Sunday, June 8th, 2008 at 12:41 PM
Neg-Am, Goosed
Yesterday Ben Jones of thehousingbubbleblog.com fame was in Carlsbad as part of his west coast swing to say hello and thanks to his readers. http://thehousingbubbleblog.com/?p=4610
CA renter, Rich Toscano, Kelly Bennett, Schahrzad, barnaby33, and a number of other familiar folks were there enjoying the beer and company (see pics below).
As I was leaving, a guy who wasn’t part of the group grabs me and mentions that barnaby33 said we should talk.
He goes on to describe his real estate experience over the last two years. Some realtor & lender encouraged him to start buying properties, so he bought three houses in Oceanside in 2006, all on neg-am mortgages. Now, just two years later, his neg-ams are resetting. The mortgage on the house he lives in had its payment increase from $1,900 to $3,800 per month after just two years!
In my previous example, using the actual payments over the last 35 months, it showed the reset happening between the fourth and fifth year – how did he hit his reset in just two years?
It’s because the loan originator got paid more commission from bringing in loans with a higher margin, causing the fully-indexed payment (and monthly deferred interest) to be much higher.
Countrywide, Washington Mutual, et al., were paying a bounty to mortgage brokers to originate loans that reset faster. Think they have any regrets about that now? They have another three properties coming back to them from this one buyer, and the disdain he had for the participants was obvious.
The lingering effects of this mess will last a long time, far beyond the impact to this buyer’s credit report. Think he’ll be trusting many realtors or mortgage brokers the rest of his life? It would help if the NAR or Department of Real Estate came in with some hard-hitting sanctions or pulled licenses from those agents who took such advantage of people. Instead, they have their hands in their pockets, looking around at everyone else, saying "who knew?"
Rich Toscano and Kelly Bennett
Schahrzad Berkland and Jim
Posted on Sunday, June 8th, 2008 at 12:41 PM in Neg-Am | 8 Comments » | 
Print
You can follow any responses to this entry through the RSS 2.0 feed.
You can leave a response, or trackback from your own site.
Got any pics of Ben?
SushiBroker | June 8th, 2008 at 4:02 pmI don’t know why anyone would "trust" a realtor or mortgage broker when buying a house. Realtors are paid by the sellers and brokers by the lenders, they’re not working for buyers and borrowers.
In my home purchases, I have "trusted" that my realtor and broker knew how to find me what I was looking for at the price and rate I wanted and handle the details correctly so that I wouldn’t have to withhold my signature at the final signings for sale and loan and kill the deal that was going to get me the house and them their commisions, but even when I was a totally inexperienced first-time buyer there was no way I was going to "trust" them to tell me what it was I wanted. The whole idea of moving from being a renter to being an owner in the first place was to be in control of what I was getting for my money.
GeneK | June 8th, 2008 at 5:42 pmWell, not that I disagree with that per se, but for most people buying a home is the biggest item they ever buy. If you read the papers about the state of our education system it’s clear many people have no understanding whatsoever of financial issues. You do enter into a business relationship with a realtor when you buy a house, and it is reasonable to expect them to behave in a trustworthy fashion. Ideally the industry’s trade organization will enforce this through licensing and so on, but that seems totally broken in this case. A predictable outcome would be more government regulation, which often seems to be inefficient but is sometimes needed if an industry can’t police itself.
Personally, rather than have no trust whatsoever of a realtor and/or broker, I would advocate the "trust buy verify" model. When we bought our place, we didn’t like the first two realtors we "seriously" met, and ended up going with the third. He did a great job for us and well earned his commission.
Dwip | June 8th, 2008 at 6:16 pmWhoops, sorry, got interrupted by my wife and didn’t have time to proof that. I meant "trust BUT verify"!!!
Dwip | June 8th, 2008 at 6:30 pmI trust my personal relationships with my friends and family. In business relationships, I expect that everyone will do what is in their own best interests, and make sure that everyone understands that it is in their best interests to watch out for mine. Only when people in my business relationships manage over time to cross into a personal relationship do I invest trust in them. I suppose you could called that, "verify then trust."
GeneK | June 8th, 2008 at 7:33 pmThough I agree with you, Gene, the whole point of the Realtor’s (mortgage brokers to a lesser extent) advertising/stated mission is that they are **looking out for their clients.**
Smart &/or skeptical people don’t care what a mission statement says, but too many people use these agents/brokers because they are looking for that "expert" advice, and believe that’s what they are paying for.
We don’t need to pay someone only to match buyers/sellers, especially with the internet. What we do need is someone who acts in their client’s best interests and gets paid for doing so.
If people can’t trust Realtors & MBs to look out for the client’s interests, then what is the point of having agents at all?
CA renter | June 8th, 2008 at 11:30 pmI think you can trust realtors and mortgage brokers to look after your interests just fine, once they understand that you know what your best interests are and that the way they look out for their interests is to look out for ours. Our realtor up north understood that we wanted our home sold within a particular price and time range, and she did it. Our realtor here understood that there was an absolute maximum price we were willing to pay for a home that met our requirements and our mortgage broker understood that there was a maximum fixed rate that we would not exceed, and they did what had to be done to make it happen without trying to push something different at us. All of these people looked out for our interests, because it was in their best interest to do so.
Another realtor we began with didn’t seem to understand these things, and kept sending us listings for houses that didn’t meet our specs (but which apparently were her listings). She found out rather quickly that she wasn’t looking out for her best interests with us.
GeneK | June 9th, 2008 at 12:12 amThat’s it there, Gene – finding a realtor you can trust. We should be required to blog, or offer some extensive data to demonstrate our expertise and trustworthiness.
Jim the Realtor | June 9th, 2008 at 12:24 am