Housing.com News, Analysis & Opinion: September 2005 Archives

Just to show you that housing and real estate news obey the laws of karmic conservation, yesterday Fannie Mae came under fire for cooking the books on their expenses to show they were a "safe investment," and to make sure their execs got their cushy bonuses.

Didn't they learn anything from their sibling Freddie Mac and how they got put under the gun for the same thing last year?

This couldn't have come at a worse time. The Bush administration, in an ironic reversal of its normally frenzied anti-regulatory stance, is chomping at the bit to gut both Fannie and Freddie and put them on the same playing field as private mortgage lenders. In principle, this should absolutely happen. In reality, it means that both companies won't be able to do what they do best--provide affordable low-income housing at a time when it is desperately needed. I wrote a bit about this yesterday.

Once again, shortsightedness and greed contribute to the collapse of a necessary market. Bubble watchers take note.

USA Today reports that computer glitches and network screwups are keeping SBA loans from reaching their recipients. Wow. Some tinfoil hat wearers are into the idea that FEMA, HUD, SBA, etc. are deliberately demonstrating incompetency at every level of the Katrina and Rita in order to drive frustrated home owners even further into the welcoming arms of the free market. I doubt that, but the result seems to be the same in any event.

Some positive government news for housing, though: The House Committee on Financial Services released a report(downloadable in PDF format) on the real estate market and brokerage price competition. Here're some of the highlights:

The Internet has increased consumers’ access to information about
properties for sale and has facilitated new approaches to real estate
transactions. Many brokers post information on their Web sites—in varying
degrees of detail—on properties they have contracted to sell, enabling
consumers to obtain such information without consulting a broker. The
Internet also has fostered the creation or expansion of a number of
Internet-oriented firms that provide real estate brokerage or related
services, including discount brokers and broker referral services.

Whether
the Internet will be more widely used in real estate brokerage depends in
part on the extent to which listing information is widely available. Like
discount brokerages, Internet-oriented brokerage firms, especially those
offering discounts, may also face resistance from traditional brokers and
may especially be affected by state laws that prohibit them from offering
rebates to consumers. In addition, certain factors—such as the lack of a
uniform sales contract—may inhibit the use of the Internet for
accomplishing the full range of activities needed for real estate
transactions.

While real estate brokerage has competitive attributes, with a large number of players competing for a limited number of home listings, much of the academic literature and some industry participants we interviewed described this competition as being based more on nonprice variables,such as quality, reputation, or level of service, than on price.

One reason for this characterization is the apparent uniformity of commission rates. Although comprehensive data on brokerage fees are lacking, past analyses and anecdotal information from industry analysts and participants indicate that, historically, commission rates have remained relatively uniform across markets and over time.

Unsurprisingly, David Lereah and the National Association of Realtors take issue with some of the findings. Gee, I wonder if that has anything to do with a certain lawsuit?

Nah. Couldn't be. It's all pure market forces, don't you know.

Speaking of market forces, NAR also reports that mortgage lenders are tightening loan standards, as the prime rate continues to rise and housing markets cool off. The fact that they used Washington Mutual as an exemplar is hilarious, given that WaMu got themselves a class action lawsuit a few years ago, and along with their dominance in the lending market comes a sea of complaints about unjustified late fees, lack of set-asides for property taxes, and terrible customer services. They're pretty much the Microsoft of lending.

Overall, however, this is serious business. The age of no-document, inflated-income, low-credit-score, no-money-down negative-option-ARM loans is coming to an end. If you want to buy a house in the near future, roll up your sleeves and start doing your research on what you can afford, what you can spend, and what it's going to take. There's going to be a lot of pain in the market for the next few years, but also tremendous opportunity for those who are ready.