Realty Place- Deception, Collusion, And Fraud?

For some time I've waited for the "other shoe" to drop-- the real estate Broker/Agent role in the high number of foreclosures and "upside down" neighborhoods built by Beazer and financed with sub prime lending...

I can't speak for the industry, but I can speak for myself, reading "Homebuyers in the Dark" and "Promises Upfront, Deals on the Side" by Observer reporters Applebaum and St. Onge, in my opinion three words descibes the Realty Place concept and their agents: Deception, Collusion, Fraud...A possible fourth, Conspiracy would be harder to prove, but I think there needs to be an investigation, state SBI, are you listening?

Key facts uncovered by their excellent reporting:

From 2002-2005, Beazer Homes paid Realty Place 2.2M in commissions including 700K in bonuses, on 420 transactions averaging 3.9% of sales price, a full 1.2% higher than the national average. Of 50 purchasers interviewd, not one said they were told of the bonus by builder or agent.

From the Observer statisticians, "Most of the increase in foreclosures in Mecklenburg County are accounted for by the increase of "starter home" foreclosures." And, of the "Beazer Homes sold by Realty Place in 2002, 1/3 are in foreclosure". Wow, the national average for foreclosures is 3%.

Lets look at where the foreclosures are on the Observer map here. Anyone want to bet that there were a high number of minority purchasers as well? So it seems clear that the "Heinemann Innovation" was to bring sales techniques formerly confined to low class sales companies (sell the payment to undereducated people has been the practice of some home improvement companies, timeshare guys and some of the early Land (swampland) sellers)and prey on a new class of unsuspecting, unfortunately all too gullible first time home buyers. And hide behind statements like, "We disclosed everything," and "I can't be sure we trained to tell every buyer there was a bonus," the owners have produced a wall of what they think is plausible deniability.

As they say in Texas, "That dog won't hunt."

Key Questions: Realty Place was known for its horrible "split"- the percentage paid to the Agent doing the work. Of that 2.2M paid to Realty Place, how much went to brokers/owners Heineman, Jordan and Boschele?

Also- why would Beazer pay 3.9%, over 1.2% higher than the national average to Realty Place? Why would they do that-what were they getting in return? And who were the biggest beneficiaries of that extra 1.2% and what did they give Beazer? And did you note the customer who was taken only to Eastwood and Beazer, and once Eastwood was out, they only looked at Beazer? When there are at least 10 other builders building in this price range, only Beazer? Is it possible the other builders only paid the industry standard 2.5%?

The answers to these and other interesting questions lie in the records of Realty Place where every HUD must be kept for a minimum of 7 years. The HUD is a highly detailed record of the transactions, the precise records an investigation would collect. Every lending transaction would appear here as well- anyone want to bet that the loan costs are at least 1.2% higher than the national average? Legal fees, title fees and insurance too? It's the HUD-the one place that will diagram the tangled web of relationships that will prove collusion, quite probably deception, and maybe fraud and conspiracy too.

So I think if an investigator reviewing the HUD Statements, and looking at the books to see precisely the income streams and how the owners of Realty Place made their living-
this thing will unravel and we'll see some perp walks.

Let's hope for that investigation and see where it takes us.

The Sky is NOT FALLING Part II

I asked a skilled and thoughtful lender, Olan Carder, his opinion on the sub-prime mortgage mess and the effect on our buyers. Olan is a senior originator for Myers Park Mortgage, the #1 mortgage originator in Charlotte, NC. Here are his thoughts on it all.

“What the Sub-Prime Debacle Means For the Typical Borrower”

First lets get some things in perspective. You never hear anyone talk about how large the subprime market really is, and that is important to understand when considering its overall impact on the market. The truth is that subprime mortgages make up only a small percentage, approximately 14%, of the total mortgage market and only about 13% of those are late on payments, according to a recent article by Jerry Bowyer at Fox News. That leaves us wondering. If the problem is that small why are all these national lenders going out of business?

Let me try to explain this in simple terms. Mortgage lenders make money by funding new loans with someone else's money. They make the loans and then sell the loans to investors for a profit. When the foreclosure rates get too high for a certain kind of loan, none of the investors want to buy them anymore. If the mortgage lenders that specialize in those loans have already tied up all their money with new loans, and then no one will buy them, they don't have any money left to make any new loans. That's when they close their doors.

In the current market, investors have stopped buying subprime loans. They will still buy some of them, but at a very low price that basically costs the mortgage lenders all of their profit. When mortgage lenders can't make any profit on a loan program, you can bet that program is either going away completely or will become outrageously expensive. How does this translate to today's typical homebuyer? Not bad at all!

The typical homebuyer today will not be effected very much at all by these recent changes. Since 86% of mortgages don't fall into the subprime category and traditional mortgage products are priced very well right now, the typical homebuyer should be just fine. Most homebuyers easily qualify for conventional mortgages, but for many who fall below the credit requirements for traditional loans, Fannie Mae has many affordable community lending programs that are fantastic. Another recent change you can thank Uncle Sam for is PMI becoming tax deductible. If you make less then $100,000 per year and take a loan with Private Mortgage Insurance, you can now write-off that monthly PMI payment! (my italics tm)

The overall mortgage market is strong, and many of the lenders and programs that just collapsed were bad for consumers anyway. My advice to homebuyers with credit problems is to find a loan officer that cares enough to help you through repairing your credit and positioning yourself for a quality fixed rate mortgage that you can afford.
To get more information, a rate or payment, visit Olan's Site.

Thanks Olan!

The Sky Is NOT Falling

After a week of one bad news story after another about the "Melt-down", "Collapse" and the impending doom within the mortgage industry it might be time to take some IB, have a scotch and calm down.

The "sub-prime" markets account for less than 15% of the total mortgage market.
The number of mortgages in jeopardy? .4% (That is no typo, it is 0.40%)

Why then all they hype? Because Wall Street is crying up a storm, isn't lending anymore at the wholsale level, and we've returned to a mortgage market more similar to 2000, when you need to prove your income, have good credit and a job.

There are loans out there for you to buy a new home if you have a downpayment, good credit and a job. Thats all there is to it.


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