Money Magazine did an interesting report on the corrupt, commission-hungry REIC mess from Minnesota - researching the fees paid to the REIC by one street of homedebtors.
In the end, the Congressional Housing Bubble Hearings of 2007 should be a good start to cleaning up this mess, you would hope. This business needs to be regulated, cleaned up, and rebuilt from scratch. And the corrupt morass of mortgage brokers, realtors, title agents and appraisers needs to simply go away, disintermediated by technology and destroyed by a consumer uprising fueled by the housing collapse.
Closing Cost Scams
You always thought those mysterious fees at closing were a total scam. Congrats! You were right. Here's what you can do to avoid paying through the nose.
Home buyers now pay eight times the closing costs they paid 40 years ago. Here's how residents of one Minnesota street were overcharged again and again on their home purchases, many by thousands of dollars. And why your street probably isn't all that different.
Americans spend $110 billion a year buying and selling houses, not including the cost of the homes themselves. And while technology has magically lowered the cost of buying everything from airline tickets to stocks to wedding gifts, real estate purchases remain stubbornly expensive.
Home buyers now pay eight times as much in closing costs as they did 40 years ago. Regulators have begun to ask why. The Department of Justice sued the National Association of Realtors last fall, claiming that its rigid rules for home listings artificially inflate commissions.
And state insurance commissioners in California, Colorado, Florida, Maryland and Ohio have recently uncovered what they say are networks of sham title insurance companies set up to hide illegal rebates to banks, builders and realtors in exchange for steering business their way.
October 21, 2006
Exposing dishonest and greedy mortgage brokers, realtors, title agencies and an evil REIC screwing the American people
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12 comments:
There's an easy solution to streamlining closings cost. Simply mandate that conventional and subprime financing abide by VA/FHA regulations - narrowly restrict allowable 3rd party closing costs.
As for the title insurance sham companies, all they did was allow lenders to take money out of the pocket of the middle man, the man with experience and knowledge. For years, an attorney would search title, charge a title search fee and retain 60-70% of the title insurance premium. That premium was not fluff, it covered the true cost of searching titles on purchase transactions. With the sham company (the lender/broker), the search is farmed out to a freelance paralegal and the premium is retained by the sham company. This is a lucrative strategy in a refinance market but not sustainable in a purchase market.
From my perspective, the proposed RESPA regulations to streamline closing costs favor the big players who negotiate reduced costs and then pocket the difference. My fear is that it will resemble the impact medicare has on private insurance insurance premium. A big player's negotiated rate underpays the true cost, the provider of services then tries to recoup the cost from smaller players who are then priced out of the market.
It is unconsciousable that the banking and mortgage industry does not embrace national licensing requirements for loan officers. Right now it can't be implemented on a state level since banks and mortgage lenders with a nationally chartered bank status are exempt from state licensing requirements.
And, a mortgage brokers license and appraisal license should be printed on the mortgage deed and licenses yanked if the license numbers track with fraudulent transactions or a default percentage significantly higher than industry norms for a regional and/or borrower profile.
It's amazing to me that brokers and lenders are not required to provide a realistic breakdown of fees instead of the fiction that is the "good faith estimate".
I've sat at a closing table many times and argued down the junk fees like doc prep, courier, etc, but even so the actual closing costs are ALWAYS significantly higher than the good faith estimate. How is it that these people do this everyday and have such a hard time estimating their fees? It's a complete scam.
The corrupt REIC would be a great topic for an ambitious attorney general in a state like CA, FL, AZ, NV. Who wants to be the next Eliot Spitzer? Your chance is just waiting out there, waiting to be investigated and brought to justice.
The nice thing about freedom in America is that we are allowed to do business with whom ever we want. I don't believe anyone is forced to use realtors, mortgage brokers or title companies to sell their homes.
With the market now being flooded by listings, agents and brokers can choose to only work with clients who truly value their service. Realtors invest considerable amounts of time and money in marketing homes and (hope) to get paid after all their work is complete, while always having to haggle over commissions.
In Canada, realtors are licensed and bound by a code of ethics to protect their clients from dishonest buyers and sellers. When realtors represent clients, they must legalkt protect them from issues like identity theft, title theft, money laundering and non-disclosure. If their clients are doing something illegal, unlke lawyers (who have priviledged information) realtors have to disclose everything.
For those who think private deals are really a deal, good luck. Chances are they 'eat their young'.
Haven't prices on home gone up more than 8 X's in 40 years? A home in 1960 was $12,000. 6% of $12,000 is $720. Of course closing costs have increased.
I don't believe in regulation.
If all the present time facts (not future conjecture) are disclosed in the loan agreement, it's the responsibility of the parties involved what happens.
I don't see the home builders complaining that the value of the house went up after they sold it and suing the new owners for making a profit.
It should be the same in reverse.
A deal is a deal. You agreed to it with all facts known. Too bad.
People are awfully one sided. Unions "price fix" their wages which is the same as selling labor but companies aren't allowed to "price fix".
This country's productivity has been almost wiped out and it's only been the intertia of our post WW2 dominance that has kept us afloat.
This may be coming to an end most likely due to printing dollars, making monopoly wealth, instead of real wealth based upon productive infrastructure.
We probably won't become a third world nation but if we don't stop hurting producers (rapacious capitalists) we will.
1st Anon: good insight on the title/escrow company sham.
tabasco jenkins:
I am in 100% agreement with you. I feel the enforcement side is the most effective way to get rid of the froth of the REIC. Regulation really only puts lip service to an issue and can usually be circumvented rather easily.
Anon said:
"With the market now being flooded by listings, agents and brokers can choose to only work with clients who truly value their service."
>Its a numbers game and you know it. Plus as you are well aware with the limited barriers to entry the market is flooded with your ilk of agents, brokers, etc. So keep on calling those expired listings like all other agents do.
"Realtors invest considerable amounts of time and money in marketing homes and (hope) to get paid after all their work is complete, while always having to haggle over commissions."
>hahahaha!!! They invest considerable amount of time marketing and getting new clients. Hence the only reason for them to do an open house is to get more clients. But you're right, getting a sign, mls listing, and a newspaper ad is hard work if your last job was working at Pizza Hut. Plus the only reason you guys are constantly haggling over commissions is because you are overpaid and everyone knows it.
Real Estate Brokers and Mortgage Brokers are truly the scum of the Earth!
Exposing dishonesty - I'm all for. I've been in the real estate industry for over 30 years - real estate sales, mortgage lending, and title insurance. There are many fair and honest people trying to do right by the consumer. THE PROBLEM IS AFFILIATED BUSINESS ARRANGEMENTS! Under the guise of "one stop shopping" benefiting consumers, the wolves in sheeps clothing sold the Department of HUD a bill of goods.
ABAs are root of all evil in every investigation. They drive costs up because they lock up markets and virtually eliminates competition. In addition, since the non-producing "owner" affiliate wants money, the fees have to be padded.
Margins in the traditional title insurance transaction are typically thin. The proliferation of ABAs has created a closed market in which ABAs - most of them shams -can raise prices to cover there referral greed. Its like a virus or bacteria.
PLEASE - I beg of you, don't force government to radically reorganize the industry. They only have to do one thing to solve this. All they have to do is undo the ABA regulation. They'll be lobbied hard not to do this because there are so many irons in the fire, but it can be done.
In the meantime, you the consumer, have substantial power. You have the right to shop for services. STOP RELYING ON YOUR REAL ESTATE AGENT AND MORTGAGE LENDER TO DIRECT YOUR TITLE INSURER CHOICE. You shop for other consumer goods and services. Why not shop for title insurance? Search the internet, look in your local yellow pages. Get quotes and get them in writing. Any reputable title insurance agent will do this for you.
Thank you for raising the issue and giving a forum to this discussion.
old dr. shmoo's Indian snake oil?
It should be Weird Al's (Gore)
The sky is Falling Panic elixer!
Why would anyone even need Title Insurance?
You move to Vermont, you purchase a 20 acre second home with stunning view of the valley below. A few years into your idle, the neighbors decide that an ancient road crosses your property, in fact 15 feet from your back deck. This ancient road was last used in 1824 and probably laid down to allow a farmer to haul his goods to the market. The selectmen of your town have decided that snowmobile tourism is the next big revenue generator for the town and have descended onto to your property with their chainsaws to clear this "ancient road." An owner's title insurance policy will be pay your attorney fees as you litigate whether dozens of drunken men on sleds can criss-cross your property on Sunday morning. [true story]
Trust me. You need title insurance, an owner title insurance policy. Buying real estate without title coverage is just as stupid as leaving the house uncovered by fire insurance. Unless you believe there is no theft or human error in the world, buy the policy.
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