I have been wanting to start this blog for years and finally we’ve started it! There are so many “Chic” restaurants, breathing taking views, unknown natural wonders in Maine. There are so many places I have visited as a Register Maine Guide and outdoorsman over the past 60 + years I have lived here as a “Mainer”. I want to share my experiences and places that most people will never experience living here simply because they are kept secret or at least forgotten on purpose. I’ll share some of those places in Maine that I have discovered like the Allagash Waterway or Grand Falls on The Dead; but most of all I will share trends in Maine Real Estate because real estate is “local”. We can predict a “shift” in real estate in Maine from the National Sales Report numbers and indicators, the rate changes in the Ten Year Bond, but we can also see Micro and Macro trends in Maine real estate as well as from what’s happening in Cumberland/York Counties compared to the rest of the state.
That said, today’s topic is the deregulation of banks’ lending practices and the products I see lenders offering again. I am a student of history, one of my majors in college was history and if I learned one thing it was that history will repeat itself. Now that can be a positive thing or maybe a negative thing, but it will repeat itself. I meet with banks and mortgage brokers on a regular basis. I’m always being called and ask to meet for coffee. Two weeks ago I met with a lender who I haven’t done business with in the past and he reviewed his new products he was offering. He had the usual products, but he pulled out this flyer and said , “this product allows cash to be used, we don’t need two years of employment status, and money can be gifted.” I said to him, “Isn’t that a no doc. loan?” The interesting part of that was Buyers could use cash. I can not remember non- verification of funds for a loan during the past 16 years I’ve been a Real Estate Broker. This wasn’t the first time I have had red flags on financing in the past year or so. Back in September, a client wanted to use an online lender and one of the biggest in the industry. When we called to get a pre-qualification letter, the mortgage agent basically said the way he “qualified the Buyer” was he ask them how much the made on W-2s and plugged in their credit score directly into the Fannie Mae website and “presto” they were qualified. When I said, “isn’t that a “NO DOC” loan. He said, “Don, they are well qualified and we hold the note on their primary residence”. Granted, these clients owned a Brownstone in Boston somewhere in the $1 million range; however this is how banks and people got in trouble when Clinton (not to get political here) said in 1996 that we want “80 % on Americans to own their own homes”. Well, the deregulation of banks and lending due to the new regulations caused the mess to happen and it was primarily due to “No Doc” loans. What are “No Doc loans”? Documentation of income was not required to get a loan sold on the secondary market with these high risk loans that were basically sold to hedge funds, and large banks, and investment companies, etc. If you haven’t seen the movie “The Big Short” pull it up on Netflix.
I’m proud to say during that period from 2007-2011 I did not have a client go through foreclosure. In Maine, the problem wasn’t as bad as California, Nevada, and Florida due to the solid local banks we have here in Maine and our culture in general. I think as we enter into this period where lending seems to be very “relaxed” it is important to ask our clients a question that I have asked my clients since the beginning; especially young first time home buyers: ” Sally and Jeff, if you buy this house, the questions is do you have enough income to go out and have fun? Will you be able to have dinner with friends? Will you be able to put gas in your car? Will you be able to go to the movies? You see, I ask you this because you’re going to want to do these things and if you can’t afford it- it will stress out your relationship, make you use that credit card, and put so much pressure on you that it will be a mess. “House Rich and Cash Poor” just doesn’t work. So I ask you again, “Do you have enough income to support your lifestyle?” If they say said or they say they can handle it – I’ve done my job. You see, those same clients who were in their 20s are now in their 30 and 40s and I have helped them sell and buy their next “Dream House”. Our goal should always be to look out for our clients’ best interests and create clients for life. I what my clients to know that I want to be their “Real Estate consultant” for life.
There may be a place for the loan I mentioned with no documentation of cash or employment; I can think of a few honest people who work in a cash business that it may benefit; it may be a legitimate product, but we seem to forget the history on banking and lending. I think as a real estate professional, we need to educate our clients and point them in the direction of other real estate professionals like attorneys, trusted loan officers, bankers, and other real estate service professionals that will help them navigate though the process of being home owners. I have loved this business and there’s nothing better than helping someone with the biggest purchase in their life time. I hope this stimulates some questions and thoughts.