How much of the real estate industry is broken and just needs to be fixed?
By Daniel Rothamel, the Real Estate Zebra, Tuesday, April 21, 2009.I came across the following video of a Seth Godin presentation as a result of a post on his blog. The video is about 20 minutes long, but as is the case with Seth Godin, it is worth every minute of your time:
Seth Godin at Gel 2006 from Gel Conference on Vimeo.
This got me to thinking ...
The real estate and mortgage lending industries have received a whole lot of attention recently, mainly for all the wrong reasons. I'm wondering how much of this attention is simply the result of things that are broken and could easily be fixed.
What are the things out there that are broken, and how can we fix them?
And, perhaps more importantly, what things out there really need to be broken?
All rights reserved. This content may not be used or reproduced in any manner whatsoever, in part or in whole, without written permission of Inman News. Use of this content without permission is a violation of federal copyright law.
You must login or register to post a comment.
Submitted by James Thompson on April 21, 2009 - 10:42pm.
These are all very true statements, and I do feel that it needs to be fixed, but I just wanted to say that I'm happy that we're finally starting to see some signs of life, within the real-estate market. And thanks god for that!
Submitted by Jillayne Schlicke on April 22, 2009 - 7:16am.
We need to change the compensation system between a loan originator and his/her client. Right now, we compensate LOs only when a loan is made. This externally motivates LOs to....make lots of loans, whether or not the mortgage loan is in their client's best interests. It is beyond clear that we cannot rely on the vast majority of LOs to act in their clients best interests voluntarily. The industry seems unwilling to bring about change from within. An outside competitor could force that change with a profitable new business model that puts client ahead of LO and markets THIS as the selling point instead of, say, "lowest rates in a generation!"
Many LOs say they do this already, but they're stuck working inside of the old system, the old culture, under the old style of management.
Submitted by Larry Whited Sr. on April 22, 2009 - 8:24am.
What is broken?
You don’t have to search for long to see the beginning of our current financial and real estate crisis.
The Glass-Steagall Act of 1933 was passed to prevent another stock market and banking crash of 1929. It performed well for almost 50 years.
A portion of the act was repealed by congress in 1980 and we got the savings and loan crash in 1988.
It was completely repealed in 1999 with a bill introduced by Senators Phil Gramm R-Texas and Jim Leach R-Iowa and we now have a repeat of the 1930’s financial crash.
We need a new Glass-Steagall Act to build a fire wall around our consumer / retail banking system and protect our society and future generations from another collapse.
In today’s world a country must have a solid financial system to be able to have a voice in world events.
Larry A. Whited, Sr., CRB, CRS, GRI
President & Founder
www.maxUnet.com & www.WebMLS.net
A Virtual Real Estate Franchise System
** Virtual Is the Future **
P.O. Box 757
West Chester Ohio 45071
Direct - (513) 543-2727 Fax - (513) 297-7497
Submitted by Gregory Schreiber on April 22, 2009 - 1:12pm.
Sorry Larry, but Glass-Steagall had nothing to do with our current crisis.
Submitted by Larry Whited Sr. on April 22, 2009 - 1:52pm.
Gregory,
Ok to say I am wrong but you offer no other explanation. I know there are many pieces to current crisis but Glass-Steagall opened the door.
Google Glass-Steagall Act it becomes obvious that it had everything to do with the beginning of our current crisis. Each time congress repealed a portion and then all of the Glass-Steagall Act it was followed by a financial crisis due to unregulated high risk loan practices.
The complete repeal in 1999 took away most barriers between Consumer/Retail Banks and Investment Banks/Wall Street and allowed them to fill their portfolios with what we now call toxic loans.
The firewall must be rebuilt between consumer and investment banks and they must be regulated to make good loans i.e. a borrower must prove they can repay the loan. What a concept.
Sound consumer/retail banks are the back bone to a sound society. Unfortunately our government will now over react and over regulate those banks for a time. Then it will find a reasonable and safe level of regulation. That may take 10 years.
Larry A. Whited, Sr., CRB, CRS, GRI
President & Founder
www.maxUnet.com & www.WebMLS.net
A Virtual Real Estate Franchise System
** Virtual Is the Future **
P.O. Box 757
West Chester Ohio 45071
Direct - (513) 543-2727 Fax - (513) 297-7497
Submitted by Alex Shay on April 22, 2009 - 8:09pm.
Lots and lots of properties are for sale on Miami Beach, and that is neither a play on words, nor an exaggeration. The marketplace is flooded with properties that remain unsold month after month, as more and more homes become available for sale. An examination of the luxury market in Miami Beach tells a dire tale.
As of today, there are 40 listed waterfront properties for sale on the Venetian Islands, with 11 homes for sale on Rivo Alto Island, 13 homes for sale on Dilido Island, 3 homes for sale on San Marino Island, and another 13 properties for sale on San Marco and Biscayne Islands. The 5 islands mentioned, along with Belle Isle, comprise the Venetian Islands.
Palm Island and Hibiscus Island, which lie just south of the Venetian Islands, are also part of Miami Beach. On those 2 islands, a total of 31 waterfront properties are listed for sale, with 16 available waterfront homes on Palm Island and 15 on Hibiscus Island. The 4 Sunset Islands lie just northeast of the Venetian Islands, and 14 waterfront properties are listed on the Sunset Islands, with 7 listed homes on Sunset Island I and II, and 7 on Sunset Island III and IV.
North Bay Road is located on the west side of Miami Beach, and is well known for its exclusivity. It has been home to the Bee Gees, Jennifer Lopez, Thalia, Shakira, and a number of other well-known personalities. There are 16 waterfront homes listed on North Bay Road.
Who is going to buy all of these homes? Are the buyers out there? The answer is, yes. However, the resistance to purchasing a property is greater than ever, as buyers sit on the sidelines, afraid to buy a home that might not appreciate for some time to come. An additional problem is that the banks are still not lending money, so even when a buyer is ready, willing, and financially able, the banks won’t close the loans.
What does it all mean? Buyers must be savvier than ever before, and sellers must realize that by lowering the asking prices on their homes, they are not giving their properties away, as many sellers have expressed. Sellers who really want their properties sold, are going to necessarily have to become much more realistic, and realize the market is no longer what it was a few years ago; and there is no evidence whatsoever that indicates an appreciating housing market in the near future.
When properties on small lots are being listed on the Venetian Islands for up to almost 8 million dollars, and other properties on North Bay Road, on larger lots, are listed for less than 4 million dollars, something is amiss. North Bay Road homes have generally had substantially more value than Venetian Island homes.
The news is not all bad, however, because there has been a slight increase in activity, with more buyers appearing in the marketplace. When the banks start lending, things will improve, and when sellers become more realistic, more homes will be sold.
www.alexshay.com/
http://miamibeachluxuryrealestate.blogspot.com/
Submitted by Anna Mukhopadhyay on April 23, 2009 - 9:48am.
What if a homeowner can sell shares (ownership interests) in his home (primary residence) while keeping his exclusive right to fully possess and occupy it as the sole owner? What if he can sell these shares without giving the purchaser(s) an undivided interest (right) to possess the property (like in joint ownership/tenancy), or rights to use specific parts of the property (like in fractional ownership interests), or rights to use the property at specific times (like in timeshares)?
Then after a specific period of time, the homeowner can sell the property and share the proceeds with the shareholder(s). The new buyer can repeat the process, or buy the home directly with partners and investors.
Or, better yet, the homeowner can sell his ownership interest, which carries with it the exclusive right to occupy the entire property, to a buyer who gets to buy a home at a fraction of the cost of purchasing the 100% ownership interest.
What if, instead of the current “all or nothing” approach to buying our homes, we use a more pragmatic way so that 1/3 of households who do not own any home and 2/3 of households who “own” their homes by laboring under mortgages have an easier and better road to homeownership?
We at http://www.amuktrade.com are trying to make this possible. It is a free website.
Please join us in this endeavor, let your readers know, and give us your feedback. We look forward to your input.
With thanks and regards,
Sincerely,
Anna Mukhopadhyay
http://www.amuktrade.com
718-263-2883
Submitted by Matt Carter on April 23, 2009 - 5:15pm.
What's broken? According to the IMF, the global financial system. But yes, we can expect a lot of changes, voluntary and imposed, in the way the business of real estate (especially lending) is conducted. The comments below are mostly taken from my response to a column Marcie Geffner wrote in December about the need for more regulation of the industry. Most of the excesses you saw during the boom just don't happen any more. A mortgage broker can no longer take a borrower with marginal income and put them into a high interest rate loan to buy a house that's beyond their means, and then walk away with a big yield spread premium from the lender who buys the loan, packages it into a security or securities and sells it to some clueless overseas investor. Loan originators were funding loans that were not only a bad deal for consumers, they were a horrible deal for the investors who were bankrolling them. When the free market is functioning properly -- and yes, regulation is needed to ensure that markets operate freely and fairly -- lenders shouldn't have an incentive to make loans they know will go bad. The "no risk" environment for loan originators had more to do with deregulation of the banking and finance industry than a lack of regulation of the real estate industry. The rise of collateralized debt obligations (CDOs) and credit default swaps (CDS) (for which you can thank the Commodity Futures Modernization Act of 2000) helped "private label" lenders unload risk onto investors from around the world, many of whom did not understand the risk they were taking. Securitization fever was stoked by the effective repeal in 1999 of the Glass-Steagall Act, which said banks couldn't accepting deposits AND underwrite securities -- they had to do one or the other (be a commercial bank or an investment bank). Now that the world of securitization as we (briefly) knew it has imploded, the pendulum has swung the other way and lenders are being cautious about to whom and where they lend -- some would say overly cautious. With their government backing, only Fannie, Freddie and FHA (through Ginnie Mae) still have the confidence of investors and the capability to turn mortgage loans into investment securities. If government goes overboard in passing new restrictions on lenders, the industry says, that could make the downturn worse and deny many people the ability to become homeowners. Today, the House Financial Services Committee held hearings on a piece of legislation the lending industry really doesn't like, HR 1728, the Mortgage Reform and Anti-Predatory Lending Act of 2009. The bill is aimed at removing incentives for mortgage brokers to place borrowers in higher-cost loans, and would require lenders to retain some exposure to riskier loans that are securitized and sold to secondary-market investors (see story about bill's introduction in March). That being said, it's fair to say that most people probably don't want to see the kind of runaway price inflation we saw during the boom, and that an informed consumer is an important aspect of a properly functioning free market. More stringent federal guidance for "exotic" interest-only and pay-option adjustable-rate mortgage (ARM) loans went into place in 2006 and have been adopted by most states. Similar guidance for subprime loans came out in 2007. This summer, the Federal Reserve rolled out a bunch of new rules under the Truth in Lending Act intended to curb deceptive lending practices that will take effect in October and apply to all lenders. There are prohibitions against coercing appraisers, a requirement to provide a good faith estimate of loan costs within three days receiving a mortgage application, and a ban on deceptive advertising practices such hiding the fact that a rate or loan payment can change. Lenders making "higher priced" loans will be required to assess a borrower's ability to repay the loan and verify their income and assets. The new RESPA rule being phased in this year does attempt to address concerns about disclosures, and worries that lenders provide borrowers with estimates of closing costs that have no relationship to the actual fees they were charged. The RESPA rule also tries to address concerns about affiliated businesses, by making it easier for consumers to shop around and identify companies offering the best prices (which may, in some cases, be offered by affiliated businesses). Oversight of Fannie and Freddie was strengthened with the government takeover and the creation of the Federal Housing Finance Agency. That process that started years before they were placed in conservatorship. Regulators placed stiffer capital requirements on Fannie and Freddie in 2004 after uncovering accounting and management problems (which had nothing to do with their underwriting standards). Those restrictions helped the "private label" subprime lenders take market share away from Fannie and Freddie -- meaning many people who could have qualified for prime loans got subprime loans instead. The private/public organizational structure of Fannie and Freddie seems to be a real problem that needs to be solved. Investors in the companies enjoyed the profits, taxpayers bore the risk. But many would argue that Fannie and Freddie were victims of the boom/bust cycle, not contributors to it.Submitted by Sam Arthur on April 24, 2009 - 2:17am.
yes i agree that real estate has got a lot of attention in the recent past and its very good to all communities.
UAuctionOff.com
c/o ArtCam-Investments, Inc.
1229 Worthington Drive
Southaven, MS. 38671
Submitted by ProGold i2 & ViewMyListing.com on April 28, 2009 - 6:52am.
There sometimes a huge disconnect between the agent representing and the buyer/seller. If we can do a better job bridging that gap, maybe agents would not get such a bad reputation.
www.viewmylisting.com/homes-for-sale
Submitted by Alex Grex on April 29, 2009 - 5:16pm.
Seth Godin lives in his own head. He never seems to let me down with his narcissistic self puffery.
Alex Greben
Portland Oregon Real Estate
http://www.nwmove.com/
MLS - Foreclosures
Submitted by George Farmer on May 10, 2009 - 11:47am.
No need to fix any more than any other industry, give it time and it will self repair within the market itself.
www.landincorporated.com Land For sale Ads
Submitted by Becky Washam on May 12, 2009 - 3:13am.
It's irrelevant what we "allowed" companies to do. They should have the right to take toxic loans all they want. What is wrong is we took away risk. Big banks know that whatever stupid decisions they make the US Government will cover for them. As you noticed Obama isn't increasing regulating or stopping irrational loans. Quite the opposite - his calls to "get the credit flowing" are calls for more of the same. Loaning to people that cannot and will not pay them back and have the tax payer foot the bill.
Frisco Homes for Sale
Frisco Real Estate
Submitted by miya q on May 15, 2009 - 1:37am.
This is a growing trend today and what makes it to sell a house? Bathroom updating is important in trying to sell your home, or you could try some bathroom updating just to perk the place up a bit for yourself. However, if you're selling a house, you have to bear in mind that you're going to be doing a little home staging. How the bathroom looks is one of the things that sell homes, so bathroom staging is crucial. A few simple upgrades and renovations, like new shower doors or fixtures, can cost less than online cash advance to put in. If you're trying to move real estate, a well placed installment loan can help you with bathroom updating and selling your house.
Submitted by Ante Zoric on May 15, 2009 - 7:49am.
I agree that we need to see home prices drop to entice enough buyers to purchase homes again. Keep in mind that if prices are allowed to continue to drop than an economic recovery is much more difficult ...
Ante Zoric
Croatia apartments guide
Submitted by rania aslam on May 18, 2009 - 5:42am.
I first time visit in this post. I find this post is useful and have relevant detail in this post.
Regard
http://www.propertycyprussales.com
Submitted by Sarah Doherty on June 3, 2009 - 3:44pm.
Seth Godin was right in many things back then, but I think that the real estate market hasn't bottomed out yet. For the third quarter, the closely-watched S&P Case-Shiller national home-price index fell 16.6%, and experts are predicting further declines..
I just hope the next year will bring some improvement in real estate field.
Sarah Doherty
Croatia Vacation rentals
Submitted by mark chang on July 28, 2009 - 9:40pm.
whether or not the mortgage loan is in their client's best interests. It is beyond clear that we cannot rely on the vast collector-solar.com majority of LOs to act in their clients best interests voluntarily. The industry seems unwilling to bring about change from within