patrick.net

astrid Says:

> Broadly speaking, which group makes the best
> tenants? Men? Women? Single people living
> together? Married people with kids? Married
> people without kids?

The main thing you are looking for when you rent is stability…

You want people that are at a stable place in life that will stay in that unit (or home) for a while (hopefully for years and years)…

Who is best depends on the unit, a couple with a baby will probably not stay in the studio for years just like the working class family with older kids will probably not need the 4 br home for a long time…

Now you might think mortgage lenders would be more careful giving out hundreds of thousands of dollars without proof of income. But in fact there’s almost no risk to the bank. That’s because most banks turn right around and sell their loans to real estate investors on Wall Street — to mutual funds, pension funds — even foreign countries.

i have a two part question to anybody: given this information quoted above, it seems the banks don't even care about foreclosures and loans in default any more, as apparently they've already sold the debt to wall st. 1) who is going to prosecute casey, given the banks have no interest in the matter any more (or could the mortgage broker and bank also be prosecuted if casey turned state's evidence) and 2) what kickback do banks get for making and then onselling loans these days -- i don't understand how they can 'sell' a loan to wall st and forego all that juicy interest for year after year they traditionally would have got -- how does the split work? anyone? FAB? anyone?

FAB,

Thanks!

It sounds like divorcees often make for good renters, since they're usually employed and can take years to come back from their divorces.

When I helped my parents look up townhouse rentals, one of the best units we saw was owned by a realtor. He said that he had two other units, one of which has the same tenant for 7 years and the other had the same tenant for 20 years. He actually offered my parents a discount if they rented, but he didn't want to do a 2+ year lease to start (my parents really wanted stability) and the location wasn't ideal. The townhouse was very nicely renovated and he was asking for $200-250/month over comparables with a less nice finish.

Hiding and DS,

Since Randy made a specific request to keep this post on topic, let's move the OT discussions to the other thread.

Again thanks F.A.B. and George. Please feel free to control this thread as you see fit. Also, any other RE folks are welcome to chime in, as are others with questions for our experts. There is no better way to learn than to ask people with real-world experience.

Question for Buyer's Agents:

Do you disclose the builder's commission on new construction to your client? Most buyers are aware of the "commission split" on a resale, but with new construction, some builders are now offering up to 10% to an agent who brings a buyer to the closing table.

If resale houses on the MLS show a commission of 3.5%, the buyer knows how much has been factored into the asking price. Rarely is that knowledge available with new construction.

Thanks

Dennis said, “Some may know. But for the most part I would say the consumer is pretty much left out of the loop.”

Out of the loop because the broker often prepares the loan papers without ever telling the buyer their income has been inflated. And buyers may then unknowingly sign a fraudulent income number on their loan.

Fuckem. Assholes, yeah you didn't know that you couldn't afford a 500K shitbox. Right.

Hiding and DS,
Since Randy made a specific request to keep this post on topic, let’s move the OT discussions to the other thread.

how is mine off topic? part 2 asks about the structure of selling loans to wall st, a big part of how liar loans are apparently passed on "to find out how things work and learn" and how the boom may bust -- as per ha ha's post -- and am very interested to hear what happens here -- is it to do with mortgage-backed securities a la fannie mae?

hiding answered part 1 well about criminal prosecution, altho i spose my angle was more about civil prosecution. both parts eminently answerable by any lurking RE/mortgage experts.

OT: Thanks F.A.B. (Hey a captain scarlet ref.)
i think it was thunderbirds actually. CS was 'S.I.G.'
oh sorry... :(

DS,

See other post for my reply.

One (SAX) was recently bought by Morgan Stanley at a decent premium and that is in addition to paying 20% yield for a year. We can assume that MS would have carefully examined their lending practices during DD.

Indeed - that really boggled my mind. I'm curious to see how that will pan out...

Angela,

That's my point.

For illustration purposes......the buyer, seller, and both agents are sitting at the closing table. The BUYER is the one who brings the money to pay everyone; not the seller. The seller might contol dispersion but doesn't "pay" anyone. The selling price has both the listing agent's and buyer's agents commission factored in the selling price.

When negotiating an agreement with a buyer's agent for representation, full disclosure of all commissions and distribution must take place. It's a buyer's market so the "rules" of a seller's market need not, and should not, apply.

Doug H,

Spoken like a true businessman! Why is this so "hush-hush"? Every time some rookie realtor tells me "the seller pays the commission!" (so why are you chipping your teeth over it) I go into involuntary convulsions.

Mike/a.k.a Sage,

Bully good for you!

Every day I wake up and think to myself; How can I bring VALUE to my clients today? (Vice, how can I do more of the same old same old and still manage to get paid?) It's revolutionary. More people in RE should try it.

Look, here's the deal. When it comes to finances nothing succeeds like success. Bring the bling. Fake it before you make it. Pffft. The "elephant in the room" is DEBT!

Want to manage your risk?

We've got a phone book slap full of insurance agents!

Want to manage your taxes?

There are LEGIONS of CPA's and "licensed tax preparers!

Got "a little will"?

Stockbrokers/financial planners coming out of the woodwork!

Want to manage your debt?

GFL!

This is how we work. Debt/leverage is a VERY private issue for practically every American! We don't talk about it. We would rather talk about a sexual inadequacy then talk about our DEBT! This is how we work. Unless and until we start having frank discussions about our DEBT we will remain in Debtors Hell.

It's the first day of the last quarter. Let's all make an effort to make it better than last quarter!

Different Sean Says:

> Now you might think mortgage lenders would be
> more careful giving out hundreds of thousands of
> dollars without proof of income.

I’ve read dozens of CMBS (the “C” is for Commercial) seller reps and far more commercial loan documents than I would like to count. I’ve also been a speaker at commercial mortgage events, but I’m not really a residential MBS “expert”, (so most of this is second hand). I have been told that the bond buyers of residential MBS are OK without any “proof” of income since they are getting a higher spread on the loans and the first loss guys are getting a way higher spread of a couple “thousand” basis points more then they get on the first loss MBS in safer “conforming” pools (and they have a Borrower equity cushion or 2nd TD that needs to go away before they loose money). I forget the exact number but it is just over or just under half of all corporate bonds rated BBB- or lower default yet they still sell at what I would consider a small premium to the A rated bonds. The first loss guys that buy residential MBS will take over as special servicer in event of a default and get note and deed of trust (or mortgage in some states) so the bonds are (in my opinion) far less risky than most corporate bonds.

> I have a two part question to anybody: given this
> information quoted above, it seems the banks don’t
> even care about foreclosures and loans in default
> any more, as apparently they’ve already sold the
> debt to wall st.

You are correct, once the loan is sold the bank does not care if the Borrower makes another payment (just like you don’t loose any sleep worrying if the guy that bought your used car with a loan from his credit union will make his payment next month).

> Who is going to prosecute Casey, given the banks
> have no interest in the matter any more (or could the
> mortgage broker and bank also be prosecuted if Casey
> turned state’s evidence)

If anyone looses enough money they will sue (don’t forget that Casey and all the other 100% LTV FBs have hard money 2nd TDs that need to be wiped out before the MBS guys loose a penny). The small fry 2nd TD guys will either pay off the MBS loan or agree to short sales (and may sue if they loose enough). When the lawsuits happen it will get pushed down to the Borrower since the bankers and the brokers have all covered their ass with piles of paper “signed under penalty of perjury” by the Borrower. An attorney can prove to a jury that the Borrower lied, but will have a hard time proving that the Mortgage Brokerage firm Dewy, Cheetum, & Howe broke the law when they have notarized documents from the Borrower with lies…

> What kickback do banks get for making and then on selling
> loans these days — I don’t understand how they can ’sell’
> a loan to wall st and forego all that juicy interest for year
> after year they traditionally would have got — how does the
> split work? anyone? FAB? anyone?

Banks don’t get kickbacks, but they make on average 100 basis points selling a loan (more if they hold the first loss piece and/or sell the servicing strips). The entire securitized lending story is a long one, but let’s try another car analogy. Let’s say you bought a new Holden Astra with a A$20K loan from your parents at 5% five years ago. If a mate comes up to you and offers to buy the car for $15K (what you still owe your parents) at monthly payments at 6% it is not a great deal since you will only be making A$150 a year. You will also not have the cash you need to buy a cool Holden Commodore SS, (and risk having your mate cancel the insurance and drive it in to a wall after a few beers at the pub). Since banks today are paying about 5% on CDs and getting just over 6% on home loans it is not even close to what I would call “juicy interest”…

Someone wrote:

> “Do you disclose the builder’s commission on
> new construction to your client? ”

Then Angela Says:

> I’m not an Agent but am an Escrow Officer (only part
> time now). Commissions are never disclosed to a
> buyer, only the seller who pays it. I don’t know of too
> many Agents (Buyer’s or not) that would disclose that
> info unless it was in confidence.

I have seen less than a dozen residential closing statements (but look at commercial closing statements every day) but all of them (including when I sold my home on the Peninsula to become a bitter renter) have had the real estate commission (and loan broker commission, and pest control fee, and notary fee and every other fee tied to the sale of the home)…

I think it was Abe Lincoln that said “anyone that tries to broker the sale of their own home has a fool for a client”. Whenever I list residential or commercial property I adjust the fee so the sell side is higher than the list side. This will cause every broker with a buyer to write an offer on your property (remember brokers don’t care what their clients buy, they just care if they make money).

Mojo,

Thanks for your input; well said, and without the "veneer" we are so used to hearing. I'm going to cut/paste/save your comments so I can read them again and again as a reminder. I've been around the block but it's just as easy for me to get offtrack as anyone else and buy into what I'm being told. After all, RE people do it EVERY DAY and do it well....shovel BS, that is.

Mojo

But who could expect you to know anything about law, scruples, or history?

You’re in Real Estate …

That last section is a bit over the line. I'm no stranger to taking on FAB on various issues, but this thread is about those in the industry sharing their perspective and experience. Indicting everyone in the industry as devoid of scruples is not productive to that end.

Hey can you actually put your head up your ass and end up covered in bullshit?

tinyurl.com/j7jcm

why yes, yes you can.

Wow, who knew that the Mortgage guys did not actually have your best interest in mind, that their sole motivation was a quick commission? Quite frankly I find this revelation shocking, what next Jeebus returns and proclaims Surfer-X the new messiah?

tinyurl.com/j4uus

Shocking, simply shocking. I sit stunned unable to actually believe that the mortgage lenders weren't looking out for their clients. Or were they?

Here's something that I personally don't understand. If many mortgage loans are sold in bundles to Wall St., who actually forecloses on the house?

I ask because if funds or other entities are actually holding concentrated amoungs of bad loans, aren't they going to get pummeled when the foreclosure rate rises? Right now there are a lot of loans out there for primary 80% interest only or ARM, second 20% ARM with very little equity. If prices drop substantially, those loans will be immediately underwater. A lot of people would choose foreclosure because they have almost no equity, so aside from the credit hit it's no skin off their back.

You would think this would be a bubble popping effect, simply because somebody has to get rid of the property at some point, don't they? If you can't sell, then you have to drop the price, right? So maybe one of the RE professionals could walk us through the psychology of a lender who has foreclosed on a lot of properties?

FAB,

It seems to me that many good agents used to (and folks like George still try) get work based on their reputation so the individual transaction didn't matter as much as their overall reputation. Was this ever true for the BA? If so, when do you think the shift to a focus on maximizing profit on individual transaction occur?

PS - I hope this is not too nosey, but would you be willing to describe how your parents built their RE portfolio? (Did they scour RE listings? Did they bid on foreclosures? Did they work with a commercial listing agent?) And how did they finance their deals? (Did they hold in corporations/trusts or in their own names?)

"Foreclosure properties has really changed for lenders in the last few years, with lenders gleefully holding out for top dollar and listing properties with local brokers in an attempt to get F.M.V. "

That certainly is the observable behavior in Northern Colorado. In many cases the lenders are asking prices far above the foreclosure price, meaning they stand to make even more profit on the resale than the loan itself. I guess we have to factor in the loans themselves being very shortlived, though. :|

Now that's the *externally* observable behavior of lenders with REO. Some friends of mine have a theory that there's an invisible elite of real estate pros that are on the lenders' short lists. When a bank wants to cut a great deal and move a property immediately, they give their pals first crack at it. Any confirmation or dismissal from the RE guys on that theory?

Mojo Says:

> FAB fails to clear up the question. One can say
> “they don’t give a damn” but isn’t there a far greater
> incentive to see the property sell for the highest
> amount as that will translate to the highest
> commission?

As a broker it makes no sense to spend a lot of time marketing a property trying to get top dollar. Odds are that the first offer will be very close to the best offer so almost every agent will try and get the seller to counter and close a deal with the first buyer that writes an offer.

If you take an average commission of 6% an average deal where the listing agent only represents the seller and an average split with the firm of 75% an agent will only take home around $500 after taxes (less than last months Chevron bill) if they get the seller an extra $500K…

It is not worth the risk to try and get the seller more money (or the buyer a better deal) since the longer you wait for a better offer (or a better deal) the greater the chance that the seller will decide not to sell (or there will be an earthquake or someone will fly a plane in to the home, etc.)…

P.S. The reason I “retired” from real estate brokerage is that the business is so slimy that I could not deal with it any more…

P.P.S. The best (most successful) real estate guys (and gals) I know fit Cleckley’s 1941 definition of a psychopath (especially #1, #6 and #16 on the link below):
http://en.wikipedia.org/wiki/Sociopath

P. P. P.S. I was trying to make a joke when I modified the quote “The lawyer who represents himself in court has a fool for a client." that is often attributed to Abe Lincoln…

Mojo Says:

> But who could expect you to know anything
> about law, scruples, or history? You’re in
> Real Estate …

I know more than most members of the bar about real estate and landlord tenant law, left real estate sales because I have scruples, and (as anyone who has read this BLOG for a while knows) I am an avid reader of history (especially California history related to wine and real estate)…

Then Randy H Says:

> That last section is a bit over the line. I’m no
> stranger to taking on FAB on various issues,
> but this thread is about those in the industry
> sharing their perspective and experience. Indicting
> everyone in the industry as devoid of scruples
> is not productive to that end.

Like a lot of things real estate follows the 80/20 rule http://en.wikipedia.org/wiki/Pareto_principle
(in the case of commercial real estate it is closer to 90/10) where 20% of the agents/brokers sell 80% of the property. In the city I run in a lot of real nice people who “sell real estate” who are not slime balls, but in a tough business they will never be one of the 20% making a lot of money and closing a lot of sales. When I make comments about agents/brokers in general I am talking about the people that have made a living actually selling real estate full time for years not the nice ladies that SF Woman may run in to at Lafayette Park who “sell real estate” (and hope to close a deal or two so they won’t have to tell their husband how much all those Chanel outfits and Manolo Blahnik shoes actually cost)…

astrid Says:

> FAB, I hope this is not too nosey, but would you be
> willing to describe how your parents built their RE
> portfolio? (Did they scour RE listings? Did they bid
> on foreclosures? Did they work with a commercial
> listing agent?) And how did they finance their deals?

When my Dad was a kid growing up in the Mission District his emigrant parents worked hard but didn’t make much money so he worked a lot of part time jobs including fixing stuff and painting for an old guy that had a few rental flats in the neighborhood. When he was in High School he started collecting the rents and doing the taxes for the old guy.

He bought his first couple houses for very little cash taking over the current loans and getting seller carry second TDs. When my grandfather (my Mom’s Dad) came to live with us my Dad had the rent from his house in the city coming in and later re-financed it to pull out cash to buy an apartment.

After I started working for a successful real estate guy (that I met as a caddy) in High School I dug in to my Dad’s old real estate files and saw that the listing and selling agents lied to them on every deal (and that my Dad the college dropout and self taught tax guy was no CPA).

My parents have never sold a single piece of real estate (so they have never actually hired a listing agent) and never really went out to look for a single piece of real estate since they always found them in some strange way like a plumber who was working with my Dad telling him that he should bid on a building for sale with bad plumbing since he would know how to fix it…

I like the 2/3 idea. My wife I discussed making lowballs next spring and I think that 2/3 is good ballpark to work with.

Thanks.

FAB,

Thanks for sharing your parents' experience! That's a very interesting insight indeed. It sounds like a buyer/seller agent may not be necessary if one is very plugged into the community. It'll be hard for amateur landlords to compete with professional landlords like your parents.

justme,

Sorry I didn't see your comment in enough time to fix the double paste.

Also thanks to everyone here for keeping this thread on topic. I am finding this particular discussion very enlightening. Many of you who've contributed in this thread could write very interesting thread articles yourself. Email me (or HARM, SQT, or Peter P) if you're ever interested in doing so.

It sounds like:

1) If I work with a buyer's agent, I may be screwed because the listing agent would rather have all 6% and look for his own buyer.

2) If I work with the listing agent, I may be screwed because the listing agent wouldn't adequately represent/advise the house to me (point out flaws, etc.)

So... as a buyer, I lose either way?

:(

I have a question for high end realtors.

There's been some talk here about smart successful people using the bubble burst to upgrade into more prime neighborhoods/housing stock. I wonder how much of this will actually happen. We know that some folks here (like Randy H, OO, SP and SFWoman) have enough financial resource to make this move, but I wonder if market psychology would actually push some of these financially well off people into resist buying for psychological reasons.

Would the truly well-to-do continue to buy in a down turn or would they feel uncomfortable using their hard earned dollars to buy into a place that could continue to depreciate for many more years? (I know folks here are sufficiently savvy to make the utility v. dollar calculation, but what about the great masses of well-to-do folks who are less obsessed with the housing market?)

astrid: I've been researching my local market for well over a year. One thing that has become blindingly clear is that real estate is an incredibly localized phenomenon--it's a single transaction on a non-fungible asset.

In other words, real estate isn't like stocks, where the price fluctuates due to mass market forces, and all shares reflect the same forces equally. It seems to me like the truly useful bargain hunt leads you to the single pressured seller (possibly a former FB) that is going to give you the property you want at a thick discount.

If the bubble pops, wealthy investors would probably invest in a hot sector until geniune real estate bargains started to appear. Effectively that's what people did with stocks into real estate when interest rates came down so far after 2001.

That said, I bet that wealthy investors are the ones with the inside track to locate the best real estate bargains, because they have good financial connections in their community and can form more somewhat efficiently.

Brand,

Interesting! I wonder how one becomes best buddies with someone with the RE inside track...maybe blackmail is more effective...

Kidding, I'm kidding!

astrid,

the truly well-heeled people are so for a reason, they are financially shrewd. Except for some compelling personal circumstances (e.g. expecting the birth of a child, getting married or divorced, job relocation etc.), I don't see a lot of financially well-off people jumping onto the realty bandwagon. If they were so careless with their money, they wouldn't have been so well off to begin with.

However, the high-end market performs very differently from the low-end. I was dining with a friend in Saratoga last night, almost all the restaurants were full, or required at least 20 min wait. However, while I was in San Jose a bit earlier, I saw a few sign twirlers for the likes of Appleby's at several junctions. So the high-end market may be a bit shielded due to the increasingly uneven distribution of wealth, I don't know. In any case, I think the >$2m market certainly is a different world by itself, because obviously you can't buy such a home with a 20% dp, 30-yr mortgage. How that market performs will have little bearing on the $1m-1.5m market that many of the middle class double-income dwellers are looking at.

FAB,

Who is collecting my mortgage payment check every month? Does it mean that my mortgage loan company simply becomes a payment collection machine? Who will foreclose my property if one day I decide not to pay?

Currently only my name is on the loan, while my wife and I both hold the title. I am wondering if something happens to me, will my wife get to keep the house without repaying the loan?

FormerAptBroker Said:

> The most successful residential real estate agents have the ability
> to convince sellers that their home is a pile of crap and sure to soon drop
> in value while simultaneously convincing the buyers that they are getting
> a great deal on the best home in the city that will soon double in value…

Can they do it without knowingly lieing?

I said:

> The most successful residential real estate
> agents have the ability to convince sellers
> that their home is a pile of crap and sure
> to soon drop in value while simultaneously
> convincing the buyers that they are getting
> a great deal on the best home in the city
> that will soon double in value…

Then Lexington Says:

Can they do it without knowingly lying?

No

SP and OO and George,

Thanks! It sounds like huge drops are possible almost everywhere, though the super high-end will be affected differently from the rest of the housing market.

(Though I guess the super high-end in SF would be north of $5 million. It's sad/good news that there are so many spendthrifty big earners - if only their MBA/JD/Ph.D came with a personal finance class requirement!)

OO Says:

> FAB, Who is collecting my mortgage payment
> check every month?

Odds are it is a big (multi- billion) servicing shop that may not even be owned by the bank or mortgage company that originated the loan.

> Does it mean that my mortgage loan company
> simply becomes a payment collection machine?

Most mortgage companies sell the loan “and” the servicing to a third party (who may continue to service in the name of the loan originator).

> Who will foreclose my property if one day
> I decide not to pay?

This depends on the details of the master servicing agreement, but most loans are transferred from the primary servicer to a “special” servicer in the event of default who will foreclose. The guys and gals running the special servicing shops are some of the toughest battle scarred people in the business and you don’t want to mess with them…

> Currently only my name is on the loan, while
> my wife and I both hold the title.

Take a look at your loan documents since you may have had to get lender OK to change the ownership.

> I am wondering
> if something happens to me, will my wife get to
> keep the house without repaying the loan?

The people holding any loan you have at the time of your death will be able to go after the assets of your estate in court, but odds are that your home loan is secured by a note and deed of trust and the lender will just foreclose if your wife does not make the payments. Take a look at the loan docs since if there may be clauses that makes the loan due on the sale of the property or your death…

P.S. Don’t buy “mortgage death insurance” since on average the insurance that pays off home loans at death is some of the most expensive insurance out there (just buy more term life insurance)…