Saturday, October 20, 2007

The Subprime Blame Game: A Heated Discussion

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Many people have different ideas about where to place the blame for all the problems in the mortgage market. This particular blog entertains the idea that maybe agents are somewhat to blame. However, I disagree with this logic, because doing so makes sweeping generalizations against all agents, brokers, and Realtors--which is not right, nor is it fair.

While many disagreed with what this blog implied, there were those who were content to say that "all Realtors" are alike. They claimed that it was the "greed of Realtors" that helped cause the current crisis in the mortgage market, and that Realtors supposedly misled buyers. While there are some agents, brokers, and Realtors who act unethically, to say that all are alike is a flawed and unfair stereotype.

Many buyers do not understand the responsibilities they have to themselves when it comes to making major financial decisions like purchasing a home. Many go into the market without having a plan, and most do not consult with their legal and financial advisors before signing mortgage and closing documents. Buyers should become well-informed--taking the time to plan things out well in advance. A good buyer's agent should be able to assist buyers with the research required for building a solid plan, as well assist in the plan's implementation, but it is ultimately the buyer's responsibility to review and finalize these plans with their legal and financial advisors before starting. In most states, brokers and agents are prohibited from interpreting legal language and giving legal or financial advice unless they are attorneys or accountants, as well.

Here are a few relevant quotes from a book by Charles A. Jaffe, called “How to Hire Financial Help the Right Way.” 2nd Ed.:

Regarding the act of taking financial responsibility:

“One of the most responsible actions anyone can take toward managing their money is to own up to their shortcomings and to pursue assistance for those weaknesses in a strong, self-assured manner. There is virtually nothing in money management that you cannot do yourself, but there is a big difference between simply taking on the task and actually doing it well. Whether it is buying stocks without a broker, building a portfolio of mutual funds, or purchasing life insurance, dabbling almost always leads to disaster. I'm a big believer in doing as much as possible on your own, provided you understand this simple strategy for managing things yourself: Go strong or don't go at all. The problem is that many people do neither. ” (Jaffe p. 1).

Regarding the abdication of financial responsibility:

"They don't have the know-how to do it themselves and don't want to take the time to learn, but they also don't want to hire outside counsel. They get their information in snippets, from friends, in the papers or magazines, from radio and television programs, at the barber shop or beauty salon, or in online chat rooms, and they wind up with a patchwork of products instead of a blanket of financial security. Worse yet, the decision to hire an adviser becomes an abdication of responsibility, rather than an aggressive move to make things better. Instead of choosing their helpers carefully—matching skills to needs and doing the interviews necessary to create the appropriate level of comfort—they look upon the hiring decision as a means to an end, as in ‘If I hire this person to do my taxes, I'll never have to worry about my taxes again’” (Jaffe p. 1 - 2).

Regarding what many people fail to understand :

“And that's where folks like my friend come to the conclusion that people who want or need assistance simply can't help themselves. They perceive financial relationships as an all-or-nothing proposition, either done on your own or handed off to someone in exchange for a hefty fee. Like most, they fail to recognize that the person who hires advisers must then manage those helpers and remain intimately involved in making decisions” (Jaffe p. 2).

Cite Source:

The Right Way to Hire Financial Help by Charles A. Jaffe

In the case of mortgage documents, it should be common sense that an attorney should review them--because in essence--they are legal documents. However, many buyers fail to do this. Then when something goes wrong, critics are quick to put the blame on someone the entire real estate industry. Needless to say, it is the responsibility of consumers to become well-informed and prepared before entering the real estate market; this includes understanding the difference between available agency options, understanding the advantages and disadvantages of certain mortgage products, having a pre-approval in hand before entering the market, having detailed information and demographics about prospective neighborhoods, and saving enough cash to cover a downpayment in addition to any reports or inspections that might be necessary.

Planning is the key to a smooth purchase transaction, and reviewing closing documents with an attorney is key to spotting unnacceptable or risky loan terms.

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