Earlier this morning, I was scouring the web reading many of the blogs that inspired me to start blogging.  I came across a post from Real Lawyers Have Blogs that discussed the ambulance chasing behavior that has given lawyers a bad name. It especially struck me because of the overwhelming number of Ad sense ads I have been encountering across the web that are advertising contingency lawyer services for the Chatsworth Metrolink train accident. I will admit that these bothered me a bit because of the concept of profiting at the expense of others tragedies, but I always brush these off telling myself that trial lawyers have to make a living too. 

Then I came across Kevin O’Keefe’s blog post at Real Lawyers Have Blogs where he discusses how there may not be too many lawyers,  but rather that advertising avenues have made ambulance chasing too easy.  By the time I had finished reading the post, it got me to thinking about how the perception of real estate agents has been on a freefall and that it might be just rightfully be due to advertising schemes on saving your credit by selling your home via short sale. A short sale is a term used in real estate to describe a homeowner selling a home for less than what is owed on it via bank approval. Even though no one is maimed or killed in situations like these, I still feel like it is a form of ambulance chasing. I feel similar to the way Kevin felt about his fellow lawyers. That is, agents, such as myself, should not be listening to all of the marketers out there about drumming up business by preying on those who are distraught. I believe that agents who purposefully go out in search of people who are in foreclosure or approaching foreclosure is the equivalent to ambulance chasing. Just because we have sophisticated marketing methods for advertising to these folks, does not make these activities any less of a vulture-like behavior.

I would like to thank Tom Antoine and his blog for exposing me to Kevin O’Keefe’s blog, as it provided me with contemplation on what constitutes professional behavior.

Houston Luxury Home

I decided to take an academic approach to organizing by mortgage education series. I felt it would be fitting for the blog category title of Basic Houston Mortgage Education. I will begin this series by covering a brief history of the United States mortgage market evolution.

Prior to 1934, when someone wanted to purchase a home and did not have all of the funds necessary for the transaction, the individual would head to the town center to meet with someone at the neighborhood bank. If one of the bank representatives knew the customer and considered them a good credit risk, the customer would get the loan. For the most part, mortgage loan terms were rather customer-unfriendly prior to 1934. Loan terms were limited to 50% of the property’s value, the repayment schedule was almost always 5 years or less, and ended with what is known as a balloon payment. A balloon payment is a term used in the mortgage market that means when one reaches the end of the allotted loan period there is still a balance, and at that time, the borrower is expected to pay in full the remaining loan amount. Unsurprisingly, at that time America consisted mostly of renters with only two out of five households owning their own homes.

In 1934, the Federal Housing Administration (FHA) legislation played a major role in helping the country out of the great depression. FHA allowed for a new type of mortgage aimed at assisting those folks who did not qualify under the previous existing loan programs. FHA lengthened the excessively narrow loan terms from the traditional 5 year loan to 15 year loans. FHA later extended the loan period to 30 years which is the time line that is still most common today.

The FHA started loan programs that lowered the down payment requirements to 20%, 10%, and in some cases lower than 10%, rather than the 50% down that was required by traditional lending standards. This move by legislators revolutionized the lending industry by forcing banks and lenders to modify their loan terms and created more opportunities for the average American to own their own home. Along with lengthening loan terms and reducing the required down payment, FHA also started the trend of qualifying people based on their ability to pay back the loan (something I think we forgot about that has caused the current subprime lending crisis). This opened massive opportunities for the less well connected Americans of the day.

Another stabilizing trend the FHA implemented was to ensure the quality of the home’s construction. FHA set standards that homes had to meet in order to qualify for the loan. These standards are still enforced today.

Before FHA, traditional mortgages were interest-only payments that ended with a balloon payment that amounted to the entire principal of the loan. That was one reason why foreclosures were very common in those days. FHA established the amortization of loans that we use today. Amortization means that each payment made includes all of the interest plus a certain amount of the principal amount that leaves a zero balance at the end of the loan term.

The revolutionary concepts introduced by FHA have grown to include a wide variety of loan products today. These different loan products are made available by something commonly referred to as the Secondary Market. Problems in the Secondary Market are to blame for the housing crisis we are experiencing today. We will cover what the Secondary Market is composed of, who the major players in the Secondary Market are, and how events in the Secondary Market affect the average Houston home buyer.