Oops Our Bad - You Had A Role In This Too - Finger Pointing As The Foreclosure Pressure Heightens
Across the country, the rate of foreclosures has dramatically increased. Analysts and industry professionals have all weighed in with their expert opinion often attributing the crisis to the natural law of "market corrections" and uncertain economic times. However, the one admission that no one seems willing to make is that we are in this mess because of greed and ignorance.
Professionals in the industry share one common goal and that is to make money. It was not enough to sell homes to consumers who could qualify for a mortgage and were financially prepared to own a home. Those sales had already been made. So the industry "relaxed" its lending standards to expand home ownership to a broader market. The plan, on the surface, worked beautifully for many years. The industry appeared to be helping the less fortunate fulfill their starry eyed dreams of home ownership. In return for their good will, risky borrowers fueled the growth of the sub-prime mortgage industry from $150 billion in 2000 to $650 billion in 2005.
Caught up in this modern day gold rush were the "everyman" workers seeking a better future with a real estate license. Folks who had waited tables, flipped burgers and washed cars for a living last year were now selling homes worth more than their previous annual salary. Many of these people that were selling "the dream" did not own a home themselves and were unequipped to educate buyers on making the smartest purchase. Sadly this is also true of many loan offices. Buying a home is the single largest investment most will ever make yet many took that journey with "professionals" who did not have a clue what it was about.
Ah, but consumers are not completely off the hook for their role in this crisis. Greed not only drove the industry to find more borrowers but it also drove consumers to accept loan terms and mortgage notes which were unreasonable. Greed and need intersected turning the American dream into the American nightmare. Even Barbie has a dream house and every American wants their 40 acres and a mule. No one talked about the responsibility of having that plot of land. Buyers did not read the fine print on their loan packages nor did they fully take in that the grass in suburbia also needs to be watered to stay green. Greed and ignorance are never a good combination and that is clearly evident in today's market.
The fervent sales pitches did not include an education on the ups and downs of home ownership. Rewards were presented and risks were barely mentioned. Deals were quickly closing with handshakes and smiles as though life would always be this good. The good feelings spilled over into the traditional market as well. Homeowners traded up from "starter" homes into more expensive mortgages often taking advantage of the many creative financing terms, such as the adjustable rate mortgage, or interest only loan.
The industry and consumers could have benefited from a bit of pessimism. We could have used a Paul Revere shouting in our ears that good times don't always roll. As we now know, the bad times seemed to roll in with an unhinged fury - the dot com bubble burst, the 9/11 terrorist attacks brought the economy to a standstill, interests rate rose, we went to War, interests rates rose again, we were pounded by devastating hurricanes in the Gulf region, the economy worsened, unemployment increased and on and on it goes. Not to mention the normal ups and downs of life such as being laid off, a plumbing problem or a roof that needs to be repaired.
No one can with any degree of certainty predict the future. Real estate professionals must help potential homeowners do a comprehensive assessment which includes how they would handle their mortgage if their financial situation changed. Professionals can no longer sell adjustable rates mortgages (ARMs) with abandon on the basis of interest rates remaining low. Many borrowers are now in foreclosure as a result of ARMs. Agents must educate themselves so that they can educate borrowers. This is not happening today. On the flip side, borrowers must READ first and ask questions before they sign on the dotted line. It really does take two to tango and finger pointing is not going to solve the problem.
The mortgage industry must also realize that everyone is not your target market. Successful businesses thrive by targeting an "ideal client" in a niche. Attempting to make mortgages work for the world could only result in disaster. The industry must define a clear target market and develop products for that market.
The industry must also help some borrowers delay buying a home until they are ready. We can't stress financial education enough. New Cadillac Escalades, Mercedes, and Range Rovers aren't mandatory for the new garage. What about a savings plan so that you're prepared for home repairs and other emergencies? New homeowners should first get acquainted with their new investment and take it for a spin before they invest in spinning rims on a hunk of metal that they cannot call home.
In fact, home ownership is not for everyone. Owning a home is a privilege not a right. Not everyone is prepared to handle the financial and emotional responsibilities that come with owning a home and some folk should just be turned away. If there was a test required for home ownership, many would have failed miserably. Oh my bad, there is a test and it's the "qualifying for a mortgage" test. Yet lenders bent the rules so the slow students could pass.
In the short term, fewer houses may sell and fewer loans may be written but in the long term buyers and sellers of the dream will both benefit. Real estate professionals who accept accountability will find that they will have not only good business but more of it. After all the foundation of sales and marketing is meeting the buyers needs rather than pitching your features and benefits. Real estate professionals who accept their role as educator are likely to receive a greater response from consumers. Professionals must be willing to partner with their clients even if that means selling them a smaller mortgage or encouraging them to delay their buying decision until their financial house is in order.
The industry must also demand more from its professionals. Not everyone who can pass a test is qualified to work in the industry. If you sell a customer a suit that doesn't fit they can return it, but selling a customer a bad mortgage is not something they can return. We should not take so lightly that a home is not simply a sale, but the place where folks lay their head at night. A bad deal can literally put someone on the street.
In turn, consumers must demand more of the real estate industry. Borrowers do not have to become lending experts but should be prepared to ask the right questions. A borrower should know their credit score and understand where that places them in the traditional market. All loan options should be thoroughly investigated including the fine print. If offered a teaser rate or other adjustable product, you should fully understand when that rate ends and how that will impact your monthly payment. Do not accept an adjustable mortgage on the basis that you can refinance later, as this may not always be possible. Many borrowers bought into this assumption only to find that when home prices fell and interest rates rose they were unable to qualify for a mortgage large enough to cover the old balance or could not afford the prepayment penalties frequently associated with sub-prime mortgages.
We will never eliminate foreclosures or missed mortgage payments but when consumers and the industry work together we can certainly help many avoid a fate that has become all too common.
Stay tuned, the foreclosure issue is heating up and will be one to look out for in the future. Stay informed and don't forget to listen to Butch Grimes, on KTYM 1460am at 6:00pm every Monday night. He can also be reached at 323-750-3690 ext 236 or e-mailed at info@wetalkrealestate.com.
Copyright © 2005 Butch Grimes, We Talk Real Estate" , All Rights Reserved
WE TALK REAL ESTATE WITH BUTCH GRIMES(r) is a registered service mark of "We Talk Real Estate". The articles, logos and Designs are trademarks or service marks of "We Talk Real Estate" and may not be copied, used or displayed without the prior written consent of Butch Grimes.
Related Tags: real estate, home ownership, mortgage industry
Butch Grimes is a nationally known Real Estate Expert who is often called upon by national and international companies for guidance on achieving success in the ever-evolving minority emerging markets. He has also testified before the California Legislature on issues of mortgage insurance, unfair lending practices and other issues impacting underserved communities. He has received commendations throughout California and nationwide for his contributions to the real estate industry and local community. Grimes shares his considerable knowledge during a weekly radio show, "We Talk Real Estate with Butch Grimes" on KTYM 1460 AM in Los Angeles. The landmark show is the first live talk radio show dedicated to addressing real estate questions and concerns of inner city communities. His monthly column, "The Real Estate Insider," appears in state and local newspapers. To learn more about Grimes, visit http://www.WeTalkRealEstate.com
Your Article Search Directory : Find in ArticlesRecent articles in this category:
- Understand The Fha Guidelines Before Considering Fha Mortgage
The U.S. economy was hit hard by the global financial meltdown. In the housing sector, the crisis is - Basic Facts About Multifamily Apartment Construction Loans
When you make an investment, you surely think of getting something out of it to make the deal profit - Commercial Mortgage Refinance Loan - Ideal Solution For Financial Problems
Financial security is something which we have to plan from before. In life, there is no certainty wh - Free Government Grant Money Eligibility Requirements
All of us hear about free government grant money. But what is involved in obtaining this money? What - Top 10 Tips On Buy To Let Mortgages And Property Hunting
If you are looking for an opportunity to invest your savings or any money you have come into, there - A Few Tips On How To Stop Foreclosure
In case you are facing certain financial catastrophe caused by a loss or relocation of a job, or wha - How To Stop Foreclosure And Lose Your Residence To The Bank
In today's market, there are more and more citizens that get big loans then they use their home as a - Most Excellent Way To Stop Foreclosure - The #1 Blueprint For Saving Your Home
Just what is the best measure to stop foreclosure? No doubt you are browsing for an answer to that q - Act Fast To Stop Foreclosure
If you would like to find out how you can put a stop to foreclosure, there is not much to accomplish - Tips For Buying A Home With No Money
There is a popular belief that you can only buy a home if you have great credit. This is false becau
Most viewed articles in this category:
- Mortgage Refinancing - Rate Caps Protect You When Refinancing With an Adjustable Rate Mortgage
Adjustable Rate Mortgages can save you money when mortgage refinancing if you fully understand how t - 100% Mortgage Loans: What You Need to Know
Coming up with a 20% down payment can be a difficult task for many potential homebuyers. If you are - Home Equity Loan Pitfalls
The home equity loan came of age in 1996 when changes in the tax law eliminated deductions for the i - Mortgage Refinancing: How the Fannie Mae Weekly Yield can Help You Comparison Shop
Mortgage refinancing without knowing Fannie Mae's weekly yield is like buying a used car without kno - How to Pay Off Your Mortgage in 7 Years, Without Extra Payments
One of the most exciting new topics concerning wealth is “How to Pay Off Your Mortgage in - Mortgage Rate Comparison
Trying to get an "apples to apples" mortgage rate comparison can often be quite a hassle. Traditiona - Should I Pay Off My Mortgage Early?
Many people think that real estate debt is good debt. They think that their mortgage is their bigges - Mortgage Refinancing: Beware the Mortgage Vultures
If you are in the process of mortgage refinancing you need to be wary of overpaying for your loan. - Mortage Loans - How Much Does It Actually Cost In The End
Mortgage loans are the loans used to finance most people's first home. It is the big loan that ever - Where To Locate Home Improvement Loan Companies
Where to locate home improvement companies is a question that arises from many different people. Som