Bob Mitchell - Realtor St. Louis

I don't get it. Prior to the credit and housing crises', when the economy was starting to slide due to the economic policies of the Bush Administration, the stock market kept bouncing along. When pressed as to how this could be all of the talking heads on the business channels attributed it to the strength in the housing markets.

Then it became common knowledge that the big Wall Street banks and investment houses were playing fast and loose with a bunch of new investment programs that, at least on the surface, appeared to turn garbage into gold. We had Standard and Poors rating CDO's that contained sub-prime mortgages as AAA investment grade.

When it became known that you really can't weave a sow's ear into a silk purse and expect people with bad credit to make their mortgage payment on time, especially when their interest rates jump 4 - 7%, the bottom fell out of the credit markets and all hell started to break loose.

Now as a result of the credit crises and through no fault of most homeowners, real estate markets throughout the country are in the tank, yet the stock market is still chugging right along! If it was the housing market that was propping up the economy then, what's propping it up now?

To make matters worse, the various lending institutions are taking steps to protect themselves by tightening guild lines and making it more difficult for even buyer's who would normally be well qualified to get a mortgage. Most recently certain counties have been listed as "Depreciating!", which in turn is making it even more difficult to buy a home in one of these areas.

If housing is such an important part of our over-all economy, when is somebody going to step in and do something to get us out of this mess? It's not really that difficult a situation to figure out! Did the credit markets get carried away to the point of excess? Yeah, they did. But even the big boys of the industry...the Merrill Lynchs and Bear Sterns have taken their licks and even if they wanted to play some of the games that they were playing before, the cat is out of the bag and that ship has done sailed...nobody's buying their line of crap anymore. All that said, the pendulum is swinging wayyyyy too far to the other extreme right now.

If some guy with an 800 credit score and 20% to put down feels like buying a home is a good thing to do, call me a radical, but I think that he should be able to...even if it's in a "Depreciating" market. If that guy has confidence in the US economy, shouldn't Fannie and/or Freddie?

I'll even take it a step further. I think that even the little guy...the first time home buyer....the guy with a 635 middle credit score and, God Forbid......a paid collection, should be able to buy a home.

I know that is crazy talk, but if the US government can step in to bail out JP Morgan, I would like to think that they can come up with SOME kind of program that will let people start buying homes again!

R.B. "Bob" Mitchell

ValueList Real Estate Services, Inc.

Bob Mitchell is president of ValueList Real Estate Services, St. Louis' largest discount/full-service real estate and mortgage company. If you would like to find out more about Bob, ValueList or our flat-fee listing program, please feel free to visit our web site at valuelistre.com

As I have written about before, my business was one of the first victims of the credit and real estate crises. Basically, I couldn't have timed a merger worse if I had tried. By taking over my largest competitor I ended up expanding into a declining market. A rapidly declining market!

I was forced to make some drastic moves. I shut two offices down and laid several people off. I don't know if any of you have ever been in this position before, but it sucked! I felt so bad for the people and my ego took a hell of a blow!

For a while, I crawled off and found a quiet space to lick my wounds and to feel sorry for myself. Having two kids in college at the time, I didn't have the luxury of not being able to generate income, so I took a job driving a taxi. When that proved impossible to manage while keeping my real estate and mortgage company afloat, I switched to driving limousines.

I caught a fair amount of grief for doing this from some other people in the field. I had competitors actually call my clients and "out" me as not being a "full-time" agent. Fortunately the clients that I had at that time were understanding and I had been very upfront with them. I also had remained a "full-time" agent in that I was still putting in more than 40 hours a week working at keeping my company alive.

As I mentioned before, this is when I found out about the power of blogging and of Activerain. I started the process of building my web site into what I hoped would be a powerhouse. ValueListre.com had been a basic real estate agent web site. Pretty much a canned product that I had purchased from Homes.com.

Through Activerain I learned about search engine optimization and about the so-called "web 2.0". I started adding content and optimizing my web site. We went from page 235 on a google search to page 2 for the most widely used search term for our market. I also went back to the basics as far as marketing my company.

So, here we are a year and a half or so later and it's starting to click! Over the last couple of weeks my phones have started to ring. The efforts that I had made on faith that they would pay off have started to. As I mentioned in my last blog, I've gotten two listings from my website in as many days last week. I've also gotten some buyer inquiries and while I haven't reeled them in yet, it's a start!

Yesterday was the first day in a long time that I could actually say that I was working to keep up. Between taking care of the details on my working transactions and a couple of projects that I had started, I worked pretty steady from about 8 in the morning to about 6:30 in the evening. Several times during the day I had multiple people on the phone. This morning, I'm hacking this post out, then running down to South city to take a look at a two family to list. Later on, I've got to do comps for this one and another one that I'm working on. Then I've got to finish up those projects that I mentioned above. Basically, it's starting to feel like I'm back in business for real! Back in the saddle again!

I don't know for a fact that this trend is going to continue, but I have the feeling that it is. I've talked with a fair number of other agents here in St. Louis and none of them are claiming to be busy, so maybe it is just me. If that's the case, I can only attribute it to my work here, as well as my concentration on marketing basics.

So, in addition to writing this post for the 200 points (;0), I'm writing to let those of you out there who haven't seen a bunch of return on your blogging investment, please know that this stuff really does work! Keep at it and be consistent. My challenge right now is not to let it slide if I do get really busy. That said, it won't be any harder to do that than it was to drive a taxi 50 hours a week and work my company 40! ;-)

R.B. "Bob" Mitchell

ValueList Real Estate Services, Inc.

Bob Mitchell is president of ValueList Real Estate Services, St. Louis' largest discount/full-service real estate and mortgage company. If you would like to find out more about Bob, ValueList or our flat-fee listing program, please feel free to visit our web site at valuelistre.com

I'm going to have to start paying Janet Guilbault a royalty. This is the second post in a roll that was inspired by one of hers! If you haven't checked her blog out, you really should!

Anyway, yesterday she wrote a blog called, "Breaking News, WAMU Is Exiting The Wholesale Mortgage Business" that talked, as the title suggests, about Washington Mutual exiting the wholesale mortgage business. In the comments sections Janet raised an important question about the future of wholesale originations. This post is my take on that question.

The History of Mortgage Brokerage

In order to understand where we're at now and where our industry might be heading, you have to understand where we, as an industry, have been and what the factors were that lead to our birth.

Basically our industry came into being during the early 1980's. Prior to this if you wanted to finance the purchase of a home you only had a few choices. If you wanted to utilize a government loan program (FHA or VA), you went to a Mortgage Banking company and if you wanted to buy a home utilizing conventional financing, you went to a Bank or a Savings and Loan.

With any of these institutions you set an appointment with the lender and during business hours you went to that institution and made application.

Then in the early 1980's a few entrepreneurial people realized that it could be done better and that it could be done less expensively than what the banks, mortgage banking companies and savings and loans were doing. Arrangements were made with some of these institutions to allow for these entrepreneurs to "originate" the mortgage and then to sell that mortgage to the lending institution.

It was a classic "win/win" situation. Whereas the institution had certain cost structures that they couldn't avoid such as various regulations, as well as other overhead issues, these entrepreneurs weren't encumbered with these costs and could originate that mortgage less expensively than what it would have cost the institution to have originated that mortgage themselves. Plus, by buying mortgages from "brokers" an institution could greatly expand it's market place without taking on a bunch of additional overhead.

I'll use Knutson Mortgage Corporation (a company that I used to work for) as an example of this. Knutson Mortgage was a Minneapolis based mortgage banking company that was owned by a Boston based Savings and Loan. They at one point had 60 "branch" officers located throughout the country.

At a sales meeting one of our many vice-presidents explained our cost structure to us loan officers. He told us that by the time Knutson paid for it's office building, all of the various branch offices, several layers of management, as well as the costs of maintaining the corporate jet, that it "cost" Knutson 2.25% to originate the "average" mortgage.

Shortly after this meeting I went to work for a buddy of mine who had started a small mortgage brokerage where our overhead consisted of the rent on a 600 square foot office space, wages for a processor/closer and the lease on a copy machine and one computer. Even paying a loan officer a .05% commission on the loan amount, we were able to undercut Knutson by around a full point. In essence, if they had so desired, Knutson could have purchased the mortgages that we originated for less money than they could originate the mortgages for themselves. Many financial institutions did the math and figured this out. An industry was born!

Real Estate Becomes The Hip/Happening Thing

As time went on Mortgage Brokers grew their market share to where it is estimated that over 60% of all mortgage origination in the United States is done by mortgage brokers. As with any market where substantial amounts of money are being made, new competitors entered the market.

In the early 90's interest rates dropped substantially which fueled a wave of refinances that was unprecedented. The number of mortgage brokers and wholesale mortgage lenders ballooned. The invention of the sub prime mortgage market, combined with historically low interest rates led to a boom in the US housing market. The number of lenders, as well as the number of new lending programs sky rocketed. Many of these programs were of dubious nature.

Wall Street had taken into account the fact that some of these mortgages were going to default, but were confident that real estate values would continue to appreciate enough to make these defaults tolerable. They created investment vehicles such as Collateralized Debt Obligations (CDO's) in an effort to shied investors from the riskier loans that were packaged with better quality loans. These new investment vehicles were rated as investment quality products by the various Wall Street Ratings Agencies (such as Standard and Poors and Moody's) and marketed to institutions and people who wanted a "secure" investment that still provided an attractive rate of return.

The hunger for these investment vehicles led to the creation of even risker loan programs. At one point it was possible to obtain a mortgage even if you had bad credit and were not able to substantiate your income.

All of these factors increased the size of the US mortgage market and therefore allowed the number of lenders, both wholesale and retail, to grow to a level never seen before.

The Party Ends

Then, a couple of years ago, interest rates rose and many of these mortgages that were originated started to default when they came due to adjust to what some consider to be usury levels. In addition, real estate values started to stagnate and even go down in many markets.

This increase in defaults combined with declining real estate values has led to upheaval in the mortgage markets. According to one web site that keeps track of major lenders that have imploded, "ml-implode.com" 249 major US mortgage lenders have ceased doing business. This doesn't count the hundreds of other lenders that have substantially curtained operations or the thousands of smaller lenders who have gone out of business.

As Janet's post points out, Washington Mutual is just the latest of these lenders.

What Does The Future Hold?

While no one, myself included, has access to an accurate crystal ball in order to gaze into the future, I think that I have a pretty good idea of what is going to happen. The current consolidation that is happening in our industry will continue. Even if the powers that be see fit to address the credit crises directly and create a program to rescue home owners in danger of foreclosure, consolidation in our industry is going to be a fact for some time to come.

Eventually, borrower bail outs or not, the real estate and credit markets will weather this storm, but the number of lenders (both wholesale and retail) will be substantially smaller. Interest rates are going to rise because they will have no choice and while some of the non-conforming programs may eventually return, sub prime will never be the same as it was.

All in all, real estate will return to what it has been for hundreds of years in this country; a roof over your head, a hedge against inflation and an investment that (if held for a fairly long term) will provide an attractive enough return to justify it being part of most people's investment portfolios.

As far as wholesale mortgage lending goes? It's hear to stay. The economic forces that spawned it's creation will still be there. Even with legislation that will raise the cost of production for brokers, banks and other institutional lenders will still have a problem competing with us on a cost basis. Brokers will remain an agile and quick, as well as flexible alternative to bank financing. Institutional lenders will come back to seeing the advantages of dealing with brokers and eventually, we will return to a "normal" market.

R.B. "Bob" Mitchell

ValueList Real Estate Services, Inc.

Bob Mitchell is president of ValueList Real Estate Services, St. Louis' largest discount/full-service real estate and mortgage company. If you would like to find out more about Bob, ValueList or our flat-fee listing program, please feel free to visit our web site at valuelistre.com

This morning I was reading a post by Dorene Shirley that linked to an article that is currently on Forbes.com titled, "America's Riskiest Real Estate Markets". When I clicked on the link to read the article there was a picture of some directional arrows in front of some new construction homes. I started to click on the article when I noticed that one of the names on the directional arrow sign belonged to a company here in St. Louis.

I was throughly surprised to see St. Louis included on this list, more or less coming in at being the fourth riskiest real estate market!

I'll fess up, things have been rough here. A home that I sold in three days for $178,000 where the deal didn't close ended up selling for $160,000 eight months later. This was almost a year ago and I happened to be showing property in that same subdivision last week and saw where similar homes to the one that I sold were still selling in that $160,000 range. To me, this is pretty indicative that the market had truly dropped around 10% from it's highs.

I also wrote a contract on a foreclosure that was priced fairly aggressively and ended up losing out to a higher bid in what turned out to be a multiple offer situation. This home was discounted, but if you took into account the deferred maintenance, it wasn't discounted all that much!

Anyway, this got me to wondering how much thought went into this article. Was it something that some free lance writer threw together in order to generate a paycheck?

From a boots on the ground perspective, I honestly don't think that the St. Louis real estate market is THAT bad. It's bad, but I don't see any way on earth that it would be the fourth riskiest in the nation!

I also think that the St. Louis real estate market actually has quite a bit going for it. St. Louis has a very diversified economic base. While we still have a fair amount of old school industry, such as auto and aerospace manufacturing (pretty wild to consider aerospace manufacturing as being old school, huh?), it also has quite a bit of new age stuff going on as well. Biotech would be an example of this.

St. Louis is also benefiting from it's relatively low cost of living compared to other major US cities. In the past year or two I've worked with several people who are relocating to St. Louis from more expensive markets such as Chicago, New York and Boston. Without exception these folks told me that one of the reasons that they were moving was because they could get a job here that pays almost as much as their previous jobs, but that here they could afford to buy a nice home.

So, all things considered, I don't think that the St. Louis real estate market is all that risky! And this brings me back to my question on how much thought went into this article? Did your market make it to the list? If so, what is your take on it?

Let me know!

R. B. "Bob" Mitchell

ValueList Real Estate Services, Inc.

Bob Mitchell is president of ValueList Real Estate Services, St. Louis' largest discount/full-service real estate and mortgage company. If you would like to find out more about Bob, ValueList or our flat-fee listing program, please feel free to visit our web site at valuelistre.com

Everyone selling real estate would like to think of themselves as a "Professional". If you've read my blog at all, you'll know that I don't think that real estate agents qualify as "professional" at least not the vast majority of them.

One of the reasons that I think that we don't qualify is that I don't think that the educational requirements to get a real estate license are stiff enough to insure that somebody wanting to enter this field is going to be committed to it. Think of how much schooling a dentist or a lawyer must attend in order to get a professional license to practice their craft. Let's just put it out in the open. Below is a list of the educational requirements for a couple of different professions;

Physician - 15 to 20 years of post secondary education plus passing "the boards", a series of tests lasting several days.

Lawyer - 7 to 10 years of post secondary education plus passing "the bar", a series of tests lasting several days

CPA - 4 years plus generally a apprenticeship program and passing the CPA exam.

Think that isn't fair to compare real estate agents to lawyers and doctors? Alright then, how about we compare real estate agents to a hair dresser or a tattoo artist then? You're right, we do have stricter licensing requirements than what it takes to be a tattoo artist! (State of Missouri requirements)

Hair Dresser - (In the State of Missouri) 1,500 hours of instruction including 150 hours before they can work on a live person.

Dietitian - 4 year degree

Tattoo Artist - No educational requirement

Real Estate Agent - 72 hours of class room instruction (can be taken online)

So, the lady who does you're wife's nails is required to take over 20 times as much instruction as the real estate agent who is going to sell your home for you! You seeing any connection between how the public views real estate agents yet?

How About Continuing Education?

The truth of the matter is that most people who get a real estate license never have to worry about continuing education because they don't end up renewing their licenses, but for those that do (at least here in Missouri) they are required to take 12 hours of continuing education every two years.

Wow, a whole 12 hours! Isn't that special?

Having taught one a few of these courses, I can tell you that a good number of the people who attended them pretty much slept through most of them. Several people attempted to do business from the back of the room until I stopped them. One guy got upset when I woke him up and told me that he had, " "Paid his dime, now he only had to do his time!"

I've Got My License, Why Should I Care?

Why should you care? Because this issue affects all of our bottom lines. An old joke in real estate management is that if you get 1 out of five agents to stick around after the first license renewal that you're doing good. I've even heard managers tell me that as long as the new recruit lists one home and sells one, that they would have paid for themselves. Since most people have at least one relative that will be buying or selling in the first couple of years, then recruiting somebody is a pretty safe bet.

All of these folks entering and leaving the "profession" hurts our reputation, not to mention takes food off of the table for the people who do practice real estate as a "profession".

Proposal: Each Broker Pay $500.00 Yearly For Each License That They Hold

Okay, keep the rotten fruit on your plate and think about this for a second. If a broker had to pay $500.00 for each license that they hold, how many licenses would be sent back to the commission? If you're not worth $500.00 to your broker, should you really be in the business?

If all of these folks got out of the business, how would that effect YOUR bottom line? Combine these two ideas and watch real estate become a true "profession". One that you can be proud of and where the public holds us in the regard that a true "professional" should be able to expect!

R.B. "Bob" Mitchell

ValueList Real Estate Services, Inc.

Bob Mitchell is president of ValueList Real Estate Services, St. Louis' largest discount/full-service real estate and mortgage company. If you would like to find out more about Bob, ValueList or our flat-fee listing program, please feel free to visit our web site at valuelistre.com