The original premise for my blog was to put in words and pictures what I believe to be factual and relevant in regards to real estate and our economy.  Becoming disillusioned with what I had been seeing in our financial sectors, our legislators and national government, I sought explanation of how a situation could go down so fast.

I sat down months ago to discuss the then current financial climate with Robert Radoccia of The Capital Group, and investment advisory firm in Cranston.  Robert’s father in law is a client of mine and thought Robert would best answer my questions.  What began as a discourse on real estate, investing and economic challenges soon turned to the education I didn’t know I was looking for.  Robert echoed Warren Buffett’s sentiments on greed and fear and their prominence in our society in relation to financial matters.  I then realized how greed and fear affect nearly every aspect of our lives.  In fact, the more I thought about it, the clearer the picture became.  Everything in our society falls under the umbrella of Greed and Fear.

Don’t misunderstand me; I am not saying Greed and Fear are right or wrong.  I’m just emphasizing their prominence in our DNA.  To me, Greed is the desire to profit or own.  And I mean that in a good way.  We work hard; we should strive to mark our successes in any way we desire so long as we adhere to the laws of ethics.  Fear is as unavoidable as our imaginations.  Just ask any buyer who was in a multiple offer in 2004.  How much OVER asking price were you willing to go to not lose the house to the five other offers?

Fear of loss is the greatest motivator, period.  I sell houses.  A buyer will offer a specific dollar amount on a property based on the relative desire to own it and the fear of not losing it to another bidder.  The delicate balance of greed (the desire to own) versus fear (losing out on something one covets) will determine the level of motivation and thus the offer, counter offer etc.

For a seller the greed (desire / need to sell) is weighed against fear (don’t want to lose a qualified buyer) and is directly determined by whether the market is busy or not.

Make no mistake; I would not trade our society for any other.  As a third generation salesman, I appreciate the opportunities provided by free market capitalism as much as anyone can.  However, it is the abuse of these innate pressure points which angers me and questions my understanding of human nature.

When lending institutions created loan products backed by investor dollars that should never have been sold to many consumers that was an abuse of Greed and Fear.   Was the risk really worth the reward to lull unqualified buyers into adjustable rate mortgages that have now decimated our landscape in the form of foreclosures?  Buyers had equal culpability, however.  The desire to own (Greed) often outweighed their own common sense (Fear) in these purchasing decisions.  Did predatory lenders take advantage of some buyers who didn’t know any better?  Yes.  See Greed.

When the pillars of Wall Street denied insolvency and continued to urge their clients to continue investing in these funds that was the pivotal example of abuse of Greed.  Everyone is entitled to a fair profit.  I believe if one takes the risk, one deserves the reward.  This country was built on small business and chance.   But the outright larceny of investor and consumer dollars was nothing short of repulsive.   Insert every Bernie Madoff story here as well.

And now, we have the outright scourge of society rearing their heads in the forms of “Loan Modifiers” and “Debt Restructurers”.  Just fancy words for blood-sucking, opportunistic, leeches.

Elections are fought, won and lost based on applying just the right amount of fear into the voters.  Fear of the same, fear of change, it doesn’t matter.  It’s the same formula for both parties.

What has evolved from all of the above is a global sense of mistrust.  Consumers don’t trust that their banks will be there on Monday.  Banks don’t trust other banks to borrow their money.  Foreign economies don’t trust the United States as a sound investment.  Did you ever think you’d see that day?

Greed and Fear are part of us as human beings.  Understanding its role in our society is fundamental.  Taking this knowledge and using it responsibly is crucial for us to move forward from the state of affairs we are in.

A disbarred Rhode Island attorney who handled real estate closings has been charged with misappropriating $500,000.

Geoffrey Regan was arraigned in Newport District Court on Friday and released on $20,000 personal recognizance.  He did not enter a plea to three counts of unlawful appropriation over $1,000.

The Rhode Island State Police said they received a complaint from the chief disciplinary counsel for the state court system.  They said Regan consented to disbarment.

An Ethics Primer:

Fiduciary (from reference.com):

fi-du-ci-ar-y

Fiduciary, in law, a person who is obliged to discharge faithfully a responsibility of trust toward another. Among the common fiduciary relationships are guardian to ward, parent to child, lawyer to client, corporate director to corporation, trustee to trust, and business partner to business partner.  In discharging a trust, the fiduciary must be absolutely open and fair.

I guess Mr. Regan missed fiduciary day at law school.

Discussing the capture of an Open House thief with Steve Tetzner.

Listen to Real Estate Insight every Sunday on

Talk Radio 920-WHJJ from 10:00-11:00 AM.

Discussing breaking listing contracts with Sally Lapides.

Listen to Real Estate Insight every Sunday on Talk Radio 920-WHJJ from 10:00-11:00 AM.

The FBI, Justice Department, Secret Service and Postal Service will get a combined half a billion dollars to investigate and prosecute those who engage in mortgage fraud.  President Obama signed the legislation May 20.  Important to remember; Rhode Island leads the nation in mortgage fraud.

The targets range from people who lie about their incomes on home mortgage applications to highly organized roving networks of “foreclosure relief” scammers who bilk money out of homeowners seeking mortgage modifications.  More on these gems of humanity in future posts.

Known as the Fraud Enforcement and Recovery Act of 2009, the legislation will fund new SWAT teams of fraud-busters and broaden federal legal powers to go after individuals and mortgage operations that currently get attention — if at all — only at the state or local levels.

The law also creates a Financial Crisis Inquiry Commission with broad powers to investigate who and what got us into the real estate mess, starting with the subprime boom, Wall Street hanky- panky and more recent bank failures.
How bad is mortgage fraud? The Treasury Department estimates it causes losses to consumers and the mortgage industry of anywhere from $15 billion to $25 billion a year. FBI Director Robert S. Mueller III told Congress his agency’s mortgage fraud caseload has tripled in the last three years.

Reports of potential fraud filed with the Financial Crimes Enforcement Network exceeded 65,000 in 2008 — up from about 25,000 in 2005 and just 5,400 in 2002. Officials say the recession and the end of the housing boom have actually stimulated more fraud rather than the reverse.

What do these frauds look like and where are they occurring? The Mortgage Asset Research Institute performs an annual study of the problem for the Mortgage Bankers Assn., and its 2009 report found:

* Roughly two-thirds of all frauds involve deceptions at the application stage. For example, some borrowers tell the lender they plan to occupy and use the property as their main residence, but they really plan to turn it into a rental unit. That ruse often gets the applicant a lower rate on the loan, but it’s a violation of federal law.

* About 28% of frauds last year involved deliberate misinformation about tax returns or financial statements. Fake IRS filings can be created with readily available software programs, and documentation of financial assets can be manipulated as well. Around 21% of fraudulent applications contained faked deposit verifications last year.

* Appraisal shenanigans rank high as well and were involved in about 22% of fraud cases in 2008. Appraisal fraud — typically inflated valuations intended to squeeze more mortgage money out of the lender — may well be more commonplace than the official statistics. That’s because many overvaluations are modest enough to avoid detection, but large enough to get the loan closed, thereby increasing subsequent risk of loss to the lender.

* Other widespread forms of home loan fraud include faked employment verifications, misinformation on closing or escrow documents, and credit reports or scores that have been manipulated in some way to get unqualified borrowers approved, or lower interest rates, or both.

More discussion the effects of foreclosures and short sales on active listings.

Listen to Real Estate Insight every Sunday on Talk Radio 920-WHJJ from 10:00-11:00 AM.

I was going to reserve complete judgment on the stimulus bill until after I learned how homeowners and buyers will be affected.

To be brief, the $35 billion proposal promised by the Senate (written about previously) which would have offered a $15,000 tax credit to any home buyer has been chopped.  Instead of $35 billion, the provision is a bit smaller at $2 billion to $3 billion.  And the $15,000 credit has been reduced slightly to $8,000.  And only for first time home buyers.

The ONLY positive move in this shame of an attempt is the the $8,000 will not be a non interest need-to-be-repayed loan like the previous $7,500 first time home buyer credit was.

Congressional aides cautioned Wednesday that the credit’s size was still subject to negotiation.  Super.

By this spring, two of three credit reporting bureaus will use a new model. Fair Isaac, the developer of FICO scores, has made the biggest change to its credit score model since it was introduced in 1989. Scores will still be on a 300- to 850-point scale.  But the company estimates that 40% to 50% of borrowers’ scores could go up or down by more than 20 points because of how the new model evaluates consumers’ credit use behavior.

Most important for customers the average borrower / credit card owner will have a little leeway and forgiveness when it comes to an occasional late payment.  Fair Isaac has increased the number of groups that customers fall into from 10 to 12, taking into more account the number and magnitude of credit problems. Infrequent problem borrowers will no longer be lumped in with habitual delinquents.   For example, if you have one isolated missed payment you won’t score as low as before. The new FICO model also focuses less on how many accounts a borrower has and more on the amount of balances carried.  A good rule of thumb is to keep credit card balancesd below 50% of the actual credit limit.

FICO scores are becoming increasingly important for borrowers looking to qualify for favorable terms. That puts high scorers in even a better position for pricing on loans as the economy recovers.  Besides loans and credit card acceptance, things like insurance are all affected by one’s credit score.  Remember, the cost of borrowing money and repaying it is all based on risk.  How risky are you?  Your FICO score is the first impression.