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Why REALTORS should Applaud the Mortgage Meltdown 4/18/2008
Taken from: www. realtown.com
Contrary to popular belief, real estate professionals should be very happy about much of the mortgage meltdown. Certainly, short-sighted commission-chasers are whining and pining for the days when they could sell McMansions to the unemployed, but that's not real estate. Remember, there has always been "a sucker born every minute" and real estate brokers, unless they wish to be seen as silly as the traveling circus, should be wary of any market that makes things too easy for them.
Look at it this way: Every element of the mortgage meltdown is an opportunity for the real estate industry to reassert itself as a group of professionals who understand that property values are the most important savings vehicles in ordinary people's lives. That inflation is the enemy of property values. That saving for a downpayment is the right way to buy an asset. That paying your principle is the foundation of a sound credit-economy. And that some people just aren't ready to buy if they have no money down and need interest-only loans. And most importantly: if stock brokers won't pay 20% above market prices for a single share of stock, why would it make any sense for home buyers to purchase in an overinflated market? Encouraging - or turning a blind-eye - to those buyers who were throwing an extra $50,000 at homes - in bidding wars - was the surest way to reinforce an already suspect image that REALTORS were just check-chaser. Every past buyer (homeowner) being burned today is feeling very betrayed yb their last REALTOR. Even those "caveat emptor" brokers can't argue with the fact that, while buyers let their emotions get the better of them, against our best advice, those consumers today are blaming their agent for "letting them" get into such a mess. It may be irrational, but that's all the consumer remembers: the agent who didn't work hard enough to prevent them from going overboard. And if the consumer sits back and asks themselves why their agent didn't "slap them out of it," it's because (at least in their minds) the agent got a bigger commission the higher the buyer bid for the property.
Ouch. That's the future problem the meltdown will pose for REALTORS. We can sit in our lofty towers (for the few months remaining that we can pay the rent) and say the consumer did this to themselves; or that the evil mortgage brokers did it; or even that the Fed was complicit (which it was) but the past isn't the problem: it's the future. And in the future, too many past borrowers (and those who aren't in trouble but read the news) are going to remember that many REALTORS were too happy to let prices run away and buyers dig their own financial graves. All at the same time that REALTORS were saying, "You need us because we are the professionals! We can help you do it right!"
Every time we get caught talking out of both sides of our mouth, the industry is irreparably harmed. It will take far longer to repair our image in the minds of consumers than it will for the housing market to bounce back. When the upturn comes, consumers may be looking for fresh faces and untarnished companies to deal with, rather than call back that agent who didn't stop them from overbuying, then foreclosing on, their last home.
We can't have our cake and eat it, too. And that's why smart real estate agents should be applauding the current mortgage meltdown. Not because it makes it harder to sell today, because it really doesn't. We should be happy - those of us who desire to be viewed as professional guardians of our client's trust - that the market finally caught its error (and perhaps none too soon). We should applaud every step to fix the problem before things escalate to proportions where far more homeowners' equity would be in greater jeopardy. We shouldn't be happy that people are in distress - that's just mean - but we should be happier for our past clients who put 20% down on their homes and have been paying principle and interest on their mortgages. We should laud the clearing of the markets today before the spiral downward catrches not just the speculators, but the responsible buyers (now owners) who did it the right way with our help.
Who is our future client? The current owner who has equity in his home. Those without equity are returning to the rental market quite easily without our help. But tomorrow, we'll possibly have a shot at listing the homes of owners who have some remaining equity and are ready to buy their next home. To protect that equity, REALTORS should encourage the market to crash as soon as possible, so that overall neighborhood values start back on the upswing. If the rest of the neighborhood crashes, even those buyers who put money down will have their savings (equity) in jeopardy. That's the real danger in the crash: That it is going to wipe out the owners who worked hard, saved and applied for a sensible mortgage for a reasonable price on their last home. That's who we need to be protecting. Not the foreclosures - just get the people into apartments and tear down the extra inventory. Reduce supply, especially of underpriced inventory, and stop stripping away the value of the smart homeowner next door.
More importantly, REALTORS should be pleased that the market caught itself just in time. The meltdown was not caught by some government investigator or bureaucrat who figured out there was a problem. It was spotlighted by investors who caught the "slight of hand" going on by some brokers. Smart investors are duly punishing the mortgage-mobsters by pulling their money from the charlatans and pouring it into strong corporate bonds. The real estate industry should be very happy this happened by the market on its own - but of course, they're not. Once again, confusion about what the industry does and shame at the fact that it profits by it has caused the REALTOR population to return, hat in hand, to the House of Uncle Sam for due punishment. Who's asking for more regulation? Certainly the usual proto-communist suspects like Charles Schumer (D, NY) who think that government action is the only way to fix everything. Like the great job the government did in the Great Depression, prolonging the credit crisis then and implementing a new regulation by Presidential fiat nearly every day - most of which the Supreme Court had to keep striking down. Good job with that; let's try it again.
But it's also REALTORS who are supporting more regulation. REALTORS who think, let's let the government bail out the system, plus implement some rules that will make things better. In REALTOR-speak, that means "harder for competitors to come in later and out-flank us," like supporting greater regulation for "deceptive loan practices" - which means "banks" who might get into the business because they are trusted more than ClayCave Real Estate on the local corner. Sorry, did we miss something there? Are REALTORS saying they couldn't help consumers identify deceptive loan practices in the industry in which they are the professionals? Did "make sure your clients don't get hoodwinked by mobsters and thieves" not quite make it into the REALTORS' standards of practice? Even if regulation had existed, it wouldn't have caught anything: There aren't enough regulators or inspectors for OSHA, let alone the mortgage business. But there are a lot of REALTORS - usually two involved in 85% of every transaction. Couldn't any of them find anything?
And it gets worse. Rather than reveling in the meltdown, the REALTORS want to perpetuate it, or at least push it off for another decade when it will come back much worse. How? Get the government to increase the loan limits on tax-payer backed mortgages at Fannie and Freddie. Hey, that's a great idea! Let's protect speculators and incompetent investors because we were somewhat complicit in their gold-rush in the first place. Let's redefine the shell-game by using the taxpayer money taken from those buyers and owners who represent the good investors in the real estate market. Fannie and Freddie get their money from the buyers and sellers who put money down and pay their mortgages. That's where taxes come from. To encourage the government to appropriate more of it to back risk refinancings is totally inapporpriate for an industry who is supposed to be looking out for its clients. Every new government bail out requires more taxpayer money. Every Fannie and Freddie loan is simply a "micro-bailout" since it represents mortgages that private capital firms don't want, because they are essentially poor investments. And every time Fan and Fred make these bailout-loans, they are simply sucking more money from the housing market. Not directly, of course, but deviously undermining home values every time they have the Treasury print more money. More money to load through Fred and Fan means more inflation. And inflation is the enemy of house values, equity savings and the future clients of the real estate industry.
Don't get me wrong: I don't think the mortgage crisis was caused by the REALTORS. I do think, however, that we could have done a lot to have prevented it, while protecting a robust and profitable marketplace. And we could have helped our clients - past and future - view us as trustable, knowledgable professionals. Today the only way to do that - to recover any trust and build bridges with potential clients in the future - is to advocate for the current home owners in the country. They are the only ones with remaining equity - the equity needed to move from one home and buy another, the equity that represents the source of future real estate commissions, just as much as it represents the underlying investment for most of the broader economy. Encouraging bad loans to blow up as soon as possible and preventing Uncle Sam from perpetuating bad investment vehicles (Fan and Fred) as well as new speculation is the only way to turn around the market. And our standing in the eyes of the consumer. To protect the foundations of our future business, we need to tear down the rotting frames of our house of cards.
