Move over Willie Sutton...you've got company

Many years ago, there was a chap that robbed banks. He would commit the crime, get caught, and do the time. Upon release, he would wait a bit and then plan and rob another bank. He would be caught again and the cycle would continue. The gentleman was Willie Sutton. He was interviewed at one point and the reporter asked, "Why do you keep robbing banks?"

His answer was short and sweet and quite revealing. "That's where the money was."

Philosophically, Willie Sutton has lots of company today.

If you live anywhere in or close to Montgomery County, you must have noticed that there are homes for sale. There are homes for sale on the main roads, side roads, back roads and dirt roads. There are homes for sale in condo buildings (pick a floor and you will find a unit for sale in one of the buildings). There are homes for sale by every type of agent ( big names, little names and boutique companies). There are homes for sale by owner and homes for sale by banks.

You get the picture...........there are homes for sale.

There are more homes for sale now, than at anytime most people can remember. Did I mention there is pre-construction, new construction and re-sale homes in this mix. The amount of new homes for sale dwarfs the number of potential buyers that are looking for a new home.

Just like every industry that discovers a long running slowdown is occuring, the real estate industry has started using a new term - "the absorbtion rate". It sure sounds pretty impressive but it really only means - how long will it take to sell all these houses? Any agent worth his or her salt has been aware of this figure for a long time. We used to just say "how many months inventory is on the market". I guess that was too simple and as others have done, agents have determined that if we change the spin, maybe no one will notice how bad it has become.

"If you buy a house today, you will lose money!" was Jim Cramers most recent pontification. It was heard on the Today Show and has been heatedly debated in many quarters. (For the record, he was right and he was wrong. It depends on the total picture. For investment purposes, he is dead on...for awhile. For those that need a home ... he has missed the boat.)

Everyone has an opinion on what in the world happened. Fingers are being pointed at lenders and real estate agents. People are convinced that there is a relationship with illegal immigrants. Others think it must be "those" people that used sub-prime loans.

There were some bad lenders that failed to make sure that their customers understood the loan they were accepting. There were some really bad apples that did not care how accurate the application was as long as they could get the loan made. There were cases of loan fraud.

There were some real estate agents that were not concerned with their clients ability to pay for the home that they were seeking. There were agents that affiliated with lenders that would "get the loan done" and home inspectors "that would not pooch the deal." There were cases of failed fiduciary.

The immigration status of anyone that bought a home has no relationship to any default. You do not have to be a legal resident of the United States to purchase property in the United States.

Sub-prime loans were available and remain available for some borrowers. The product is not at fault. The problems created by sub-prime loans did not occur with the majority of people that borrowed money using that product.

All these fingers being pointed, and there is a "gorilla in our midst" that few will acknowledge, that is probably statistically the biggest offender. There is a group being overlooked in the equation and few fingers are pointed their way.

Homebuyers and home owners, this finger is for you. You were the consumer and most of you had every opportunity to make a better decision. You signed disclosure after disclosure. You knew what you could consistently afford to pay. You allowed the possibility of financial gain or the desire for things you really could not afford to cloud your vision. Yes, in most cases, you created the quagmire that you are attempting to escape.

The consumers, that purchased homes that they could not afford, will ultimately have to accept responsibility for their actions. The consumer that used one or more cash out refi's to increase their buying power will ultimately have to accept responsibility for their actions.

Not only accept responsibility but they will have to live with the consequences of their actions.

Before you get angry and stop reading.... play along with me here. Let's do a short version
of.......IF THE SHOE FITS......

• Did you ask your lender for a loan that would give you the smallest monthly payment?
• Did you ignore the fact that the payment might increase because you were sure that prices were going up and you could refinance before the rate went up?
• Did you succumb to the desire to own a home you could not afford because creative financing allowed you to get in the door?
• Did you tell your real estate agent the total amount of money you wanted to spend on a home?
• Did you think, in the back of your mind, well if I can't afford it, I can sell it for more than I am paying today?
• Did you think that the multiple disclosures that you signed, agreeing that you understood every aspect of the purchase, were just meaningless window dressing?
  
  
  For a short period, people were buying and selling homes like cheap jewelry on E-Bay. The market was very hot. People got caught up in the rush. There was money to be made in the kitchen, the extra bathroom, the finished basement, etc.
  
  People began viewing their home as a liquid asset. They dipped into their equity and bought cars, vacations, paid off credit cards and many things like that. They did not change their lifestyle. Now the car is old, they need a vacation and the credit cards are maxed out again.
  
  The milk cow has run dry.
  
  People can not afford to stay and they can not afford to go. Homes are on the market and no one is willing to pay the asking price. Buyers are not willing to subsidize the largess of the homeowners. The once perceived value does not exist anymore. Sellers will either reduce their price to an acceptable level or they will have to remain in the home. If they cannot afford to repay the money they have knowingly borrowed, they will have to accept foreclosure. In this area, short sales remain terribly overpriced. The stalemate has continued.
  
  Sellers have been asked, "why would you mortgage yourself to the hilt?"
  
  They all have the same type of reply...."That's where the money was."

The truth about tomorrow!

The only people that get hurt on a roller coaster ride jump off in the middle. Most folks are watching the perils of Wall Street, listening to Jim Kramer rail against the attitude of the Federal Reserve and being bombarded with newscasts that predict the end of the world as we know it.

It just isn't true.

The truth is - many lenders chose to go the expedient route of desktop underwriting on mortgage loans. The underwriting process factored in data such as income, employment and your FICO score. The internet became the "deadbeats" best friend. There were some people that did not have a good job history. There were some people that did not have verifiable income. There were some people that had low FICO scores.

No problem.

You could go on line and pay a company to verify whatever job you chose to claim. You could just tell the loan officer how much money you made and if it made sense with the job you created, you could just state your income. That would work as long as your FICO score was high enough. But you don't have a good FICO score...?

No problem.

There was this nifty loop hole in the FICO system that allowed you to be added as an authorized user to someone with good credit. That's right, you could just pay a fee and have your name added and BINGO ...up goes your credit rating.

All of the sudden, anyone with a pulse (and access to nefarious firms on line) could get a mortgage. The smiling loan officer would just ask...how much do you want to say you can pay each month. Lies were told, paperwork was signed and loans were quickly resold. The valuble loan officer was the one that could close loans that would last 3 or 4 months before defaulting. (If the loan was sold and payments were made for a few months, the purchasor could not demand that the loan be sold back).

BIG PROBLEM.

First it was the sub-prime loans that began to go bad. The larger lenders sat back and smugly shared sound bites "We don't make those kinds of loans." The lenders that did make them are now pretty much history. Any reputable lender that did have some on their books, stopped underwriting them. The fall out was the demise of the sub prime business. Eye brows were raised and investors were stunned to see they were not going to get that big return. The question was raised...how could this happen?

Very old axiom....if you lend money to people that do not have the ability or inclination to repay it...you will lose your money!

The dust had barely cleared when larger lenders began to run into what they called "liquidity problems". If everyday terms, the investors began to feel the pinch and they reduced how much they were willing to pay. American Home Mortgage was the largest recent victim(?).

Now, rumors run rampant that Countrywide will fall. They did run into a problem. It is significant to note that the other big banks lent them the money to continue operations. They have announced some changes. Those changes portend tomorrow.

The TRUTH ABOUT TOMMOROW!

The situation has no relationship to chicken little or a fallng sky. Lenders have tightened their requirements. Jumbo loans (those over $417,000) are more expensive to get. There is still money for mortgages. The lenders are just beginning to focus on those loans that are guaranteed by Freddie Mac, Ginnie Mae and Fannie Mae. They need to make sure that the loans they make will be purchased.

It would seem to me that if the money pool remains the same, and companies are focusing on conforming loans, the housing market is in better shape than most understand. If the pool of money used to fund Jumbo loans is not being used, that money will have to be lent to someone. The amount of money that will be available to the conforming folks will increase. Remember, the lenders only have a chance at making money when the actually lend money.

In case you haven't noticed, buyers at the lower end of the scale have not been knocking down doors to get loans lately. There are several things that have spooked them. The media with it's continuing gloom and doom soundbites has tempered enthusiasm. The month after month increase of the interest rates when the Feds meet has created the illusion that interest rates are high. The increase in the cost of living on day to day things like gasoline, dairy products and basic entertainment (like a family nite at the ball park) has them worried about the future.

Lenders will have to take a long look at the potential pool of borrowers and come up with a way to entice them back into the housing market. The federal government will have to come up with a way to stave off the recessionary possibilities that now exist. One answer will solve both problems. Interest rates will come down a bit. It won't take much. A quarter point drop on Sept 18th or before will resonate across the market place with the power of the started at the Indy 500 intoning "gentlemen, start your engines".

Real estate has always been a bottom up industry. The people that buy the $200,000 home enable the seller of that home to become the buyer of the $300,000 home and so on. It is sort of a trickle up effect. We will have more money available to the first time buyer or the buyer purchasing property at the lower end of pricing. Those sales will trickle up and we will see a return to housing sales.

This is not to say that we will return to the days of escalating prices and homes sellng for 10% or more over the asking price. Those days were fueled by lies and those lies have seen the light of day. Prices will probably go up in accordance with other costs in the economy...no more and no less.

Realtors will once again pre-qualify buyers and listing agents will take a longer look at the ability of buyers to purchase their listings. It used to be that way.

You see, real estate agents got lazy too. They opted for the "talk to your lender and bring me a pre-approval letter and then we can go look for homes". They passed the buck and responsibility onto the lender. The lender passed the buck to the desk top underwriting system and various documents that were not verified. Folks selling homes were willing to accept offers as long as the money got to the settlement table. Everyone turned a blind eye to reality.

As I have shared...those chickens have come home to roost. The absolute truth about tomorrow is that everyone will be more careful. Loan applicants will actually have to be credit worthy. The housing market will improve.

Tomorrow.

Daily Fair Diary... Day One

Well, my first day at the fair has come to an end. I have a feeling that the people that stopped by to chat and ask questions represent many of you that haven't had the chance to stop by. I thought I would share a little of the information requested.

Bob T. came by and shared that he and his wife had recently sold and were now renting a condo. He said that they got less than they thought they would get for the house and decided it would be better to rent for a year before buying another home. He and his wife saw a couple homes they liked. They figure with all the turmoil in the market, the prices will drop and they will get a better deal next spring.

I just happened to have my laptop with me (had to use the battery, the fair did not include an electrical outlet in the package). I pulled up the two homes that he mentioned to see if the price had come down. He and his wife just stared blankly at the screen when both listings came up as sold. Not only that, one of them sold for a bit more than the asking and the other sold for full list price.

I told Bob, prices may come down a bit. No one has a crystal ball. The downside of waiting is that someone else may like the property you want and they may not be willing to wait. There may be another house just like the one you didn't buy. No one has a crystal ball. All we can do is act on the facts before us.

If you buy the home you want today, and a similar home sells next spring for less money, you still own the home you want. Next springs prices have nothing to do with today's prices. In the long term, home values go up. You are buying a home, not investing in real estate. Tomorrow will always have the possibility of being better or being worse. Today you can make decisions based on facts...not possibilities.

So......that was the most involved question of the day. Two steak sandwiches and one ice cream cone later...my day was done (now if I only get them to call B7, I will have Bingo 2 ways on one card and a four corner on another).