It is a scene millions of Americans have been in -- sitting next to a real estate agent at closing to sign the loan contract and other papers for a new home. Often, the buyer has spent months with the agent. And to hear agents tell it, they are indispensable guides through the hazardous home-buying terrain.
How is it, then, that millions of borrowers took on toxic subprime mortgages that could cost them their homes? Why did their agents not warn them off? While much criticism has been leveled at subprime lenders and mortgage brokers, real estate agents have yet to receive their fair share of the blame for the subprime mess, says Shanna Smith, president of the National Fair Housing Alliance. "I think the greed factor works with agents as well as loan originators," she recently noted.
Others say it's not that simple. "The broker, 99% of the time, is the agent of the seller, so the broker doesn't have any duty to the buyer," said Wharton real estate professor Georgette Chapman Phillips.
Subprime loans, typically offered to borrowers with poor credit, usually start with low "teaser" rates that keep monthly payments smaller than they'd be on fixed-rate loans for the same amount. But after one, two or three years the rates are adjusted annually, often leaving buyers paying more than if they'd taken fixed loans. Many subprime borrowers are now seeing their monthly payments jump by 30% or more.
This fall, Congress, the White House and numerous state and federal regulators are struggling to find remedies to the subprime mess, which some experts think could result in two million home foreclosures. Even the presidential candidates have chimed in. Some approaches would allow federally sponsored firms like Fannie Mae and Freddie Mac to help stressed borrowers refinance. Others target lenders by requiring better loan-risk disclosure to borrowers.
The real estate industry has not been sitting on the sidelines.
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