bankers and brokers dishonest?  Sure.  Were all of them dishonest?  I think not.  To have a massive nationwide conspiracy, where thousands and thousands of people involved in the mortgage banking and mortgage brokering profession got together to create this situation is simply not feasible.  Yes, some of the blame does belong with those in the mortgage industry, but they were simply a small cog in the huge machine that created this mess.

Let's discuss real estate agents.  In 2007, we bought a home, and also sold a home.  The Agent we used to purchase our home was absolutely fantastic.  In our opinion, she went above and beyond to make our deal happen.  She answered every phone call, followed up on every concern and was the epitome of professionalism.  We consider this individual to be a friend, and we have sent referrals her way that have resulted in her earning additional commissions.  We will continue to recommend her to all who ask or mention that they’d like to buy or sell a home in our area.

The real estate agent, we used to sell our home, could not have been more different.  We got our old home ready to sell prior to closing on our new home.  We decided to list it as “For Sale by Owner.”  In the event that we didn't sell this home on our own, it was our intention to list it with an agent as soon as we had closed on the purchase our new home. Literally, from the day we put the sign in front of our home and listed it on a “For Sale by Owner” website we were inundated with phone calls from real estate agents.  We were told many lies and were constantly harassed; although we had already made it quite clear to every agent who called, and there were more to 60 who did; that we were willing to pay half the Commission—the same as they would have received had they sold another agent’s listing. We also told every agent that called that we had already lined up an agent to sell our home in the event that we chose to no longer sell it ourselves.  Our deadline was the closing date of our new home purchase.  We did have an interested buyer who shortly after our closing date decided to keep looking so we listed our home with a local agent so that we could concentrate on getting our new home ready for our moving date at the end of the school year.  This agent showed our home a maximum of two times and got an offer which we accepted.  We ended up getting $1,000 less than we had wanted in a declining Real Estate market.  The agents who had called many times to harass us called our listing agent on a number of occasions and he lied telling them that the house was under contract when in fact it wasn’t at that time—clearly a breach of our agent’s fiduciary duty.  Quite frankly an ethical agent would have continued to show our home until closing in the event that the deal fell through.

But wait, there’s more.  Our agent also acted as the buyer’s mortgage broker.  At the closing table, we learned that he had signed documents from the buyer stating that he (our agent) represented them and we had signed documents stating that he represented us. We also learned that the buyer had effectively put down approximately 2-3% of the purchase price when financed closing costs were factored into the equation.  Their first mortgage had what we thought was a high fixed rate and their second mortgage came with a rate in excess of 8.5%. Because the closing happened in August, literally in the midst of the first wave of the meltdown, if they didn’t close on the day they did (August 31^st, 2007), Citibank wasn’t going to extend their rate.  When my wife & I have bought houses in the past, it had always been a very happy day.   These people looked absolutely shell-shocked at the closing table.  I’m not convinced that they knew just how much their monthly payment was going to be until closing day.  We knew down to the penny well in advance having budgeted and planned everything on a spreadsheet.  Were these people stupid or just inexperienced and mislead by a greedy combination of real estate agent & mortgage broker?  I’m extremely confident that they are intelligent people but  inexperienced and taken advantage of by an unscrupulous agent.

The banks are also culpable.  Prior to bank deregulation, Savings and Loans provided mortgages to home buyers and kept these loans on their books.  Non-performing loans had a negative effect on the S&L’s profitability which of course caused tighter lending guidelines such as job stability and decent down payments in order for prospective home buyers to be approved for a mortgage.  Way back then, a home buyer had to actually save up enough money for a down payment 10 or even 20% before a bank would ever consider underwriting a mortgage.  The checks & balances kept banks solvent and borrowers responsible.  Although this approach worked, some cried foul stating that the regulated system was racist and discriminatory—and there certainly was some truth to this.  Skipping forward to the present, banks made a bundle on mortgages over the past five or six years.  For the most part, they allowed their underwriting criteria to be stretched so far out of alignment that almost anyone could and indeed did, qualify for a mortgage despite their ability to pay.  Some folks even applied for and received mortgages for more than the property was worth.  Sometimes for as much as 25% more than their property was worth! 

Under the prior system, 125% mortgages would not have been possible because of course these loans were held on the banks’ books and could have led to losses that would have had to have been absorbed directly by the bank.