Sub-prime torpedoed

Dateline. Washington, D.C.

The ticker feed from all wire services is reporting the financial tsunami of defaults on sub-prime loans. Bernake is reported to have "said that uncertainties over the economic outlook had increased, most notably the future trend in oil prices and a possible knock-on effect from the sub-prime lending crisis into the broader US housing and credit markets. Thus far, the Fed chairman declared, the difficulties faced by sub-prime lenders - which deal with customers who are shunned by mainstream lenders - were being contained. He argued that the shakeout caused by defaults on mortgages by overstretched and less creditworthy borrowers was a necessary correction after the lending excesses of the past few years."

So we are to understand that investors pulling out of the market is a necessary correction after lending excesses.

Paul, just a word here....that dog won't hunt.

The same regulatory agencies that looked the other way while no-doc provisions were being abused will have to come to the table with some way out of this mess. The same regulatory agencies that allowed predatory lending to continue will have to come to the table with some way out of this mess.

It is rather ironic. Not to many years ago, the government was all about protecting minorities and the disenfranchised. Lenders across the county were complicit in "red lining". The folks in the board rooms determined it was not profitable to lend money to what they considered customers of greater risk. Of course, credit worthiness was not always the only yardstick and the purse strings became much tighter when the customer was of color.

Times have changed. Now lenders couldn't wait to pour money into loans for risky borrowers. It became the front end of high stakes bait and switch game with investors and bonds. The house of cards was built rather shabbily and it has begun to tumble down.

In the end, the same people will be hurt. Years ago, credit was denied and the opportunities that went along with credit were denied at the same time. All the legislation and affirmative action will never change what occurred.

Now, the reverse has occurred and credit has been granted that can not be repaid. Terms have been granted that were not understood and can not be met. All the new legislation and continued affirmative action will not change that it has happened again.

We won't see much of it here in this market. We will just see the effects of it. We will read of the fore closures in other parts of the country. Politics will keep it's hold on our headlines. The nightly news will do human interest stories. We just won't feel the pain.

I know that I am a big believer in people taking responsibility for their actions. There are many that would point to the people that borrowed the money to buy homes that they could not afford and say that it is their own fault. They put themselves in that position.

I will merely say that I believe every lender is a public servant with an inherent responsibility to be good stewards of funds that they are entrusted with and an obligation to be reasonable counselors in financial matters they are asked to supervise. I believe that every real estate agent is a public servant with an inherent responsibility to represent one side of a transaction in a fashion that is totally loyal and focused on the best interests of their client.

We can legislate ad infinitum. We can create associations with by laws and code of ethics. We can place hands on bibles and swear to the living God.

It won't change anything.

There are enough laws on the books. Enforce them!

I am sure that it is a violation of someones civil rights if you are placed in a position of trust and put them into a bad loan that ends up bankrupting them. I am sure it is a violation of someones civil rights if you put them in your car and show them homes that are out of the range of what they can reasonably afford and convince them that owning more house is a good idea. Cajoling people to extend themselves and then introducing them to a friendly sub-prime lender would seem to me to be a pretty egregious violation of their civil rights.

The laws weren't written for that you say? Oh, I just sort of take that word "civil" in a literal fashion. It is not civil to feast at the expense of an other's famine.

I will not be surprised to see the Federal Government intervene and come up with some sort of bail out plan for those that find themselves on the verge of foreclosure. I will also not be surprised to see the culprits slip out the gentle back door of corporate protection and never be held accountable for their actions. There may be the show case public hearings to justify the bail out. If so, there will be a great deal of pontification and holier-than-thou grandstanding.

As it unfolds, please remember, this is not happening in a far off land. This is your country. This is not a quirk in a system. It is just another step taken by people in positions of trust to destroy that trust. The same legislators that decry the behavior of the guilty were in power when the actions took place.

And when the dust settles, we will have returned to a place where folks save up money for a down payment before buying a home. If they save a little bit, the FHA has a program. Many professionals will learn that the advice to protect their reputation was really an admonishment to act professionally.

The sub-prime torpedo will finally have hit the correct mark and imploded. I think Dorothy was right when she sang "tomorrow, tomorrow, the sun will shine tomorrow".

Hell, go mow the lawn!

I am a member of a loosely knit group of Realtors across the country. We have our own website where we share ideas, complaints and commisseration with one another. No, we don't have a secret decoder ring or one of those fancy hand shakes, but we do take the time to support one another.

Recently, an issue came up and a Realtor asked for advice on how to handle the situation. All the names have been changed and faces re-arranged but the facts are basically accurate. Jim was approached by another agents client. The person told Jim that she hated her current agent and wanted Jim to represent her. Jim would like to accomodate her, but he is also bound by our code of ethics.

Jim shared his story on our forum. My good friend Stephano replied that he would be well within his rights to suggest that he would be glad to speak with the woman after her agreement with her current agent ended. Others shared that since she had contacted Jim, he had every right to explain to the woman how she may extricate herself from her agreement. A few even suggested that Jim just sign an agreement because no broker will ever risk bad publicity by going after an agent. (This is probably true, most brokers like to play nice and overlook issues that may be perceived in a negative fashion).

I shared the following vignette. It probably says more about lessons learned in life but I thought I would post it on my blog. I do want to keep my growing readership happy.

James,

Back in the day, I was a junior in high school and madly in love with Kathy K****. Now Kathy was drop dead gorgeous and sadly enough for me, going steady with Bruce B***.

One weekend, we were at one of those parties and Bruce passed out on the couch. Kathy grabbed me and pulled me into another room. She planted the most wonderful kiss on me and said she couldn't wait to dump Bruce. She claimed undying love for me.

Well, Kathy was way more advanced in the ways of the world than I at the time. Soon, I was cutting class and sneaking into the room above the gym for afternoon tryst with sweet Kathy. That went on forever. It must have been at least two weeks. Kathy dumped Bruce and began sporting the $1.00 silver ring I purchased at the Ben Franklin around her neck.

We were going to be lovers for life.

JMAC had become Bruce.

Sad to say, Barry S**** soon became JMAC. It was a few short weeks later that my ring was returned and I was left with the devasting heartbreak.

I could not believe that it could happen to me. Heartbroken, I sat in my personal hiding place, a storage room under the basement steps in my home, listening to Gene Pitney croon "Only Love Can Break a Heart". I figured that I could just die there and everything would be ok.

My father opened the door and asked "Dummy, (he always chose the most tender of nicknames) what are you doing under the stairs? Turn that damn radio off and get the hell out of there."

"But Dad, I have had my heartbroken"

"Really, well the grass needs mowing. Get out there and get it done or your rear-end will be broken too."

"But"

The look in his eye and the smell of alchol on his breath just washed ole Kathy and my heartbreak out of my mind.

It was first experience with a term that became quite significant during the Viet Nam incursion.

DON'T MEAN NOTHING

It also gave me the first lesson that if someone is willing to cheat on someone else to be with you, they will probably cheat on you to be with someone else. That sentence says more about self image than anything else.

I think that you deserve clients that will be loyal to you. I am sure there are exceptions, I just don't care to deal with them. I try not to agree with Steve too often, but in this case, I almost do.

I wouldn't want the client. I would be concerned that she/he would be crying the blues to another agent the first time I handled an issue in a fashion that was not satisfactory.

Hell, go mow the lawn.

jmac

Who are these people ???

I have this listing in the American Finmark. It's a one bedroom condo on the second floor just waiting for a young professional that wants to own his or her first piece of the rock. I had already warned the owners that the condo market was a bit soft and they would have to price it attractively to generate interest. They thought about it, looked over all the information that I gave them and decided on a figure.

I crossed my fingers and scheduled an open house.

Who are these people?

I had folks, young and old, with and with out agents coming through the door from when we started at 1pm until we shut it down at 5pm. At one point, I turned to my wife and asked her to pinch me. I asked, "Is this 2005 or 2007?"

Once again, the real estate market in our area has turned on a dime. Shifts that were once slow now occur in moment. Buyers are showing up in the office seeking help. The phone is beginning to ring on a regular basis. It seems that the realization that now is a great time to buy has finally sunk in.

I don't share this to startle anyone and I certainly don't want to give the impression that I am so busy that I just can't help anyone else. I always have time.

I suppose that my joy is best explained in this fashion. I love the Christmas season and I love shopping. The excitement in the air is palpable. The crowds, that some of you dread, represent a whole lot of happy people to me. Every long line is a sign that lots of people are going to have a happy Christmas morning.

The increased buyer activity is an indication that soon, lots of folks will be enjoying a new home and in many cases it will be their first home of their own. I can't represent all the sellers and all the buyers, but I sure can enjoy an active market. Some of those that I do have the chance to work with will become part of the new generation of home owners. The opportunity to play a small part in the ongoing community transitions around me is a wonderful reward for the effort I make.

Who are these people?

They are your new neighbors, your new friends, and in some cases - my new clients! It is a great time to be a Realtor.

Did I happen to mention...

It seems as if many people have responded to my call to get back into the real estate market. I have been blessed with several clients in the past few months. I truly appreciate the requests for buyers and sellers guides. The information is free and part of the service I offer to any interested person.

There is so much in the local and national news about real estate, I thought I should take a break and comment on all of it

The stock market is in a free fall after reports of sub-prime lenders going belly up. This is an interesting situation. I don't know where to begin with a comment. Did those that invested in the "blood sucking", "immoral" leeches on the bottom of the mortgage industry really think that their investments were sound? Did those that propped up the sub-prime thieves think that the cash cow would be offering milk forever? If those holding stock in companies that have been bilking the weakest and most vulnerable among us find that they are going to lose a lot of their money, so what!

Let's take time to call a spade a spade. A sub-prime lender has a customer base of people that either can not document their income, have credit problems and can not qualify for the most lenient FHA loan, or use english as a second language and do not know any better. Our housing market is not built on the shoulders nor the integrity of sub-prime lenders. It will be a cold day in hell when I start to feel sorry for people that were getting rich off of the surplus profits sub-prime lenders provided them. The only difference between those that mug the weakest in our society and the sub-prime lenders is the sub-prime lenders are not armed with a weapon. Sub-prime lenders are armed with a more devasting tool. They use the promise of a better tomorrow, the promise of owning a home and hidden in the small print is a price no one can pay. My advice is invest in those that invest in your community and let sub-prime lenders and those that support them rot.

Our economy is strong. Our housing market is strong. The trickle down effect of the sub-prime collapse will smooth out. The agents that have referred people to them will be easily identified. They will be selling snake oil on the street corner. It is a pity that we have outlawed "tarring and feathering". Any one that has abused a position of trust in order to achieve personal gain has no right to hold the position any longer and does not deserve a second chance. Real estate agents that "have been in bed" with sub-prime lenders are the pedophiles of our profession. They can not be cured and should be banished.

On a brighter note, my friend Glen finally has a home of his own. It is a long story that I related here moments ago. My little finger hit the tab button and erased the entire post. I only had the energy and time to re-type the rant against sub-prime lenders. Maybe another day....