A hat tip to our friends at http://www.caare.org/ for writing the simple truth of the meltdown below (I wonder why you won’t find this on 20/20 or 60 minutes?):
There are multiple real estate related industries that provide a safety net to real estate transactions. It is their job to uncover problems and disclose them to all interested parties. You could even say that it is their job to provide information that might “kill a deal” when the transaction is a bad one. If their ability to independently determine problems becomes compromised, then the entire infrastructure of residential real estate becomes compromised. Welcome to the Mortgage Meltdown of 2008.
Most consumers rely heavily upon Realtors in the selection process of services that provide safeguards to the integrity of the transaction. But does it make sense to have Realtors involved in that selection process? Should any professional who has a large financial stake in the outcome of a residential transaction be permitted to provide or select inspection, appraisal, mortgage, title or legal services?
If a Realtor has a $30,000 commission riding on a transaction, is he going to select a law firm or home inspection, mortgage or title company that is going to protect the integrity of the transaction or is that Realtor more likely to pick a service that is going to protect their commission by making sure that the transaction closes? How many bad loans never would have funded had the lender not been in a position to select the appraiser? How many bad loans are funding today because lenders who own foreclosed properties are insisting that buyers use their title company for the closing?
The fact that lenders can sell their mortgages, like commodities, to distant and detached investors contributed to the crisis because no one cared about the integrity of the loan that was being sold. However, is it really a bad thing to sell those mortgages? What if there were safeguards in place in the form of independent and unbiased determination makers who are untroubled by threats of boycotts or firing?
It was the removal of important safeguards that enabled the mortgage crisis. If those safeguards had not been intentionally nullified by a real estate industry accelerating out of control in a race for more and more unfair profits, those safeguards would have more than likely have uncovered the problem loans and killed them before they ever could have damaged anyone. We must get the real estate industry out of the supporting industries.
One stop shopping does not belong in a marketplace where some “shops” are supposed to be scrutinizing the other “shops.”
Our theory is that commissioned service providers should never have been allowed to have ANY involvement in the selection of the service providers whose job it was to find and disclose problems with the transaction. And by all means, they should NEVER have been permitted to have an ownership interest in those safeguard industries. Yet, that is exactly what happened and what is happening today.
Most supporting safeguard indus
There is really nothing complicated about this concept: It is even worse than the proverbial fox guarding the hen house because the are no consequences if the Realtor gets caught steering their clients into their hen-house (sp) title company. Even worse, the Realtors who are most successful in betraying their clients’ chickens (sorry, I meant trust) are portrayed as heroes and will have no worries when it comes time to negotiate their commission split with their broker.
The real estate industry vigorously protects and deceptively promotes the ownership of these safeguard industries as something that somehow benefits consumers and society. They have even gone so far as to provide tainted data to highly compensated research firms for “studies” that are then disseminated to governmental authorities in support of their conspiracy. They have taken this fox/chicken coop concept and spun it with appealing names like One Stop Shopping, Bundled Services and Affiliated Business Arrangements. They even got Congress to change the old term of Controlled Business Arrangements because it had “negative connotations.” Their persistence should come as no surprise once it is pointed out that ownership of these safeguard industries practically guarantees that almost all transactions will close and that they can charge whatever they want on these services that are largely misunderstood by consumers.
Unfortunately, their persistence in preserving their controlled business arrangements has also resulted in the near destruction of our economy. Home inspectors, appraisers, lenders, title companies and even lawyers have all been compromised. If they do their job and find problems with a transaction, they are never hired again. Replacing unbiased independent decision makers with chumps who rubber stamp transactions under the threat of being fired or boycott is today’s real estate mantra.