I don’t pretend to understand the half of what Greg is trying to convey. This much, however, I will confess. Government is necessary, coalitions have value, and social responsibility is incumbent on all of us.
Slam zoning laws if you must, but if, as a homeowner, you suddenly find yourself sharing responsibility for maintenance of your side yard fence with the owners of the strip club next door, you will undoubtedly see some benefit in government intervention. I did time in Houston; I know of what I speak. If you loathe the union that professes to defend your profession and your livelihood, consider that you have choices. These choices may include speaking from a pulpit of change and reform while all the while paying your member dues or, alternatively, resigning and declaring free agent status. And if you detest government intervention in any form, consider that it is necessary for an orderly, progressive, sustainable society.
Who is not to blame for the mortgage mess? Take one step back. As lenders, money was flowing from the spigot like there was no tomorrow. As mortgage brokers, there was money to be made by cranking the faucet, and it was a foot race to see who could get to the sink first. As agents, we sang the “Houses are expensive, but money is cheap” refrain until we were blue in the face. And, as for the consumer, it really doesn’t matter in the final analysis whether they were motivated by necessity, opportunity or unadulterated greed. We all helped make this bed in which we now must lie.
Kudos to the Feds for being reactive if not proactive. Without a decisive response to our current situation, water under the bridge be damned, many innocent and not so innocent citizens would continue to suffer. Libertarianism is just ducky, ducky, that is, until the basic fundamentals are violated. The human condition all but guarantees that our unchecked actions will affect those around us.
Government regulation does not, did not, result in loan fraud or financial overcommitment. Government regulation can not be fingered for the shortcomings of the lending or real estate professions. Government intervention is neither the cause nor the solution, but elimination of organized oversight is not the panacea.
To condemn the Feds for our present pickle and then to condemn them further for trying to address the predicament is to argue on false premise. “I don’t have a dog, so my dog couldn’t have been the brown dog that bit you. Besides, my dog is black.”
Let’s bring it back home. We have a client who wanted to be a land baron. Our client, a single parent, had the American Dream in their cross hairs. Against our emphatic warnings, our client bought homes (plural) that they couldn’t afford but for which they could get the financing. This was Summer of 2005, our market’s peak. Greed? Bad judgement? Desire to succeed? All of the above. Today, it doesn’t matter what the original motivation or intent was; it just sucks, and there are tens of thousands more just like our client. Shame on them, shame on us, or should we takes notes and move ahead?
And, then, I can’t leave this rant without coming full-circle to the subject of eliminating licensing requirements for real estate agents. It’s not entirely unrelated. The success of anarchy in any trusted (or distrusted) profession is wholly reliant on the ability of the masses to make studied and informed decisions. If the current state of the state of home lending is any indication, it can be extremely difficult to distinguish the snake oil from the cure. Lax licensing requirements may do little to differentiate the carnies at the midway, but absence of standards, however ridiculously lame, will just result in more customers tossing their cookies on the Tilt-O-Whirl. (In deference to Greg, I confess to having come full circle myself on this issue several times over, but I am certain my feet are now on solid ground).
Greg – I think you are right, and I think you are wrong. Reform is necessary. Reform is always necessary, as perfection is but a dream sequence. Capitalism should be celebrated – You will get no argument here. But, communism is not a synonym for social responsibility. We are complex creatures living in an increasingly complex world, and we will always need a camp counselor. That is what makes absolute freedom a true paradox.
More viewpoints, pro and con, on supplanting the NAR:
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Greg Swann says:
> Slam zoning laws if you must, but if, as a homeowner, you suddenly find yourself sharing responsibility for maintenance of your side yard fence with the owners of the strip club next door, you will undoubtedly see some benefit in government intervention. I did time in Houston; I know of what I speak.
Not to rain on your parade, but Houston does have zoning. It’s done by land-use restrictions, not municipal code, but the net effects are very similar: Unabated sprawl, vast, unwalkable blocks, etc. Good examples of cities that developed without zoning are American cities that undertook their major development prior to World War I, after which various “progressive” movements destroyed much of what had been free commerce in the U.S. There are no cities that developed after the advent of the automobile that were not afflicted with zoning, so we don’t know how Houston or Phoenix might have developed. The other pernicious factor in more-modern cities — and in the suburbs of older cities — are the “free” roads. The inner-cities we swear we love best — Manhattan, The Loop, San Francisco — developed without zoning at a time when walking was the most common form of transportation. Without zoning and without “free” roads, Houston, Phoenix and the other cities of the twentieth century would have developed very differently.
Nevertheless, this doesn’t mean, absent zoning, that you will never end up with neighbors you don’t like. Who should I fear more — strip clubs or people who pull guns on innocent people? The latter is what zoning does. You will find there is no end of everyday activities that I am opposed to because they entail using force or the threat of force on innocent people. Commerce is not crime. If you want to control the lots next to your home, buy them and lease them out however you choose. When you use force to assert control over property that is not yours, you are stealing that property, depriving the rightful owner — innocent of all wrong-doing — of the use and disposal of that property. The purpose of civilization is to protect innocent people from criminals. Virtually everything modern governments do is crime.
That paragraph is an argument in the way that I expect an argument to be constructed. To dispute it by persuasively valid means, you would have to take positions you know in advance are false. The alternatives are tap-dancing, hand-waving, name-calling or some other resort to persuasively invalid rhetoric. If you like, I can talk to you about how government might exist without crime — without the coercion of innocents — but you will be amazed at how little government you will have left to defend by that point.
> Government is necessary, coalitions have value, and social responsibility is incumbent on all of us.
These are expressions of sentiment. They’re common, easy sentiments, and I don’t want to hold your feet to the fire for asserting them. What they are not is arguments, nor are they in any way rebuttals of anything I have said. Throughout this post, you make characterizations of things I have not said, while never once quoting from my actual, usually quite lengthy arguments. If you want to debate a point I’ve raised, quote it and then have at it.
> Libertarianism is just ducky, ducky, that is, until the basic fundamentals are violated. The human condition all but guarantees that our unchecked actions will affect those around us.
Straw man fallacy. I’m not even sure why this is here. As a point of clarification, no one, ever, in the entire history of political philosophy, has argued for a civilization without dispute resolution.
> To condemn the Feds for our present pickle and then to condemn them further for trying to address the predicament is to argue on false premise. “I don’t have a dog, so my dog couldn’t have been the brown dog that bit you. Besides, my dog is black.”
Straw man fallacy again.
> The success of anarchy in any trusted (or distrusted) profession is wholly reliant on the ability of the masses to make studied and informed decisions.
I don’t understand. Are you claiming that you yourself are able to judge whether or not a piece of electrical equipment is safe to purchase? If you are not, are you saying you would prefer government regulation to the oversight of the Underwriters Laboratories? This exact issue was raised in my original post on real estate licensing laws, which, so far, no one has attempted to dispute by what I would regard as persuasively valid means.
> If the current state of the state of home lending is any indication, it can be extremely difficult to distinguish the snake oil from the cure.
Which is why objective, independent third-party oversight would be beneficial.
> (In deference to Greg, I confess to having come full circle myself on this issue several times over, but I am certain my feet are now on solid ground).
Wanna bet? 😉
> Greg – I think you are right, and I think you are wrong. Reform is necessary. Reform is always necessary, as perfection is but a dream sequence. Capitalism should be celebrated – You will get no argument here. But, communism is not a synonym for social responsibility. We are complex creatures living in an increasingly complex world, and we will always need a camp counselor. That is what makes absolute freedom a true paradox.
Again, this all seems to me to be the expression of sentiment. If there is an argument here at all, it is the lifeboat fallacy or perhaps the argument from convenience. If you want to talk seriously about serious issues, I am always ready. If you want to tell me I must be wrong because the things I say make you uncomfortable or don’t fit your preconceptions or whatever, hammer away. All I care about is being right. If you persuade me I’ve made an error, I’m in your debt. If instead you beat up on straw mannequins of things I’ve never said, that will probably not excite my interest.
September 18, 2007 — 11:54 pm
Russell Shaw says:
>All I care about is being right.
That statement has a couple of quite different meanings. 🙂
September 19, 2007 — 1:07 am
Greg Swann says:
I’m not seeing any ambiguity. I said:
What about this are you having trouble understanding?
September 19, 2007 — 6:30 am
David G says:
You two are conflating so many issues here that it’s impossible to pick sides. Probably a good thing.
I do have an opinion on the rate cut issue and I can’t agree with you Kris; it seems to be a huge mistake. I’m no economics guru but I do know that easy credit got us into this mess and so it’s pretty logical that more of it ain’t going to get us out of it.
When you have the likes of Greenspan admitting that he didn’t anticipate the current crisis, it’s easy to conclude that capitalism does best when it’s left alone to balance itself out.
September 19, 2007 — 8:27 am
Steve Berg says:
David G – The rate cut does not equate to the “easy credit” you refer to. It will take months to filter into the system and it is intended to stimulate borrowing, but mainly by/for business, not necessarily in the form of mortgages. It will help those with existing adjustable rate mortgages in that their adjustment may not be as great as it would have been and it (small consolation for most at this point). It will also help those with credit card debt and those with home equity lines of credit as many are tied to the Prime Rate, which effectively dropped yesterday.
However, there is little appetite in the mortgage backed securities market to buy loans with any risk factor now, i.e., subprime or even stated income loans unless the borrowers credit is stellar. Most lenders will also want to see money in the deal now. Few 100% financing options are available and only to those, again, with stellar credit.
This is all happening, ironically, as you suggest it should. It is capitalism left alone. The free market does work. But believe me, the pain is not over yet and likely won’t be for another year, or more.
September 19, 2007 — 10:06 am
Rebecca Levinson says:
The rate cut was necessary to ease some of the financial burden current homeowners are now carrying.
That being said, I have a question on this post, that talks of buyers being advised to not purchase homes that they couldn’t afford. I wish I have been a fly on the wall for those conversations. I don’t think many of them occured. To move the homebuying public forward into a more positive househunting experience, those who are involved in the mortgage loan industry and the real estate industry should advise their clients on the ramifications of purchasing beyond their means. It’s been my experience (7 years in a real estate attorney’s office as a start) that this doesn’t happen often enough. This advising should extend to not just those buyers with imperfect credit, but to buyers who are trying to impress the Jones’s by purchasing a home with all the upgrades at a price that will break their piggy bank wide open. I am also thinking about the buyers who purchased homes after a bidding frenzy of multiple offers at an amount exceedingly above List price of the home. I wonder where the counseling was for those buyers.
Rebecca D. Levinson-Connect2Agent
September 19, 2007 — 1:58 pm
Michael Cook says:
Rebecca,
In theory, if buyers cannot afford to purchase a home should they simply not qualify for the loan. The purpose of the underwriting process is to ensure that buyers have the current and future means to pay off their debt.
I dont think its an agents place to pass judgement on the finances of buyers, but rather that should be the mortgage brokers job. If a buyer can be prequalified and then qualified for the house, what else is a broker to do? The fail safe really lies with the buyer and the mortgage broker. If the buyer lies it has to be on them and if the mortgage broker lies or encourages the buyer to lie then it is on them. Finally, if the bank has poor underwriting practices, then its on them. I find it hard to believe that a real estate agent has the capacity to even give advice in this area. Am I wrong here?
September 19, 2007 — 2:17 pm
Steve Berg says:
Rebecca – I should actually clarify my statement regarding help to owners with adjustable rate loans. It actually depends upon which index their adjustable rate is tied to. Many, for example, are tied to LIBOR (London Interbank Rate). Those owners may not benefit at all from the FED action on Tuesday.
With regard to couseling, I do agree and we have tried. However, we have to be careful how we tread on this issue as it is a personal decision of the buyer. As Michael so eloquently put it, people have to take responsibility for their own actions, as well.
Michael – Couldn’t have said it better myself.
September 19, 2007 — 3:00 pm
Brian Brady says:
The commentary makes a great case for separation between agents and lenders; the conflicting advice given often results in a biased recommendation to buy a home. Nowhere is that more present than the roller coaster, high-wire act of Southern California real estate.
Somebody has to act as a fiduciary to the buyer. If lenders lend, what do they care if the buyer can REALLY afford it? As long as it fits the guidelines, the mortgage broker’s responsibility is to the transaction (and the referring agent). If the buyer can get a loan, why would the Realtor care if the buyer can REALLY afford it?
This is the problem with the current system, Kris. There is no real accountability built in so licensing is nothing more than a revenue scheme by the states. The problem lies in the implied endorsement the license represents (if the CA DRE licenses him/her, then they MUST be looking out for my interest).
So…abolish licensing on the agent and lender side; it doesn’t really protect the buyers…OR
Institute a license with some teeth and responsibility behind it. Require loan originators to pass a financial planning course that is encompasses liabilities management, equity management, investment asset class analysis, insurance planning, and estate planning. Do THAT for lenders and you’ll truly have someone to hang should a buyer go belly up.
Of course, three things will happen should we do that:
1-Affiliated business arrangements will have to disappear because of the potential conflict of interest. That lost revenue to real estate brokerages will result in lower splits to real estate agents.
2- We’ll lose 60-70% of the current originators. That will result in higher origination costs to the consumer (simple supply and demand)
3- Real estate prices will drop nationwide. As the new “planner-originator” assumes the fiduciary responsibility for the buyer’s financial well being, he’ll be required to say no more than yes. More “no’s” result in less buyers which results in lower prices.
Then, EVERYONE will be pissed off.
Mr. Caveat Emptor’s licensing abolishment doesn’t sound so bad, now.
September 19, 2007 — 5:07 pm
Appreciative Visitor says:
I’m not a Realtor(R) (but as the joke goes, I did just stay at a Holiday Inn Express), and I agree with Michael Cook: it’s not the Realtor(R)’s problem if buyers buy things they cannot afford, any more than it is the responsibility of a Pit Boss to refuse bets from someone bent and determined to flush their kids’ college fund “double down” the black jack table.
BUT, some Realtors(R) have been selling to the flock that in fact they (Realtors(R), not the flock) provide essential (you cannot buy a house without them! don’t try it – you’ll be sorry …) advice and counseling, including critical financial guidance in making home buying decisions.
Exhibit A: the “Suzanne Researched This” C21 commercial that I’m sure you’ve all watched and hated (for many reasons, one of the worst ads ever).
Cutting the rate at this time with the dollar already sucking wind will do more harm than good to everyone except for some banks and hedge funds. May be a small silver lining for RE industry is that U.S. property will get even cheaper for foreign buyers because it is priced in dollars.
(p.s., Russel Shaw: from reading his posts, I don’t think “right” or “left” labels apply to Greg Swan.)
(p.s.s., The “david blaine” videos posted on Lani Anglin’s web site are hysterical. Watch immediately after the Suzanne commerical to wipe it clean out of your buffer).
September 19, 2007 — 7:08 pm
Brian Brady says:
I’m going to disagree with the Appreciated Vistor. on this. It’s all about expectation.
A gambler doesn’t expect to get financial advice from a Pit Boss or dealer; he knows he’s walking into a lost proposition.
A home buyer, however, has the right to expect advice from a Realtor and/or loan originator.
September 19, 2007 — 8:19 pm
Appreciative Visitor says:
Brian,
Just like I have a right to “expect” advice from a stock broker(“Now’s a great time to buy this stock”), a car salesman (“Now’s a great time to buy this car”),
a financial planner (“Now’s a great time to invest in this annuity”), or even a Nordstrom sales person (“that suit looks really good on you”), and so on.
If I can teach my children nothing else before they leave the nest, I hope it’s how to recognize [and therefore put in proper perspective] when “advice” they are receiving is from someone who gains financially if they follow the advice.
This does not mean that knowledgeable persons who (innocently or coincidentally) stand to gain personally if their advice is followed will therefore advise poorly. But, a Realtor(R) and a Mortgage Broker(R?) only get paid if the sale/loan closes. I do not begrudge them their payday (not even Suzanne’s), but I sure as heck would consider any such advice with that in mind.
This is an outstanding blog site. Thanks for letting me participate.
September 19, 2007 — 8:56 pm
Brian Brady says:
“This is an outstanding blog site. Thanks for letting me participate.”
You are “appreciated” here. Come back, again.
September 19, 2007 — 10:32 pm