This post was written by: David B. Manley, Owner, Gold Coast Inspections, Coral Springs, FL
If you turn on the news, there is a blitz of blistering comments condemning the lending industry for the current housing crisis. There’s an epidemic of foreclosures and spiraling home prices. Thousands of homes within the foreclosure process daily with no end in sight.
The so-called “experts”, whom are an executive from the NAR, a RE broker, a lender or someone who has just written a book on flips are reporting better news is just around the corner. This is a bit hard to believe in the South Florida market considering the 4-5 year inventory. This figure not reflecting future foreclosures and new condo development at the beaches.
I’m not going to pretend to be a road scholar and offer my opinion on national and global economics. We live in a today, in our backyard society and that is how I am going to offer this opinion. What we need to ask ourselves is, “How did this happen and who’s to blame?”
Well, for those that drink the Kool-Aid, it really isn’t just the lenders’ fault. There are plenty of reasons and blame to go around. So in efforts of cutting through the industry friendly outlooks and all the other “kick the tires on this one” sales pitches, I thought I would share some other views or cruel realty on the issues we face today.
Not Another 911 Sound Byte
The scary events of 911 nudged to boulder off the hill. It seemed like minutes after the towers fell, our 401k’s sank faster than the Titanic and President Bush smiled and told us to go shopping. We were told not to fear traveling and go to Disney while graphic stories were being told about high-jackers taking down planes with picnic utensils. These were critical moments when consumer confidence started to crumble.
As the market started to tank, loan rates dropped and so did credit score requirements and minimum down payments. Let’s face it, lenders make money off of loans and when real estate transactions slow the immediate “knee jerk” is to open the gates for more volume. Hence the immediate push of aggressive loan programs such as paperless, no money down, no income qualifiers, zero interest, 100% financing, etc. Everyone was banking on the market rebounding and coming out on top.
Share The Dream
Some families finally get their shot at the American Dream, something reminiscent of the 50’s with exception of a few minor details down the road. Intro rates of 5.5% converting to 11%, the interest only program shooting from 4.75% to 13% with additional principle. These are all factors that can take a $1,200 payment to $3,000 overnight. If that wasn’t enough, our elected officials in Washington approve legislation granting credit card companies the ability to charge 30% interest without any legitimate reason.
Let’s not forget the investors, they put money down on phase one homes at full price. Not just one, but three and four. We’ll get back to these guys later.
And The Wind And Rain Came Down From The Heavens
A series of hurricanes that Noah couldn’t have predicted hit us like a knock-out punch in a heavy weight fight. Now we have massive property damage adding to the beginning stages of a slowing housing market. So here’s how it went; a slowing market creates gradual inventory. Then damaged property is taken off the market and prospective inventory is delayed. Then there is new inventory of normal attrition and those whom suffer from Hurricane Syndrome. Then BAM, all of these properties hit the market in a relatively short time period and creates more inventory than the market can handle. Wait, there’s more.
Most of us have homeowner insurance but have failed to actually read the policy. It’s not that we haven’t tried to read it, it just made us cross-eyed when we did. I read mine four times, sent it to my attorney and finally gave up. What most didn’t realize were the multiple deductibles, limitations and exclusions. As the “happy go lucky” homeowners that we are, we just assumed that we were covered and XYZ Insurance Company was going to greet us with a smile, fork over a check and rub our bellies to soothe our discomfort.
While FEMA was placing the blue tarp on your roof, you had your insurance agent on one phone and the eighth roofer on the other…realizing this was not going to be as easy as you thought. At the end of the day, you find out that you have a $1500 standard deductible, a 2% or $8,000 hurricane deductible and no code compliance coverage. What this meant was your $40,000 roof that was 30% damaged, Florida Building Code requiring a complete replacement, was now going to cost you $32,000 out of pocket. Is there anyone who still wonders why there were blue tarps up two years after Wilma? I’m not going to get in to the out of state adjusters that made Elmer Fudd look like a rocket scientist.
I’m not sure about you, but I don’t think many average, middle income families have an extra $30,000-$40,000 tucked under a mattress unless they liquidate little Johnny’s college fund. And I failed to mention other damages to screen enclosures, fences, windows, garage doors and the family mini van.
The storm passes and restoration starts. As checks start flying out of insurance companies like egg rolls at a Chinese buffet, the company executives realize they’re in deep water and are quick to react. Homeowners receive their renewal notices and rates have shot from $2,800 to $7,000. To add insult to injury, the previous year’s premium had been escrowed and a very large check has to issued to continue coverage. How’s the bank account now?
Was Tallahassee Asleep At The Wheel?
Political parties aside, it’s easy to blame our officials up north for our grief. But there is the question as to whether some of this could have been avoided. Gov. Crist was seen on the news, praising residents for their resilience as he courted special interest groups. He made speech after speech about how he was going to help the Florida homeowner in their time of need. But there was an enormous amount of time wasted before he actually placed a temporary halt to insurance premium increases. Unfortunately, the stop sign went up after 100%-300% premium increases.
Now those that are in the insurance industry can stomp their feet and cry about risk, loss and blah, blah, blah, but it’s funny when these companies are making historic profits, these funds are private. But when they take a loss it’s socialized. The insurance industry has made a fortune off of Florida homeowners and there has to be assumed risk on both sides. I don’t recall any share holders or corporate executives giving back their dividends or bonuses. Or the agent reducing their commission rate on that policy and handing over a check. Instead, let’s jack up premiums in effort to get ahead of “The Perfect Storm.”
Plenty To Go Around
Don’t think for a minute that we have come to the end of those whom have had their hands in our pockets. You may have a homestead exemption, but until recently that didn’t stop counties and municipalities from getting their share. Year after year, during this crisis, we’ve witnessed double digit increases in our taxes while local officials spent time at luxurious executive retreats and liquid lunches on the taxpayer dime.
Crunch Time
A staggering market we are in. Companies laying off, jobs shipped overseas, a down tourist market, $5.00 gallon of milk, gasoline prices at an all time high, $10 billion a month in Iraq and a constant borrage of unethical behavior in Washington is, without a doubt, fueling the fire in our housing market.
Pick A Card, Any Card
Not so fast, just when you thought I was going to let off the lenders. Let’s be honest about some of the loans out there. I am hoping that there really is a judgment day because for some, there will be hell to pay. And if you ask me, I hope there are more indictments down the road.
The bottom line is that there were a boat load of bad loans. Most because loan brokers knew this paper was going to be packaged and sold to big banks. These so-called loan professionals took all the advantages that existed. Knowingly falsifying docs and not disclosing rate adjustments is just wrong and there’s no defense. A business philosophy of, “How can I make this work?” is different than “Can this work?”
At the very least, buyers should have been well informed as to what that payment was going to be once the intro rate was up. And based on their income and debt, whether they would be able to make that new monthly stroke. This is even more important when we are talking about the lower income segment where most are not the best educated and simple math can seem foreign. People’s lives were crumbled and we are all paying a heavy price.
Send Them The Keys
Getting back to the investors that decided to buy properties three and four at a time. It was actually cost effective to walk away from their 5% deposit rather than following through with the transaction. There is a laundry list of investors that stood to lose $100,00 or more per property if they had closed. So they simply waked away. Now those same properties are selling in upwards of $200,000 less than those that originally sold leaving homeowners upside down within these once sought after communities.
Then there is the buyer who bought at the peak of the market, realizing their gorgeous country club estate and “great” loan program was about to kick them in the backside. Doing the simple math told them that it was going to take 8-10 years to break even on the property. So what does any self-absorbed capitalist do? Send the keys to the lender. No kidding. Companies such as Bank of America, Countrywide, WAMU and others were about speechless when keys were received in lieu of house payments.
But these weren’t the only ones that lost the farm. The hurricane survivors mentioned earlier, it was just too much. Bad loans, insurance and tax increases, extensive repairs, job loss and that milk price took out some families that actually tried desperately to keep their home.
In The End
Americans are a bit smarter than people think. When someone gets on television and says the poor economy is something in our heads and we’re just a bunch of whiners, I have to say that it is not a thing of my imagination that the saying, “People are only a paycheck away from being homeless” has actually become a reality. The current housing market is a combination of things that were and were not within our control.
At the very least, we all have to take a very deep breath, tighten our belts and keep pushing forward…with a smile on our face. Get up in the morning and ask ourselves,” What are we going to do to help today?”
Are we going to sell that home to a client that we know he can’t afford?
Are we going to sign docs on a loan that will destroy a family?
Are we going to overlook issues because we don’t want to be labeled a “deal breaker?”
Can we encourage our peers to bring a consistent level of integrity to the table every day?
David Manley owns and operates Gold Coast Inspections, a successful inspection company in South Florida. Linda and David have worked hand in hand on many transactions and continue to offer service beyond expectations. Call Linda at 954-464-5434 if yo would like more information or would like to schedule an appointment.
The names you can trust in INSPECTION and REAL ESTATE!
The government’s First-Time Home Buyer Tax Credit program expires November 30, 2009 — that’s only 60 days from today.
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