February 28, 2008

Making Lending More Honest (and Some New Listings)

Some time ago, I expressed frustration with the scenario through which an agent seemed always paired with a broker. Each agent would assure me his/her broker was the best broker in the city and could get me a better rate, would come through for me in the end, was “in the know.” After hearing this several times, each time applied to a different broker, I assumed it all a BS sales pitch, but was unsure what the motivation for the pitch could be. Oh yes, I was naive. But give me credit: I figured it was money; I just didn’t know how it worked until the novice wore off me and I began to understand many agencies work together with brokerages in a kind of you scratch my back, I’ll scratch yours, quid pro quo.

Such a situation sets up a conflict of interest, obviously, since although most agents are likely honest about this relationship, The New York Times points out

Mortgage brokers say real estate agents sometimes steer clients to in-house mortgage brokers without making such connections clear, thereby leading inexperienced buyers into costlier loans than they could have found if they had shopped around.

With the current mortgage meltdown, we should not be surprised that a brighter light is being shown on lending practices like these. In fact, in response to the current New York Attorney General’s investigation into lending, Fannie Mae has made a move to end in-house deals. Bloomberg reports:

Fannie Mae, the biggest source of financing for U.S. home loans, told lenders it will probably ban their use of appraisals by in-house employees or those arranged by brokers.

This change is spurred by the fact that “about three quarters of residential mortgage appraisals are arranged through brokers who only get paid if a loan closes.” This is clearly problematic since “it creates a financial incentive for mortgage brokers to push appraisers toward higher valuations. Higher appraisals also mean more homeowners qualify to refinance their homes and take cash out.”

Socketsite asks today:

Will Jumbo players follow suit? And is there any chance of extending the ban to those who hawk “instant equity based on last appraisal” as well?

All good questions, and to this buyers thinking, the answers should be yes.

On that note, if you’re buying now, carefully investigate your broker and shop around to know the information you are getting really is “the best.” Here are some of the freshest listings you can apply your new found savvy to:

2/2 condo at 116 29th St. (Noe Valley) for $898,000.

1/1 condo at 310 Stanyan, #103 (Lone Mountain) for $590,000.

3/2 single-family at 1250 41st Ave (Outer Sunset) for $725,000.

1/1.5 townhouse condo at 88 King St., #111 (South Beach) for $789,000.

Studio TIC at 237 Greenwich, #A (Telegraph Hill) for $529,000.

2/1.5 TIC at 28 Kent St. (Russian Hill) for $699,000.

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Photo credit: http://www.the-mortgage.co.uk/images/mortgage.jpg

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