Category: real estate

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Occupy Main Street; the trouble with greed

by Dan Krell
© 2011
DanKrell.com

What is it about Occupy Wall Street that has everyone talking?  Sure, everyone seemed to be against the bailouts, but it seemed as if there was not much agreement among the protest groups about other issues.  Some expressed anger about capitalism; some were against student loans, while others seemed to focus on debit card fees.  The buzz about OWS has allowed us to define it in our own terms.

While recently sitting in on a continuing education class about fair housing and predatory lending, an OWS discussion begins: the banks’ were responsible for the housing crash and the resulting financial crisis.

The discussion quickly turned into a tirade about the evils the banks would have us do for their gain.  Two agents in the class were clearly angry and claimed that the banks knew what they were doing before the crises ; the banks forced people to take loans they couldn’t afford; the banks need to cut the loan balances to match the market; and the banks need to repay those who lost their homes; and so on.

Of course these two are always entitled to express themselves.  However, I seemed to upset the apple cart by asking a question.  I asked, “Do you feel you contributed to the housing crisis because you sold homes during the years that lead up to the crash?”   They explained they had no way to look into the future and did not have a crystal ball.  I asked, “Did you ever ask the lender to push your client’s debt ratio or get exceptions to underwriting requirements?  There was no answer.  One final question, “Would you return all or some of your commission you earned during that time?”  Thankfully, the instructor got the point and quickly turned our attention back to subject of the class.

It’s not ironic that this conversation comes almost two months after the Federal Housing Finance Agency (FHFA) filed 17 suits against issuers of mortgage backed securities.  According to an October 10th editorial in Mortgage Banking, the FHFA is seeking damages on behalf of Fannie Mae and Freddie Mac.  The complaint cites “negligent misrepresentation” in disclosure documentation and “some allege state securities law violations or common law fraud.”

The editorial points out a statement made by Mortgage Bankers Association Chairman Michael Young as understanding the FHFA’s actions to attempt to recoup taxpayer losses tied to the GSEs; however, he “noted responsibility for the mortgage crisis extends far beyond the banks and includes the credit rating agencies, mortgage insurers, borrowers and even the GSEs.”

As time passes, we are increasingly provided new information and facts that allows us the opportunity to have a broader perspective of the housing and financial crises.  Nazneed Ahmed, in a 2010 enlightening essay, Greed, financial innovation or laxity of regulation? (Studies in Economics and Finance, 27(2), 110-110-134.), discusses the mortgage and liquidity crises that affected the US and Global economy.  Using Bernie Madoff as an example of poor financial oversight, he surmises that the liquidity crisis “evolved with the advent of poorly supervised financial products, especially the credit default swaps and subprime mortgage loans.”  The conclusion is that greed that is the root cause.

Like the Greek Sirens, greed entices people to their peril.  From home owners and buyers to Wall Street, greed is the apparent culprit that fueled the crises the evolved from 2007-2009.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of October 31, 2011. Using this article without permission is a violation of copyright laws. Copyright © 2011 Dan Krell.

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The housing solution trap

When we’re feeling pain or anguish, immediate relief is often sought. So, it would make sense that, when we’re feeling pinched financially, a short term money fix might help. However, quick fixes don’t always address the underlying issues that precipitated or contribute to the problem.

According to recent reports, Americans are increasingly “feeling” the pain as the economy continues to stagger amid volatile financial markets and gloomy housing reports. The Misery Index, which can be construed as a quantitative measure of “pain” associated with an economy, was recently reported to have risen to its highest levels in 28 years. (Introduced in the 1960’s, the Misery Index is found by adding the unemployment rate to the rate of inflation. Obviously, the lower the index – the better.)

So it should come as no surprise that as the push for a jobs bill continues the focus has once again turned to the housing market. This week, the Federal Housing Finance Agency (FHFA.gov) announced that the Home Affordable Refinance Program (HARP) will be “enhanced” to accommodate more under-water home owners.

When the program was initiated in 2009, the intention was to assist the refinancing of home owners whose home values declined. It was estimated that it would assist millions of home owners. However, as has been widely reported recently, only about 900,000 home owners have been helped; and of those home owners, about 72,000 are under-water.

Seeking immediate relief for home owners, HARP’s eligibility requirements have become the center of attention. This week’s announcement to remove the “impediments” to refinancing is expected to increase the pool of home owners seeking refinancing of underwater mortgages.

HARP’s initial eligibility requirements included: having a mortgage guaranteed by Fannie Mar or Freddie Mac; the mortgage must not be an FHA, VA, or USDA loan; mortgage payments are current and payments must not have been more than 30 days late in the last year; the first mortgage amount must not exceed 125% of the home’s value; the refinance should improve the long-term affordability of the mortgage; and you’re able to make the new payments.

The new HARP guidelines announced by FHFA this week include lowering or eliminating certain borrower fees, removing the 125% loan to value ceiling, and extending the program to December 31, 2013.

In addition to helping already stressed home owners, it is expected that the money saved on mortgages will be pumped back into the economy. However, critics say that the revised guidelines will do little, if anything, to address the wider problem that exists in the housing market. Additionally, some critics point to the added burden on an already troubled Fannie Mae and Freddie Mac.

So, if the recent adjustment to HARP won’t do much for the housing market, as critics point out; what is the solution? Short term fixes may immediately reduce the pain. However, there should be little doubt that housing and employment are closely linked. Aside from monetary policy that might focus on flattening inflation; addressing long term sustainable economic growth, along with an expansion of permanent full time employment is the key to reviving the housing market.

Nothing feels better than taking pain away quickly and effortlessly. However, like many deep seated problems, the solution may very well lie in a long term plan that may require feeling some pain along the way.

by Dan Krell
© 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice.  Using this article without permission is a violation of copyright laws.

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Do people really care about real estate agent ethics?

What factors do you consider when shopping for items or services? Is it price? Brand recognition? References? When it comes to hiring a real estate agent, if you’re like most people, chances are your choice is not necessarily based on the agent’s adherence to ethical standards.

Of course, high integrity and ethical behavior is admirable. However, what may seem counter intuitive to an ethical society, a body of research indicates that consumer choices are not typically based on ethical criteria. Of the many research articles published in peer reviewed journals, here is a very select few that point to such a conclusion.

First, a 2005 study seeking to determine if consumers buying decisions were based on companies’ ethics was conducted by De Pelsmacker, Driesen, & Rayp. They indicated that although there are numerous attitude surveys that reveal consumers actually value ethics in the marketplace, consumer behavior is not consistent. The study examined consumer’s willingness to pay for fair trade coffee (considered to be the “ethical” choice), and found that although 50% of the study sample were considered fair trade “lovers” or “likers,” only 10% of the study sample were willing to pay the premium for the ethical choice (Do consumers care about ethics? willingness to pay for fair-trade coffee. The Journal of Consumer Affairs, 39(2), 363-363-385.).

Not convinced? A 2001 study investigated whether consumers actually care about ethical behavior as well as whether good/ bad ethical behavior affects consumer choice. Carrigan & Attalla concluded that although consumers are increasingly sophisticated, consumer behavior doesn’t favor ethical companies or avoids those that are unethical. Additionally, the study found that a consumer’s knowledge of a company’s unethical behavior didn’t change buying behaviors nor did it contribute to actions against the unethical company. In addition to being cynical about ethics differentiation; consumers consider price, quality, and value more important than ethical criteria in consumer purchase behavior (The myth of the ethical consumer – do ethics matter in purchase behaviour? The Journal of Consumer Marketing, 18(7), 560-560-577.).

Although ethical criteria may not be necessarily used in when choosing a real estate agent, Neale & Fullerton found that consumers do perceive unethical behaviors as unacceptable. In their 2010 study, consumers rated ten of fourteen scenarios of questionable behaviors as being unacceptable (The international search for ethics norms: Which consumer behaviors do consumers consider (un)acceptable? The Journal of Services Marketing, 24(6), 476-476-486.).

Even though unethical behaviors may be considered unacceptable, reporting such behavior is a different story. Curtis, in his 2006 study found that although the seriousness of a breach of ethics would prompt a report, the decision to report unethical behavior is highly correlated to negative mood (e.g., anger, pain, etc) (Are audit-related ethical decisions dependent upon mood? Journal of Business Ethics, 68(2), 191-191-209.).

Rutledge, concluded in a 1994 paper that ethical issues are not always clear. Additionally, responses to such situations depend on personal principles and standards (Conflicts of interest or ‘thou shalt not steal’ revisited. Real Estate Issues, 19(3), 15-15.).

The research might suggest that consumers are not entirely impressed by an adherence to high ethical standards. Furthermore, even when ethical standards are breached, the offenders are not always reported. The research may point to an increasingly pragmatic view that real world ethics is a complex matter that is often determined by a person’s perception.

by Dan Krell
© 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice.  Using this article without permission is a violation of copyright laws.

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What housing market surveys are telling us

You’ve probably heard, now and then, reports of housing surveys giving a status report of the housing and the real estate market. Of course the scientific method is forgotten for a chance at a headline; technical details and summaries are usually condensed to a one sentenced sound-bite. If you’ve ever taken the time to look into the survey results to see the samples and questions, you can see that any one poll is only a snapshot of respondents’ attitudes at the time of the survey.

The results of recent housing surveys conducted by Fannie Mae (fanniemae.com) are telling of the current economic environment. Reported quarterly and monthly, the National Housing Survey (NHS) “offers a window into the opinions of Americans across the country…” about owning and renting a home as well as personal finances and confidence in the economy.

The most recent quarterly NHS results were released August 15th, and quoted Doug Duncan, vice president and chief economist of Fannie Mae, as saying, “… consumer spending, which accounts for about 70 percent of the economy, ground to a halt in the second quarter. Consumers are more hesitant to take on additional financial commitments, and a setback to confidence means a setback to the recovery of the housing market.” Additionally, the quarterly survey indicated increasing consumer pessimism as employment concerns tops the list, economy on wrong track…yada, yada, yada.

Ok, not news to you. But how about trends indicating a further decline of the housing market?

The most recent monthly NHS (released October 10th) reported a “marked deterioration” of consumer home price expectancies. Mr. Duncan was quoted here saying that, “…The lack of a sense of urgency to buy homes, given expectations for further declines in home prices and continued low mortgage rates, coupled with general pessimism regarding their own personal finances and the economy, bodes poorly for the recovery of the housing market.”

The Home Values Survey (HVS) is another telling survey, which is conducted by Homegain (homegain.com); and examines Realtor® and consumer sentiment about the housing market and economy. The most recent Regional HVS was reported September 11th for Q3 indicated: that although a majority of real estate agents surveyed reported their client’s homes depreciated in value, home sellers continued to over-value their homes; home buyers overwhelmingly reported that homes were overpriced; 39% of home buyers surveyed in the Northeast reported that they thought homes were overpriced 10%- to 20%; and an overwhelming majority of real estate agents surveyed in the Northeast (62%) reported they believed that home values would decrease in the next six months.

The outlook is not all doom and gloom. Some surveys report a positive spin as well.

Although a Rasmussen Reports (rasmussenreports.com ) survey reported on September 21st indicated that 48% of adults nationwide felt that buying a home is the best investment for one’s family, a commentary posted on rasmussenreports.com (The Housing Bust Has a Good Side by Froma Harrop; September 22nd) promotes the idea that the housing downturn has brought home owners back to fiscal reality.

Additionally, Gallop (gallop.com) reported in April that of the American adults surveyed, there were just as many who felt that the average home price would decrease (30%) than increase (28%) in the coming year. And, of course- an overwhelming majority of those surveyed (69%) felt it was a good time to buy a home.

by Dan Krell
© 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

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Celebrity homes

Nothing grabs the public’s attention more than juicy celebrity gossip. So, it shouldn’t have surprised me when I received what seemed to be endless calls from Hollywood gossip reporters asking about Kate Gosselin’s move to Rockville, MD. At first, I thought the calls were from pranksters because I had no idea who Kate Gosselin was (I’m not a TV junkie, so I was unaware of her celebrity status); but when I was enlightened to her realty-TV fame, I was taken aback by the amount of attention and energy that was garnered just by a rumor. But that was in 2009.

Sure, I know you’re wondering “why would a celebrity be moving to Bethesda?” Well, the MD-DC-VA area attracts many celebrities. Of course there are the home grown celebs who have moved away, but the area attracts celebs of all kinds from around the world. Some celebs who live or have lived in the area are known for their on screen achievements, some are known for their writing ability, some are known for their contributions to their respective fields, some are royalty, and some are known just for their wealth.

Without question, the MD-DC-VA area attracts the political elite from around the world, not just because DC is the seat of government, but it is also perceived as a seat of world power. And don’t forget the many sports stars who choose to live locally as well; even though they don’t have to make their permanent homes locally, many do.

Even Donald Trump knows the attraction value of the area. A purchase of a Sterling, VA golf course on the Potomac River in 2009 was not the only recent local real estate purchase; his purchase of a Virginia vineyard made headlines earlier this year.

It’s only natural to be interested in how the rich and famous live, it taps into our human ambition and need for achievement; at some unconscious level, peeking into celeb lifestyles may also provide motivation or a vision of aspiration. But looking into the “window” of their home, so to speak, is a bit different than celebrity spotting around town with the paparazzi.

The interest in celeb homes and lifestyles has sparked such TV shows as MTV Cribs (mtv.com) and even Joan River’s show How’d You Get So Rich?(tvland.com). Looking inside a celeb’s home can give you a view of the elegant, trendy, or even cutting edge design. But most of all it allows a peek into a lifestyle that may seem familiar; many celeb homes are focused on family, on comfort, and around food (the kitchen).

Be warned- no matter how curious you are, don’t try to peek through the windows of a celebrity’s home (or anyone’s home for that matter) as you may wind up being detained by the police (or worse). If you’re interested in celebrities and their lifestyles, there is no loss for information in today’s saturated Media. Local TV shows and internet websites can not only give you the scoop on local celebs’ homes, some provide interior pictures and tours. Websites such as DC Curbed (dc.curbed.com) and The Real Estalker (realestalker.blogspot.com) have the latest info on celebs homes.

Today, the calls asking about celebrities moving into or out of town continue. But here’s a tip- don’t ask the real estate agent: a good agent knows the value of discretion for the sake of their famous client.

by Dan Krell
© 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice.  Using this article without permission is a violation of copyright laws.

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