The Subprime Crisis and How it Affects You |
By Denise Lones
The Lones Group
Top national news story this year:
New Century Financial Corp., the second largest sub-prime mortgage lender, is broke. They can't pay the creditors who are demanding money and rumor is that we'll be hearing about bankruptcy soon. Even the New York Stock Exchange has suspended trading for the company, once a giant among lenders.
It finally happened.
The sub-prime market was being pushed to its edge for months-by lenders with unethical predatory tactics-and now it's getting ready to collapse in on itself. These predatory tactics included ridiculous mortgage programs being offered to consumers who literally cannot afford them.
There was a report on Nightline not long ago about an elderly woman who was told by a lying sales rep that she would have no payments for five years on her refinance loan. But she had to sign before 5 p.m. that day.
Now she's losing her house because the bills started to arrive for $2,300 a month and she takes home only $1,000 a month from her social security. She's going to lose her home because of believing an unscrupulous company that made promises it never intended to keep.
I'm sick and tired of it. We as real estate agents have to watch this every day and sometimes there's very little we can do about it except to advise people that perhaps they're getting in over their heads and they should talk to an attorney.
Because even though we get a sale, we know what's going to happen. The people who fall victim to sub-prime lenders typically don't have the ability to pay back the loan. They miss payments and go into foreclosure. All because they signed under pressure that they're going to lose what they have been conned into believing is a "good deal".
This has been going on for years. But finally-FINALLY!-the predators are getting what they deserve.
This is good news.
No, it's not good news for the people who have been bilked. I'm not saying that. But what I am saying is good is the fact that this industry is now squarely under the spotlight. It's the top story on the nightly network news and on the Internet. Federal authorities are even beginning to take a look.
The Mortgage Banker's Association, a Washington-based trade group, recently said that in the 3rd quarter of 2006, delinquencies were at 12%. This indicates that investors are no longer interested in sub-prime loans and they're trying to sell them in a frenzy. This puts even more media attention on the crisis.
Maybe the con games are over. Maybe now people will wake up and see what's been going on for years. Maybe now we can get back to lending money only to people who can afford it.
As a real estate agent, it is your responsibility to at least understand what your clients are getting themselves into. Don't feed into the frenzy by taking them down a road that may lead to a cliff. Read about it. Investigate it. Understand it.
I know agents who have erroneously thought that sub-prime mortgages are good for the industry because they allow more people to be able to "afford" to buy a home. The problem is that these people truly can't "afford" to buy. No amount of low initial ARM rates can make up for the fact that they won't be able to keep up with the payments-especially when the non-caring lender hikes the ARM up a few points.
Here's something else to think about:
Picture a neighborhood with a strong sales value. Suddenly, one of its homeowners is forced into a "Desperate Sale" because of a bad loan. They have to sell quickly to avoid foreclosure, so they take the first lowball offer they can find.
What happens then? All the homes in the neighborhood are suddenly devalued because one home sold for less than it's worth. What if there were another homeowner in the neighborhood who had to do the same thing? And another? Do you see how the value of a neighborhood can be completely decimated?
These mortgages are not good for your clients nor the industry. The best thing you can do for your clients, your industry, and yourself is to advise your clients to speak with an attorney before signing anything.
And tell them to never sign anything under pressure! If it's truly a good deal, it will still be there tomorrow.
***
Lenders wrote me angry-screaming angry!-for what they perceived as giving the mortgage industry a bad name. Some realtors wrote me saying I was exaggerating the story. A person in a non-related field wrote to thank me for shedding light on the topic.
But the response that was most powerful to me was from the president of one of the largest lenders in our area. She was thrilled about my article because she's sick and tired of attempting to provide a realistic and reputable service amid a sea of bad practices. She also believes that lenders and agents together should be responsible enough to discourage the types of irresponsible behaviors that have led to the current crisis.
Just to clarify my point again: Not all lenders are predators. Not all realtors who help a client get creative financing are negligent. All I'm trying to say is that lending has spiraled out of control in this country and the proof is in the numbers. Foreclosures are at an all-time high. Lenders are folding under the enormous weight of unpaid debt. These are facts, not suppositions.
And builders are scared. I was at a builders' meeting earlier in the week and most of the attendees brought up the crisis with me. This is a true alarm signal. You KNOW that when builders are concerned, it's going to cause a trickle down effect.
But here's the good news: Real estate agents have the power to do something about it.
What can you do? - Don't be afraid to talk to your clients about the money. I always tell my clients, "It's not just what you pay for your house. It's what you pay for the money on your house."
Advise your clients to get a second and third offer. Too many agents shy away from the topic of money because they're too eager to "make a sale". Bring attention to the money instead of avoiding it.
- Take your lender to lunch. Or two. Or three. Get to know them. Understand their world. Find out what it means to be a mortgage broker. Ask questions. Dig into the business.
I do believe that as a real estate agent, it is your responsibility to provide the best service to your clients-not just sell a property. In order to provide "five-star" service, you must understand what your client may be getting into. Know who the credible lenders are so you can help them make a decision.
And if you have a client who wants to do some "creative financing" with no down payment or other agreement, fine. If they've worked out the numbers and believe they can afford it, it's surely their call. But if you smell a rat-even if you have the slightest inkling that there's a hungry salesman making overblown promises to them-you'd be doing a favor to your industry (and to the lending industry!) to help them clarify their position in a subtle professional manner.
I know that sometimes it can be hard to understand the difference between "creative financing" and a predatory tactic. Which is why it's important for you to learn about the lending world as well. Your expertise in this area will only help you become a better real estate agent.
- Look at your own mortgage. I met with a group of homeowners lately and asked them, "Can you dissect your own loan for me? Your monthly payment? Your interest rate? Your loan-to-value ratio?"
Most of them didn't know. The perfect first step for learning about all this is to examine our own mortgage. How did it rate against competitors? What kind of tactics did the broker use to get us to sign? How long will it take to truly pay it off? What's the difference between yours and the ones in the news? I'm always saying we need to constantly educate and re-educate ourselves. This crisis is an invaluable opportunity for us to learn about issues that are important to our clients. The more knowledgeable we are, the more we can help them.
| Training For This Topic:More About This Author: |
|
|
|
| |
|
