National Economic Woes maybe? - Part II : Rooftop Views

Rooftop Views

National Economic Woes maybe? - Part II

This interview is between Marylyn B. Schwartz, CSP, an expert in real estate and corporate sales training/management and team development and Robert Pardes’ (Robert@pardesconsultants.com) . She is president of Teamweavers and a trainer for Leader’s Choice. He is a certified public accountant, attorney, banking management, real estate finance and related capital markets expert. He is a certified public accountant, attorney, banking management, real estate finance and related capital markets expert. His company, Recourse Recovery Management Services, provides strategic and tactical services relating to impaired mortgage backed securities investments

MBS: “As you know, effective March 6, the FHA increased its loan limits on jumbo mortgages to a maximum of $729,750. As it became more difficult to get a mortgage loan, this revision infused some well-needed capital into the mix. What effect is this having on the mortgage industry to date?”

RP: “It is very important for the real estate professional to make his/herself familiar with FHA lending guidelines. As mentioned, there are many thrifts and banks that are sound and well capitalized. When you combine that with the advantages of FHA funding, the banking industry is well positioned to meet the needs of a broad-base of demand. That is not to say that the loss of what amounts of 10-15% of the sub-prime market is not a big deal. Realtors® need to use a talented mortgage broker who knows all aspects of the market and is able to explore options with the applicant as well as help educate the agent. In these challenging times I would advocate that purchase agreements would benefit from the inclusion of statement of income, FICO score, the entity funding the loan and other pertinent information.”

MBS: “While there are those who still refuse to acknowledge the existence of an actual recession, those of us feeling the crunch say that who cares what you call it, it is causing great pain regardless. Talk about your view of the present market conditions.”

RP: “The government has reported accelerated inflation rates due to energy and food costs. Even those reported rates grossly underestimate the inflation rate experienced by average American families. Despite the decreases in the cost of flat-screen TVs, we’re up against the double-digit increases in milk, gasoline, healthcare, petroleum-based products, education and household necessities. The real household inflation rate is more like 20% and is combined with flat and in some cases declining income levels. The combined effect produces an outcome that is far more damaging than even that of a recession by its definition of two consecutive declining quarters of growth.

There is an old saying, ‘It’s a recession if you’re reading about it. It’s a depression if you’re living under the twin evils of unemployment or reduced income and double digit inflation.’ There is empirical evidence that unemployment rates are increasing. The government reported rates do not include those who have abandoned the job search or are underemployed at reduced income and therefore reduced spending power. We’re not a nation of whiners as has been claimed. We are a nation experiencing real pain. “

MBS: “Do you have some concrete recommendations to improve the housing market?”

RP: “Political stalemates, confused monetary policy and the absence of participation of real estate sales and finance industry professionals with hands-on experience in the process of creating solutions for residential real estate woes has proven to be an impediment in taking action to remediate the problems as quickly as possible.

My prescription for addressing the severe conditions impacting the housing market are three fold:

- Focus on liquidity, not interest rates. Rates are higher now than they were last year, and it has not helped to cure the ills.
- Support the demographics that comprised the core housing demands prior to the bubble.
- Allow the unavoidable pain to run its course. Clean up the foreclosures as quickly as possible so that we can begin to move back to more normal housing demands.

In addition, and as a direct result of this current crisis, lending regulations have swung to the right. It is incumbent upon all real estate professionals to understand that they are under tremendous scrutiny, deserved or otherwise. They are being vilified as part of the cause of this crisis and should think about their exposure. Their professional conduct needs to be above the appearance of any impropriety. Simple vigilance is not enough. We need the highest levels of integrity and caution. One transaction could result in a regulatory investigation that could sink a career or even a company. Everything should be put in writing and all RESPA rules should be known inside and out and followed to the letter of the law. Ignorance is no excuse of the law. It is up to the individual to monitor his/her conduct and be outside of the influence of, or acquaintance with less than, ethical individuals.”

MBS: “These are complicated and challenging times for us all. The real estate industry has suffered a few black eyes over the past couple of years. The mortgage crisis is still shaking itself out, and the trouble is that we are not sure exactly where the bottom lies. However, one thing is certain. The housing market will eventually recover and move back to a new normalcy. Mortgage lending will continue and homes will be bought and sold. The American dream of homeownership, although looking more like a nightmare of late, will continue. Your viewpoints are greatly appreciated, and we look forward to speaking with you again as we will continue to need clarity as we traverse this unfamiliar territory.”

2:20 PM - Sep. 5, 2008 - comments {1} - post comment

RE: National Economic Woes maybe? - Part II
I like this prescriptions. Allow the unavoidable pain - I believe this is definitely right. However, takeover of F.M. & F.M. is quite the opposite - promoting risky behavior. I think government should take minimal action and avoid any "magic" - low interest rates in 2001 were the beginning of all this. I am West Toronto realtor and I am glad that despite last sales drop our Bank holds interest rate. For now..
Your crisis will be over sooner or later - finally people have to start buying again, because having some shelter is the basic human need.
Take care
Jill

Jill Stewart - 4:38 PM - Sep. 9, 2008