Courtney Cooper broke the news on Easter. The Northwest MLS has voted to add a required field: “Third Party Approval Required” and “Bank/REO Owned.” From the NWMLS (no link):
“NWMLS is excited to announce two new required fields; “3rd Party Approval Required
Washington State Department of Financial Institutions has released an updated interpretive statement on loan modifications late this afternoon. People who perform loan modification services for Washington State homeowners must be licesed as a loan originator and under the supervision of a broker, or be working under a licensed consumer loan company. Attorney have a limited exemption and non-profit housing counseling agencies are also exempt. Real estate agents are not exempt.
Licensees that charge a fee for loan modification services in advance of the services being provided must obtain a signed fee agreement for loan modification services from the borrower. Any fees paid in advance of services provided must go into the company’s trust account prior to disbursement, or be submitted to an independent escrow or title company to be held until disbursed at the instruction of the parties consistent with the fee agreement. Licensees are prohibited from collecting fees via direct access to a borrower’s bank account or via use of the borrower’s credit card.
A loan modification normally begins with a hardship analysis which is an examination of the borrower’s current mortgage, income, expenses, and ability to repay. The hardship analysis includes meetings or conversations with the borrower(s) and a determination of the borrower’s eligibility for a modification based on the particular lender’s eligibility requirements or the eligibility requirements of a federal modification program. The hardship analysis, sometimes referred to as “Phase I services,
Dear Renter,
Youve been patient. Youve waited for the perfect time to buy a home. Well this is it. Home prices have bottomed out. Many experts see prices rebounding from current lows. The $8000 Federal Tax Credit is available for a limited time. The….. Buyers Rebate is yours when you use me as your Buyers Agent. And now Mortgages are at their lowest since 1971…Your patience has paid off!”
Seattlerenter asks if this is legal and ethical, specifically, using the phrase “home prices have bottomed out.” Since I do not practice law, I cannot answer the legal side. In this blog post, I will analyze the ethical question.
First we need to differentiate between real estate agents and Realtors. Everyone is an agent but only some are members of the National Assoc of Realtors. In order to solve any ethical dilemma, it’s important to first consult the minimum moral standard; the law. First we would consult the state agency law. Next we would look to other state laws that may answer the question such as consumer protection laws. After that, there may be a federal law that addresses the question. If we still have no answer, we would consult MLS rules. After that, we would check with our own company for policies and procedures and company ethical codes that address honesty and advertising. Perhaps we belong to a professional association. Then we would consult the ethics code of that association for guidance.
Real estate agents who belong to the Realtor association consult their Code. Here is the link to the NAR Code of Ethics.
As we see in Article 1, a duty of honesty is paramount when working with a client. But at this point, we are soliciting to obtain a client. We don’t have a client yet. Standard of Practice 1-3 says, “REALTORS®, in attempting to secure a listing, shall not deliberately mislead the owner as to market value.” In order for the marketing piece to be deceptive, the real estate agent must have known about the falling market in advance and intentionally choose to mislead potential home buyers and sellers. Since we can’t know the future, this article may not fit our situation. Article 2 says “REALTORS® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property.” If Realtors have facts that lead them to believe that now is NOT the bottom, then they might be in trouble here. For home sellers, that’s not going to be a problem (since selling NOW in a down market is better than waiting.) This would only be problematic for a buyer who was lead to believe through exaggeration, that we are at the bottom.
Here is what I’ve been waiting for. Article 12:
“REALTORS® shall be honest and truthful in their real estate communications and shall present a true picture in their advertising, marketing, and other representations.”
How would a Realtor put up a defense against an Article 12 ethics violation for sending out the above letter? Well, I suppose what he/she might do is to provide some sort of analytical proof with numbers, statistics, and graphs as to how he/she arrived at an affirmative realization that “now” is the bottom of the market. This Realtor may be able to defend against an ethics complaint by saying that he/she WAS being honest, based on the facts known at the time, and based on his/her analysis.
This leaves homebuyers to make their own decision as to if this particular Realtor’s personal opnion and analysis of the market can be verified by other third parties.
A prudent decision for a Realtor (who is going to embark on a bottom calling ad campaign) to do is to take his/her personal bottom calling statistics and analysis and have it reviewed by a neutral third party for accuracy. Similar to how we had our thesis papers reviewed by professors and then winced when they tore up our paper with obvious errors and made us do more research. We were better students because of those professors, even though we didn’t like doing the extra work, but I digress. Without neutral third party review, a bottom-call is just one person’s opinion.
If ever hauled in for a professional standards committee hearing, there would be ample documentation from a wide variety of local, state, regional, national, and international economists , Nobel Prize Winners, and other real estate industry experts who could provide solid opinions based on known facts as to if we were at the bottom on the day that marketing piece was mailed.
The third to the last step in any professional ethical dilemma is to consult one’s own set of values. What kind of a real estate agent/Realtor do I want to be? What behavior do I value in this world? For example, if I value honesty then I need to also be honest with other people, too. Careful reflection is important when considering all the possible consequences. Realtors value honesty, justice, beneficence and non-maleficence, responsibility, respect for persons, loyalty, and compassion. These values are hidden all throughout the Realtor Code. How does our marketing campaign support the values that we believe in?
The second to the last step is to make the decision.
The last step is to look back and reflect on what we did, how it turned out, and if we’d do anything different next time.
The person making the “bottom call” in the letter claims to have experts who agree with him/her. Who are these experts and where can the letter reader go to get more information? Perhaps the real estate agent who wrote the letter could provide that information in the letter.
At best, the letter brings to mind the viagra, porn, and loan mod spam in my spam bin, and I haven’t even touched the typos and the deception regarding the $8,000 tax credit.
If Realtors care about their ethics as much as they claim to, then Realtors should talk with each other about the possible consequences of calling bottom in marketing material and provide guidelines as to what research to use. It goes without saying that we would have benefitted from guidelines like this when we rode the real estate bubble on the way up.
Using the NAR’s economist as the only source would be a very, very bad decision.
A few weeks ago, a home buyer shared some pricing scenarios a fellow mortgage originator was offering to them.
Scenario 1 looks like the mortgage originator wants the borrower to believe they’re only making a half point in loan fees and the borrower is paying an additional 0.625% to buy down the rate further. How the borrower should look at this is that if they select Scenario 1, they are paying 1.125% to have 4.50% for a rate. (This was provided to me in mid-March and does not reflect current pricing).
On most current Good Faith Estimates have the following lines designated for “points”
In all my years (9 as of April Fools) of mortgage originating, I’ve never seen an estimate with 0.5% origination and 0.625% discount points. It just seems silly to me. This really illustrates why a consumer should just add up the points paid regardless of if they are entered as discount or origination–if you’ve paid either, you’re paying points. In fact, as I’m sure I’ve mentioned before (but it’s worth repeating) you should add up all closing costs disclosed in Section 800 of your Good Faith Estimate to see what you are paying for interest rate. Some lenders may have additional fees, such as processing, underwriting, funding…etc. Unfortunately, APR is not a fool proof way to compare interest rates.
While I’m dishing out advice, selecting a Mortgage Professional by interest rates–when we are currently receiving a new rate sheet ever 5 hours is crazy. Odds are, you’re not comparing apples to apples and rate quotes don’t mean anything unless you’re locking in at that moment.
In this current market, make sure:
I have been focused on what the big banks are doing to the mortgage broker industry because as someone who works for a correspondent lender, it’s closer to home. I am convinced that the big players are attempting to wipe out the mortgage broker industry while smearing it with mortgage meltdown blame so they can keep their hands clean. (If anyone can provide proof of a bank admitting they created mortgage programs and guidelines that were instrumental in creating our current climate, I’d appreciate it). I believe some major banks see this period in history as a grand opportunity to grab as much mortgage market-share by stepping on the little guy. And it appears they may be doing it to their own mortgage originators who are employed at home loan centers.
Over the weekend, The Seattle Times covered a local story about how a group of employees from JP Morgan Chase’s home loan center in Bellevue “made some mistakes” when they “jumped ship” for a mortgage company. What struck me, besides what it’s reported the employees did, was their reason for leaving:
“What prompted the mass migration. According to written statements from the lending officers, last fall it got increasingly difficult to complete the deals they lined up after Chase moved it’s loan processing from Bellevue to Tempe, Ariz. And in January they were told their work would be shifted into the bank’s branches….”
JP Morgan Chase has a much larger local presence with the acquisition of WaMU and their network of bank branches. Will Bank of America do the same with Countrywide’s home loan center loan originators? I’m assuming that loan originators located inside a bank branch are not compensated the same. Banks could employ people with less experience and originators who do not have their own client base…they’re counting on consumers to just walk on in and apply for a mortgage….just trust “the bank”.
I know that if I worked for a mortgage bank loan center, I’d bone up on my Teller skills.
The National Association of Realtors has announced a new community service outreach plan “Operation Home Rescue.” Realtor members will be opening their homes to families who have been displaced by foreclosure. Each NAR member will offer their basement, family room, third bedroom, and in the case of an already full house, their garage to families who may otherwise be homeless due to their own foreclosure. “We have a duty to help those less fortunate and in this case, some of these folks will likely be our past clients” said an NAR Spokesman. “We won’t be going out of our way to make their stay to terribly comfortable,” he said, “because these are our future homebuyers!” When asked about how a recent foreclosure effects a person’s ability to obtain a mortgage again, he said, “pretty soon, the lenders won’t have anyone else to lend money to, so they’ll have to take these homebuyers back again.” NAR representatives were not sure how the plan would work when the foreclosing homeowners are Realtors. “Frankly, I’d rather volunteer to take in their abandoned dogs or cats instead of taking in one of my competitors” said Sean Q., a real estate agent. Homeowners in foreclosure should contact the Realtor who sold them the home for more details.
In addition, a Realtor spokesman explained that a motion was made at the previous convention to add an article to the Realtor Code of Ethics which would have made it a Realtor’s ethical duty to make sure the homebuyer could actually afford the mortgage payments but the motion was defeated. “NAR is on record as being against banks getting in to the real estate business so we figured it was a good idea if we stay out of the banking business.”
NAR’s Operation Home Rescue outreach program provides a dual benefit of rescuing foreclosed families and then selling them another home which will help to clear out the inventory of homes for sale.
Yale Economist Robert Shiller of the Case Shiller Home Price Index will be speaking at Seattle Pacific University on Monday, April 27, 2009 at 1:00 PM. Details are on the SPU website; hat tip Tim Ellis. I missed Paul Krugman when he came to the UW a few months ago and I’ll miss this one, too. But Tim said he’d take notes for us and post them on Seattle Bubble. Thanks Tim. BTW, the latest Case Shiller reports are out and the analysis on the Seattle market can be found here which shows the Seattle area off 20% from our peak.
I’m not spending a whole lot of time wondering where the market “is” over the past few weeks, because any 40 day period when I am juggling issues from 5 different home inspections, suggests the market is clearly “picking up”.
One of the big differences between a buyer’s market and a seller’s market, is the amount of detail that is encountered in the home inspection process. In a hot seller’s market, the inspection phase was mostly about “pass or fail” and most often buyers were willing to overlook minor issues of minimal cost factor.
In a buyer’s market, every inspection item is of importance and concern. Often it’s not about “well, I don’t want the house unless…”. It’s more about having a better and full understanding of what you are buying, and what major or minor items need to be addressed by the seller, or even by the buyer after they own the home.
The picture above is a “water pressure reducing valve”. Pretty simple stuff, but the discussions back and forth when the inspector says “the psi is too high” can get very complex. While it is true that the municiple service supplying water will adjust psi that is outside of its designated “normal range”, they are often not talking about the same psi as the inspector.
The above water pressure reducing valve is placed to control the psi level at a particular home. The municipality may be, and will likely be, talking about the psi level of the pipe in the street supporting the flow to all of the nearby homes.
To complicate things even further, there are two water lines to the house in question, one of which services the internal fire sprinkler system. If you reduce the psi below 80 so that the pressure is not too high for smaller water tubes in your dishwasher or water purifier or refrigerator ice and water dispenser lines, you have to be careful not to reduce the psi for the fire sprinkler system.
When the house has an internal fire sprinkler system, there are usually two water lines coming into the house. One is for the domestic water, the other is for the sprinkler system. The psi levels needed for each are different.
While agents can’t be specialists in all things, we often are the line of communication back and forth, and back and forth, until the issue is understood enough by all parties to be resolved properly. When inspections go sideways, often it is a communication failure vs. an unwillingness for the buyer or seller to address the item.
In this case, I also had to find a Fire Sprinkler System specialist to come and inspect it separately, as a general inspector can only go so far with items that require specific vs. general expertise.
I’m not going to go into the specifics of what level the psi should be, as there are varying opinions. I do find this article to be generally correct, as I undertand the pros and cons of various levels affecting various portions of the home. I am hoping this post will bring comments from people who want to discuss this issue further amongst themselves, since it is a fairly common, and not well understood, aspect of a buyer’s home inspection.
From North Texas:
A Henderson County woman was today sentenced to 99 years in prison for her role in a mortgage fraud scheme. On Tuesday, a Navarro County jury found the defendant, Kandace Yancy Marriott, 52, of Gun Barrel City, guilty of engaging in organized criminal activity. According to prosecutors, evidence presented at the punishment stage showed Marriott received monthly mortgage payments from her clients, failed to remit those payments to the mortgage lender, embezzled the homeowners’ funds, and therefore caused her clients to default on their home loans. Marriott’s conviction stems from her involvement in a complex mortgage fraud scheme that defrauded the federal government. The scheme’s principal operators were the defendant and her husband, Darrell L. Marriott, 54, who sold manufactured homes through their company, One Way Home & Land. However, the defendants’ daughter, Kally Marriott, and Kandace Marriott’s sister, Karen Hayes, have also been indicted for their role in the scheme. All four defendants face separate charges for related criminal conduct in Kaufman County.
According to state investigators, the defendants illegally forged home buyers’ signatures, inaccurately completed loan applications, and falsified supporting documents, including the buyers’ rent payment verification statements, proof of employment, and Social Security Administration benefits data, among other items. Court documents filed by the state indicate that the defendants conduct was intended to ensure that unqualified home buyers loans were approved by mortgage lenders. The scheme involved predominantly low-income purchasers whose residential loans were guaranteed by the U.S. Department of Housing and Urban Development. As a result, when the unqualified buyers defaulted on their home loans, their mortgage lenders did not suffer financial losses. Instead, HUD – and therefore the taxpayers – had to cover the default costs. Investigators believe the defendants’ scheme cost the taxpayers more than $3 million.
Is 99 years too tough? Some argue about the unfairness of the folks from Enron receiving a lighter sentence for stealing billions while this mom gets 99 years for stealing 3 million. Well, some of those Enron defendants decided to become a witness against others in order to receive a lighter sentence. But we can’t quite compare Mortgage Fraud Mom with Andrew Fastow because I believe a person cannot testify against a relative. Perhaps the horrifying lesson is to always commit fraud with a non-relative.
There will be no public sympathy for what this family has done as long as the economy resembles a slow moving train wreck. It may take years for some humans to ever begin to trust mortgage lenders (banker, broker, or consumer loan company) again.
This is just one case of a mortgage fraud family. How many more are out there that we haven’t even begun to prosecute or may never find?
On the bright side, perhaps she will still be able to see her sister and daughter when they join her in the same prison.
Even better, maybe 99 year sentences would have the effect of actually deterring mortgage fraud. The existing set of consequences were clearly not enough.
I have a crush on Dr. Paul Krugman, Professor of Economics at Princeton. He recently received the Nobel Prize in Economics for his new theory on trade patterns and location of economic activity. Dr. Krugman is also an author and editor of about 20 books. My new copy of The Return of Depression Economics and the Crisis of 2008 just arrived. Sigh. I’m not the only reading his blog in the New York Times telling us what to do to avoid the next Depression. Now the media has caught up with Dr. Krugman and I can watch countless videos on youtube. Yes, yes, I know he’s married. That’s what makes it such a safe crush: Because it will never happen. It’s like having a crush on Bono or CR.
I wait patiently each day to read such lines as “What we’re looking at now are the consequences of a world gone Madoff.