SterlingResidential.com | Buying & Selling Residential Properties in Texas | Houses for Rent Houston Area | Humble Atascocita Kingwood & Spring Texas Realtors | Sterling Residential®, Realtors® | Real Estate Broker: Do Realtors share blame for mortgage mess?

A Houston Chronicle Real Estate forum discussion posted a few weeks ago asked if Realtors share blame for the mortgage crisis unwinding across the country. Citing dual-licensed Realtors (those holding real estate and mortgage brokers licenses) as part of the problem, some forum participants pointed to the potential conflict of interest between real estate and mortgage brokerage as a reason for the mortgage crisis, while others stated that dual-licensed Realtors couldn’t adequately perform both jobs as agent and mortgage broker. Both could be valid points — yet, the number of Realtors holding a both a real estate and mortgage license isn’t large enough to have contributed to the mortgage crisis in a significant way.

I knew that real estate was in trouble a few years ago when a chef I knew quit the restaurant business to become a mortgage broker — a license that takes mere hours and a few bucks to earn. Eventually, all the new mortgage business competitors would force some brokers to cut corners. What many in the industry didn’t anticipate was that lenders would loosen lending guidelines so far as to threaten their own businesses.

Does that mean that Realtors are off the hook? No. Texas Realtors have a fiduciary duty to represent the best interests of their clients — this duty is established by law and by ethics. Since many buyers are represented by real estate brokers, it doesn’t take long to determine that some real estate brokers were either ignorant about their client’s finances or were complicit in helping clients get loans they couldn’t afford. These things happened — but not in numbers large enough to explain the entire mess.

Mortgage brokers didn’t close a single loan that wasn’t underwritten by a lender — but that’s not to say that fraud wasn’t committed or corners weren’t cut or that mortgage brokers didn’t occasionally look the other way when false information was used in mortgage applications — that all happened. However, many lenders chose to make substandard loans by loosening underwriting standards to the point of meaninglessness. Ultimately, they controlled what loans were approved.

Home buyers took their own risks, too. It’s true that some home buyers were defrauded or hook winked, but many simply wanted a chance at homeownership and were willing to gamble with the lender’s money. Real estate brokers can urge caution, but the final decision is the client’s to make — the client is the boss. Now many borrowers are walking away from loans they can no longer afford as interest rates rise and home prices fall. Many — but not all — of these home owners knew the risks, taking advantage of the lender’s lax standards.

The home owners that faired the worst were the ones who were defrauded by mortgage brokers and lenders targeting home owners in particular neighborhoods with loans they could never repay. A systemic targeted fraud was perpetrated against people in neighborhoods across the U.S. because of their age or education level through fraudulent means and I hope the FBI catches up with every individual involved.

No one participant takes the blame for the entire mortgage mess — but it was allowed by a severe short-sided view by lenders that housing prices would continue to rise long enough for all those bad loans to wash out of the system a few at a time. Many lenders knew this day was coming but hoped that it would not result in the protracted housing malaise we’ll be experiencing for a long time. Inevitably, house prices will bottom, the real estate and mortgage industry will contract, buyers will re-enter the market, and housing demand will raise home prices again. The question is — when?