[Credit: National Association of Realtors ad campaign, November 2006]
Two pieces in the today's New York Times Business section note the global effects of problems in the US mortgage market: yet another investment fund, this time Australian, goes belly up, and European bankers feel burned by the high ratings some now-illiquid mortgage securities started out with. Some of this is fueled by buyer's remorse and greed, by someone not having thought through the process of what happens when an exorbitant pre-payment penalty and high re-set rates (once attractive because of their yields) forces the homeowner into default and renders the securities worthless. It would seem that the risks of mortgage products entering a once-stable international market had not been fully disclosed or understood.
And on a local level- where you and the rest of us buy and sell places to live- is where all this starts. It's become obvious that many people with sub-prime mortgages did not fully grasp the magnitude of what they were doing, in many cases because they could not understand their mortgage documents. Yield Rate Spread is not the same as the Superbowl point spread, and again the fundamental question of why there are mortgage brokers in real estate offices. Or why realtors can function as mortgage brokers- listing, selling and financing the same property, all of which is billed as convenience for the consumer when it's really a way of capturing more money from the deal. And what responsibilities do individuals have for the notorious and irrational exuberance of their their parent, the National Association of Realtors? An organization now blaming bad press for the downward drift of their business.
Yes, your realtor probably got a commission on your mortgage, which you may or may not find buried in a disclosure form somewhere, a mortgage and appraisal made to fit the deal, to make it happen. All these subprime and other failed mortgages had to happen somewhere- and happen they did, at your neighborhood realtor's office.
· Australian Fund Basis Yield Files for Bankruptcy [NY Times]
· Calls grow for Foreigners to Have a Say on US Market Rules [NY Times]
· FAQ [Newport Mortgage & Investments]
· Got House? [Curbed SF]