Bailout and Home Builders

The Bailout for the financial sector is not completed and now the homebuilding sector is asking for help.

They contend that the $7500 tax credit for first time home buyers did not stimulate demand and they want a $15,000 tax credit for all home buyers.

I don’t know if they get it. They were one of the biggest causes of the current crisis.

Why do I say this? Just a few years ago builders figured out how to work the financial system. They started their own mortgage companies or partnered with lenders and then advertised for low quality borrowers. You remember the ads. No money down, bad credit, in bankruptcy, one day out of bankruptcy, etc. these ads worked very well and brought lots of buyers who under normal circumstances could not qualify for a mortgage. Then the builder who was making a huge profit on the home pressured their own people or their partner lender to make the loans. These builders lined their pockets with millions of dollars using this tactic.

If you don’t believe what I am saying all you have to do is drive through builder communities that were built within the last 6 years and count all the foreclosures. Now that their bad practices are biting them back they want relief.

Here is what I think should happen to make sure we do not end up in the same financial situation that the Country is in today.

First we must eliminate builder owned mortgage companies by making that an illegal practice.

Second, we need to eliminate recommended lenders that pay to do business with the builder. The builder hides this illegal activity by saying the lender is paying for advertising but everyone knows that the lender is paying for mortgages. Which happens to be illegal?

Third, the government needs to eliminate computer underwriting. This is one of the main causes of the current crisis. Once the computer underwriting was instituted the ratios that a borrower could have went up dramatically. I saw mortgage application with back ratios above 60% turned down by our bank (because we manually underwrite) and that same borrower would be approved and close with another lender who used this automated system. Now those lenders need bailed out.

Forth, they need to increase the funding for the SEC to enable them to do there jobs. This can be done by letting the SEC keep the fees it currently collects from public companies.

Fifth we need to have mortgage brokers as strongly regulated as other financial institution. Many brokers have acted like it's the wild, wild, west. You have read the stories of inflated home values, fraud, and a variety of illegal activities. They need regulation.

If we change our ways we can turn this ship around and get this economy moving again.

Home Builders have they learned there lesson?

I was talking with a prospect the other day and he was trying to buy a home from a very large national builder. He put a substantial down payment down on a spec home. He did not like the builders financing options and wanted go to a lender that the builder did not own. His contract with the builder stated he could use any lender he chooses. However, he was told by the builder that they would not sell the house to him if he did not use their lender.

Why would a builder do this? They must be making a great profit on the financing and you know they are because their rates and terms are not competitive. Why does the contract state you can finance anywhere when they force you to finance with them? My guess is that the builder knows that they are in violation of RESPA but feels they can keep out of trouble if the contract says you can finance with anyone.

This is the type of behavior that got us in this credit crunch predicament in the first place. We need to stand up and put a stop to companies running over our rights as consumers. My advice since the government won’t put a stop to it, we as consumers must put a stop to it.

Stop buying homes with builders that want to control the financing, it is not in your or the countries best interest. Of course, it’s in the builder’s best interest or they wouldn’t be so deceptive and forceful.

I went through that because it shows that with all the talk some of the causes of the mortgage crisis are still alive and well. We need to put companies that disregard the laws of our country, put themselves ahead of their customers, and put our economy in danger out of business. Some will say I am over reacting but that is what I was told when I warned about the abuse of mortgage programs just a couple of years ago.

If you are buying a home from a builder protect yourself and the rest of us. Tell them you will not finance with their mortgage company. If they insist then do not buy from them. If they don’t care about us then we should not care about them.

Home Builder Calling

I am getting calls now, that just a few short years ago, I would have told you I would never receive.

Builders are calling, developers are calling, and they are looking for money. These builders and developers just a couple of years ago would not talk with me. They would not take my calls. They did not need our money. However, times change, and it has changed greatly.

Builders cannot find money to build spec homes. Developers are wanted to sell home sites so they are trying to help. Developers are calling to see if we still loan on spec homes. These developers are willing to helping in the financing, putting their money and credit on the line.

What does this all mean? I believe this will seriously limit new construction and help eliminate the excess home inventory that exist today. It means that the real estate market will improve as home inventories decline.

Keep a positive outlook we are working our way out of the housing and mortgage crisis.