Sensible Flats and Social Responsibility

by Kris Berg

Realtor, Associate Broker

Author website

I have been busy lately, so busy that while my back was turned I missed about 47 Russell Shaw Podcasts. Sorry, Russell. I fully intend to listen in, uninterrupted, when I have a sufficient block of time (say, the month of May?), but I have been too busy with business to learn how to do more business. I have been reading Inman like I read the daily print rag – Headlines only. And only a teaser along the lines of “Greg Swann to Speak at Annual Humility Conference” would have tempted me to get side-tracked.

So, what I have been doing all week is a lot of mechanical real estate stuff (prepare for the listing, take the listing, market the listing, manage the escrow). What I have been doing a lot more of, however, is listening. By Friday, my husband Steve (or, my wacky sidekick, as he often calls himself) may be threatening to have the phone surgically removed from my ear.

What I have learned can be generally categorized as follows:

• A bunch of well-intended people are knee-deep in bad loan doo-doo in my area, far more than I knew.
• Steve and I are finding that Pro Bono work is taking a considerable amount of our time these days, and we don’t mind.
• Lenders and loan brokers are making us look good.

Steve and I, in the past week alone, have met or spoken repeatedly and at length with three different couples in trouble. The situations have ranged from the sad to the tragic. In each case, we have felt it was our obligation and duty to meet with the parties to pencil out scenarios and discuss the implications of the various options. In each case, we knew that we would not be paid for our time, now or in the future. Call it social responsibility.

My “tragic” example involved a military family with three properties totaling approximately $1.7 million in value, all acquired within the past two years, the most recent having closed escrow just a couple of months ago. Each was purchased with or refinanced into a 100% interest only loan with negative amortization. Due to a declining market, all were upside-down. My family, we will call them the victims, had been looking at their mortgage statements recently when they were shocked to see a couple of grand a month being added to the principle on each home. In their words, they didn’t understand the loans they were getting. “No one should have ever loaned me this money” and “I am a (name your occupation) – I don’t understand this stuff so was relying on the professionals” were the things we heard. So trusting is this couple, that one of the properties is currently listed by the mortgage broker who got them into this mess!

And this is the part that broke my heart. They have been struggling to stay current on all loan and insurance payments, and have. They have FICO scores above 720 and virtually no late-pays. When we suggested that refinancing was not an option, leaving only short-sales (in which case they need to stop making payments to make the case of hardship to the banks) or foreclosures, both of which will take their credit to the proverbial cleaners, they looked completely defeated. Their credit was the one thing they wanted to preserve, but they just wanted out.

It may be convenient to argue that these people wouldn’t be in their present pickle if they had made good choices last year or the year before. It is just so easy to suggest that these folks should have stayed within a budget and not purchased homes they could by all accounts not afford. And it is tempting for their lending representatives to defend their roles in facilitating the purchases that should never have happened by saying, “This is what they wanted, and it wasn’t my place to talk them out of it. It was ultimately their decision”. But, buying a home is not buying a pair of shoes.

I have a pair of hot pink patterned pumps which I bought a few years back. The shoe salesman did not ask me how many pairs of shoes were already in my closet (too many), nor did he challenge the sanity of the purchase (there should have been a saliva test involved), and he certainly didn’t question whether I could afford the $50 (work with me here, girls – this is what I told Steve they cost). I thought I needed them, and I bought them. In my Case of the Questionable Purchase, however, I was not anticipating selling them at a profit to buy a more expensive pair next year. If the price of Silly Shoes was to plummet next week, I wouldn’t find myself shoeless. And, I knew that $50 meant $50, not $2000 over the life of the insoles.

How do otherwise intelligent people find themselves in homes they can’t afford with loans they can’t afford? Is it the need for shelter, is it greed or is it simply the desire to acquire some financial independence in the long-term? The answer really doesn’t matter. It is the question that does.

How in the hell do the “trusted advisors” who sold them these loan products sleep nights?

To an industry, it is time to take some responsibility. In many circumstances, the right thing to do may be to just say “no”. It will cost you a paycheck, but your actions have very real and serious impact on the very real lives and futures of very real people. And you can take that to the bank.