In the video below Brad Inman shares his ideas of what was and is wrong with the real estate industry and invites viewers to submit their ideas for what’s needed for improvement.
Give the video a watch and then feel free to leave your comments here (or Inman News’ site, if you prefer). My thought is that I would compile the comments received here and then submit them as one post to the Inman News site (e.g. "from the readers of the Reno Realty Blog").
Reno Ignoramus
If the question is what can be done to make the real estate business “work better”, no doubt Mr. Inman’s readers will likely come up with the some useful ideas.
But if the question is what can Mr. Inman’s readers do to bring about a recovery in the housing market, the answer is damn little. That solution is not in the hands of realtors. There will be no recovery in the housing market until prices stop dropping. Prices will not stop dropping until the foreclosure pandemic abates. The business of the buying and selling of real estate is impotent to impact in any significant way the still unfolding foreclosure tsunami. There is no tool in the realtors’ box to fix the problem.
DonC
Happy Thanksgiving!
Couldn’t agree more with RI. He’s nailed the source of the problem. I’ll just add that not only are foreclosures the source of the real estate problem, it’s also the source of our larger financial problem. So far with the notable exception of the FDIC we’ve spent too much time worrying about WS and not enough about the foreclosures. Simply put, to fix WS we need to address foreclosures. Don’t get me wrong, WS is important, as is the auto industry for that matter, but neither is the root cause of the problem.
What’s the scope of the problem? Well, there are about 57 million outstanding mortgages. Of that number 18 million are sub prime and Alt-A. Half of these will probably go into foreclosure. So at the end of the day we have to deal with 9 million foreclosures.
The good news is that this is actually not that hard. In fact we’ve done it before, in the 1930s. So we know what works. What can work? Any number of things. You can go with the plan involving second mortgages offered by Marty Feldman, the conservative economist. You can encourage loss-sharing. You can have the government buy these mortgages at a 60% discount. You can repeal the last change to the bankruptcy law that prevents the court from revising mortgages. You can have the government offer to finance all healthy mortgages at a fixed rate of 5% for thirty years (my favorite … and I don’t have a mortgage).
Any, all, or a combination of these things will work. I’m astounded that we haven’t moved. In this regard, I’m not sure if Paulson doesn’t get this bit or if Bush is the problem. Having watched the congressional hearings in the House I know Barney Frank gets it, and I suspect that come January we’ll see a couple of proposals. Hopefully by then the light bulb will have gone on for Paulson.
Sully
As an add to the above comments: Realtors can help the process along by answering their phones. Buyers for REO’s are human.
Real estate is a people business. People like to talk to people not anwering machines, fax machines or email.
Although this is not a cure all for all the problems, its a start. Show the buyers you actually care about selling the house!
BanteringBear
I am shirking Thanksgiving responsibilities, so I’ve got to keep this short.
DonC posted:
“Simply put, to fix WS we need to address foreclosures…You can go with the plan involving second mortgages offered by Marty Feldman, the conservative economist. You can encourage loss-sharing. You can have the government buy these mortgages at a 60% discount. You can repeal the last change to the bankruptcy law that prevents the court from revising mortgages. You can have the government offer to finance all healthy mortgages at a fixed rate of 5% for thirty years (my favorite … and I don’t have a mortgage).”
This does nothing except exacerbate the problem. There is only one solution when it comes to foreclosure’s, and that is to let them happen. When somebody buys something they cannot afford, they need to lose it. That’s life. They move on, taking their credit lumps, and the bank takes it’s losses, as the asset sells for a more realistic price to someone who CAN afford it.
All of this government meddling IS the problem. Let the market work. The idea that we need to try to make a $700k house work for a couple who don’t even earn $100k per year is ludicrous. You don’t change to rules in the middle of the game.
Incline JJ
Was anyone in the business long enough to remember the old rule 28/36 debt to income ratios. I remember when you had to call and beg and beg hard to get someone a loan over 40 percent debt to income ratio..
Back in the day of full documentation..3-6 months reserves in the bank, job security..when everything was verified and double verified.
The market in a couple years will find the true bottom and start to go sideways for a bit then slowly back up..When will this happen, no one really knows..not till after 2011 or 2012
The scariest think you can ever hear is..Hello, we are from the government we are here to help
Jay
The gov’t entities Fannie Mae, Freddie Mac, are selling their home inventories at too high of a sales price. At this time, they are “holding” their prices comparable to the local housing market and not the auction market or lower.
In 1991, I bought a Fannie Mae house with 1,015 sq ft, 3-bedrooms (2-small), 2-full but small bathrooms, 2-car garage, corner lot, built around 1982, for $35,400 in Austin, Tx.
It seems no one in the business now, has the experience or memories, of the S & L mess.
Sully
Jay, considering their inventory – how long do you think they can keep this up? Foreclosures are not going down and their inventory can only go up in a spiraling trend.
For the time being, they are getting money to stay afloat – that day will come to an end – then its game over.
smarten
Incline JJ, you state “the market…will find [its] true bottom…in a couple years…and start to go sideways for a bit then slowly back up..When will this happen, no one really knows..not till after 2011 or 2012.”
Given you’ve stated you’re an Incline Village buyer, just curious: is this your outlook for Incline Village/Crystal Bay? Reno/Sparks? Or the market nationally? Thanks.
Incline JJ
Incline JJ, you state “the market…will find [its] true bottom…in a couple years…and start to go sideways for a bit then slowly back up..When will this happen, no one really knows..not till after 2011 or 2012.”
Given you’ve stated you’re an Incline Village buyer, just curious: is this your outlook for Incline Village/Crystal Bay? Reno/Sparks? Or the market nationally? Thanks.
Well, Incline Village, is a bit different..I don’t have my data with me being I am in the Bay Area for another week but 1/3rd of the homes in Incline are used by full time residents. So people buy more for a 2nd home, summer home or ski place. I pulled some data a few months back, and Diane, correct me If I am wrong I think the mortgaged homes where about 50% Fixed rates and 50% adjustable rate mortgages..I don’t remember the exact number of houses with mortgages on them..
With the stock market down about 60% it pretty much hits everyone across the board..The 2nd house or the rental property loan payment will be paid back less..Defaults and foreclosure sales are increasing in Incline Village..Been up at the lake for 20 years next month..Seen the economy and market boom and cool off..
In the early 80’s I lived right under Heavenly Valley and helped rehab a couple places in South Lake Tahoe, during the 20% prime rate time that area got hit hard..real hard..
I see foreclosures in every city and every market..On the Peninsula Hillsborough, Atherton, Woodside, Portola Valley have foreclosed property.
I disagree with some of the realtors in Incline, who say Incline is different. With people maxed out credit wise, with no more stated income jumbo financing that will slow down sales..
smarten
Thanks Incline JJ, but I don’t understand your bottom line conclusion: is your stated outlook for Incline Village/Crystal Bay the same or different as “the [San Francisco Bay] Peninsula?”
And am I mistaken or are you actually living in Incline [looking to become an owner versus renter]?
Thanks again.
MikeZ
Well, Incline Village, is a bit different.
It’s pretty funny how so many people think their area is different.
Well, good luck with that.
Incline JJ
Have owned in Incline for 20 years next month..
Own a townhouse..for the last 20 years it has worked for me..But now I want a house. Being I don’t have a garage and limited storage space..Plus towing a boat back and forth to the lake is a pain in the ass also..
I think being 50% of the loans in town are adjustable rate mortgage people are going to suffer from payment shock when the loans adjust..I would also assume that many used “stated Income”
I think it is different due to people buy to have a 2nd home in the area..Many people I run into around town work in town but live in Reno or Carson City and commute to work..
I don’t think the area is recession proof..
Most people use stated income loans due to the fact if they used tax returns most would not qualify..
I have used stated income loans in the past. I have also gone full documentation..I prefer to go stated income cause I have 12 different partnership returns and it is a royal pain in the ass to turn in all these. Plus I can show reserves that prove the income summitted..
Most loans where stated income stated assets
When I first stated in the business hardly anyone used quick qual loans..you had to have 3-6 months reserves for conforming and 6-12 months reserves for jumbo Fannie or Freddie..
You always had WAMU, World, and back in the day Home Savings, American Savings and Downey to get stated income but back then you had to have 20% down.
Most realtors in the business haven’t been thru a down market..I have personally been thru 4 of them..
Plus my grandfather was in the business for 40 years and I used to help him out around the office when I was a kid..
smarten
BTW Incline JJ, November has come to an end and the jury’s in; a booming ONE Incline Village SFR sold during the month [and this is second time this year it sold (the first was in April)]!
It’s crystal clear to me that Incline Village buyers, like those everywhere, require purchase money financing and there ISN’T any! Until there is, for all intents and purposes there is no longer residential real estate sales market.
CommercialLender
Off topic, but I think this would be of interest to this blog’s readers.
My house off Robb drive has a 5/1 that resets in May. current rate is 5.3875% and the new rate will be 275 over the 12 month CTM (constant treasury maturity). My all-in rate if it reset today would be a whopping 3.68% for an entire year, as it resets only annually. Given I go from I/O payments to 25 year amort payments, my entire all-in payment – including principal – goes up only $115/mo. Since $392/mo is my principal and therefore flows to my ‘balance sheet’, I’m coming out way ahead. Thank you, Ben Bernanke.
So, the reason I mention this is that someone above commented about a ton of new rate resets coming down the pike. True, but I’m not sure that this will have as bad an effect as we all thought earlier in the year. (That said, it will turn eventually.)
*****
So, can anyone shed light on this situation: I want to approach the above lender (Wells) and ask if they will re-cast my note to another 5 yr Interest Only period instead of going to 25 yr amortization. I think the loan is around 85% today, using quite bleak values (I put a bunch down when I bought it), maybe 80%. I have impeccable credit and, thank God, decent income. My concern is I’m not ‘risky’ enough a borrower to receive any special deals. Anyone have recent experience here? Do I have to pretent that I’m an inch away from bankrupcty to get them to listen?
Phil
BB, I couldnt agree with you more, in letting it all work out.
Most jumbo loans are just out of wack with what people can afford. I wonder how much of the drying up of loans are due to the fact that you have to actually qualify for the loan.
What concerns me more is the ripple effect this is having in jobs. The governement needs to get concerned about unemployment, and not the fact johnny can no longer get a 400K loan on a 50K salary. Loss of jobs will only result in further decay of the housing market, as most need to work to pay a mortgage.
smarten
CommercialLender, I have no particular experience with this [although our good friend Michelle Plevel claims she does], but my recommendation would be to ask Wells to convert it into a 30 year fixed rate loan. Yes the interest rate will be higher than 3.68% but if your loan is below the conforming loan limit [which I suspect it is], you might find an eager accommodator. Why?
Right now your loan is probably portfolio owned. By modifying it into something saleable [to FNMA/Freddie Mac (now that the Treasury has guaranteed it will back the purchase)], Wells has a ready, willing and able purchaser and its capital loss is zero!
BTW, mortgage rates ARE going down; Brennecke hinted today the Feds may lower the discount rate even further; and your timing may just turn out to be perfect.
At least it’s worth a try and I for one hope you share your experience with the group.
DonC
Phil – “What concerns me more is the ripple effect this is having in jobs.”
So forget about mortgages and worry about employment? Look, there is this pesky Mortgage–>Financial–>Employment connection. These connections make it impossible to have a robust economy until the mortgage problem is sorted.
Phil
There is even a bigger connection with Jobs -> Mortgage. Try qualifying for a mortgage without a job! Or try paying a mortgage without an income.
Sorry the fools who lent the money to buyers who had little to no skin in the game, along with loans they could not afford get burnt. The idots who wrote these CDS’s are another group who need to get burnt as well. Investors are going to lose in my plan, not the tax payers.
I’ll take the pain all at once not letting my chidrens children to pay for the investments gone bad.
BTW I am still trying to figure out what our billions have gained us? Who is profiting from this?
Easy credit was supporting the economy, and that needs to stop. Take out a HELOC to buy a new car? Sure my house is a money maker! Easy credit created the demand. Not the fact our incomes where increasing.
Having the government borrow more to fix this is just making the hole deeper. Who is going to bail out the goverment? Look no further than your nose, and it will effect everyone not just people with incomes over 250K.
How do you increase incomes? Interesting question.
BanteringBear
DonC posted:
“So forget about mortgages and worry about employment? Look, there is this pesky Mortgage–>Financial–>Employment connection. These connections make it impossible to have a robust economy until the mortgage problem is sorted.”
Forgive me, DonC, but you need to wake up. These foreclosures are HEALTHY. The current bust is a normal part of the business cycle. We need this massive financial enema to flush out all of the excrement created by such horrific economic policies. We can’t always have a “robust economy”. What frightens me is that, like so many others, you are hell bent on propping up a completely unsustainable situation.
What we had the past several years was a credit bubble of epic proportions, fueled by cheap money, which resulted in a ridiculous mis-allocation of resources. Not only do these folks who signed up for homes they could never dream of affording need to be washed away, but so do all of the frivolous businesses, with terrible plans and management. They were enabled by all of the money sloshing around. If ‘Boutique’ or ‘Luxury’ is in their business plan, they’re most likely done.
It’s time our politicians started waking up to this fact. It IS all about job creation, but not in the sense of selling overpriced junk to one another, financed by credit. It’s about creating sustainable businesses, and affordable lifestyles, where one doesn’t have to pull out the Citibank credit card in order to survive.
BanteringBear
Right on, Phil. I was typing as you posted. I am in 100% agreement with you. We need to take our medicine, and now.
Gary
We need to create an influx of wealthy immigrants with enough spare cash to buy a house AND start a business that will employ their new, recently unemployed American friends and neighbors. Now that I actually write it down, it seems so easy.
Oh, and it would also help if these rich new immigrants don’t need to drink any of our increasingly precious water.
On a more serious note, those who suggest that bailouts only exacerbate the eventual day of reckoning may have a point if that reckoning is as inevitable as they claim. However, I’m not convinced that the deep pain that we’d see in a bailout-free bottoming process cannot be avoided.
These bailouts are not expected to be solutions in themselves, but they can buy us the time we need to effect more permanent changes. One recent bailout, in the form of an unprecedented guarantee program, stopped a run on money market funds that was in its earliest stages and could have spread like a California wildfire. Where could that have taken us and how quickly, operating in panic mode?
I have to agree with Phil on the paramount importance of jobs. Few things could go further to help restore consumer confidence and convince new home buyers to take a risk in the housing market than to reverse the current trend of rising unemployment, which is also playing a significant role in the tightening of credit. If we can’t get a handle on unemployment, then I agree that housing prices have a fair distance yet to fall, and the negative feedback loop we’re caught up in will take us all the way to a very painful bottom.
Calamities like this were supposed to be prevented when we decided to engrave the superstitious invocation “In God We Trust” on our currency for all to see. What happened? 😉
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