I don’t normally cross-post between 4realz.net and Rain City Guide, but tomorrow I’m having a conversation with the Chief Economist of the National Association of REALTORS that I think will interest many people in the Rain City Guide community. We’re going to be talking about the effect that the recent news associated with the FDIC bailing out IndyMac and the Treasuring providing support to Freddie/Fannie will have on the housing market.
I fully expect this radio show to be interesting, lively and informative and welcome you to join. As with Rain City Radio, there’ll be an associated chat, and I’ll be picking out questions from the chat room. Please consider joining us!
Dustin, that promises to be interesting! (As all the conversations are). I’m planning on being there!
I’d like you to ask him how he gets along with his peers outside the RE industry. I’ve never seen an article where a well respected economist had anything to say about him. Seems odd for someone in such a public position.
Dustin, good work. It should be interesting, I look forward to reading about it tomorrow after I’m back in from a meeting.
Rhonda: You’re always such a great presence on the show. I definitely hope you can join us tomorrow! 🙂
I would be very curious to hear what this gentleman thinks would constitute a “bad” market, in which he would think people should postpone buying a house?
Is there a an appreciation/depreciation point that once reached buyers should become cautious (e.g. prices have moved up or down some significant degree in a short time-frame)? Is there a particular interest rate level that should prompt buying caution? Is there a rent to ownership ratio, or price to median income, level that should deter buyers? The percentage of negative amortization mortgages in a given market? The percentage increase in the notices of default?
I just keep hearing so many people say “it’s a good time to buy” that I would really like to know what makes it a “bad” time to buy.
Or, to put it another way, what things does this economist look for to gain insights as to whether a given market still has much more depreciation ahead? What signs should buyers look for that would indicate that prices might drop another 5% to 10%?
this should be interesting. a few years ago before Yun took over the helm as Chief Economist at NAR he made an outrageous prediction for Seattle’s appreciation. I wanna say it was something around 40% in one year. someone was cracking smoke.
FNMA/FHLMC story should be interesting. One thing we do know – the implicit guarantee is looking a lot more like explicit.
Will this help stabilize the housing correction or will it perpetuate it? One can argue for either, but only time will tell.
Sniglet-
You asked a bunch of questions that have even more different answers. It’s like people who ask about the best stock to buy or the best investment. You really can’t answer them unless you know what the objectives, constraints, etc., are.
Tip: stick with the factual ones like % of neg ams or the % of defaults. Otherwise, get yourself a CFP.
Michael-
Just because Seattle (surrounding area) didn’t appreciate 40% in one year, If memory serves it was in the teens or higher (can anyone confirm?). That’s outrageous enough for me!
Q-diddy said: “You asked a bunch of questions that have even more different answers.”
There is really just one question: how can you tell if a given market is going to depreciate substantially in the next year or two?
Most people likely would postpone buying if they knew there was a high probability that prices would decline significantly.
Sniglet-
No one can answer that question for you, not with any certainty anyways. Is that the point you’re trying to make?
Some will choose to wait and some not, even in a declining market environment. If I knew with high probability that the home I’m buying will drop 10%, 15%, 20%, etc., immediatley after I sign, I’d bid lower!
Q-Diddy,
From my Sunday Stat posts:
$152 in 1/04 to $173 in 1/05 is 13.8%
$173 in 1/05 to $201 in 1/06 is 16.2%
$201 in 1/06 to $222 in 1/07 is 10.4%
$222 in 1/07 to $219 in 1/08 is -.06%
That’s Median Price Per Square Foot – Residential – King County.
I don’t know which year you are referring to, but it’s safe to say that in 2005 some areas had an 8% increase while others had a 30% to 35% increase, and the overall median increase was 16.2%. This based on stats I have done over the last couple of years. Some neighborhoods close to Microsoft and in Kirkland had 30% to 35% for two years back to back while not “close in” areas in King County were at 8% to 10% appreciation.
Q-diddy said: “No one can answer that question for you, not with any certainty anyways.”
Perhaps not, but “experts” such as NAR economists are constantly making predictions about the market hitting a bottom, and appreciating. There are always statements being made about “turning around in 1st quarter 2009, etc)”.
The people making these calls for a market bottom, and further appreciation, clearly have some sort of criteria on which to base their predictions. All I want to know is what these criteria are, and if they can likewise indicate a possible declining market.
To put it another way, how can someone predict appreciation if they can’t likewise claim to predict depreciation?
Dustin, I hope your interview doesn’t turn out to be a boxing match from some commenters.
I think Sniglet has a valid question in there: “There is really just one question: how can you tell if a given market is going to depreciate substantially in the next year or two? Most people likely would postpone buying if they knew there was a high probability that prices would decline significantly.”
Is their pressure on NAR’s Chief Economist, or a strong internal bias, that would prevent him from ever predicting a long term decline? Such a statement would impact home sales. Is it part of his job to bolster a positive outlook, or as positive as possible, in order to project consumer confidence in buying homes?
Seems everyone in the housing industry has a long term crystal ball when they want to say homes values will go up, but the crystal ball dims and becomes short term oriented, when projecting declines. In fact most are saying the market will be up by 2009 or 2010. Personally I don’t think it will be back AT peak until 2012 or 2014.
Sniglet-
OK, that’s an entire different question. Yes, there are economists and experts who get paid to make predictions, but at the end of the day that’s all it is – a prediction.
What are they looking at? Same things you and I can look at, but in a more intensed, focused way and with complicated proprietary models.
Here are some things you should look at that people here have provided past and present:
Home prices
# of homes for sale
# of homes sold
Time on the market
Foreclosures
Interest rates
Income levels
Debt levels
Inflation
Consumer Prixe Index
Debt to Income ratios
There are more, but I can’t list them all. They won’t predict the future, but they will help you make a more informed guess.
I didn’t read the comments here closely, but the King County SFR median went up almost 12% in five months in 2007, which ingoring seasonal factors would be an annual rate in excess of 20%. That’s part of the reason our YOY comparisons are negative–we’re increasing but not nearly at that unhealthy rate.
Ardell-
That’s a good question…I don’t know the right answer, but it seems the NAR is offering encouragement and hope rather than gloom and doom.
Q-diddy said: “there are economists and experts who get paid to make predictions”
Yes, and this is precisely what Messr Yun is paid to do, right (i.e. make predictions)? As such, I don’t think it is unreasonable to ask him to explain what factors he would look at to determine if a given market was going to see substantial depreciation. It would be even better to hear examples of where he has applied these ideas to come up with a prediction for further significant depreciation (we already have lots of examples where he has predicted price increases).
It would have been very helpful for a buyer in Sacramento to know that there was a good chance of depreciation 3 or 4 years ago. How can buyers today ensure they don’t run into similar traps?
Sniglet-
Asking about the factors and how they are applied would only lead to more mumble, jumble, statistical, garbage.
I like this question you gave:
1. Why does Yun give more examples of appreciation vs. depreciation?
“Ardell-That’s a good question…I don’t know the right answer, but it seems the NAR is offering encouragement and hope rather than gloom and doom.”
But if that is their pre-conceived objective, and a pre-conceived objective of Yun by job description, then his title should be Public Relations and not “economist” Or PR-Economist. Or are people to simply assume that bias, and take his projections with a grain of salt?
It’s one thing to offer “encouragement and hope” to people IN a fire that they will get out of the fire. It’s quite another to talk people into walking into the fire, while the embers are just glowing and not readily apparent, with speeches of “ecouragement and hope”. Kind of the difference between encouragement and hope speeches from a fireman inside the burning building vs. Jim Jones 🙂
Sniglet seems to look at the ‘price’, and wants a bargain when he buys a house. He buys a ‘house’, not perhaps a ‘home’. Many others feel comfortable buying on a more emotional level, and when they find the ‘home’ that feels right to them, they want to buy it.
That emotional decision is usually best made with professional advice so they don’t choose unwisely. But, we all know the best of the best are rare, so to simply say “now is NOT the time to buy” is just as wrong as to say “now IS the time to buy”.
Perhaps Yun’s job really is both PR-Economist.
Leanne, as I mentioned in another thread here, some buyers are not picky at all. We had one condo client that seemed to like just about everything we showed him, but we continued to show him properties because he was negotiating the sale of another property to the tenant. So we showed him a lot of properties, which he probably liked in excess of 80%.
My wife and I on the other hand probably looked at 80, and only seriously considered 3.
Hey Dustin:
Any chance of getting Paul Krugman on your show? He’s an economist that I place fairly high stock in.
Folks, let’s face it. There is no such thing as free information. Free TV is paid for by advertising, think tanks are sponsored by businesses and foundations, newspaper columnists are paid by advertisers, even the opinions we offer at RCG are tainted by self-interest.
There is a quote that goes something like this:
“It is very hard to get a man to understand something, when his salary is dependent on his NOT understanding it”. Upton Sinclair, I believe.
Mr. Yun’s opinions are paid for by NAR. That does not make him a liar.
Get the data Mr Yun provides, compare it to other data, and decide for yourself.
Or pay some Harvard MBA directly for your own research, and sell the results!
Sounds like at the very least, we can gain some high level insight, at no greater cost than our time.
Thanks for bringing such a prominent guest!
leanne,
I don’t think Sniglet wants to know if today’s “bargain” is tomorrow’s upside down house as to value vs. current purchase price. I think he also wants to know how long that upside down status might last before turning around and coming back to even and beyond. I think everyone wants to know that. Would Yun ever say if you buy a house today it will lose value for at least 3 years and won’t appreciate for at least 7 years? If he believed that, could he say it, or would he have to quit his job?
To what extent does the messenger have to target the message toward “people should buy homes” given the employer? Downplay the potential negative consequences and look for a silver lining, or project short range as to obvious and irrefutable negatives, and long range as to potential positives.
It will be an interesting conversation, but I think I’ll put my phone on speaker setting as to listening and mute as to talking 🙂
Wow! What a great conversation that’s been flying by… I’m not sure where I can insert myself.
Sniglet: You definitely raise an interesting question and I’ll look to insert something like that!
Roger: I can have anyone I want on my show and I’d love to have Paul. Let’s see how it works today! 😉
Sniglet, you asked: It would have been very helpful for a buyer in Sacramento to know that there was a good chance of depreciation 3 or 4 years ago. How can buyers today ensure they don’t run into similar traps?
I think any good agent could have been able to predict that prices everywhere were due for a correction. Anytime you have apprecation hitting constantly over 10% per year, it is unsustainable even in the best of circumstances. Now, what we didn’t realize was how big a problem the sub-prime stuff was going to be, but to be honest, in Seattle, we just didn’t do the sub-prime volume that Sacramento had, so I don’t think locally we could have predicted their problems. My clients haven’t used sub-primes, so I wasn’t really all that familiar with them, nor had any real idea of how massive they were being placed. I cannot fathom why anyone with half a brain would think these loans were good, except for very confident and solvent buyers. Ie, the least down payment loans should have gone to the best risk buyers, not the other way around.
And, in the peak of peaks, would individuals have listened to any expert? I think hitting people on the noggin with a 2 x 4 seems to be the only way they stand up and pay attention when it comes to jumping in or out of any frenzy …
Leanne said: “what we didn’t realize was how big a problem the sub-prime stuff was going to be, but to be honest, in Seattle, we just didn’t do the sub-prime volume that Sacramento had, so I don’t think locally we could have predicted their problems”
Hmmm… 16% or 17% of new Seattle area loans were sub-prime as recently as 2006 which may have been lower than elsewhere in the country but WAY above historic norms. Even more importantly, the Seattle area was in the big leagues when it came to Interest Only and Negative amortization loans. 33% of all new Seattle area mortgages in 2006 were of either an Interest Only or Negative amortization variety (most of which were prime). These were flashing signals that something was out of wack.
But maybe these aren’t the kinds of satistics (e.g. prevalence of neg-am loans) that don’t factor into the analyses Mr Yun puts together.
Sniglet, you assume that the real estate agents actually know what the buyers choice of loan products is on a particular transaction. Most agents simply know the down payment amount, whether the buyer needs seller to pay closing costs, and whether the buyer has a qualified loan approval, and not much more. In fact, is it the real estate agents duty to know significantly more? Or, are they playing advisor towards something they are not licensed to do when they advise on the financing particulars?
It is the lenders who know and handle the details of most loans, not the agents involved. I know more than most agents with most of my buyers, because I ask questions – I like to know not only are they making a good decision, but to know what terms and conditions are available. If I do not know the lender involved for one of my buyers, I will ask the lender a lot of questions, with permission from my buyer client. I think you do need the permission of the buyer to quiz and obtain personal details of their financing …
Sniglet, your view seems to discount that the lenders, far more than the real estate agents, are the ones who burdened the buyers with marginal financing. The entire country is now paying the price.
Should real estate agents know all the details of their buyer clients financing? That’s probably not likely to happpen. Agents need to know the basics, and know what lenders and LO’s are the best to refer people to. In fact, agents going forward will have potentially “less” to know than in the past, since the only likely loans that will be made are going to be very conservative anyway.
Agents are going to have to learn how the nuainces of appraisals will affect negotiations between buyers and sellers, and increase their knowlege in that arena most certainly.
Leanne said: “Should real estate agents know all the details of their buyer clients financing?”
In no way am I inferring that real-estate agents, or anyone else, has a responsibility for knowing the trends with mortgage financing. All I am saying is that these statistics (i.e. of unprecedented loose lending in the Puget Sound) was publicly available in 2006 yet there were still people saying that our market was destined to keep climbing indefinitely.
Although I don’t expect realtors to know what is happening with finance. However, I think that anytime they (or anyone else) starts offering oppinions on the market, with statements about how prices are certain to appreciate, that they are now assuming a responsibility for doing a little research.
Sniglet, is your sub-prime number Seattle or Washington? It seems high for Seattle.
Also, option arms are one thing, but I don’t think there’s anything per se wrong with interest only loans.
This is what I have from my notes: Dr. Yun says,
Some markets that had been feeling stress due to foreclosures are now seeing sales stabilize. In Seattle home sales are declining, but where we are matches what was happening in 1998 which was more of a normal market.
The government will bailout Fannie and Freddie.
The debt the government will absorb by taking control of F&F will not be as bad as we think because there are plenty of mortgage loans that are performing and these are “assets.”
Higher interest rates will have a negative impact on home values.
REOs hitting the market will put downward pressure on home values.
We need to pass the current mortgage bailout legislation NOW without delay, because inside is an $8,000 tax credit for home buyers…..we need buyers to buy homes right now to shore up the housing market.
The likely government bailout of fannie and freddie will not have an impact on the value of the dollar.
Dustin, who’s the next person to join us?
who do you want?
Kary said: “is your sub-prime number Seattle or Washington? It seems high for Seattle.”
I stand corrected 21% of all Seattle area loans were subprime in 2006.
http://seattlebubble.com/blog/2007/10/11/explore-seattles-sub-prime-status/
# 34 Dustin, get Robin Williams! We need some humor!
Jillayne said: “We need to pass the current mortgage bailout legislation NOW without delay, because inside is an $8,000 tax credit for home buyers…..we need buyers to buy homes right now to shore up the housing market.”
So what does he think will happen if these things don’t happen? Is there a pessimistic scenario that he thinks could occur under certain circumstances?
Jillayne, add that he also said that due to immigration, we have higher numbers of potential buyers (and existing homeowners) since 1998.
Since 1998 in Seattle & the Eastside, we’ve seen a huge growth of people from other countries — just listen! Go to the malls, you will hear so many different languages. It’s interesting to me. We have always been a country of immigrants – we celebrate immigration, our freedom, and the 4th of July, our Independence. We are a nation of lemmings, but also a nation of rebels …
My own grandfather arrived from Norway, and was a fisherman in Ballard. We’re all at an age that we grew up in the mid-part to end of our century not really seeing many immigrants, at least compared to the 1860’s – 1950’s, until the late ’90’s. Now, we are quite multi-cultural. Instead of a City of blond Scandihoovians, we are a City of dark haired people – and a vibrant, mixed group of people we are!
In addition, we have many companies located in our midst that we sort of take for granted, thinking perhaps that “they were always there”. Microsoft? Came here in the mid-80’s. Amazon and the rest of the high tech firms, after that. We are most certainly not the Seattle your Granddad knew! We are becoming adult in our Cityhood. At least if we could quit acting childish and petty in our arguing.
Sniglet, I know you don’t think real estate agents should know all about financing, but too many times you seem to feel that those you talk to on these forums actually said that real estate prices always go up. I haven’t seen that be true of any of us.
Real estate prices most certainly don’t always go up, and the last several years were far to wild for my tastes. I talked more people out of buying houses than into buying houses, because I could not relate to the prices. However, I did sell many houses for my seller clients, and obtained prices for same that I wouldn’t have wanted to see buyer clients pay.
We represent people as clients, and have a duty to be informed.
Did we have a duty to know more than our “trusted partners” the lending institutions who were handing out money like candy?
I hardly think so. The sad tale of woe in the housing market is that our “trusted advisors” weren’t good at their actual jobs. Responsibility in lending? Ha, just an idea, not a necessity. Now we are going to see the pendulum swing to restrictive lending that will mean hard rules, that also are not likely as necessary as if everything had stayed on an even course.
For me, I resent that basically, it is the lending institutions who handed out the money with no rules attached. Should I have realized what was going on sooner? Well, all I can say, is that I knew prices were spiraling up too much, but I don’t think the data presented in 2006 really showed that the LENDERS were out of control and had no hope of staying alive, let alone sustaining out-of control-foreclosures.
I agree with Mr. Yun, and think that something firm and fast needs to happen to stop the fall into the abyss. Perhaps the $8000 credits will work, I don’t know. But, what I do know, is that real estate is more than an individual buying or selling a house. Real estate is the grease for the entire economy. Let it rust to a halt, and you’ve destroyed not just individuals, but also an entire engine that runs an entire country. No, I am not being dramatic.
Rhonda, lest you think I feel you are not a “trusted partner” lender, I do not. You have stated on many occasions that your opinons on many loan programs match my own standards.
Let’s all have higher standards, and I think things will work out. To let the damage unfold without a hand-up from the government is akin to a parent telling a kid who used drugs, or ran up his credit cards in college, or lost a job or whatever, to ‘take care of it yourself, kid, don’t expect no handouts from ma and pa’. Parents give their kids a hand-up all the time, it’s done out of love, out of a desire to see the best happen, and done with an expection in return: no repeat of the mistaken behavior.
Yup, they call it tough love, but quite often, if it is too tough, it’s inappropriate.
Sniglett, thanks for finding that. I may try to look for a better source because I never trust the Wall Street Journal as a source of news.
Well here’s one putting it at under 10% in 2006, but it’s Elizabeth Rhodes! I’ll keep looking for a good source. 😉
http://seattletimes.nwsource.com/html/realestate/2003621595_homeforum18.html
Sniglet asks, “So what does he think will happen if these things don’t happen? Is there a pessimistic scenario that he thinks could occur under certain circumstances?”
At the very end, I asked him about what would happen if we start to see a rise in delinquencies/defaults on PRIME mortgage loans. I believe he said that it would have a negative impact on home values. That was right toward the very end of the broadcast.
Here’s a P-I one putting it at under 7%, but it didn’t state the source:
http://seattlepi.nwsource.com/business/325107_mortgage26.html
I found an interesting blog piece that Aubrey did, indicating that over half the subprime loans in 2006 were to people who would have qualified for conventional! Now that I could believe, but again it was the WSJ as a source, so I don’t.
@ Leanne
“Well, all I can say, is that I knew prices were spiraling up too much, but I don’t think the data presented in 2006 really showed that the LENDERS were out of control and had no hope of staying alive, let alone sustaining out-of control-foreclosures.”
Anyone can easily google “2006 mortgage delinquencies” or “2005 mortgage delinquencies” and see that there are literally hundreds of news reports showing rising mortgage delinquencies during this time period. 2004 was also an interesting year showing delinquencies rising in Calif, CO, and Florida without the corresponding usual problems such as falling employment numbers.
Lenders were totally out of control by 2006. 2005, 2004 and even back towards 2003, 2002.
There were many people speaking out in public about the un-sustainability of lax credit underwriting standards back then. I was one of them.
Merit Mortgage in Bellevue went under in 2006. The alarm was sounded on their lending practices far before their demise.
Leanne, Dr. Yun says Realtors should be out there “taking loan applications” and educating buyers and prequalifying them, because some buyers believe that they might not be able to qualify.
I would support this, if it were true that 100% of Realtors knew how to do this. Heck, I’d be thrilled if 50% of loan originators knew how to prequalify an applicant to TODAY’s underwriting standards.
Jillayne, but not in Seattle. There were no warning that the Seattle lenders had done anything like the lender stories around the country, at least not that I heard about back in 2004, 2005, 2006. Back to 2003 in Seattle? We were still just recovering from 911 and the .dotcom markets!
As to Merit Mortgag failing in 2006? I heard about it, and thought that since I had never had a loan from them for any clients I had worked with, that it was simply an isolated case of a lender who failed due to bad management, bad whatever, but certainly not a nation-wide case of mortgage-measles, a highly contagious epidemic!
I left the interview early, but I agree partially with the concept: that the real estate agent should be initially talking to buyers about financing, and some basics, like typical qualifying ratios. We did that all the time in the ’80’s, but now it’s like everyone and their dog gets qualified online (a practice that is good for quick info, but not the final answer) :-)!
@ Leanne,
“but not in Seattle. There were no warning that the Seattle lenders had done anything like the lender stories around the country, at least not that I heard about back in 2004, 2005, 2006. Back to 2003 in Seattle? We were still just recovering from 911 and the .dotcom markets!”
Yes.
Of course.
Nothing like this happens in Seattle.
You know, it doesn’t matter where I travel. Realtors in every single city think their city is different and special and that it just simply couldn’t and didn’t happen.
2004 was quite a colorful year in WA state. Most of these folks committed violations in 2003 and were then charged in 04.
http://www.dfi.wa.gov/cs/adminactions_2004.htm
Leanne…OMG…yes, even in Seattle we have some nasty LOs. You don’t have to stop at 2004 w/DFI’s findings…and HUD catches some too. I’m hoping someone will turn in a LO in right now to HUD who is trying to do FHA loans (much like the Aplus deal Jillayne wrote about recently) out of a small local “bank” who is not qualified. It’s really stinky.
WA was so easy to be a loan originator that I heard (Jillayne can confirm?) that we attracted scum from other (tougher) states.
February 05, 2001 Gregoire Warns of Predatory Lending Practices
Olympia – Feb. 5, 2001 – Washington state Attorney General Christine Gregoire today warned consumers to beware of predatory lending practices that could threaten their credit ratings and, in some extreme cases, force them from their homes.
http://www.atg.wa.gov/pressrelease.aspx?&id=5524
Let’s seee…..this national historic settlement was initiated right here in Washington state and settled in 2002:
http://www.dfi.wa.gov/cs/pdf/formal%20settlement%20filing.pdf
Jillayne, I don’t believe that Mr Yun meant that agents should be taking loan applications…I thought he meant that borrowers should apply with a lender? Just my interpertation.
I’d love to know if any of you were present (anonymous) on this call? Who was that #13?
Hi Rhonda,
I think what he meant was that Realtors should be educating consumers about the programs that are available today; to help them learn that maybe they CAN qualify through FHA, for example.
Again, that would be great….if Realtors know how to prequalify using TODAY’s underwriting standards.
I just had a conversation with an agent today who was very frustrated with a lender who was requiring verification of income.
Somewhat on topic: This just in from the WSJ:
Mortgage Giant Freddie Mac Considers Major Stock Sale
Issue of Up to $10 Billion Would Aim to Stave Off Rescue Plan
http://online.wsj.com/article/SB121634565697564389.html
I remember trying to report someone for Predatory Lending when I first arrived here in 2004. The parameters of allowance were so huge that even grossly predatory lending that I witnessed was not considered a violation. One of my very first blog posts was on Predatory Lending.
I wrote many times about this topic. The agent who got fired by her client for not providing the same benefits (cash back – lender fraud) that their friends were getting from other agents. The lender(s) who didn’t want me to see the HUD 1 and said it was none of my business. The time that I had to meet the buyers (someone else’s client) in a bowling alley to explain the HUD 1prior to closing. They didn’t close and they did get their Earnest Money back even though we cancelled on the day of closing. I was told I was wrong to do that. That the buyers should have closed even though they didn’t understand their loan until I met them in the bowling alley.
At some point you have to wonder if the world has changed? I remember the first time lenders no longer required clean pest inspections before funding. They said they were willing to take the business risk. At what point do you allow lenders to take the business risk? Things changed, not for the better, but not the first time lenders made changes that were not for the better.
At the point where every rule and principle we had ever known had changed…who were we to say it shouldn’t have changed? We’re not talking about a handful of people in some corner doing something wrong. We’re talking about the whole industry turning upside down.
It started with no repairs told to the lender and the lender TOLD us not to tell them. Call it a credit for closing costs, they said. Then lenders started asking for phoney leases to close income gaps. We’re talking major builders, well known builders, saying it can’t be wrong because “we do it all the time”. Acting like I was the big “trouble maker”.
Leanne, you must have been living under a rock not to have seen it. BUT, I have to admit that once I made a firm rule NEVER to go south of town again…to Federal Way or Auburn…I didn’t personally see it either. Once I started blogging, my clients were all tech savvy and had good loan programs and money down. But I knew it was there…everywhere around me.
But when you wake up one day and the Sun is Green and it stays that way for three years, no one wants to hear that it used to be yellow…Well, one day you accept the fact that the Sun is Green…and then we enter the darkness as one under the Green Sun.
J & R, I don’t mean that ‘Seattle is special’ in the usual ignoramus way. And, I most certainly DID NOT mean that there are/were no dishonest LO’s here. Yes, indeed there were/are. What I meant was that Seattle didn’t have a huge problem area of free money = bad loans.
Just that simple, we didn’t have the problem that other areas have. Most of our buyers actually qualified for their loans.
And, Seattle is different than the Seattle of 20 years ago. Far, far different. Will that protect our prices? Well, I happen to think so, at least in the prime areas; and don’t get me wrong: I think that an overall reduction in prices of 10% isn’t a crash of any kind, it’s a correction; and so far, the prime areas are holding pretty tough.
Outlying areas, well, they will see worse than 10% reduction, mostly in new/newer construction and condos. It’s always been that way …
and it always will be. Bust and boom, and the outlying areas get crashed the most.
Jillayne, you don’t need to go online to find proof that things were problematic in the lende world.
We’ve had that proof every year that I’ve been in business! There are always problematic lenders – always.
However, this time, it was an EPIDEMIC of problematic lenders. Our big name-brand trusted advisors proved to be not trustworthy.
What a shame.
I would prefer that agents NOT try prequalifying buyers (at least not too seriously)…everything is changing so quickly. I completely understand trying to make sure a buyer is worthy…however w/FHA–buyers w/o credit scores can purchase a home with 3% down.
Ardell, I don’t get your “south of town” LO issues…my office is in South King County and the main office has been in SKC for 30 years. Seattle and Bellevue are not more special when it comes to LOs who are not so hot. Banks or brokers are not better…it really comes down to the individual originator…and they can live or work anywhere.
It’s great to reign in the predatory lenders, but what about predatory borrowers? A LOT of people have knowingly taken advantage of the easy money being lent out in recent years, with no real intent on paying back if things didn’t work out (i.e. they have no money down and will just mail in the keys if their home goes under-water).
Actually, I think that most of those winding up in foreclosure these days were aware of the nature of the loans they recieved. They just either had very mis-guided assumptions about the market (e.g. prices will only keep going up), or just didn’t feel any resonsibility for making good on the mortgage if things went south.
It’s easy to blame the lenders, but the borrowers deserve a lot of blame as well.
Ardell, I don’t mean that I didn’t see problems, especially in below par areas. OMG, I know bust and boom so well.
But, in Seattle, in-City, in the areas you and I mostly work – we had no huge problems because what we had, and still have, are buyers who actually qualify.
And, they qualify beautifully. Most of my clients could buy far more than they did buy, and that is still true today. Other than my first time buyers, they have pretty large down payments!
The outlying areas seemed to think they could keep up with the Jones (ie, Seattle), mainly because our “trusted partners”, the lending institutions, basically told them they could — and handed them the money to prove it. Those people are going to be hurt more badly than the people in our MLS areas 710, 705, 390, 700, 520, 530, 560, 540. We’ll all feel the pain, just not the same pain.
The areas we know so well, have a slight fever, but nothing as serious as the outlying areas who are really injured, and bleeding.
And yet, all of Washington is far luckier than some areas in Nevada, Florida and California.
It just should not have happened this way.
56, Sniglet, it’s hard to know since I don’t know any of those borrowers. Do you?
ARdell said “The agent who got fired by her client for not providing the same benefits (cash back – lender fraud) that their friends were getting from other agents.” Hello? Isn’t this the Redfin model? I know the DOJ likes it, but what about the lenders? I still see it as a concession against purchase price.
All, I said this: Jillayne, but not in Seattle. There were no warning that the Seattle lenders had done anything like the lender stories around the country, at least not that I heard about back in 2004, 2005, 2006. Back to 2003 in Seattle? We were still just recovering from 911 and the .dotcom markets.
This was NOT meant to be a discussion of predatory lending. It was meant to be a discussion of subprime, too-easy money being handed out. To me, predatory lending is more an issue of a lender who is price-gouging a buyer, not necessarily a lender who is giving out a 0-down loan to even the bag-boy at Safeway. At least the bagboy was actually given something for very cheap: his loan. The predatory lenders took far more in fees and even interest rates, and gouged, far more the definition of predatory.
We all know that 0-down loans are stupid failures – but to call them predatory, when the industry itself thought they were fine, is wrong.
“I would prefer that agents NOT try prequalifying buyers”
Agents are taught to do that as part of their licensing. Being urged not to by lenders is part of the problem.
Ardell, I should clarify…I see nothing wrong with an agent doing a “preliminary” prequalifying of a potential home buyer. It can get tricky if an agent gives a buyer too much mortgage advice.
It would be similar to a LO giving a buyer advice on RE (and not sticking to mortgages).
Sniglet, thanks re: 56. Many borrowers pushed their mortgages beyond what they could ever afford by using mortgages such as stated income or deferred interest (neg. amtz.). When I would tell a borrower, you qualify for “$300k” and they’re looking at “$400k” they’d push for a stated income or option ARM type program.
In that case, I would explain the concequences of these programs and they would either opt for a safer program or sense that it wasn’t something I was willing to do and would just go to another lender all too happy to slam the loan together.
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“Ardell, I should clarify…I see nothing wrong with an agent doing a “preliminary
Ardell:
What exactly does “charged with the duty” mean?
Is this a legal obligation, a universal professional code of ethics, or something less encompassing (your companies code or conduct, or personal code of conduct)?
Are you suggesting that realtors are obligated to review the terms of a loan, and alter the transaction if the terms are not “reasonable”?
Do you think that responsible and ethical lenders should have similar duties, regarding oversight of realtors?
In most states, Roger, the Agency and Licensing Laws of the State charge real estate agents with the duty of providing Fiduciary level services. WA happens to be one of the few that doesn’t, they have fairly equivalent “Statutory Duties” but the law does say that real estate licensees “represent” buyers at first contact and are not “selling” the buyer a house.
I am having this same discussion over on Active Rain and a lender is highly offended and saying I’m “talking down” or putting down their profession. It is a distinction that the consumer must understand and that lenders must allow agents to perform.
We are taught to qualify buyers at the highest and most conservative level and are tested on our ability to do that to be licensed agents. I have taken that test in PA, NJ, FL, CA and WA and ALL states have instructed and tested real estate licensees on their ability to do this.
Whether I think real estate licensees should oversee lenders or lenders should oversee real estate agents is not the point. It’s not about what I think should be done, it’s about what duties each state charges licensees to do or not do.
I don’t know what they teach you to do as lenders regarding overseeing real estate agents. I do know what real estate agents are taught to do and tested by the State on. And that is to qualify buyers at the highest degree, that being 28/36 ratios. The also teach the meaning of the various “normal” clauses and terms of a loan regarding accerleration clauses, etc.
This is how it is supposed to work. The agent qualifies the buyer and says you can afford to buy a property at $350,000 and the going rate is 6.5% or so.
THEN when the lender says they qualify at $600,000 with a rate of 7.75% the consumer at least knows that they are stretching the conservative boundaries, and to what degree. It is not our duty to prevent a consumer from stretching to the degree the lender will permit and it is not our duty to tell the lender they can’t charge 11%. It IS our duty to make sure the consumer knows the most conervative stance and the going rate using that conservative stance, so that when they bend and stretch, they know to what degree they are doing that.
In recent years even Real Estate Brokers have told real estate licensees to delegate this responsibility to lenders. I can’t help but feel that if agents told buyers they qualified for $350,000 and the rate was 6.5% (or whatever it was using our available resources and what licensees are taught as to ratios) that the home buying public would have had a bigger red flag when the lender answer was substantially different.
It is the licensees job to make sure that the buyer and seller have a good understanding of what they are doing. That includes the home inspection, Title and Escrow, Home Warranties and the loan and anything that involves the purchase or sale of a home. We don’t have to over-ride what they want to do…but we do need to make sure that they understand the ramifications of their choices.
I don’t think it is the lenders charge to do that in reverse. It absolutely IS our obligation to switch lenders if needed and I don’t think it is the lenders obligation to switch agents. But then I never went to lender school or received a lender license 🙂
Examples: Off the top of my head here’s a couple of people who came to me with a GFE from a lender of their choice. The rate was obviously sub-prime.
Client 1) brother gave him lender’s name and lender could only do sub-prime so I had to switch lenders.
2) The price the lender told the buyer they could purchase at (before I met the buyer) threw the ratios into sub-prime. We changed the price downward and not the lender and the buyer qualified for “the going rate” and was happy with her place at the lower price.
I think you will agree, Roger, that the agent should determine if sub-prime status was appropriate for our client in the above cases.
Another example is when it comes time to find and the lender CAN’T fund…sometimes we have to switch lenders to accommodate our client’s needs.
I don’t know if lenders have to switch agents…I’ve never seen that happen in 18 years, but I guess it’s possible.
Back to Lawrence Yun,
It was obvious that bolstering consumer confidence was part of his “charge and duty” in his job. His solution to this crisis was for more people to buy more real estate. Of course if enough people did that as their patriotic duty, I guess the situation could turn around. But if he or we “bolster confidence” to the point where people buy who wouldn’t have had we not twisted their arm or created a false degree of confidence, and those people lose money as a result…well, we would be replacing one bad for another bad.
It not being a “good time” to buy does not mean no one will buy. Only those who should will. It is not a “good time” to buy. Anyone who is begging someone to say it is a “good time”…is asking to be lied to. There have been many bad times to sell and many bad times to buy and real estates sales did not drop to zero as a result.
Get a clue…rarely is it BOTH a good time to buy and a good time to sell at the same time.
whoo-boy, Ardell. The things you said agents must do for their clients in # 65 are certainly things an agent can do, and most good ones would do, but to say ‘must do’ gets a can of interpretive worms wriggling around. You imply that the agent needs to know the terms of the buyers loan, and that isn’t necessarily something that most agents do know, nor is it defined in ‘reasonable care’ standards that that level of knowlege is required.
Nuiances perhaps, because I believe you are a fine agent, and defend your clients to the max, but I do not believe 80% of the agents are qualified, nor expected by law, to do the ‘must do’ items you stated. A client is also expected to do their due diligence.
Here’s what WA RCW’s say on the matter …
From RCW RCW 18.86.030
Duties of licensee.
(1) Regardless of whether the licensee is an agent, a licensee owes to all parties to whom the licensee renders real estate brokerage services the following duties, which may not be waived:
(a) To exercise reasonable skill and care;
(b) To deal honestly and in good faith;
(c) To present all written offers, written notices and other written communications to and from either party in a timely manner, regardless of whether the property is subject to an existing contract for sale or the buyer is already a party to an existing contract to purchase;
(d) To disclose all existing material facts known by the licensee and not apparent or readily ascertainable to a party; provided that this subsection shall not be construed to imply any duty to investigate matters that the licensee has not agreed to investigate;
(e) To account in a timely manner for all money and property received from or on behalf of either party;
(f) To provide a pamphlet on the law of real estate agency in the form prescribed in RCW 18.86.120 to all parties to whom the licensee renders real estate brokerage services, before the party signs an agency agreement with the licensee, signs an offer in a real estate transaction handled by the licensee, consents to dual agency, or waives any rights, under RCW 18.86.020(1)(e), 18.86.040(1)(e), 18.86.050(1)(e), or 18.86.060(2) (e) or (f), whichever occurs earliest; and
(g) To disclose in writing to all parties to whom the licensee renders real estate brokerage services, before the party signs an offer in a real estate transaction handled by the licensee, whether the licensee represents the buyer, the seller, both parties, or neither party. The disclosure shall be set forth in a separate paragraph entitled “Agency Disclosure” in the agreement between the buyer and seller or in a separate writing entitled “Agency Disclosure.”
(2) Unless otherwise agreed, a licensee owes no duty to conduct an independent inspection of the property or to conduct an independent investigation of either party’s financial condition, and owes no duty to independently verify the accuracy or completeness of any statement made by either party or by any source reasonably believed by the licensee to be reliable.
[1996 c 179 § 3.]
And, here are the duties of a Buyers Agent:RCW 18.86.050
Buyer’s agent — Duties.
(1) Unless additional duties are agreed to in writing signed by a buyer’s agent, the duties of a buyer’s agent are limited to those set forth in RCW 18.86.030 and the following, which may not be waived except as expressly set forth in (e) of this subsection:
(a) To be loyal to the buyer by taking no action that is adverse or detrimental to the buyer’s interest in a transaction;
(b) To timely disclose to the buyer any conflicts of interest;
(c) To advise the buyer to seek expert advice on matters relating to the transaction that are beyond the agent’s expertise;
(d) Not to disclose any confidential information from or about the buyer, except under subpoena or court order, even after termination of the agency relationship; and
(e) Unless otherwise agreed to in writing after the buyer’s agent has complied with RCW 18.86.030(1)(f), to make a good faith and continuous effort to find a property for the buyer; except that a buyer’s agent is not obligated to: (i) Seek additional properties to purchase while the buyer is a party to an existing contract to purchase; or (ii) show properties as to which there is no written agreement to pay compensation to the buyer’s agent.
(2)(a) The showing of property in which a buyer is interested to other prospective buyers by a buyer’s agent does not in and of itself breach the duty of loyalty to the buyer or create a conflict of interest.
(b) The representation of more than one buyer by different licensees affiliated with the same broker in competing transactions involving the same property does not in and of itself breach the duty of loyalty to the buyers or create a conflict of interest.
[1997 c 217 § 3; 1996 c 179 § 5.]
Notes:
Real estate agency pamphlet — 1997 c 217 §§ 1-6: See note following RCW 18.86.120.
Effective date — 1997 c 217 §§ 1-6 and 8: See note following RCW 18.86.020.
Ardell:
I appreciate the lengthy response, and you largely answered my question.
Keep in mind, I would be delighted if a realtor shared my goal of getting the client the best possible terms, in a loan product that was appropriate. Most of the time, those goals are in agreement.
However, inherently, each party to a complex transaction like a real estate purchase is likely to have a shared goal (that the transaction completes, once the bargain is struck), and differing goals.
I’m just trying to figure out the best way to reconcile the differing goals, and understanding the RE perspective and duties is one way to to accomplish that. Having RE’s understand and respect my perspective is helpful, too.
Many LO’s are intelligent, ethical, and independent minded, and prefer to be treated as professionals on an equitable basis. Doesn’t always happen that way.
And say what you will about Mr. Yun, he EARNS the money that NAR pays him. He pops up in industry articles almost as often as Bernanke!
Certainly, there is evidence that some people think it is a good time to buy in some areas. And the people I am dealing with on purchase transactions these days are quite smart, and also have more free cash than I do, which makes them even smarter than originally thought!
(If I’m So Darn Smart, Why Aren’t I Rich?….future blog title? 🙂
Have a great weekend!
Leann:
That will take a while to digest.
It seems to say that the RE has NO obligation to determine financial condition of the borrower, (or seller) unless otherwise agreed to.
I would agree that a good RE agent would go the extra mile in due diligence to protect their clients interests.
Thanks for the info!
# 71, ditto Roger! Happy weekend!
Thanks, Roger. It’s going to be interesting to see how fiduciary duties will play out for loan originators in WA State. Some of us all ready act as though we have them, putting our clients best interest first, well before the state legislation was passed.
Leanne,
Clearly you learned how to qualify buyers. In fact I just had to learn it again as part of my continuing education courses for license renewal. Why do you think we have to learn that?
Rhonda:
And some of us actively endorsed fiduciary duties for originators in WA state, until boneheaded legislation exempted the majority of mortgage broker industry from fiduciary duties, by providing incentives to be licensed under the CLA instead of the MBPA.
Go figger.
But the implication of this entire discussion, (admittedly off topic), is what is legally expected, professionally expected, and personally expected, in doing our jobs, for our clients.
I’m of the general opinion that anyone intelligent enough to consistently write and converse in the pages of RCG is already performing at the highest level of their respective professions, and in the best interest of their clients.
I would be very surprised to learn otherwise.
Roger, “Incentives to be licensed under CLA instead of MBPA?” What incentives? We (Mortgage Master) didn’t have a choice…just because we’ve been around long enough able to be a true correspondent lender, we are FORCED to be under CLA. It’s not a choice. I’m real ticked about it because I fully embraced MBPA.
If we had a choice, we would opt for MBPA instead of CLA. (Note: I probably shouldn’t speak for Mortgage Master…I’m not on the Board. It is my family’s (in laws) company…but I’m pretty sure they feel the same way).
Rhonda:
My use of the word incentives may be misunderstood in this context. We all get to make choices, and incentives drive that choice.
Mortgage Masters has a choice to be regulated under CLA or MBPA, or both. It just depends on how you want to do business, under the current regulatory structure. They are not forced to be under the CLA, only if they wish to continue their current business model.
MM could choose not to fund loans, and strictly broker them, and be under the MBPA. they could still be a correspondent lender, and table fund, and be regulated under MBPA.
The broker I work under is choosing to be regulated under CLA, because they think it in THEIR best interests.
I am choosing to stay where I am, while I see how the dust settles.
The changes in the law FORCES us to make choices.
Not saying I like it any better than you do.
Roger, per DFI our choice is CLA or both, not MBPA alone because we you are correct, we chose to be a correspondent lender (we are not a table funder) and not a broker. We have more control over transactions–since we have our own underwriters at our office, DFI and the State of WA has decided that makes us CLA.
If I had my personal choice, I would be MBPA instead of CLA. I really think our legistlatures screwed this one up royally.
I’m staying where I’m at too. It’s a great company, we’ve been around for 30 years…and it would make the holidays unbearable if I left the family shop! 😉
I also would prefer to be licensed under MBPA. Possibly for different reasons.
I am curious what the body count will be when it all gets settled.
Roger, I think there are going to be fewer and fewer LO’s regardless of our legislation.