Dec
18
What’s the Difference between Madoff and Fannie Mae?
Filed Under General Thoughts and Comments | 2 Comments
So I just finished watching a whole news show about Bernie Madoff, the guy who allegedly ripped off investors to the tune of $50billion. He ran a Ponzi scheme for years, paying old investors with new investors’ money. In the news story they showed an artist who had invested with Madoff and apparently lost all her savings.
I asked myself, “Self, what is the difference between her and someone else who had invested in Bear Sterns, Washington Mutual, Fannie Mae, or Countrywide?” They all lost their money. Why are Bernie Madoff’’s investors so special? Just like these other companies, they had made money for years. Just like investors in other investments, they lost money. There really is no difference. So Bernie Madoff’s investors were lied to. Weren’t the investors in those other companies lied to as well, or at least mislead as to the financial strengths of the investments? Would anyone have bought stock in any of those companies if they knew that they were so close to failure. Madoff paid his investors for years. Many people made money with him. He could have never garnered the reputation he did, had he not.
The poor economy caused the failure of Madoff and legitimate companies alike. Too many investors drew on their money all at once causing massive liquidity problems. Some companies folded, others get bailout money from the taxpayer and Madoff gets arrested. I am not defending his actions, but I do fear that he will become the scapegoat of this whole debacle like Gordon Gecko was for the greed of the eighties.
Take a closer look and I think you may find the line between Bernie Madoff and any other corporate failure slightly more blurred. He blatantly lied and they may have done it in a more subtle manner.
Let’s not let the sugar coating fool us anymore. Politicians have been using it for years. Corporations have too. Let’s all be smarter this time and punish Bernie Madoff, if he has done something wrong, but also punish every politician who has urged lenders to lend to less than lendable borrowers. Punish corporate leaders who urged unscrupulous lending activities, unscrupulous investments, and unscrupulous disclosures to investors. Let’s also let greedy and speculative homeowners be punsihed too by losing their homes. There are few innocent parties.
Dec
15
Because there is a conflict of interest.
While title companies and escrow firms almost always have the same goal in a transaction there are instances when neutrality could be broken. How can a party to a transaction be truly independent if it is a subsidiary or department of another party to the transaction? It simply can’t.
Do these conflicts of interest matter? I think they do. Do these conflicts materialize often? I don’t think so. What is important is that escrow remains escrow and does not morph into something it is not.
Escrow is supposed to be the neutral third party that owes an equal duty to all parties involved in a transaction. Although an escrow company is not tasked with enforcing the law, it does have a responsibility to report obvious and egregious fraud. That duty is not just to the lender but to the process itself.The housing industry may be the largest in America when you figure all the ancillary industries that depend on it from construction to furniture making. In the home buying or refinancing process there are approximately 12 different parties to any transactions from the lender to the insurance broker. Only one of those parties is in contact with all the others and is tasked with a duty to them all. It is a great responsibility that should not, in my humble opinion, be relegated to being a side service that a title insurer offers. It should be held to a higher standard than any other party and therefore should be prohibited from being owned or controlled by any other party.
Dec
3
I recently read a brilliant article on the future of our industry by Marty Frame, General Manager of Cyberhomes. He really knows what he is talking about and he does in a most eloquent way.
Much of what he says resembles what I have been saying. I have been prophesying about the metamorphosis that our industry is experiencing and how much of the change we are going through may be mistaken for the downturn. What I mean by that is that many industry professionals, from agents to title officers believe that things will pick up when home values bottom out and the economy begins to get better. I, along with Mr. Frame, would argue otherwise.
I was recently in Home Depot and the lady that was helping me pick out door locks was a Realtor as well. She told me that she was just waiting for the market to pick up again before she re-entered the game. I didn’t have the heart to tell her that this is the game and it will not pick up to the point where she will want to get back into it. Frankly, this is a culling of the amateurs and faint of heart.
As I said in my previous blog, there will be fewer of us and fewer clients for us.
The economy is correcting and that means that we should not have as many homeowners as we did. Many of our previous clients should have never been our clients and therefore will not be for some time. The home prices are correcting, not just going down. Our industry is shrinking, not just downsizing.
I would like to comment on one other point that Mr. Frame made. He said that the institutions in our industry will be forced to reorganize because of capital. I assume he means capital constraints. He says these reorganizations will not be forced by consumers or technology. I understand that he is talking about their downsizing to reflect the current market. That downsizing might be called re-adjustment to a new, and semi-permanent, reality.
I would still argue that this new reality is still driven by consumers and technology. The consumers are demanding a better service from us all and they are using technology to do it. When most home searches now originate online, that is someting for every agent to note. When the consumer now compares mortgage rates and escrow fees online, that is also is something to note. Large banks can no longer monopolize their clients and title companies can no longer just get their clients from agents. If there was a profit to get the capital will chase it.
Yes the big institutions are having to reorganize and adjust to this new capital-sparse market, but there is still capital where there is profit. There always will be.
