEPTH AND REACH OF THE MORTGAGE MESS.  The reach of the mortgage mess is wider than the government can handle.  Unless the government is prepared to take over the financial houses that traded those securities designed to finance the exotic loan instruments to permit unqualified home buyers and investors to buy properties, there is little the government can do except drag the corporate officers to Capitol Hill and make speeches to the TV cameras. 

LET'S GET A HANDLE ON THE NUMBERS.  These financial houses are in the process of writing off, by some estimates, $300,000,000,000.00 in losses.  Individual home owners loosing their properties to foreclosure or short sales are loosing, by some estimates, upwards of $50,000-$100,000 each.  I believe it's a lot more.  The predicted 1,000,000 foreclosures over the next five years will produce a loss of market value of about $100,000,000,000.00.  The government proposes a $15,000,000,000 "bail out". I believe that predictions of a 30% drop in market value is quite conservative.  Many markets have already experienced a loss of market of that magnitude.  Goodness, read Bryant Tutas's blog and see a classic example in Central Florida. 

THIS IS NOT THE FIRST TIME, JUST THE WORST.  Northern Virginia home owners lost 20-25% of market value in the banking messes of the early 1990s and survived.  The persons that will suffer in this present mess are not the persons whose home value drops.  It's the person who has to sell because of job transfer, illness, loss of income, family emergency, etc., and can't sell because he owes more than the home's market value.  If the home is simply a home, they can ride it out.  The home owners that will be harmed will also be those who have mortgages with accelerating payment amounts and the home owner is unable to meet the new payments.  Many of these owners defaulting property owners purchased for investment purposes and then found that the market stalled when they needed to sell and they have no equity with which to refinance.  Many defaulting home owners are home owner/occupants who spent their equity when the market was accelerating at a fast pace and the home owners thought that the market always went up and never down.  Now that they need to refinance out of short term ARMs, they have no equity and are stuck with resetting payments far higher than anticipated. 

However, many market watchers believe that the problem of consumer defaults is far too large for the government to be able to fix.  Like the gnat on the elephant's back, they can only chew around the corners.  In time, the market will correct itself.  It always has.  It always will.  It's called Capitalism. 

PROSECUTIONS WILL COME.  Many of those that profitted from gross mortgage profits will bask in the luxury of their ill found gains.  The easiest to catch are the ones who are still pushing ill-advised mortgages.  We know it's still going on.  ActiveRain members have reported attempted mortgage fraud on their blogs and I hope they will continue to do so.  We can help with awareness of what constitutes mortgage fraud.  Agent involvement in their client's mortgage process can accelerate the demise of mortgage fraud. 

Prosecuting the profiteering purveyors of piggishness takes time.    

Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988.

   Lenn's Blog    

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Anonymous
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Anonymous
I do not think the governmant has done much to help nor will they. They all want to play the blame game
Mar 09, 2008 09:41 PM #45
Rainer
199,897
Richard Lecinski
Long Realty Company - Oro Valley, AZ
I do not think the government has done much to help nor will they. They all want to play the blame game
Mar 09, 2008 09:45 PM #46
Rainer
210,953
Find a Notary Public needAnotary
QEC Internet Services - Long Beach, CA

Here is my take on this matter.  You might want to read a post i made some time ago, http://activerain.com/blogsview/317684/A-Prescription-for-Affordable.  There has been a big run up in home prices over the past nine years in this country.  However, at the same time wages have been suppressed for the majority of Americans.

Let me put this in focus a little clearer.  Over the same time span the American consumer had become responsible for more as it relates to health care expenses, education, transportation, retirement savings and entertainment.  All of theses line item expenses have reduced the disposable income to leave less for housing expenses.

You really need to think in relative proportions.  We have what I have coined a Wal-mart economy where you work more hours and see lees benefits from your efforts.  In some cases it cost you more to go to work when you factor in childcare cost.  We have go to be real about this!

We went through a period of loose underwriting and big money from Wall Street investors based on a false premise, home prices would continually rise and you just refinance out into a new loan.  Everything will be okay, LOL. Yeah!  We know the results. 

Now that new more strict underwriting guidelines will be entering the market, we will find that most wannabe homeowners won’t qualify income-wise at the now depressed home prices.  The market has out priced them based on conventional underwriting standards; the new FHA increased limits won’t starch the surface to address the income shortage.  People just don’t make enough money and they don’t have 40k –50k just sitting in thee bank ready to purchase a home. 

The new FHA limits will reduce the down payment required, but them you have to have the income to qualify for the higher loan amount.  That is why the subprime product was such an attraction.  It allowed you in the game without the right table stakes; that’s a poker term.

Bottom line, people are not making enough income to afford the homes available in this depressed market. At the same time sellers want what their homes were worth at the height of the market irrespective of current market conditions. The population of qualified buyers has shrunk!  We have to face it and work to make homes more affordable to return to any normalcy.

I love the handcuffs as that really describes the situation.

Mar 09, 2008 11:51 PM #47
Rainmaker
621,956
Randy Prothero
Island Style Realty Inc. - Mililani, HI
Hawaii REALTOR, (808) 384-5645
I firmly believe that government will not be the cure to the problem.  At best they may complicate it worse.  That is usually what happens when the politicians try to fix something.
Mar 10, 2008 12:58 AM #48
Rainmaker
574,610
Neal Bloom
Keller Williams Properties, Weston FL - Weston, FL
Realtor CRS-Weston FL Real Estate
Can they fix the mess? Well I haven't seen the results yet...I think it will take a long time...it's a two way street...I feel they can fix it...just how fast...right now they are still downing. Too many homes on line to sell.
Mar 10, 2008 06:37 AM #49
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Neal.  Thanks.  I don't believe that the government can do anything but play favorites.  That's not fair to 90% of the folks in trouble.

Randy.  Agreed.  I love it when I can agree with someone.

Richard.  That's what they are supposed to do.  Their leader Nancy gave them the talking points.

Gary.  Yep.  Not a good outlook for the short term.

Robert.  It doesn't look good for the immediate future.

Wayne.  Thanks for commenting.  I haven't seen anything the government has done that will help present day home owners who are upside down on their mortgages.  We'll see.

 

Mar 10, 2008 07:21 AM #50
Anonymous
Anonymous
Anonymous

Lenn,

It sure is a national catastrophe.  I've been thinking about the millions that have lost their credit scores and wonder how much that will  prohibit folks from buying in the future, thus prolonging the housing slowdown.  If the government could find a way to restore those credit scores, wouldn't it make a difference in folks being able to purchase again and get back on their feet?

Mar 10, 2008 07:26 AM #51
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Diane.  You hit on something that has been haunting me for months.  I even wrote a post about the credit harm done when folks "walk away".

Credit is now checked for job applications, insurance, etc.  In fact, I had to submit a copy of my credit report last week to renew my broker's license.  I have to submit that every two years.  It's not in the law, but the commission requires it. 

Mar 10, 2008 07:33 AM #52
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Eleanor Thorne
Steve Thorne NC Mortgage Experts - Cary, NC
Cary Mortgage Loans 919-649-5057
Lenn - my concern is that if the Government (meaning Paulson) doesn't "genuinely pretend to care" and at least put "lip service" to backing Fanie and Freddie we are going to spriral faster.  These are unprecidented times - #3.50 a gallon gas this weekend... I agree that it will be a potential political mess - but some "lip service" is needed!
Mar 10, 2008 09:11 AM #53
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Eleanor.  I hear Paulson utter "feel good" statements.  They don't stack up with the facts, so, . . .

Maybe we're too close to the situation to be objective. 

Mar 10, 2008 09:40 AM #54
Anonymous
Anonymous
Anonymous

Lenn:

You wrote, "No Bill.  We agents have no authority to write, fund loans.  We sell homes.  A buyer can always say, I won't pay that price.  The seller can always say, I won't sell for that price.  The agent can always say, I won't take that listing or continue to work with that buyer.  The lender can always say NO, you don't qualify. 

I hve never argued with a loan officer when he said the buyer doesn't qualify.  I have taken buyers to other lenders when I saw that their first choice of lender was gouging.  I've had loan officers try to put buyers in less than A paper when there was no justification for it.  If the buyer still wants to stick with that lender, my mouth is shut.  I have a fiduciary to my buyers, but I don't make decisions for them.  I certainly don't make decisions for loan officers."

I will have to respectfully disagree with you on this point.  If a realtor is encouraging loan fraud and then the loan officer commits loan fraud, the realtor obviously is aware of this fraud.  If the realtor knows about the loan fraud any plaintiff attorney that is worth a hoot can easily connect the dots through discovery and build a case that the loan officer and the realtor conspired to commit loan fraud.  They both go down.  Sure, the realtor doesn't write the loan, nor does she underwrite it however there is responsibility that goes with a realtor's license.

There is enough case history now with realtors committing loan fraud with loan originators that I shouldn't have to argue the point any further.  I sure wouldn't want to see your readership think its okay for a realtor to suggest loan fraud be committed to a loan officer and find themselves in a pickle.  On legal matters, its better to err on the side of caution.

Mortgage Fraud Blog realtor search

We all must be part of the solution and not part of the problem.

Mar 10, 2008 10:39 AM #55
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Bill.  You are giving the impression that I would encourage, countenance or facilitate mortgage fraud.

Nothing is further from the truth.  What I wrote was:

"I've had loan officers try to put buyers in less than A paper when there was no justification for it.  If the buyer still wants to stick with that lender, my mouth is shut."

If a buyer has a relationship when they seek our services as a real estate agent and they could do better on loan terms, rates and conditions, I TELL THE BUYER THAT.  That's my job.   However, I can't force a buyer to change lenders. 

The state of Maryland gives the right to select their lender to the buyer, not their agent.  I had one buyer who insisted on sticking with the lender even though he was going to pay about 2 pts. for the pleasure. I still gave them a lender referral.  The lender was the wife's brother.  They weren't going anywhere.

Policing the mortgage industry is not the real estate agent's job.  Too often when a buyer comes to us already connected to a lender, the lender has already warned them "the agent will try to move your loan because they take kickbacks from lender friends". 

You stated:  "I sure wouldn't want to see your readership think its okay for a realtor to suggest loan fraud be committed to a loan officer and find themselves in a pickle."

That's insulting.  Even putting that in writing is insulting.  Once lenders try to blame the mortgage mess on real estate agents, there appears to be no depths to which they'll go to squirm out of this hole they've dug for themselves. 

Real estate agents are guilty of a lot that isn't helping our market, buying listings is the most obvious, but committing mortgage fraud isn't one of them.  There are criminal acts on the part of investors who hold real estate licenses for flipping schemes, massive mortgage fraud.  That's not the average agent who gets a buyer who already has a relationship with a lender who is not doing a good job and the buyer wants to stick with the lender. 

If the mortgage industry is going to blame the real estate agents for the mortgage mess, it will simply continue on doing what they've been doing for 5 years and digging the hole deeper.   

 

Mar 10, 2008 11:21 AM #56
Rainer
122,017
Christy Powers
Keller Williams Coastal Area Partners - Pooler, GA
Pooler, Savannah Real Estate Agent
You wonder sometimes if the government actually fixes things or just makes them temporarily better. Thus, they prolong the inevitable and sometimes cause more damage along the way. Sometimes you have to hit rock bottom before you can come back up!
Mar 10, 2008 11:45 AM #57
Anonymous
Anonymous
Anonymous

Lenn:

Cool your engines and stop grand standing.

I really don't think anyone out there is blaming the realtors for the mortgage mess nor am I.

You mistook darn near everything I said.  I certainly am not blaming the mortgage mess on realtors nor even a small percentage.  If I had to assign the blame it would probably fall in the lap of the president and Congress for pushing for looser lending guidelines to boost homeownership but that's another blog.

I disagree with you when you state "realtors are not guilty of mortgage fraud."  Did you click the link?  Mortgage Fraud Blog realtor search There are always a few bad apples in every profession.  Realtors are not immune to that nor are mortgage brokers, bankers, lenders, appraisors, title companies, attorneys, etc. 

You shouldn't feel insulted as no insult was thrown your way.

Mar 10, 2008 02:11 PM #58
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Christy.  Agreed.  Any government intervention in the marketplace will just make things worse for some and give opportunity for others. 

 

 

 

Mar 10, 2008 03:35 PM #59
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Bill.  The examples in the Mortgage Fraud report that you linked to are not your average hard working boots on the ground Realtor. 

Here's the way I see it. 

1.  A real estate agent and lender can work together to commit mortgage fraud on a regular basis.  They're the ones who advertise "Bad Credit No Problem".

2.  Real estate agent and lender work together to work the filpping schemes, representing the investor who makes minimum repairs to properties and reselling them to unsophisticated buyers.  They need an "inside lender" to circumvent the HUD rules on flipping properties.

3.  Real estate agents who feed "lease/purchase" buyers to investors who buy properties with land contracts or options and rent the properties to unsophisticated buyers with the promise that when the credit is cleaned up they'll be able to buy.

4.  Agents who take referrals from lenders who are pre-approving unsophisticated buyers with higher than market loans knowing the agent won't upset the apple cart because the lender referred the buyer.

5.  Agents who sell HUD foreclosures with loan approvals from lenders who approve the loans for amounts far exceeding the market value of the properties enabling the buyer to get the bid.  The buyer will be upside down on the home for 5-10 years because they pay too much in the beginning.  HUD colludes with agents in this system, pays the agent 5%. 

These are not simply agents and lenders working together.  These are criminal enterprises. 

None of the above involve the average neighborhood real estate agent.  I've been around a long time and I've seen all of the above in action.  I have sense enough to not be a part of any of these schemes and I believe most agent do.  Agents don't fall into mortgage fraud. Unhappily, many agents don't recognize it when they see it.  But, I do not blams the real estate industry for our present catastrophe. 

I agree on the causes of our present mortgage mess which is why I don't believe the government can fix anything. 

Lenders can commit mortgage fraud without the assistance of an agent.

An agent cannot really commit mortgage fraud without the assistance of a lender.  Lenders have the right to require documentation or reject a loan. 

I''m finished and now I'll put my Bill doll away. 

Mar 10, 2008 03:36 PM #60
Anonymous
Anonymous
Anonymous

Lenn:

Thank you for clarifying and I agree with your last comment.   I appreciate you putting your Bill doll away. L.O.L.

Mar 10, 2008 03:50 PM #61
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages Connecticut - Middletown, CT
Your Connecticut Mortgage Expert
Lenn non of the fixes that I have seen so far have much.  And Fannie and Freddie continue to go down the wrong path in my opinion.  Fannie and Freddie continue to up the points on loans.  At first it was for Credit Scores under 680, now they are ready to assess points for Credit Scores under 720, but doing nothing about the high ratios.  To me all this is doing is costing bad Borrowers or in the present good Borrowers as well (I consider 680 a good score) more money to by a house, in stead of lowering the ratios to keep people from taking on debt that they can't afford.
Mar 10, 2008 07:10 PM #62
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Jim Crawford
RE/MAX Paramount Properties - Atlanta, GA
Jim Crawford Atlanta Realtor - Atlanta Real Estate

The Government is incapable of fixing this.  I am a firm believer they caused much of this by demanding no possible home owner left behind in the pursuit of the American Dream.  That pursuit has just turned into a major nightmare.  Someone forgot to tell them it is better if you have money into the deal!

Mar 11, 2008 08:45 PM #63
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Chris Ann Cleland
Long & Foster REALTORS®, Gainesville, VA - Bristow, VA
Associate Broker, Northern VA
I think getting people in trouble to a 50 year loan is about the only thing that makes sense to me, but I have heard every BUT that.  I can't even believe that some "experts" think that people in trouble should have their principal amounts on their mortgage adjusted to reflect current market value.  Makes no sense to me.
Mar 13, 2008 10:21 PM #64
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Lenn Harley

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