Analysis Paper: House Hustles and Helpful Hints

    The mortgage industry is a business.  Like all businesses the goal is to survive and make a profit.  Sometimes these profits can cause individuals within the business to lose focus and take short cuts at the expense of the consumer.  Sometimes these short cuts are accidental and can be corrected easily at little discomfort to the consumer.  Other short cuts are intentional and go unseen for months.  Additional, when discovered, to correct any mistakes may take months.  During that time, the consumer could lose out on thousands of dollar.  In today's house market, consumer need to know what these short cuts and swindles are to enable him or her to avoid them or be able to resolve the issue at the soonest opportunity.  In addition, it would be extremely important for consumers to knowing when he or she is being hustled, it may also be helpful to provided helpful hints to assist with home purchasing.  More to follow.

    

From Home Economics to Home

        In 1986, I was in a high school home economics class surrounded by a room full of young ladies.  I was the only guy in the class so my testosterone levels were off the charts.  I was a wolf in a room full of sheep.  Since it was the first day of school, summer flings were over and it was time to layout new blueprints.  I surveyed the class briefly and started to calculate a plan of approach for each young lady, ensuring not to give-off a desperate no-good cheating dog vibe.  I sat at my desk greedily rubbing my palms together as if I was about to receive a bar of gold from King Midas.  My thoughts were slightly perverted and fill with ideas I got from the magazines in my stepfather's toolbox this past summer.  I had the biggest devilish grin on my face that could be seen from the moon.  A grin that Satan himself would have been proud of especially since he was probably guiding all my thoughts at the moment.  Unfortunately that same diabolical grin also warranted the attention of the teacher, Ms. Pendergrass.  Since I have the awful habit of sitting in the first chair to the right of the class, it was rather easy for Ms. Pendergrass to spot me.  She stepped near and started the class by asking for everyone to give his or her name; why he or she was taking this class; and when do he or she plan to start a family.   She started with me.  This was my moment to shine.  I stood to my feet with my chest out and head held high.  I had all confidence in the world.  Just as I began to say my name and my voice cracked.  Some individuals would have been embarrassed by this but not me.  I was the Alpha.  I was wearing my Brut cologne and spent hours pressing my clothes; nothing could side track me.   I took a short pause and began to clear my throat.  As I was clearing my throat, something didn't clear right and I began coughing uncontrollably.  Now I'm embarrassed.  I ran out the class and headed straight for the water fountain.  I felt like the biggest nerd on the planet.  After composing myself, I returned to the class not as confident as before.  When everyone was finished giving their answers, the teacher returned to me.  I stood and said, "My name is Latroy.  I'm here to learn how to cook.  I'm not getting married until I old and established.  Maybe 23 or 24."  Looking back now, I hope I didn't offend her with my answer.    

        I got married when I was 23 years old and my wife was 19.  Our first task as a couple was to find a place to live.  I wasn't a huge fan of renting.  Rent always felt like throwing money away or paying someone else's mortgage.  We desired a mortgage of our own.  When the weekend came we told ourselves, "The first real estate office we see, we will get an agent and buy a house."  It was that simple, so we thought.  We walked into Century 21 and said, "We want to buy a house."  The agent asked a couple of questions we never considered due in our inexperience.  The agent asked, "How is your credit?  How much do you have for a down payment?  What kind of payments per month can you afford?"  All legitimate and simple questions but we just didn't put any thought into it.  We were still in the honeymoon phrase of marriage where we were just happy to stare at each other and rub noses.  We weren't prepared for questions so serious.

        Combined, our credit was terrible.  It wasn't terrible because of past due notices, garnishments, or closed by creditor accounts.  It was terrible because we weren't established.  We didn't have enough credit references or any credit history.   We were considered a high credit risk.  To make matters worst, we didn't have any money saved for a reasonable down payment.  We haven't even talked about a monthly budget yet.  Needless to say, we left Century 21 and lived in one of those cheap pay-by-the-month trailer parks for the next four months getting our act together.

        During those four months, we save money for a down payment, established credit around town, and created a budget.  We read books and had a basic understand now of how to buy a house.  We weren't real estate agents but we picked up enough terminology not to be lost in the presence of a realtor.  We were ready.

        When the weekend came, we set-out to find another realtor.  Out of shame from our previous attempt, we went to a different real estate office, Prudential.  This time we were prepared for nearly any question and did well when asked.  However, there was still a small issue.  Before the realtor would take us out to search for a house, she referred us to a mortgage lending company to first pre-qualify for a loan.  This was when we were informed we qualified for a $90K house at a variable interest rate of 12%.  I thought that was a good deal considering when we established our around the town credit, everything was 29%.   Finally we could began house hunting.  The realtor never once showed us a house under $100K.  She also told us we could save more money for a larger down payment to make up the different in the loan amount because most of the houses under $100K were in ghetto crime rampant neighborhoods.  I took offends to this.  The fact that I grew up in a ghetto crime rampant neighborhood myself wasn't what offended me but the fact that she was using it as a scare tactic to coerce us to buy outside of our price range to fatten her purse.  We parted ways that day and went to Coldwell Bankers.

        The agent at Coldwell was very professional and did exactly as we requested.  She worked within our budget and even advised us to stay well below our price range in case we decide to have a family soon. Within a week, we found wonderful three bedroom house for $67K at a fixed interest rate of 10% in a great subdivision near work.  We closed on the house and within 30 days we were moving in.  It was perfect.

        My first home buying experience blessed me with a couple of lessons.  First, if an individual is looking to purchase a home, he or she should concentrate on ensuring his or her credit is a perfect as possible.  This may require contacting financial offices to dispute mistakes reported on his or her credit report.  Also, it may require an individual to pay-off particular accounts or open accounts with low balances that can easily be paid-off to establish credit.

        The next lesson I took from this experience, individuals have to stick to a budget and exercise a regular regiment of saving money.  This is a life changing routine and seen by some as extremely difficult.  This is  difficult because individuals are constantly bombarded with advertisements to buy items that aren't needed but wanted.  Advertisement agencies primary job is to make individuals unhappy and their secondary job is to provide the remedy for their unhappiness.  Individuals just have to decide what's more important.

        My final lesson in house buying is to trust no one.  Realtors earn a commission from your purchase.  Rightfully they should considering that they spend hours showing you homes, giving advice, and assisting you at closing to ensuring you do get completely hosed-over.  But it's important not to forget realtors work for the client not just for themselves to get the biggest commission as possible.  The same goes for lenders.  Before an individual settles on financing, he or she should shop a few different lenders to see who offers the best rates.  Buying a home should be satisfying and not a ripoff.  Every part of it should feel good and if it doesn't, there should be a reasonable explanation for an individuals dissatisfaction.

The Next Big Housing Crisis Is Only Days Away

        The housing market is on the verge of another great financial crisis. Fortunately for millions of Americans this crisis won't have the same negative impact on the United States' economy as did the collapse of 2008. During this crisis the American public won't witness massive foreclosures or feel swindled by big corporation as Americans ante up for another greed driven bail out. In fact, this crisis will probably go unnoticed by the average American. The only time it will be mentioned will likely be in an occasional brief news broadcast as just an update to the current housing market. Now, if it's not first page news or effects the American public, then how is it a crisis?

         In January 2014 the new Qualified Residential Mortgage rules proposed by the Consumer Financial Protection Bureau (CFPB) comes in effect. The Qualified Residential Mortgage rule will limit individuals from taking out a mortgage if the monthly payments causes his or her debt to income ratio to exceed 43 percent. The previous rule was 36 percent. A seven percent increase doesn't seem like much of a deal breaker, however, the new rule also takes into consideration students loans, property taxes, flood insurance, and any other fees associated with home ownership. These changes are designed to protect consumers and makes sure the buyer doesn't take on more then he or she can handle, however, these rules are make it hard to qualify for a loan. Every part of a person's finances are being scrutinized to prevent another mortgage collapse. Many would-be buyers will not qualify for loans and some individuals will be too discouraged to even try.

        As a result of tougher lending practices, the Mortgage Bankers Association estimates that loan originations will drop by 10 percent this year and The National Association of Realtors predicts these changes in lending will result in 20 percent fewer loans in 2014. That's equivalent to over 600,000 less homes per year being sold. With the government agencies currently still in possession of 90 percent of all outstanding home loans, courtesy Freddie Mac and Fannie Mae, this large inventory will take well over 10 years to decrease the even the slightest. The only hope for a better outcome is if private sector bails them out and assume a portion of these outstanding loans.

        Meanwhile the best course of action for potential buyers is to continue working on improving his or her credit score, increase savings, and stay tuned for possible changes to come.


  Qualified Residential Mortgage Rule & National Realtors Association

Refund or Bail Out; Freddie and Fannie Has To Go

            On the 10th of August 2013 President Obama conducted a weekly addresses titled, "A Better Bargain for Responsible, Middle Class Homeowners."  In his address, he spoke of progress and improvements being made in the housing market which in the long run will aid in strengthening the U.S. economy.  A key point that was made but not expanded upon was winding down on companies like Fannie Mae and Freddie Mac.  In order to strengthen the housing market, Fannie Mae and Freddie Mac must be eliminated.

            Fannie Mae and Freddie Mac showed little responsibility when gambling with American taxpayers' money through subprime loan lending practices.  A subprime mortgage is a type of mortgage that is normally made out to borrowers with low or poor credit ratings who do not qualify for a regular conventional mortgage.  The borrower would be seen as a high risk of defaulting on the loan and given a different criteria to qualify.  High risk individuals are those individuals with a high debt to income ratio, individuals with poor credit, or unstable fluctuating incomes.  In order to compensate for the risk, these individuals were subjected to higher interest rates and additional fees tacked on to their loan.  Fannie Mae and Freddie Mac made these loans possible for individuals seen as high risk borrowers by providing local banks with federal money to finance home mortgages in an attempt to raise levels of home ownership and the availability of affordable housing.  Essentially they made it easier to purchase a house.  This does not sound that bad but the truth is, not everyone can afford the house he or she desires.  In an interview on BBC at 2100 BST on September 10, 17, and 24, (2009, rebroadcasted) Alan Greenspan, Chairman of the Federal Reserve of the United States from 1987 to 2006, stated:

            I have changed my mind about deregulation.  The crisis on the financial 
            industry’s inability to monitor  itself was ‘‘speculative excesses’’ and a normal function 
            of capitalism. I contributed  much  of the problem to human nature: ‘‘It’s human nature, 
            unless somebody can find a way to change human nature, we will have more crises and 
            none of them will look like this because no two crises have anything in common, 
            except human nature. 

The human nature element is what drove both lender and borrower to act in the way which they did.  The borrower saw a opportunity to get something he or she wanted and the lender saw an opportunity to make a profit.   At first glance this did not seems to be a poor plan, assuming borrowers would make good on their loans, but this created more of a demand for housing which ultimately led to inflated home prices.  In addition, lenders began to ignore the high risk and felt safe because they were using government funds instead of their own to cover bad mortgages.  As a result, they lessened some qualification requirements and waived other criteria because they knew Fannie Mae and Freddie Mac assumed the greatest risk.  This became the norm.  Lender approved more high risk loans and even solicited individuals to purchase new homes or refinancing his or her current loan to gain access to the home's escrow or equity. Lenders were guaranteed more money and still assumed no additional risk.  

            Fannie Mae and Freddie Mac assumed all risk associated with subprime lending practices.  They bought mortgages on the secondary market, pooled the loans together,  and sold them as a mortgage backed securities to investors on the open market.  The secondary mortgage market increases the supply of money available for mortgage lending and increases the money available for new home purchases.  Ordinarily this provided Fannie Mae, Freddie Mac, and other investors with a great return on their investment but as borrowers began to default on their loans, Fannie Mae and Freddie Mac were obligated to cover the losses even if it meant a government bailout at the cost of U.S. taxpayers.  The question we all now have to ask is do we want another bailout?

                                                        Works Cited

Hansen, Laura L., and Siamak Movahedi. "Wall Street Scandals: The Myth Of Individual  

            Greed." Sociological Forum 25.2 (2010): 367-374.