Selling Poinciana One Property at a Time.: The subprime mantra, "Easy in.....easy out"

The subprime mantra, "Easy in.....easy out"

Hi folks. This post was inspired by Lenn Harley's excellent featured post "CALIFORNIA SUBPRIME BORROWERS MAY GET RELIEF? - More Questions than Answers. If you haven't read Lenn's post, you need to. Make sure to read all the comments as well. She has a great discussion going on over there.

Anyway, I had left a long winded comment on Lenn's post pointing out a few of the different types of Sellers I speak with on a daily basis and what they have done to create their problems. One of the things I pointed out was that Sellers in my area are just walking away from their properties instead of staying and fighting to keep them. Their properties are worth quite a bit less than what they owe on them and since they have no equity left there is no reason to stay.

Lenn wrote this in response to my comment: "There is, indeed, good incentive to make the payments - their good credit".

Lenn's response brings me to the reason for this post. In my opinion, Lenn's statement "nails" where the Lenders made their mistake. If Lenders had been dealing with folks that had proven their good intentions, by paying their bills on time, homeowners in default would indeed have, "......good incentive to make the payments - their good credit".

Unfortunately, a buyer with a 550 credit score, purchasing a home with no money down does not have the incentive necessary to secure the Lender's investments. The Lenders were basing their investment on one thing and one thing only, rapidly increasing property values.

Lenders knew, without a doubt, that these loans would default. They also knew they could make billions of dollars by writing these loans and selling them off on the securities market (mortgage back securities MBS). They also figured that when these sub-prime borrowers got into trouble they would be able to refinance them(starting the MBS process all over again) making more money. The sub-prime borrower would have an incentive to stay because they would have equity in their property.

The mistake, the Lenders made, was in thinking that values would continue to increase. A homeowner, who has already proven that they do not pay their bills on time (sub-prime borrower) is NOT going to stay and fight. They will and are walking away from the financial noose around their neck. They have NOTHING to lose. Their credit already sucks and there is no equity to try and save. Why try to keep their home by working out a loan modification? A loan modification would not change the fact that they are paying way too much for a property that has lost value. Why pay $1,800 a month when they can rent the identical house down the street for $800? To save their credit? Nope. To honor their obligations? Nope. If they believed in "honoring their obligations" their credit score wouldn't be 550.

The mantra, at least in my area, for owners in default is "Easy in....easy out!"

This post is one of the reasons why I feel "Big Gov" needs to stay out of this mess and let the market run it's course. It won't be easy and it won't be quick. But, just maybe, our new mantra will be "No pain....no gain".

This post is 100% my opinion. What's yours?

Here are a couple of links to related posts I had written earlier this year.

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Comment balloon 72 commentsBryant Tutas • November 23 2007 01:04PM

Comments

Reserved Parking For "The Lovely Wife"...TLW...ROAR!

Blog Boy...

You, of all people, know we live in a world where pain is avoided at all costs.

Honestly...I think the human race is doing a melt down :)

P.S. Three blind mice...See how they Run...La La La :)

TLW...ROAR!

Posted by "The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW. (President-Tutas Towne Realty, Inc.) almost 12 years ago
Broker Bryant:

You are 100% correct IMO.  Lenders knew they could sell it off and that there was HUGE risk of default.  What did they care...the note was sold.  

How many agents out there have told buyers NOT to buy a home because it would be too much of a burden on them and based on their track record...something they wouldn't be able to pay for.

We as agents have a DEBT OF HONOR (Sorry Tom Clancy) to the overall economy of our country too.
Posted by Jessica Horton Jessica Horton Realty, Jessica Horton: I'm not #1... You Are! (Jessica Horton - Jessica Horton & Associates) almost 12 years ago

BB : There is another factor here that I believe will come into play.

  • America The Land of Forgiveness

When I look back at the good old USA over the last 30 years I see things that were unheard of the previous 3o years. The forgiveness factor as invaded us. If you faltered years ago you were made to pick yourself up and go on the best you could, if you could.

Today if you falter your are often forgiven and allowed to continue down the road. If you falter as a Group ( subprime debacle inluded ), so much the better. In today's culture the entire group becomes a victim and nobody will be required to take personal responsibility for their actions. Indeed the lure of that big money will resurface and before we know it those sketchy loans willl be back in one form or another.

At least that is my belief .

 

cranberry

Posted by Herb Hamilton, Real Estate Broker ,CDPE, Downtown Portland (RE/MAX Preferred Inc. Realtors) almost 12 years ago

Happy Thanksgiving you two, first and foremost.  Now to the post.

I believe in a caveat, and that is for the people who were clearly, in writing, snookered. I mean, the average person can be snookered by inflated appraised values and fraud about what their payments are going to be after an ARM comes due. So, I think the true fraud cases can get non profit or govt relief.

I also like the idea the actual lenders being willing to renegotiate. Maybe some govt incentive for them could exist to keep encouraging this.

But the bottom line is, all of us as consumers need to take charge of our financials, not dream in some fuzzy haze or hope things work out. For those of us in that category, I say unfortunately no intervention unless your lender takes pity on y ou.  Which is not usually likely.

Posted by Carole Cohen, Realtor, ePRO (Howard Hanna Cleveland City Office) almost 12 years ago
Bryant - I got to agree with you here to a large extent, I believe that mentality (easy in-easy out) was shared by Lenders & Comsumers.  I'll have to check out Lenn's post, I'm sure it's going to be an interesting read.
Posted by Jason Sardi, Your Agent for Life (Auto & Home & Life Insurance throughout North Carolina) almost 12 years ago

"Big Gov" needs to stay out of this mess and let the market run it's course.

You said it, I agree 100%. The mortgage brokers knew it would be sold. I have told 3 clients in 2007 to wait. Did they listen, NO, they found a lender and bought, one is already in foreclosure, one called Wed and wants to sell, (in 6 months) and one is doing fine.

Posted by Missy Caulk, Savvy Realtor - Ann Arbor Real Estate (Missy Caulk TEAM) almost 12 years ago
BB - I agree. When lenders lent the money knowing full well people would default they knew they would have a tremendous amount of wealth on their hands in the resale business.
Posted by Linda Scanlan (A Fan of AR) almost 12 years ago
Good point. "Easy in, easy out". That makes perfect sense.
Posted by Lisa Hill, Daytona Beach Real Estate (Florida Property Experts) almost 12 years ago
The market needs to run it's course...is my opinion....and there isn't a darn thing that's going to make it all better quick. It's like slapping a band aid on a cut that clearly needs stitches. 
Posted by Celeste "SALLY" Cheeseman, (RA) AHWD CRS ePRO OAHU HAWAII REAL ESTATE (Liberty Homes) almost 12 years ago
Great post Bryant.  Very insighful. 
Posted by Dan Hartman (Province Mortgage Associates - NMLS #2861) almost 12 years ago

BB. Your reasoning holds true, in my opinion. Let's not forget that many of these lenders were grabbing market share without any inkling to the future consequence.

I remember the case study of buggy whip manufacturers around the time Ford introduced his Model T. No urban need for horses? No need for buggy whips. The last buggy whip manufacturer had obviously gathered 90% of the market share. They still went under.

For many lenders the incessant competitive drive to write loans first has triggered a woeful self-fulfilling prophecy. Those loans are too "heavy" on their capital. The risk -- in hindsight -- far outweighed the reward. Great post.

Posted by Blogger To Be Named Later almost 12 years ago
I just answered Lenn's post on this and agree wholeheartedly.  Let this run its course.  If on an individual basis the lenders want to help homeowners and the lenders have the resources then they should do it.  But from a federal or even state standpoint hands off.  We're just going to prolong the recovery or perhaps deep six it all together.
Posted by Anonymous almost 12 years ago
Good grief I just noticed that I wasn't logged in above.  Sorry for the blank space (or was that Freudian perhaps that the fixes they are throwing about are really just a big hole with no substance?  Nah.)
Posted by Josette Skilling (Keller Williams Capital Properties) almost 12 years ago
I disagree... Here in Florida we do need some assistance of some kind. Loan defaults are a major hit to our area. It seems every third house on the market is a pre-foreclosure. Help would be welcomed.
Posted by Mark Horan, "The Resident Chef" - Resident Team Realty LLC & (Resident Team Realty, LLC & Toni's Property Management LLC) almost 12 years ago

I AGREE!!!  AND I'M SHOUTING.  There are exceptions but in general big gov't needs to butt out.  We aren't a socialist country - yet.

Posted by Linda Davis (RE/MAX Home Team) almost 12 years ago

Andrew, "The risk far--in hindsight-- outweighed the reward" unless of course you were the CEO. The irony is the Lenders are also "walking away". They too could buckle down and fight through this but it makes more sense to file for bankruptcy.

Hi Dan, Thanks for stopping by.

WooHoo, I agree. Best we take out knocks now and learn from all of this. "No pain....no gain"

Hi Lisa, Good to see ya. I hope you had a great day yesterday.

Linda, Might be a good time for CK to open up a real estate brokerage. They are certainly going to have tons of inventory.

Missy, I guess two out of three ain't bad:) People are going to do what they want to do whether we help them or not. I'm soooo happy I don't work with buyers. 

Hey Jason, Lenn's post is far better than this one so go check it out. Lenn knows her stuff.

Carole, Happy belated Thanksgiving to you to. I agree there are folks that truly were taken advantage of and maybe some kind of help would benefit them. The problem is figuring out who these people are.

Herb, That is an excellent point. You should write a post and expand upon that thought. It is so true. I own properties right now that I can't rent and I can't sell. It would make financial sense for me to walk away. But I won't. I value my 700+ credit score and I honor my obligations. It's my problem and I will deal with it. I am nobody's victim even if I could hide in the comfort of a group. Responsibility is what's missing today.

Hi Jessica, "Debt Of Honor" I like that.

Hey Hun, "The human race is doing a meltdown" I like that too:)

Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) almost 12 years ago

I recently had a client that we worked with throughout his bankruptcy.  He walked away from 1.5 million in deficiencies on his investment properties, kept about $40,000 in rental income from a period when he wasn't paying his lenders and, on the last day of our contract, asked my to be on the lookout for something else he could buy.  He worked the system.

This whole thing make me want to miss a couple of payments and renegotiate my loans on the rentals that have gone down in value.  Why shouldn't we all get a break?  I'm a consumer.  I was duped by the loan officer.  The system should work for me too.

Posted by Rich Kruse (Gryphon USA, Ltd.) almost 12 years ago

Linda, I HEAR YA!!!! And I agree:)

Mark, My market area is Poinciana. So believe me I can relate to the foreclosures. However, Big Gov will not fix it. They will make it worse. They may be able to prolong it but paying the price for these last few years is inevitable. The quicker we pay the faster we can move forward.

Josette, I agree. I think the lenders could very well help if they were so inclined to do so. But it's so much easier to file bankruptcy and then just restructure. 

Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) almost 12 years ago
Rich, Ain't that something!! Why don't we do it? Because we have morals my friend.
Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) almost 12 years ago

BB,

False information...if you can't pay your $50 cell phone on time then how in the world can you own a home?

Posted by Neal Bloom, Realtor CRS-Weston FL Real Estate (Brokered by eXp Realty LLC) almost 12 years ago
Generally I agree with your post but how about the good honest steady eddy people who
HAVE been paying their mortgages on time but now when the resets take place, their rate may jump 3 points.  With the current real estate mess in this country, now this group stands to get caught in the middle. 
Posted by Diane Bell, Hilton Head Real Estate, Bluffton (Charter 1 Real Estate, Hilton Head, Bluffton, SC) almost 12 years ago

Bryant- It was also the investors on Wall street hounding the lenders, for more, more, more, subprime deals to buy. They were living the high life. If the lenders had to hold the notes themselves they never would have approved half those deals. I must say that in our area it is also hurting people with very good credit. I have a lady right now, credit score, 780 and is going to have to do a short sale, she wants to keep her house, but lost her business and can not longer make the payments. She was crying because she has always been honorable and does not want to ruin her good credit. But she owes 600K on a house that you can't give away at $350K! 

For me, thank God for subprime. I had to get one and I have a post about my personal story about it. My credit was ruined 540 from a divorce and my X making sure he ruined it,; and I have been in the same house for 12 years now making my payments on time every month.I know I am an exception. Katerina 

Posted by Katerina Gasset, Get It Done For Me Virtual Services (Get It Done For Me Virtual Services ) almost 12 years ago
most people are dumb and will do something they think is not right as long as some one else tells them it is ok. especially when money is involved. i feel that with the sub prime problems the issues came from the top down. hedge funds selling the crappy paper in packaged chunks and making a killing. bankers selling the loans and making a modest commisssion. homeowners using their home like an atm machine so they can get a little of what the upper class has.
Posted by Trevor Ainsworth, Burlington Vermont Real Estate (Century 21 Jack Associates) almost 12 years ago

Katerina, The example you used, of the lady losing her business and not able to sale because of the decline in values is very sad. I speak with folks like this all the time. She IS a perfect candidate for a short sale. I know her credit will still be messed up but with a 780 credit score she should still be in OK shape. It is unfortunate but life has a way of going where it wants to. 

Diane, you do have a valid point BUT didn't they know their rate would adjust when they took out the loan? Of course they did. However, they also thought values would go up and they could refinance out. They made a decision based on future events lining up. This is always a recipe for disaster. They may not have known that at the time but they will know next time around. Life is about learning from our mistakes. They made one and may now very well have to pay the price. They are NOT victims.

Very funny Neal. True but funny.

Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) almost 12 years ago

Your subject line nailed it, don't think you really had to say anything further:  Easy In, Easy Out.

Unfortunately here in Nevada if you take the easy out, our rental market is so pressured at the moment that one that takes the easy out road will be punished to "where will I live?"   Landlords here have a choice of picking someone with good credit, rental & employment history vs someone with a foreclosure or deed in lieu.

I really wonder what our foreclosure rate would be sans speculators!  I think very close to normal in fact.  Will have my own spin off from our market perspective but I am enjoying these posts from all over the country and will reference each debate later on! 

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) almost 12 years ago
Trevor, You are right my friend. Sometimes we just need a little nudging to make stupid mistakes. I know....I've made a few.
Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) almost 12 years ago

Hi BB,

Do you think that the lenders were really basing their investments on increasing property values solely or was it the fact that they were enticing the brokers to make bad loans by dangling a bone (money) under their noses. The greed pyramid was bound to come tumbling down eventually.  Thanks for your insight on this subprime dilemma.

Posted by Robert and Lisa Hammerstein -201-315-8618, Bergen County NJ Real Estate (Keller Williams Valley Realty) almost 12 years ago

How many people have I told to wait this year???  About 50.

If anyone reads my stuff, they know that I'm only selling new homes this year.  Builders have lowered prices and incentives give my buyers a head start on any depreciation in the coming year and I believe they are going to need it.

Everything else, I refer out because if a buyer calls with a specific home that interests them, they know what they want, they are local and they make their own decisions.  Some buy, some don't. 

If a consumer calls me and asks my opinion, they're going to get it.  If a consumer doesn't ask, they apparently believe that they know what they're doing.

For resale buyers in this area, negotiate enough to give yourself a window for the next year.  If the house is priced on the high side and the seller will not negotiate, let them choke on it and go to the next house for sale.  Goodness knows, there are plenty of them out there.

 

 

Posted by Lenn Harley, Real Estate Broker - Virginia & Maryland (Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate) almost 12 years ago
Amen to that BB. In our area many are not staying & fighting even WITH good credit. Why? Because in some cases they can buy something else for hundreds of thousands of dollars less than their current house - then let their old house go. It makes more financial sense. Scary. But true.
Posted by Susan Milner, Cape Coral Real Estate Broker, FloridaFutureAgents (Florida Future Realty, Inc.) almost 12 years ago

Renee, I'm very surprised to hear your rental market is so strong. Why is that? Are the flippers still trying to sell their properties? Is it because you have so many people moving into Vegas? Do you think the rental market will stay strong or has it just not weakened yet?

Lisa, I'm sure there were other factors but property increases were the major player in my opinion. Notice how the highest default areas, CA, NV, FL were also the areas with the fastest appreciation. Lenders were falling over themselves to make loans in these areas because they knew their equity position would improve rapidly.

Lenn, You mean you will give folks your opinion if asked? It's a shame every Broker doesn't do that. Folks deserve the truth. Give them the info and let them decide to what to do with it. Sugar coating is doing a disservice to the consumer.

Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) almost 12 years ago

You would be surpeised at the number of folks coming to me for help with a mortgage..... And they have a short sell on their credit report.

When I give them the bad news, I never hear from them again... Which means that they just went to another lender seeking a different answer. I know this when I see the 12 mortgage inquiries in the last month.

 

Posted by Tom Burris, Texas/Louisiana Mortgage Pro - 13 YRS Experience (NMLS# 335055) almost 12 years ago
You hit the nail on the head.  A lot of these marginal buyers just don't care.  They were really just glorified renters when they bought anyway.  Now they are going back to being renters.  I sure wish the banks would give a little more on their short sales though.  Otherwise there are going to stacks of REOs all over the place.
Posted by Rob Arnold, Metro Orlando Full Service - Investor Friendly & F (Sand Dollar Realty Group, Inc.) almost 12 years ago

I dont know what the answer is as far as if the govt should be involved.   I feel that if the govt does get involved they should not bail out the lenders.  Alot of these lenders deserve to go out of business.

I posted a map on my real estate blog of where the subprime mortgages are it looks like florida got hit pretty hard.

Posted by Ki Gray, Austin Real Estate almost 12 years ago

Shucks.  I get calls all the time from some family member, usually the wife who is inquiring about real estate in our area.  I got one this morning from Michigan.  They go like this. . . . .

Her hubby doesn't want to travel more than 30-45 minutes to work in DC.  They have 3 children.  They'll break even when they sell their house elsewhere, which means 100% financing.  Then the final question, "What kind of money is the employer offering your husband to transfer here?"

$65,000. 

They have two choices.  Commute an hour and a half minimum to work because they can't buy anything in their price range, about $275K max. in less than about 50 miles away. 

The other choice is a small town home about an hour away.  Oh no, my husband would never live in a town home.  We need a garage.

Fact is:  You can't live in my area with a family of 5 on $65,000 a year unless you are at least 3 counties removed from D.C.  That means 1.5 or 2 hour commute.  No way to avoid it.  I tell them the truth.  I also tell them to go back to the employer and negotiate for at least $80K a year and maybe we can do something. Don't forget they've got a 3000 square feet house on 5 acres in Michigan that they plan to sell for about $225,000.  The same home in our area within an hour of DC would easily cost $500,000.

I tell them the facts.  What they do is up to them.   As far as I know, they stay where they are.   I don't encourage them to relocate here.  Even if they could go to southern Calvert County where we can find homes in the $250K range, he's going to have 1 1/2 hr. commute minimum.  It's going to be a small home for the price range.  There are areas in MD and Northern Virginia where they could find a home, but the commute is a nightmare. 

You bet I tell them.  Relocating families in the $100-200K income range or more in a $500K range and up can find a home here.  It may not match what they have where they are, but their income is sufficient to live.  $65,000 isn't.

Posted by Lenn Harley, Real Estate Broker - Virginia & Maryland (Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate) almost 12 years ago

You said it well.  If they have a history of not paying bills on time what will make them feel obligated to stay and pay on an upside down property?

They have nothing to lose if their credit is already bad.  In their minds the banks will loan them money for a house or a car again even with bad credit?  They have in the past.

Posted by Randy Prothero, Hawaii REALTOR, (808) 384-5645 (eXp Realty) almost 12 years ago
A-freakin'-men!!  Totally agree with you, BB!  Yes, there were many good points made in this thread, but I'm sorry it all comes down to greed!!!  That's why Wall Street was pushing it, that's why the lenders were pushing it!  And there is no earthly reason that they need to be let off of the hook by government or any other intervention.  And while we are at it, how many realtors told their clients the truth during those times of 100% financing and no-interest loans?  Yes, there are many here like Lenn, et al; but I'm sure not enough.  Too many were just concerned about the gravy train.  There was no way that the escalation of prices could be sustained.  Come on, I'm not a freakin' genius or anywhere near it, but who in their right mind would believe that this would have kept on going and going, just like the energizer bunny (that's for you TLW)?  So, why now should we pay for this mess?  Why should the gov't step in and pay for this (our dollars)?  Like BB says, let the market work itself out. 
Posted by Marc Grossman, GRI, Greater Orlando Real Estate Broker (Marc It Sold!) almost 12 years ago

BB:  We have a strong incoming population not expected to stop anytime soon and I have seen numbers as far out as 2015 and 2020 and they are supported by projected job growth and other factors which make the numbers make sense.  Rental homes are getting foreclosed on and a large number of rentals were taken out of the pool during the frenzy only to be sold at a profit (nothing wrong with that) and apartments were converted to condos.

Luckily renters are getting sick of the rental frenzy and are turning into buyers quickly!  We are seeing the number of multi family unit building permits being pulled skyrocket so hopefully the pressure on the rental market will lessen for renters. 

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) almost 12 years ago
You got it, BB!   A lot of these folks have no reason to fight for it.  Maybe it should be Easy In, Easier Out!  We have the same thing here...they can rent for $500-$1000 less than what they are paying now.  That's a pretty easy decision for a lot of folks.
Posted by Kristin Small, REALTOR -GRI, Myrtle Beach Real Estate (RE/MAX Southern Shores) almost 12 years ago

This is a great post BB.

I have buyers calling me and wanting to spend about $1800.00 per month and calling on $250,000. properties...no can do...they are renters who see this as a time to buy...they are shocked at the total payment with taxes and insurance...it's a shame.

You are right, no sense on trying to fight for the ones that are upside down...they have been evicted and are living with family...I'm seeing more and more of this...

Posted by Karen Monsour, REALTOR, SSRS - Sells FL Waterfront, Short Sale Expert! (Coldwell Banker Fort Lauderdale Beach) almost 12 years ago

Bryant, I'm gonna ask this question on Lenn's post too; and the question will reiterate how I am NOT a fiancial person.....but

What would happen if the lenders NEVER reset? If they just simply converted all the ARMS to 30 yr fixed?

Posted by Carole Cohen, Realtor, ePRO (Howard Hanna Cleveland City Office) almost 12 years ago
It seems like the more the government/politicians talk about helping people, the longer it will take to flush all of the problems from the market.  There are people just waiting for the government to step in and refusing to do anything on their own because they think the government will help.  With the presidential election within one year it may be almost impossible for the politicians to not do something.  They will be trying to keep everyone happy but not really accomplishing anything.  It should be an interesting year.
Posted by Philip Turner, Mortgage Banker Since 1980 (MCCUE MORTGAGE COMPANY) almost 12 years ago

BB,

Last time around I saw folks who walked away and said "Where do you want me to mail the keys?". Although many did, I think there were regrets later. They continued to rent when things turned around (and yes it took about 5 years total) and priced took off.

Posted by Lynda Eisenmann, Broker-Owner,CRS,CDPE,GRI,SRES, Brea,CA, Orange Co (Preferred Home Brokers) almost 12 years ago
I think you may have hit the heart of the matter. Lenders KNEW going in this would happen. Maybe they didn't know exactly when but they had an idea. It's like scammers going in getting their money and on to the next town. It's been happening for so long but not to this scale.
Posted by Robert L. Brown, Grand Rapids Real Estate Bellabay Realty, West Mic (www.mrbrownsellsgr.com) almost 12 years ago

Robert,

I so agree with your post...they had to know this would BALLOON into a total disasterous mess. They should have to rectify the situation they created...JMO!

Posted by Karen Monsour, REALTOR, SSRS - Sells FL Waterfront, Short Sale Expert! (Coldwell Banker Fort Lauderdale Beach) almost 12 years ago

Bryant,

I agree, Big Gov must stay out of this.  That which does not kill me only makes me stronger, but this concept will not apply if we sedate, medicate and try to bandage up the patient.  This situation must be allowed to run its course and market forces must be allowed to act as they are designed to.  Get the unworthy out and allow the worthy the opportunity to get in!

Darwin Lives!

 

Posted by William Moore (Innovative Realty) almost 12 years ago

Great point ... read the book "The Smartest Guys In The Room" ... it is the Enron story and you get the same sense of do a deal and let someone else worry about it.  Enron (according to the book) would pay a salesperson upfront for a contract that went 20 years into the future ... instead of paying the salesperson a portion of the profit from each year.  Essentially the salesperson could care less if the deal ultimately made money as long as the deal closed ... lenders are not the only ones to blame for this situation either ... many real estate agents were in the same mode ... whatever it takes to close the deal regardless of the clients best interest.

Posted by Allen C. Wright, NS, AHS, REPS (RealtyU) almost 12 years ago
BB. You have mirrored my thoughts perfectly. Many irresponsible lenders knew that some of the loans they were making were shaky but expected high double digit appreciation to continue and cover the mess. They violated sound financial principles and then expected to benefit from another round of loan fees! Continued high double digit appreciation for any extended period of time would cause far more damage to the country than the market correction we are having now. On the bright side, many people who would not normally be able to buy a home got the chance to, and now are enjoying the benefits of home ownership. That is a good thing. I do feel sorry for people who were misled into loans who had no hope of making it work. I have no sympathy for the "investor" who was banking on continued appreciation and is now up-side-down.
Posted by Wayne B. Pruner, Tigard Oregon Homes for Sale, Realtor, GRI (Oregon First) almost 12 years ago
Bryant, It is not only the lenders fault but Wallstreet as well. They kept demanding more and more loans.  Anyway that is for another post however the reality is you had someone with a 550 FICO their lease was up and they needed to move and rent another place. Great example I tell people is in "Normal" times renters had to pay FLS and if you where renting a home at 1,500 that would mean you would need 4,500 to move.  Along comes these programs that say hey you have 500 in the bank and a 550 FICO? BAM your a home owner and we will allow you no proof of income or assets.  Sometimes working hard for your home is a great thing. It is called Pride in homeownership
Posted by Matthew J Blum - (retired from the business) almost 12 years ago

BB,

The untrained Mortgage Brokers are to blame, and the goverment for making it super easy with the Great Rates at the time, and the state's where these Brokers worked in, they didn't enforce any rules. I als strongly believe that The clients took too much, too fast.

Tom Weiss

Posted by Thomas Weiss (Thomas R. Weiss) almost 12 years ago

Tom, I think ALL of us including the consumer created this mess. I also think it's time to move beyond the blame game and start focusing on the way forward. It's now the time for folks to start taking responsibility for their actions and suffer the consequences of their bad decisions.

Matt, And just like renters they are walking once they get behind. The smart ones, of course, will milk the system for as long as they can, then walk.

Wayne, There are certainly many people that got into homes that are still there and paying their bills on time. And that is a good thing. Home ownership is at an all time high and still will be once we make it through this mess.

Allen, I used to sell medical insurance. The company I worked for sold "supplemental" policy to folks that had medicare or medicaid. I quit after about 3 weeks because of all the stealing that was going on. There were some agents that would visit the same elderly folks every 30 days and change their policy so they could collect 50% of the premium. They would even drive them to the bank so they could withdrawal the cash needed!!! They were thieves.

Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) almost 12 years ago

William, This adjustment ain't going to be purdy but it does need to happen. We MUST take responsibility for our actions so we can learn.

Robert, It's been happening since the beginning of time. And will happen again. You can count on it.

Lynda, I think folks need to just pay their bills. I do. I do whatever I have to do to pay my bills every month. I have 4 empty rentals right now that I can't rent, can't sell. What I can do though is cut down in other areas of my spending and think of new ways  to generate income so I can pay my mortgages. It won't be easy but it's my responsibility and I'll manage some how. 

Philip, I have a seller right now who is facing foreclosure. He was hurt at work about a year ago and has just been sitting around waiting on his disability to be approved. He's a young guy and could certainly work if he was so inclined. But instead, he chooses to be a victim!  And he is teaching his children to be the same.

Carole, That's a good question and I don't know the answer. My guess would be that these loans have already been sold off based on a future income stream coming in. So do they even have the option of changing that income stream? I don't know.

Karen, I get the same thing. They truly don't understand the cost of home ownership.

David, It's MUCH cheaper to rent in my area. Most of these are brand new homes. Of course the problem is many of these homes that are being rented will end up being foreclosed on too.

Renee, That should help your market to rebound quickly. As soon as single family homes decrease enough to make sense as a rental the investors will start scooping them up.

 

Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) almost 12 years ago

Marc, Hard to believe but a lot of folks probably thought this would go on forever. They were dead wrong.

Randy, And they're probably right. Someone will keep lending them money. Hey you can get a mortgage one day out of bankruptcy!!!

Lenn, If only all agents worked like you. We MUST educate our potential customer/clients.

Ki, If big gov gets involved you can be sure they will screw it up. If left to run it's course the private sector will step up and fill the void. That's what free enterprise does.

Rob, Trying to get a short sale approved right now is very very difficult. Hopefully at least that will change. 

Tom, I guess folks have a dificult time facing reality. But hey it's a buyers market they don't need credit!!!

Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) almost 12 years ago

Great perspective, BB.  The insidious nature of the lending "abyss" (taking it a step further) not only included the mortgage itself, but any number of homeownership advantages- these same 550 people were likely thrilled to pieces, once closed, to receive credit offers, one after another, for credit lines, cards, etc.  Not having the common sense to understand (or care) that the new Visa card (or ten) required timely payments was likely lost on them once they figured out that they could pull equity to pay off the amounts (without the understanding that, once paid off, the card(s) should be shredded).  So, their subsequent apartments will at least have the BIIIIG screen TV, along with the two new cars in the driveway...

Prosecuting a clear case of FRAUD is one thing; extending assistance with a blanket ignorance of the habits of these credit risks is completely ridiculous.  I'm sure that there will be guidelines, but how do you qualify a true victim of fraud when it is someone that started with a 550 credit score?  Clearly, this buyer had already skirted the line of diligence- this was just a bigger bit of responsibility that, with a little creativity and inability (unwillingness) to calculate income and bills, continued a pattern that was clear when the initial credit report was pulled.

Posted by Laurie Mindnich almost 12 years ago

BB - I recently had a young couple call me wanting to buy a home.  They had done all the pre-approval steps, decided which area they wanted to live in, etc.  One would suppose that all was right with the world.

I looked at their lender's letter and asked, "What is your interest rate going to be?"  They didn't know.  "Is this a fixed rate loan?"  They didn't know.  "Just what is your credit score?"  they didn't know.

I am seeing red flags in my mind because I know the workings of this particular lender, and they are less than stellar.  So I started digging, asking these kids to find out some things.  Here's what it came down to:

Credit score:  520

DTI: 41%!!!!!

Loan Family:  Fixed 30 yr - BUT an 80/20 with 9.675% on the first and 14% on the 2nd.

Approval Amount:  $125,000 with 0 down and no points, closing rolled in.  3% concession from seller. 

At this point I told these kids to put their dreams on hold, stop buying all the latest goodies on credit, pay off their car, and put $20/week in a savings account and then forget the account is there.  When I told them that there is no way they can afford a house right now they looked crushed.  BUT when it was all on paper, they would be -$200+ a month if they went with the lenders proposal.  This is not how to start out and would certainly end in disaster.

I may have lost a client, who knows.  But I cannot in all good conscience help someone destroy their life by placing them in a home they can't afford - no matter what the lender says.  I have no idea who this broker was going to sell the paper to, but you can bet that this was not a squeaky clean deal.  And I won't be a part of this process.

Thanks for a very inspiring and enlightening post. 

Posted by Carol Smith (Casmi Photography) almost 12 years ago
Well said Bryant.  It seems like we are trying to find out whom to blame for this mess and there is plenty of blame to go around.  In the end though, it comes down to personal responsibility. 
Posted by Dan Forbes almost 12 years ago

BB, great discussion going on here! I agree, those with low credit scores and no equity are probably going to walk, especially if they have an ARM that is going way up and they can no longer afford to live there.  Those with excellent credit probably aren't in trouble unless for some dumb reason they took on an 3-year type ARM.  But, if this is the case, then they should be able to renegotiate the terms of the loan with the lender IF the loan wasn't sold to a troubled financial company or institution.  My biggest question is what will happen to those first-time buyers who had good credit and took out the 100% financing.  If they have a solid income they are not going to want to damage their credit.  I don't think they will just walk away.  Again, if they have a good lender or Realtor they may be able to renegotiate the loan or do a short sale.

It's time to get back to where we were 15 years ago...in order to get a home loan our clients needed 20% down and good credit.  The system simply made it too easy for buyers. I was active in real estate politics when there was a huge effort to create these easy loans as a way of creating affordability and reaching out to minorites, especially in a state like California.  I guess the roots behind this mess may have been well-intentioned but somehow the lenders simply lost a sense of reason.

Posted by Diane Aurit, Lake Norman Real Estate (LKN Realty, LLC) almost 12 years ago

BB -I agree 100%. Why is home debt different form any other debt? No one is bailing anyone from the financial obligations people take and can't uphold.

Why is investment in a home any different from any other investment? when people buy stocks or bonds and they go down, is anyone coming to reimburse us for our losses? No, this is the basic rule of the markets - they don't always go up. Those who know the secret to making it always go up - are not publishing them. 

The rest of us should want the government to protect us from the terrorists and criminals, not from our own financial mistakes.

Posted by Faina Sechzer, Real Estate Expert - Princeton, Montgomery ,Hopewell, NJ (Henderson-Sotheby's International Realty) almost 12 years ago

Reading these blogs on AR gets down to discussions and the grassroots of the RE market that gives people like me information and stimulates my memory on events that have led to my decisions and cheering the common sense that abounds on AR and another insightful, caring and useful "rambling" (lol) from Broker Bryant.  

I have noticed a few things over the years. When my husband and I started our RE Consulting Co. back in the late 90's, Wells Fargo Bank was offering loans to new business's. We were declined because the Real Estate market was a bad risk. We never sold on the retail market, but as the home prices rose, our bank offered us money. We declined. Their decisions were not business based, but based on an entire entity that didn't have anything to do with what we did. In the 80's, my husband worked at Security National Bank in the foreclosure dept. He was amazed that they were selling bad paper for pennies on the dollar! It was explained that bad paper means less Federal money and the bank had to sell enough to get to a level that the Govt. would accept. That bank and many others ended up closing. These past few years, we were inundated with mail to get loans, get money and the 1% loans that had no explanation on how the mortgage would get paid. We have neighbors that have mortgaged to the hilt and almost lost their homes in this mortgage craze. Now, I get no more offers in the mail or phone calls. In that respect, it's been good.

I do feel bad about all the people who have been suckered into paying too much and taking bad risks, but it's always been that way. Eventually the market does go up. Real Estate is and always has been considered a long term investment. I think many people took too much equity out of their homes and I do not feel that the rest of us should have to pay for their mistakes. If the Govt. gets involved, I think (only mho) that we will all end up paying for others mistakes.

The smart investors will win. The seasoned Realtors will win and slowly, the RE Market will recover on it's own merit.

 

Posted by Terri Habecker, Life Matters & So Does Your Insurance Co (AIG, Allied, Fireman's Fund, CNA, Travelers,The Hartford, Pr) almost 12 years ago

We bought before the rise in home prices. The house we live in, was a lot owned by out of state owners who were in forclosure. We didn't know it at the time, but at least they made their investment back. They didn't have the funds to develop, so it was nice that it ended up working out for everyone. There was a lot sold across the street from us when the prices were first starting to rise, but the new owners didn't check out the lot before they over paid and realized they couldn't build because of City easements on the land. That lot has been on the market for years.  Our first home was also a lot that we built. We had made an offer on a lot, but the seller wouldn't make a decision to sell until after we ended up buying another. By then, it was too late. His Realtor was very upset. The man had spent every penny he had buying up property with no reserves and lost 6 properties to foreclosure and ended up moving his family to an Apt. in trash bags. The Realtor lost commisions on all 6 for Sale. I am truly amazed sometimes what people do.

(Protective of my credit report BTW :-)

Posted by Terri Habecker, Life Matters & So Does Your Insurance Co (AIG, Allied, Fireman's Fund, CNA, Travelers,The Hartford, Pr) almost 12 years ago

Great two part comment Terri. YOU are accountable for your actions and have chosen wisely. This is a lesson that many need to learn. And they won't learn if we bail them out. The market will correct itself much quicker if we just let it do it's thing. government interference will do nothing but prolong the inevitable and will end up costing us more in the long run.

Faina, That's a good question. I have made many bad investments in my life. In fact I'm sitting on a few right now BUT I would never expect the government to step in and bail me out. It's my mess and I will deal with it. I am NOT a victim.

Diane, The folks that bought based on their current financial situation and not based on future expectations should be OK. Granted some will have difficulties if their situation has changed or they MUST sell but.... so what? Life is full of ups and downs.

Dan, Personal responsibility. What the hell is that?:) It's much easy to blame others and play the victim. 

Great job Carol!!! That's what ALL BAs need to be doing. REALTORS(R) counsel sellers all the time not sure why they feel they don't need to counsel buyers.

Great comment Laurie! I really don't have any thing to add to that.

 

Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) almost 12 years ago

I agree that the market is in a "no pain, no gain" situation. It's become starting to invade our culture that our homes are like a credit card and you just spend as you please.  Subprimes should never have been allowed to buy homes, and even the good buyers were pushed to buy homes that push their finances to the limit.

I agree with Lenn and others, that part of our job as agents is helping people understand the homeownership issues.  Trying to keep up with the Jonses got many buyers in way over their heads.  I'm seeing many nice homes in foreclosure due to just that.

Posted by Melina Tomson, Principal Broker/Owner, M.S. (Tomson Burnham, llc Licensed in the State of Oregon) almost 12 years ago

Brian- Your post illustrates why these loans are going south so quickly.. these people should never have been given a loan.. they were never qualified to buy a house.  I am still surprised by potential buyers who want to know how they can buy a house with bad credit in today's market.  this type of faulty thinking tells me that the worst isn't over because there are still people who think credit isn't important. 

Even 5-6 years ago most people knew they needed good credit and some money to buy a home. People gripe about the prices of homes and many are waiting for the market to tank but most aren't paying off their bills or saving money to take advantage of future deals.  Instead they will still be griping about home prices in 10 years , spending money on toys and complain about how home prices don't follow basic  economic  fundamentals... as if they knew what those were.

Posted by Kaye Thomas, e-PRO, Manhattan Beach CA (Real Estate West) almost 12 years ago

Melina, It's all about educating. Hopefully if we continue to write about it some folks will "get it".

Kaye, I still get offers from buyers with sub 600 credit scores. There are still programs available to them and they are still buying houses. It's not as easy but it is still possible. I met with some buyer about 2 months ago that called on one of my listings. They had been "pre-qualified" by a friend of theirs to purchase a home in the $175,000 range. I met them and started picking their brains only to find out they had no money, were currently paying $650 in rent and were not comfortable paying more than $900 PITI!!! Their friend told them they could do this on a $175,000 purchase. I ran the numbers for them and PITI came it closer to $1,800 a month!!! They decided to wait. Smart decision. 

Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) almost 12 years ago

I must agree with TLW - The human race is headed for a meltdown. We are all so worried about the polar ice caps melting that we missed it... I COMPLETELY agree with you, Blog Boy, we NEED to let the market run its course. Like farming, if we do not rotate our crops our market will NEVER heal.

I wish you luck with your listings, though.

Posted by Derek and Mariana Wagner, The Artisan Group - Colorado Springs REALTORS® (The Artisan Group- Keller Williams Premier Realty ) almost 12 years ago

Hi Broker Bryant, I'm making the "rounds" with this series of posts.  First Ed's, then Lenn's and now yours.  It is good to see a serious discussion on these issues happening between professionals on a real estate network...which is not being categorized as "negative" because of the focus on the hard truth!

I have one uneasy response to the clarion call for government to stay out of this....It's called the Election Cycle.  IMHO as this crisis balloons to new levels in the next 12 months, the spectre of politicians angling for elections will preclude the best solutions being considered.  I fear the temptation will be to settle for that which is most expedient...

Posted by Lola Audu, Audu Real Estate~Grand Rapids, MI ~Welcome Home! (Lola Audu~Audu Real Estate~Grand Rapids, MI Real Estate) almost 12 years ago

BB, After reading most of the comments I am really unhappy. Where did everybody get their CRYSTAL BALL? I want one too. Nobody would have walked into this mess if they could have seen it coming. NOBODY. If you want to blame somebody, blame Greenspan and Bernanke.

Bill Roberts

Posted by Bill Roberts, "Baby Boomer" Retirement Planner (Brooks and Dunphy Real Estate) almost 12 years ago
Bryant, Bryant, Bryant ... "Lenders knew, without a doubt, that these loans would default." Bryant.
Posted by Ken Cook, Content Marketer/Creator (Content, coding, marketing, host.) almost 12 years ago

Hi Mariana, I think the meltdown has been upon us for quite a while. My sellers are definitely suffering right now. I just can't seem to get anything sold.  I do have 3 closings next week though(hopefully). We just have to keep moving forward and plow our way through it.

Hi Lola, Those posts make some great reading. I just added your latest one to the list. Thanks for bringing it to my attention.

Hi Bill,  You're missing the point of the post and the gist of the comment thread. This is NOT a blame game post. It is a post against Government intervention and the fact that subprime buyers(at least in my area) are walking away from their properties. They have no incentive to stay. This post is also about lack of personal responsibility in today's society.

Ken, I'm guessing you don't agree with that statement? Are you saying that Lenders didn't sit down and do the math and know without a doubt that there would be foreclosures and defaults due to their new product line? I don't believe that for one minute. I believe they knew and were willing to take the risk. If it helps, I do NOT Fault them for this. They are in the business to make money as I am. The current defaults pale in comparison with the amount of folks who bought homes and are still in them. It was a good risk. It was also based on values continuing to increase(at least for a while). Write a post with your perspective and I will add to my resource post.

Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) almost 12 years ago
BB, re:your response to Ken, you are right, to the lenders this is an actuarial game, just like insurance is and as conduits securitizing these things, if the turn around and sell them again, they do so to a group of investors that have that same sophistication. The only problem for those guys is when the music stops and there are not enough chairs, because they assumed that if people ended up in foreclosure their real estate would be worth more than the loan balance, not less.
Posted by Gabriel Silverstein, SIOR (Angelic Real Estate, LLC) almost 12 years ago
BB - my opinion is a little different but much the same.... as with everything there is generally an exception to the rule - I have seen home owners that only have a credit score of 550 or so for many reasons beyond their control, an ex, major medical issues and so on.... but in general - I think we agree..
Posted by Thesa Chambers, Principal Broker - Licensed in Oregon (Fred Real Estate Group) almost 12 years ago

Gabriel, You and I certainly seem to agree on this. In fact I would bet they knew with a very small margin of error how many loans would default.

Thesa, There are definitely exceptions to every rule. Just as there are many folks that bought using sub-prime financing that are still in their homes and are making their payments. The default percentage is actually very small. 

Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) almost 12 years ago
BB I just wanted to weigh n here..The lenders had to know. the amount of foreclosures I am seeing is just blowing me away. People are talking bout arresting loan officers, and mortgage brokers., and where would it stop.. the Reators knew tooo....Who didn't turn a blind eye to these deals that made it to closing. Many of them could barely afford the discounted rate.. there was no chance that the rate bumps would be affordable... the overpricing is such a pricy issue....I have been buying and selling for over 20 years, I used to "KNOW" what a 100k home was. Now its a single wide on a half acre that needs a roof and a new drainfield....  Finally, incomes in our area do not support the prices of homes in Central Fla. One mans trash... the defaulted properties will be a blessing for those who have sat on the sidelines and can get closer to home ownership now, with the prices coming back to "normal"
Posted by Mike Norvell Sr, Norvell Consulting Group (Morris Williams Realty) almost 12 years ago

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