Category Archives: Industry Talk

FTC Considers Total Ban on Upfront Loan Modification Fees

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It’s about time.  I’ve been saying this is going to turn into a national crisis for a year now.  From the AP

The head of the Federal Trade Commission said Thursday the agency is considering banning upfront payments to companies that advertise help for borrowers who are in trouble on their home loans.

Government officials say scammers seeking to take advantage of borrowers in danger of default often charge upfront fees of $1,000 to $3,000 for help with loan modifications that rarely, if ever, pay off.

“If you are concerned about keeping your home, avoid any company that asks you for a large fee in advance. That is a real red flag,” said Jon Leibowitz, chairman of the FTC. Such upfront fees are already prohibited in 20 states.

Let’s ban all up front fees unless the service provider is a member of a State Bar Association. Attorney-backed loan mod firms charging upfront fees are not a good option either. That set up is typically a subprime salesperson boiler room. The California investigation found that with attorney-backed loan mod firms, never once did an actual attorney touch the file.  Read more about the loan mod mess in California here.

Third party loan mod salesmen should only be allowed to collect a fee once the loan modification is not only performed but also after the homeowner has made a specific number of on time payments.  This will rid the system of the Devil’s Rejects subprime LOs who act like they just walked off the set of a Rob Zombie movie and can only smell money. Let’s leave the real work to the people who can help homeowners figure out if they can actually afford to stay in the home or if they are better off selling. 

It seems there will always be a certain percentage of people who will believe anything and an equal percentage of people willing to prey on them.  But with a person’s home, the stakes are higher than an acai berry total body cleanse.

I predict that we will have the usual suspects crying that the FTCs actions will only raise the cost of hiring a third party loan mod company.  I call BS on that argument because homeowners have always been able to receive a loan mod for free by working directly with their lender, or receiving free help from a non-profit housing counseling agency or by seeking out free legal aid from their state’s Bar Association.

It’s September 17, 2009 and I still originate mortgage loans…

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For those of us to whom this statement applies there are a few obvious questions that immediately come to mind:  Why am I still working in this God-forsaken wasteland of an industry?

  • A) Nobody else is hiring in this booming economy,
  • B) I wanted to move to Nome Alaska but I couldn’t trade my upside down mortgage for a thatched roof yurt and a dog sled, or
  • C) The positive image of my career as portrayed by CNN makes me feel like a rock star.

Seriously, for the love of God Why!?

2009wampconnectIn all seriousness those of us that remain are not that different than survivors of a natural disaster. The clouds dissipate; the water level recedes and her we are – the survivors of the storm.  Not unlike the analogy the first thing that a ‘survivor’ must do is identify the resources that one needs to rebuild and restore one’s life. It is with this in mind that I invite you to WAMP’s Connect event coming up in Bellevue on October 5th and 6th

The Connect event offers each of us the opportunity to come together and meet all of the other survivors face to face. We’ll be able to reflect on what ‘once was’ and still more importantly the ‘what is’. As is the case in any disaster, the landscape we live in professionally is dramatically different than where we’ve been. The resources are certainly more limited – remember the days of quoting ‘hundreds of lenders and programs’? Now it’s more like ‘five lenders and programs’ – and we’re all using the same five!

Fewer programs and tougher guidelines are the realities of the aftershock and yet another reason to learn what others are doing to be more efficient and succeed in this new landscape. The Connect Event also offers the knowledge of how to seed your landscape for tomorrow. New technologies and lead sources like the Zillow Mortgage Marketplace, social network marketing (can you tweet for dough?), and the brace of brave new lenders that have sprung up alongside the resilient and steady familiar faces; they’ll all be represented at the Connect Event. The Connect Event will be nothing short of a meeting of survivors learning how to forge their professional landscapes for tomorrow – so don’t miss out!

There are very few lifeboats in this economy. There have been far more casualties than survivors. Come and be counted among the living. Come to Connect and learn how to forge a better tomorrow for yourself and for the industry you work in. Face it – If we don’t see you at Connect we’re going to suspect that you traded the house for the dog sled and the yurt – Don’t be ‘gone missing’

What is NOT included in the home inspection?

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The other day I presented a request to the seller’s agent after a home inspection. The agent said “My home inspector never includes the deficiencies of outbuildings”  It reminded me that many home buyers rely on the home inspection, and yet there are many “area norms” that dictate what home inspectors do and do not do. All home inspectors are not the same, and cost of inspection should not be the main criteria when selecting a home inspector. The cost difference from one to another is often within $100…but the manner in which they inspect a home varies greatly.

Common sense does apply, to some degree. Most often the cost of the inspection is determined by the square footage of “the home”. One would think this might be a signal that an inspector who prices on that basis is looking ONLY at “the home”. Often that is appropriate, but sometimes it is not.

There is no hard and fast rule here. A good rule of thumb is “is it an item that adds or decreases value in an appraisal?” A fenced property most often will not appraise higher than a similar home without a fence. A small shed will not likely be noted in an appraisal. But the property in question for me the other day included a HUGE shop building with a roof, heater and electricity. I haven’t seen the appraisal yet, but seems to me that “the outbuiding” in this case was appropriately inspected as to deficiencies. In fact, there have been a couple of times over the last 20 years when my buyer client bought a property where “the outbuilding” was equally important to the decision to purchase as the home itself…sometimes moreso.

My personal opinion is that we should look at the inspection process from the standpoint of future buyer cost, vs. components in and of themselves. What every home buyer wants to and needs to know, is how much might it cost them to maintain this property after they become the owner of “it”. A new fence costs a lot more than a polarized socket or a GFCI, many thousands more. Yet most every home inspection will ignore a rotted fence and include a $15 GFCI.

This is a large topic, and I am on vacation in Florida at the moment, so we will revisit it from time to time. My hope in writing this post is to convey to home buyers that merely relying on “a system in place” to protect you, is just not appropriate. The system values “what you are buying” differently than you, as you should be looking at what costs you may have overall…because the system in place does not do that. There are many large cost items that are not included in the inspection or the seller disclosure.

All too often a buyer chooses a home based on interior features and then relies on the system to do the rest. Rarely does a buyer do a thorough inspection of the home and property (as much as they can) before making an offer. There are two remedies to this problem:

1) We can improve the system to incorporate all that a homebuyer really needs from it

2) Buyers should conduct a thorough inspection themselves either before they make an offer or during the home inspection timeframe (in addition to the home inspection).

Waiting for #1 to happen in the timeframe you need it to, is not likely going to service your immediate needs as well as performing both inspections via #2. Since a buyer is not as well versed on what a home inspector will be looking at, Kim and I often help the buyer look at those things that the inspector will not, prior to offer and continually through “the due diligence timeframe”. It is also possible to expand the scope of the inspection to include things normally not included, but to do that you need to know what is included and what is NOT included…before the home inspection and home inspection timeframe is over.

The system does protect you to a large degree, but area norms and customs limit your protections (vs. contract provisions) and you should be aware of which inspectors will only perform the minimum required, and which will go the extra mile.

Are you going? REBarCampSeattle and more…

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logoThere are a ton of great Seattle real estate events in the near future with RCG contributors playing a huge part, so last week I asked RCG contributors to let me know which events they were going to be participating in and I thought I’d give a quick summary…

REBarCamp Seattle, 9/8 (tomorrow!):

  • A gathering of passionate real estate professionals. A casual, open, and fun way to learn about cutting edge real estate marketing ideas.
  • RCG Contributors attending include: Rhonda Porter, Ardell DellaLoggia, Galen Ward, and Cortney Cooper

SCKAR Event, 9/22:

  • How how to use Social Media panel discussion with Rhona Porter, David Gibbons and Matt Heinz.  Moderated by Claudia Wicks.

Lenders Connect (WAMP), 10/5:

  • 18th Annual wholesale lenders conference
  • Rhona Porter, Jillayne Schlicke (speaker)

REbarcamp Bellevue, 10/6:

  • Rhonda Porter (organizer!), Ardell DellaLoggia

Washington State Association of Realtors Convention, 10/12 & 10/13:

  • Jillayne Schlicke (speaker)

Also, if you check out the event conversation on FB, you’ll see that there’s also a variety of courses being taught by RCG contributors in the near future!

And If you’re gonna be at any of these events, let us know to look out for you!

Is that an Open House or a Flea Market?

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A couple of weeks ago  a friend of ours called howling about an Open House she popped into in Kirkland.  It was a new construction condo.

When she walked in the condo was packed with “vendors” hawking their wares, including an “Avon Lady” blocking the doors to the balcony.

The people there, who actually came to see the condo, were all hiding in the bedroom from people trying to sell them lipstick.

When she stopped by, I had her lay out her lipstick samples and various leaflets handed to her by the people inside. Not ONE was about the condo for sale.

Have a great holiday weekend everyone! Maybe you can pop by an Open House and grab a new shade of lipstick.

Open House

Zillow and the SeattlePI Partner-up for Property Searches

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Zillow and SeattlePI business partnership

As is being widely announced in the news this morning, Zillow.com and the SeattlePI.com websites have partnered to offer co-branded website property searches. Ironically as of 8am you can find this story on Reuters, Inman News, and of course Twitter and Facebook. But Ironically it is still missing from the Homepage of SeattlePI.com.

The website will also offer Zillow’s other features such as home values, “just sold” data, local market data, etc.  As well as their custom real estate community content via Zillow Advice and mortgage rates from their Mortgage Marketplace function.

This raises some interesting issues for other companies, organizations, brokerages, and agents who  have property search functionality built into their blogs and websites in order to drive traffic to their sites, and ultimately derive business from it. Rain City Guide is a great example of a website that has recently added property search functionality through M Realty in hopes of garnering more viewers, and potentially a revenue stream as well. Many agents, including myself, have spent years developing websites that we use to attract potential buyers and sellers. Is Zillow now officially our competition?

Strategically this makes a lot of sense for both companies as the SeattlePI is struggling to re-create it’s business model after shutting down it’s printed newspaper version in March. And Zillow has recently been monetizing their searches through selling advertising to agent’s by zip codes.

I wonder what RCG’s readers and contributers think of this turn of events. It’s definately a “game changer”. The question is, what’s the new game going be like, and who’s going to get to play?

Where is the King County Housing Market Going?

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The graph below shows us how easy it was to spot that the market was going sideways in 2006 and 2007. How credible was it that almost double the amount of people could afford a house for more than $400,000 in 2006 and 2007, than in 2005 and the years prior?

kc400 

I say we can expect the 3,921 homes sold for over $400,000 to increase to about 6,500. That will be the sign that the market has “recovered”. Recovery will be about volume recovering…not prices. If you remove 2006 and 2007 numbers from the chart below, and replace 3,921 with 6,500, that would be a natural progression.

These stats are from 1/1 to 8/15 for the years 2001 through 2009. Earlier today I was looking at the change in the number of homes sold for less than $400,000. In 2001 that segment represented 82% of homes sold. Affordability reduced by 50% by 2007 when only 40% of homes sold, sold for less than $400,000. We are now back up to 50% with more homes sold for $400,000 or less this year than last year.

So where is the market going? If 11,500 people could afford homes priced at $400,000 or less back in 2001 and 2002, it’s safe to assume at least that many people can afford to buy them now.

So recovery will look like 6,500 selling for more than $400,000 and 13,500 or so selling for under $400,000. Again, these numbers are for the period 1/1 to 8/15 to coincide with the numbers we have for the current year. These numbers also tell us that the housing credit went a long way toward bolstering the lower end of the market. Even though volume of sales is down from 10,458 last year to 8.686 this year, homes sold for less than $400,000 increased from 4,292 to 4,765.

I don’t think prices will go up and I don’t think the recovery will happen in terms of home prices. Recovery will be volume based, with over $400,000 improving by 60% to 65% and the under $400,000 market improving by nearly 3X what it is right now.

Required Disclosure: Stats are not posted, compiled or verified by The Northwest Multiple Listing Service.

The Fed’s new GFE Helping to Insure Consumers Get ‘It’?

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[Editor’s Note: I’m excited to publish this guest post from Adam Stein on changing role of good faith estimates. He’s a long-time local mortgage professional with Cascade Pacific Mortgage. ]

ftc screengrabThe FTC study reported on the proposed new Good Faith Estimates early on in 2005. Armed with a very thorough and unbiased study the FTC went on record, early and often, and clearly stated the FTC’s position on (then) HUD’s proposed revised Good Faith Estimate:’ DON’T DO IT!’ It seems the FTC’s findings clearly showed that consumers failed to be able to choose what loan was in their best interest when comparing rates and fees. [here’s the FTC’s Facts for Consumers: Looking for the Best Mortgage: Shop, Compare, Negotiate] So much was the confusion caused by the new Good Faith Estimate that over sixty percent of the consumers could not identify the best loan for them when comparing Good Faith Estimates generated by mortgage brokers and mortgage bankers. HUD, not to be outdone, quickly came to their own rescue with their own ‘not-so-unbiased’ study. HUD, supporting their own, quickly produced a study stating that the consumer really does understand the new disclosure (Really?).

And so the battle over RESPA reform has been waged for the better part of the last ten years. At one point the Secretary of HUD attempted to ‘slip RESPA reform under the mat’ by submitting the proposed rule just hours before Congress went on recess. Those who would have been impacted by the rule change clearly and accurately viewed this effort as ‘under handed’ as much of the required ‘commentary period’ passed by without any representative government in session to discuss the proposed RESPA reform. That effort failed in the end. The banking special interests, however, have finally figured out how to get a Good Faith Estimate through the rule making process under the guise of ‘what you can’t buy in an administration you’ll just have to do yourself’. Enter the Federal Reserve Board.

While the FRB sounds like a branch of the Federal Government it really isn’t. The Federal Reserve is a codified, private sector, coalition of the nation’s largest banks and finance companies who collaborate and advise government on key financial issues. The Federal Reserve Board also is empowered to regulate the Truth-in-Lending Act (TILA) and promulgate rules as required. Is it any wonder that the new Good Faith Estimate, vilified by the FTC for creating consumer confusion, creates a bias towards Good Faith Estimates that are generated by banks over those prepared by mortgage brokers?

My concerns are twofold: if the consumer can’t properly identify the best loan they will pay more; if mortgage brokers appear less competitive due to the disclosure of indirect compensation the mortgage broker channel will be reduced if not eliminated.

Mortgage brokers were initially the scapegoats of the ‘mortgage meltdown’. More recently, however, the broader aspects of derivatives and the role played by Wall Street and the nation’s largest investment banks have come to light. I find it ironic that now, after the creators of toxic assets have been exposed, that the FRB will promulgate rules that make their disclosures deceivingly more appealing to consumers. In the end the rule will hasten the consolidation that is already occurring in this battered real estate economy. There will be fewer choices for the consumer to choose from, moreover; when the consumers do choose their mortgage over sixty percent will choose higher rates and fees thanks to the new disclosures. Way to go FRB – You have successfully reduced, if not eliminated, competition in the mortgage marketplace and virtually guaranteed the mortgage shopping consumer will get it ‘in the end’.

FHA Suspends Taylor, Bean & Whitaker

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I feel like I’m one of the few mortgage originators who have never worked with mortgage giant TBW…many mortgage brokers and lenders do.   FHA’s Press release states:

“TBW is the third largest direct endorsement lender of FHA-insured loans and the eighth largest issuer of Ginnie Mae mortgage-backed securities.”

They are a significant mortgage company and this will impact those brokers and lenders who rely on TBW for FHA financing.   This suspension is temporary “pending the completion of an investigation by HUD’s Office of Inspector General, an ongoing review by the Department’s Office of Housing, and any legal proceedings that may ensue.”

From HUD’s News Release today:

FHA and Ginnie Mae are imposing these actions because TBW failed to submit a required annual financial report and misrepresented that there were no unresolved issues with its independent auditor even though the auditor ceased its financial examination after discovering certain irregular transactions that raised concerns of fraud. FHA’s suspension is also based on TBW’s failure to disclose, and its false certifications concealing, that it was the subject of two examinations into its business practices in the past year.

“Today, we suspend one company but there is a very clear message that should be heard throughout the FHA lending world – operate within our standards or we won’t do business with you,” said HUD Secretary Shaun Donovan.

TBW has the right to appeal, however HUD is not delaying their actions.  In addition, HUD debarment of two top executives at TBW. 

This must be leaving many borrowers and mortgage brokers scrambling for other sources to send their FHA transactions in process. 

Big Brokerages – how do they really work, and what’s changing?

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We started getting into this a bit on my Disappointment Index post, but I think its worth a post and thread of its own. David Losh’s comment “Every Brokerage wants you to do it yourself so they can get rid of all the dead wood they have hanging around in the office. Real Estate is a numbers game. The more agents, the more money. With an online Brokerage all you need is a technical support staff” kind of triggered my decision. Read his whole comment; there is some interesting insight in there.

Is the business really changing? And do the different generations – Boomers, Gen X, Gen Y have different preferences that would favor one business model over another?

In 2006 we had a lot of discussion about new business models and the rise of the Internet, including an MIT Enterprise Forum program on the topic, and a post here on RCG by Robert Gray Smith. So now it is three years later, Redfin has declared its first profit (congratulations, Glenn), we are no longer in a bull market for real estate, transaction volumes are way down, and everybody is three years older and wiser 🙂 Has anything really changed in the real estate business? The core of the business is still appears to be the big traditional brokerages – RE/MAX, Coldwell Banker, Windermere and John L. Scott – some are national, some are regional; some offices are franchises, some are company owned. Some people will want to add others to the list, from Skyline to Realty Executives to …

My view of the big brokerages (I happen to be affiliated with RE/MAX, and formerly with John L. Scott) is they fundamentally are not in the real estate business; they are in the real estate services business. Their client is not the buyer or seller, it is their affiliated real estate agents. As a residential real estate agent in the state of Washington, I am licensed to facilitate the buying and selling of residential and condominium homes, under the direction of a licensed broker. In the traditional model, I am not an employee of that broker, I am a sub-licensee and an independent business person. My activities are not directed by the broker, I do not get benefits, and my earnings show up on a 1099.

For the privilege of being affiliated with that broker (i.e. sub-licensed, or ‘hanging my license’ there) I pay a fee – actually lots of fees. There are transaction fees and E&O fees and B&O fees and legal reserve fees and desk fees and non-desk fees and membership fees and advertising fees and website fees and commission splits. In general the big brokerages expect to collect about $20,000 to $25,000 per year from each agent; that is how they make their money. So I am their real client, and they are in the business of selling me real estate services. They certainly want me to be successful, and able to pay their fees. They will claim that being affiliated with their brand will help me attract more business, and they spend big money on institutional advertising, particularly their website. It is not clear how much of the advertising effort is aimed at attracting buyers and sellers to their agents, vs how much is aimed at attracting agents to their brand and fee services – the more agents, the more fee revenue for the broker, almost regardless of sales volume. They often say I will get a share of the institutional leads they get from their web site – but in practice for me, so far, no value. In fact, I have to do my own business development and establish my own reputation with things like newletters, seminars and blogs (and taking good care of my clients), and I have had to build my own web site to get what I consider to be a credible web presence. I am for all intents and purposes an independent business person who contracts for certain support services. The traditional model.

An alternate model is for the broker to hire the agents as employees. Then they are W-2 employees, probably get benefits, the company probably generates most of the leads – for example with a good website and some buyer/seller incentive programs, the agents probably do more transactions, and probably get a lower percentage of each transaction commission in exchange for the lead flow. But those agents will show higher in the transaction rankings, because they are basically on an assembly line instead of spending a lot of time doing their own marketing and business development. I think this is basically the Redfin model, but happy to have someone who knows it better chime in.

A third model that was tried by Redfin initially in 2006 was a model of generating the leads through the website, referring them out to a set of selected agents (sub-licensed to other brokers), and collecting a substantial referral fee if that agent was able to convert the lead into a transaction. During this time I was Redfin’s lead referral agent for the Eastside. That model did not generate enough revenue to support the Redfin business model, and it was abandoned in favor of the agent emplyee model above in mid-2007. During that period I served some wonderful clients who came to me from Redfin, and I am still in touch with them, but I agree that the “wanna see a house? – we’ll get an agent to show it to you” model didn’t have a very high success rate for either the referral agents or Redfin.

So how much do we really think the business is changing? Do we think the big brokerages would really like to migrate to the Redfin model? There is an implication that the Redfin model is a short-term relationship transaction model and that the traditional brokerage model is a personal referral and longer-term relationship model. Which model to consumers prefer? And does it vary by generations?

This seems worth exploring.