Real Estate Community Regulate Thyself

In 2006, the Rocky Mountain News has published an occasional series on Colorado’s foreclosure crisis. Chapters have shined an unfavorable spotlight on every aspect of the real estate industry; builders, Realtors, mortgage lenders and title companies. The common thread in every case is the lack of professionalism by the service providers who received commissions and fees establishing a fiduciary responsibility to the consumer. It is clear that in the great majority of foreclosure cases chronicled, the desire to close the transaction outweighed the concern for the best interest of the buyer and the real estate community as a whole.

It is time for the collective real estate industry to practice self regulation or suffer under the weight of bureaucratic efforts to stem the tide of fraud which has resulted in our status as the number one state for foreclosures throughout much of 2006. The new mortgage broker licensing law will only result in the most egregious of offenders; those convicted of a felony within the past five years to be removed from the industry. There are loop holes in the legislation and as the law is remiss by not requiring education or experience standards, no guaranty exist that the registered mortgage broker is competent to work in the mortgage industry.

The Colorado Mortgage Lenders Association (CMLA) has been a leader in self regulation among mortgage professionals. Mortgage bankers and brokers who carry the CML (Certified Mortgage Lender) credential have demonstrated through education and documented industry experience that they are qualified to consult consumers and originate mortgage loans. Mortgage originators that carry the CML designation also have agreed to a code of ethics. There are several steps that the mortgage industry can take to eliminate incompetent and unethical mortgage originators from the industry such as setting higher standards in hiring practices, completing independent background checks, requiring membership in an organization such as the CMLA, which provides a place for consumers to turn to file a complaint and force accountability.

The real estate industry has done a far better job of self regulation through licensing, enforcement, and the promotion of the Realtor designation in association with various Boards of Realtor. Real estate agents who carry the Realtor designation agree to adhere to a code of ethics and consumers must understand that not all real estate agents are Realtors. The industry could still do more to protect the public and managing brokers should bare more of the responsibility when hiring agents to their firms. In addition to the established consumer safeguards, agents should police themselves by reporting unethical practices when dealing with unethical agents.

Real estate appraisers often are subjected to tremendous pressure to “make the deal work,” when appraising a property under contract or as part of a refinance transaction. During my tenure as Chairman of the Colorado Real Estate Appraiser’s Board, I oversaw the discipline of many practitioners who were victim to the threat from mortgage lenders and real estate agents who pressured them to achieve a predetermined value for a subject property. Inflated appraisals are among the primary factors resulting in foreclosures in Colorado. As with the real estate industry the legislative structure and professional associations exist to address the most egregious offenders, the industry could benefit from more aggressive reporting of poor appraisal practices from real estate agents and mortgage lenders.

Title companies and closing agents are on the front lines in witnessing the pressure placed upon the consumer when deceptive practices come to light at the closing table. When a borrower learns that the interest rate and closing cost promised are not being delivered the closing agent is left to manage the closing and protect the borrower. Unfortunately this does not always happen as many do not feel it is their role to advocate for the consumer. I believe if a title company or closing agent recognizes a pattern of unethical practices from a real estate agent or mortgage lender; they should act to protect the consumer and title insurer by reporting those involved to the Colorado Real Estate Commission and the employing brokers.

The Bottom Line: New legislation aimed at regulation is only as effective as the enforcement, which in Colorado is limited by budgetary restrictions. If we act as an industry to raise the bar of professional practice and ethical behavior; we can accomplish the goal of cleaning up our industry in a responsible manner and elevate our professions in the eyes of those we seek to serve.

Resources:

Colorado Mortgage Lenders Association - http://www.cmla.com/
Colorado Department of Regulatory Agencies - http://www.dora.state.co.us/

Notes and Comment from our Radio Broadcast 12-23-2006

We had a great radio show today. I was joined in the studio by Bruce Deffler, Certified Relocation Specialist and Broker for Benchmark Property Advisors a Keller Williams affiliate. Here is an overview of the topics discussed and a few added comments.

2006 Housing Slump Dampens Economy

Homebuilding declined by a rate of 18.7% in the third quarter, which translates to the largest cut in 15 years. This contributed to a 1.2% reduction on third quarter growth, the sharpest cut in 25 years. Economic growth slowed to an annual pace of 2% in the July – September quarter according to the commerce department. Although not a positive sign, not quite the 2.2% annual rate estimated a month ago.

Economist estimate that the Gross Domestic Product (GDP = The value of goods and services produced within the United States) for the October – December timeframe with fall in the range of 1.7% – 2.5%, or slightly higher. Looking ahead the estimates are in the same range for the first quarter of 2007.

Home Prices the Number One Business Story in 2006 among Business Editors

I am a big fan of Rob Reuteman, Business Editor for the Rocky Mountain News. Although I do not know him well, we are members of a business leadership group that meets quarterly – I know his work very well and he excellent at his craft. Reuteman was among a group of business editors asked to chose from a list of 35 business stories from 2006 and choose the top 10 where shared in Reuteman’s Saturday 12-23 column in the Rocky Mountain News.

The number one story both at Reuteman’s judgment and that of his colleagues was the decline in home prices. The editor is exactly right when he characterizes the use of home equity by many homeowners as “the nation’s piggy bank.” Equally, his interpretation of our soft landing is also correct, Denver experienced double digit appreciation in the period between 1999 and 2000. He also reports that the expected drop in appreciation Is expected to be an additional 3.6% in 2007.

Job Creation Continues in 2007

Given the announcement of new job creation in Colorado for Lockheed and the announcement this week that Rio Tinto Minerals will locate their division headquarters in Greenwood Village bodes well for the continuation of job creation in the year ahead. The division of London based Rio Tinto PLC, signed a lease for 104,500 square feet valued at 25 million dollars.

Bottom Line: Both of these stories underscore my belief that we are in a tremendous buyer’s market and anyone thinking of buying a home or acquiring investment real estate will benefit from doing so in 2007. The conditions are perfect for the buyer: 1.) Rates are low. We are offering several programs with rates below 6.000%. 2.) Inventories are high both in the resale and new build market segments. 3.) Savvy investors recognize that very few people buy at the bottom of an investment market and the best place to buy is on the way down. The one caveat is that there are concrete reasons to believe that we are near the bottom and there is a recovery on the horizon. They then ride the wave back to the top.

Should a non-selling or non-refinancing homeowner invest in an appraisal?

We welcomed a caller into our conversation today with a question concerning engaging an appraiser to determine property value. The caller does not plan to sell or refinance and was simply interested in knowing the value of their home. We have been advocating over the past few weeks that homeowners obtain a Comparative Market Analysis (CMA) from an experienced Realtor knowledgeable in their market. A real estate appraisal will cost $300 - $350 in most markets and the report carries a “use by date,” as the market data is subject to Uniform Appraisal Standard to be used for underwriting a mortgage loan – typically six months.

The caller also asked about the value of obtaining a property inspection. Bruce advocated that a seller obtain a pre-sale inspection and address major items prior to placing a home on the market. In addition, we recommend that a seller look at their property in the same manner as a fix and flip investor. Seek advice from a Realtor when considering high return investments when improving a property prior to sale.

Bottom Line: If you are a property owner interested in knowing the value of you property, contact Bruce Deffler or Bob Speaker by accessing our website at http://www.realestatetodayshow.com/ and click on the “Ask James” button request our free CMA at no obligation. Also feel free to visit http://www.colo2home.com/ to reach Bruce and Bob directly.

Tune into our radio broadcast "Real Estate Today" on KNUS radio 710 AM in Colorado, or via live audio streamby logging onto www.710knus.com and clicking "listen live."