May 26, 2006

Foreclosures skyrocket - but realtors and mortgage brokers got paid


I know that people make their own decisions in life and then have to live with them, but I think there's a special place in hell for the realtors and mortgage brokers who steered financially ignorant folks to these interest-only and no-down and no-doc ARMs.

These human scum knew that they'd earn their nice and tidy commissions, but that the buyer would likely get foreclosed on one day for not being able to make the payment.

Who cares! We got paid! Who cares if lives were ruined. Who cares about their fellow man. We got our commissions. Like drug dealers and pimps. Hat tip Investor for the link.

As rates rise, home foreclosures surge - Adjustable-rate mortgages make it hard for many to make payments

RealtyTrac, an industry organization that maintains a nationwide database of foreclosures, says mortgage defaults between January and March of this year numbered 323,102 compared with 188,122 during the same period last year — an increase of 72 percent.

Indianapolis leads the nation, with one out of every 69 homes in foreclosure. Atlanta follows closely at 1 in 70 homes. Then Dallas — where the Edwardses live — at 1 in 99. Memphis is fourth at 1 in 101. Denver rounds out the top five at 1 in 105.

“The reason homeowners have been buying properties that are probably beyond their means, is that they haven't been looking at what the house costs,” says Rick Sharga with RealtyTrac, which maintains a database of foreclosed properties. “They've been looking at what the monthly payment was.”

41 comments:

Anonymous said...

Yes they did.

And very well too.

Already know 4 former mortgage brokers that went to the lucrative world of

Multiple Level Marketing

Cyberwize is what they are doing.

Showing off their big houses that they bought from the mortgage brokering profits to others as though it came from Cyberwize.
What crooks.

The Thinker said...

Loansharkes, all of 'em!

Robert Coté said...

Disgorge! Disgorge!

Osman said...

I don't get it.

It's common sense that buyers (of anything) should look beyond the short term ability to finance purchases. Blaming realtors, mortgage companies, builders, appraisers, or anybody other than the buyer is another symptom of the larger problems facing our society.

Just look at our overwhelmed legal system, packed with litigation for nearly every imaginable nonsense. And because the cost to battle it out in court nearly always outweighs a settlement, it gets worse and worse. ..

Instead of blaming realtors Keith, why don't you ask those now overwhelmed to take a good hard look at themselves and the choices they've made?

When I work with buyers who ask me what they should spend (or when they seem to be stretching), I counsel conservatism. Even though I'm not their financial advisor, I check to see that my buyers understand the loan, whether there's a prepayment penalty and when (if it's adjustable) the rate begins to change.

It makes business sense. Most seasoned realtors qualify their buyers to protect themselves too. At a minimum, it reduces the chance the buyer won't qualify for a loan and kill the deal at the finish line. In a broader sense, it ensures that the buyer will be happy with your services months or even years down the road, increasing the chance of referrals.

The reality is that many people have an expectation of entitlement, want immediate gratification, and thus are monthly payment driven. These are the same people who blame others for their own decisions. Working with those that can only see the monthly payment (and sometimes barely that) is a challenge in this business because some only hear what they want.

If you're going to blame others for our buying behavior, go after the marketers Keith. They're the ones who've taken manipulation of human psychology to an extreme in order to drive demand for unnecessary products and services, the ultimate source of global economic, environmental, and social/political insustainability.

keith said...

Reality os is a bit different than the republic of boulder, truly full of honest good people in my opinion.

In reality, mortgage brokers paid off appraisers to "make the numbers work". In other words, appraise for more than the true value so that the loan would go through

In reality, realtors paid off (or promised future business to) mortgage brokers to get the loan through.

In reality, the builder, appraiser, realtor and mortgage broker got paid - off of the back of the buyer who bought an overpriced asset with a loan they should never have qualified for.

Yes, the buyer is responsible. So is the heroin user or the street hooker. But dealers and pimps play their role too.

And that's reality.

mr. smith said...

f you're going to blame others for our buying behavior, go after the marketers Keith. They're the ones who've taken manipulation of human psychology to an extreme in order to drive demand for unnecessary products and services

osman- I thought that realtors were marketers. They take listings and then have to market the house, right?

Well, realtors cannot effectively change mass attitudes here. But the mortgage and consumer credit industry have surely gotten away with pushing some very dangerous financial products to people who just don't undertand the risks. And their scams were supported by powerful interests at the highest political levels.

Robert said...

Osman said
……” If you're going to blame others for our buying behavior, go after the marketers Keith……

And just who are the marketers? If I’m in the market for a new car I go to a car dealer. If I’m in the market for a home I go to………..

Look, we’ve gone round and round with this. If you have some sort of knowledge about the real estate business that would benefit a buyer (just what do agents disclosed when the buyer is not around?) speak up. If not, you’re doing just as much good as the other three realtors I fired.

You have nothing more to offer than any other realtor out there.

I take that back. I guess I could add you to my troll list. I’m doing some numbers on trolls/market ratio, very interesting. Troll count looks inversely proportional to market value.

Awaiting bubble rubble said...

"If you're going to blame others for our buying behavior, go after the marketers Keith"

Home buying in the US has become perhaps the most extreme example of a huge marketing machine against which individual consumers have few defenses. It consists of realtors, builders, the mortgage industry, and the GSEs (which have a far too cozy relationship with Congress). Home buying is the biggest FINANCIAL decision of a lifetime, but the machine does everything it can to pressure buyers into making an EMOTIONAL decision and this includes most realtors. If all realtors provided a cost-benefit analysis and TOTAL LIFETIME $ expended/square foot compared to median for the area they would be adding some value. Most realtors do little more than push product and while buyers have the obligation to educate themselves about the economics, the "don't worry about it, look at this bathtub with the bubbly jets and shiny fixtures and your monthly payment will only be..." crowd really doesn't promote education in more than a PR kinda way. After the FNMA, FRE and the MBS holders' portfolios start going belly up in 2007 and 08, I'm hoping Congress will enact (along with the ginormous taxpayer bailout we'll probably see) some serious reform and make a basic 4-hour mortgage finance course a prerequisite for all potential buyers who want to qualify for a mortgage.

entertained realtor said...

I just had the same conversation that I've always had with a buyer since I became a realtor.

I showed this buyer the pertinent information to help him in his decision making. Showed him how there is more inventory than there was last year at this time. Told him that in order to sell a home a seller is going to have to make concessions (usually price) in order to attract a buyer in the current market.

I simply showed him the facts.

Last two years when I showed buyers the facts, the facts were there wasn't that many homes on the market to choose from. I told them the reason was because there were many speculators in the market gobbling up inventory. Showed them how there was a ton of pressure on the buyer because buyers were outbidding each other to the sellers benefit.

I sold 4 mil worth of property last year and I bet I turned down about 3 mil more. Why?? Some people were trying to max out their purchase and were not taking into consideration there other outlays that a larger home normally comes with. Some were going to be stuck with a home that didn't meet their requirements for family size and when they went to trade up in a short time period, wouldn't be able to. And other reasons as well.

I know that some of those folks I turned down to work for probably went on and found another realtor and bought a home anyway.

I personally do not have a good relationship with lenders. I certainly do not 'steer' clients to any one lender over another. If a client does not have a lender and isnt' pre qualified with a lender and wants to be referred to one, I tell them to open the yellow pages and start making calls.

Not my job to pre-qual folks. It's my job to deliver what the client wants. A successful transaction of the home of their choosing. I'm not a financial advisor, not a lender.

I've practiced this way when the market was screaming hot, and continue to this day.

Oh and sellers just love it when I tell them that I'll only take their listing if they put the offering price lower than current market. Of the recent would be listing clients that told me to take a hike, all of their listings are still on the market.

I offer a reduced commission rate to those sellers that will put their property on the market for less than market value.

I get the angst angainst realtors here on this site. I'm still befuddled that the perception is so harsh though. I guess I blame it on newbie's and their brokers, if I'm going to blame anyone in my line of work.

The consumer needs the most blame though. It's still their choice to make.

fish said...

This just in.......dateline Sacramento! Next door neighbors house.....on the market since Oct 2005! SOLD....Listed price $459,900....sales price $389,000! The first of many 15% HAIRCUTS in Sacramento County! And yes....I'm sure the agent got paid!

entertained realtor said...

Now it's the agents fault for the drop in price?? How much did your next door neighbor pay for the house in the first place?? Bet he/she made more money than the realtor.

If the commish was 6%, the seller paid $23,000 (there abouts). I'll assume that another agent represented the buyer so $11,500 went to that agent.

Now it cost me about $600 a month to market a property (home listing) and I live in a small town. But for the heck of it I'll say the realtor spent the same amount as I do and times that by 7 months to equal $4200. I'm a 100% agent so I won't get into if the listing agent has a commish split with the broker or not. But if this was me then I'm left with $7300 as my commish without taking into consideration any other misc. costs associated.

Did the seller do better than $7300 in proceeds?? Just wondering.

Chris G said...

I am somewhat amazed that Indianapolis leads the nation in foreclosures, because it is one of the most affordable cities to buy a home. If this is true, what's going to happen in all of the cities where people stretched to the max to buy a home, while the selling prices are leveling off and there is no equity?

Noodles said...

I agree with "entertained realtor" personal responsibility has to be a factor...too many of us have become materialistic and ignorant. Maybe this semi-crash will bring a revival in true American spirit? Hardwork, intelligence, modesty, quality over quantity etc. We can always hope.

uknowwhoiyam said...

These human scum knew that they'd earn their nice and tidy commissions, but that the buyer would likely get foreclosed on one day for not being able to make the payment.

"Human scum?" Is this really necessary?

Anonymous said...

Intersesting thread-- who do you blame the Dot.com bubble on? Probably everyone equally, IMO. However, I will say that home ownership has been a pillar of 'The American Dream'.... it may have had more emotional sustenance this time. Buying a house (or being priced out forever) had more meaning than buying Pets.com stock (or be priced out forever).
Housing values will revert back to being proportional to our incomes.....

BTW, has 'The American Dream' been sold to the highest bidder yet? :-)

Anonymous said...

Agreed, "human scum" is a bit over the top.

Also agreed there needs to be some reflection about personal responsibility.

Gens X&Y, the boomers and everyone else is about to learn a harsh lesson. The lesson will be about the importance of savings and the unimportance of maintaining teh appearance of wealth through debt.

keith said...

I debated "human scum" but went with it to describe anyone involved in knowingly screwing their fellow man for the sake of a buck

Drug Dealer
Pimp
Thief
Con Man
Mortgage Broker
Realtor

There are people that I truly don't know how they sleep at night

That said, yes, there are likely some wonderful, ethical realtors and good, decent mortgage brokers.

But the human scum is also very attracted to those professions (like used car salesmen), knowing they can make a quick buck screwing people, and that pollutes their entire professions in my book

Anonymous said...

Hahahaha. It's one's duty to take advantage of stupid people. If mortgage selling wasn't so boring I'd probably have tried it myself.

People are pampered and shielded from reality in this country. Everyone thinks the government is going to play mom and dad and bail them out of problems. I sure hope my tax dollars won't go toward rescuing financial idiots who lived high on the hog at the expense of others during the boom.

When there were lots of homeless people, no one was taking out risky mortgages.

I wonder why not?

Osman said...

I don't think most brokers were out there pitching the "american dream" of homeownership or "how to flip your way to instant wealth". Yes, there are many who did just that (just check the bookstore shelves) but it's hardly the majority of realtors.

Do you think we're all Carleton Sheets?

When I'm focused on my real estate practice, I'm working with people who have already taken several steps toward the decision to buy or sell real estate. My job isn't to convince them that it's a great idea. I'm too busy finding them homes that match their search criteria, advising them of current market conditions, and in ways large and small making the very stressful process of buying or selling a house easier. More often than not I'm counseling fiscal conservatism and practicality in the face of unrealistic expectations and a lack of knowledge.

Marketers, in my opinion, work on the creation and delivery of all advertising content. From plastic toys to Hummers, marketing firms work on selling whatever product they're tasked with irrespective of the larger environmental, social, or political costs. They're developing the ads that push our buttons, feed our egos, and encourage us to spend wrecklessly.

And yes, of course NAR, Re/Max, Cendant, and many others are spending massive bucks on advertising. But that's not the daily work of the individual realtor by any stretch of the imagination.

In the more benign sense of the concept, perhaps everyone is a marketer to some degree. In the end, I think all relationships are about creating value. If your client, boss, coworkers, customers, (and maybe even spouses/friends) don't see the value of what you do - you won't be in that relationship for long.

Osman said...

Oh, and Robert. Despite the fact that I did some digging for you on the issue of "refreshed listings," I'm not your agent and you're not my client.

And if you've really gone through 3 realtors and none of them have worked out for you, I have to wonder about your ability to choose an agent and manage a working relationship. Are you so sure it's the realtors that are your problem?

Perhaps its your hostility and lack of ability to communicate what you want from the relationship that's the issue?

Robert said...

Osman,

The first realtor told a seller the full amount I was pre-approved for.

The second realtor was “uncomfortable” with offering 10% less than asking price on any home. The same realtor found two homes that “just came on the market” and “I had better act fast”, when in fact they were re-list and had been on the market for months.

The third realtor agreed with and insisted I use, the seller’s comps for a home. Even though those comps were for larger homes, one neighborhood over and five years newer. Meanwhile, I had found ~6 homes in the same neighborhood, same age, same size, same builder, sold within the last 3 months for thousands less (If I remember correctly the average was ~$30K-$40K less)

What kind of communication is needed for “please don’t screw me over”? What kind of “relationship” could I cultivate? (damn sensitivity training) I think I “managed” the “relationship” quite well by firing them.

No, you don’t work for me. And you probably don’t work for anyone that’s posted comments on this blog. But, I’ll wager that you’re a pretty nice dude, just trying to make a buck in this world like the rest of us. Hell, you even make some of the banter back and forth entertaining. No need to beguile us with your mission statement, we get it, you’re a swell guy.

But I can call any other agent (who has the same vested interest) out there and get the same spiel you’re giving. I think my last three agents made very obvious and intentional decisions that were not in my best interest. My “hostility” lies with what might not be obvious, the dishonest things that go on in real estate that we’ll only find out about when this market cycle blows over. If you’re not going to post anything that we ought to know about that might be going on under the table, you’re of little help and it’s the same blah, blah, blah, blah.

I bet most of the folks on here have looked at the numbers. We see the inventory. We see the foreclosures. We see other market indicators. If we’re not 99% sure, we at least have a gut feeling that things are just not right with the market.





Speak up.

Osman said...

I would have fired those agents too.

I think the larger problem is the low barriers to entry in real estate. Buyers and sellers also tend to do very little due dilligence in choosing their agent. Most blindly choose a friend as or use a coworker's referral.

There's nothing wrong with referrals, but alone they aren't enough to qualify an agent. It's important to know how to distinguish the good from the bad in order to make an intelligent choice, and hopefully avoid the trouble you've had. And yes, commission structure is *one* very important criteria, but it's hardly the only one.

The reason I spend time blogging about local real estate to help educate buyers and sellers on the local market. The foreclosure situation in Colorado is one example. If you only relied on the local media or your agent alone, you might get the impression the sky was falling everywhere. The wrong info can influence your decision ina big way but (as I've posted on my blog) foreclosures have a huge variance by county. Boulder county has one of the lowest rates of foreclosures. A buyer or seller in Boulder county shouldn't be making real estate decisions based on rising foreclosures in Colorado Springs.

Bottom line? If you go about lumping all realtors in the "human scum" department, treating your agent with a hostile attitude even as you're trying to accomplish your real estate goals, you might be shooting yourself in the foot. The better agents don't have time to deal with disrespectful, hostile, or rude clients. You'll either get shoddy service (as you have already) or you'll be the one getting fired from the relationship. But, if you choose your agent carefully and have clearly communicated what you want, you should find value.

By the way, I don't think market cycle has anything to do with it. Anywhere in the cycle, in any industry, you'll find deceptive practices. Sometimes they even get worse at the bottom. Common sense (if it sounds too good to be true..) is your best defense.

uknowwhoiyam said...
This comment has been removed by a blog administrator.
uknowwhoiyam said...

I debated "human scum" but went with it to describe anyone involved in knowingly screwing their fellow man for the sake of a buck.

Calling people "human scum" is self-defeating; it damages you as much as it does them.

uknowwhoiyam said...

Foreclosures skyrocket - but realtors and mortgage brokers got paid

Just got around to reading the article linked on the main page.

Of course they got paid; they did their job. There's no evidence of any fraud in the article.

Anonymous said...

I rent a back house and when my tenant told me that they will gona buy a $460000 shack house I asked them how they will finance ?
80-20 3years arm.
If it was a fixed no pbs
I show them that they will loose over $90000 in 3 years because they wanted to refi after 3 year and pay $15000 prepayment penalties.
After explaining ARM rates to an other friend he back off the supposed deal of the century and the good friendly realtor wanted to sue him to court because he didn't sold the house.
Just for info that house is in San Pedro,CA and went down from $565000 to $450000 and is still for sale.
It will be a good deal when it will be around $250000 but like I said house not home ( they playing with your feelings ) are 40/100 over priced.

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