WBUR: What’s Next for Banks? Three proposals to protect home buyers & tax payers’ investment

Comment on WBUR / OnPointRadio talk show: What’s Next for Banks?

Listen to rebroadcast on 90.9fm in Boston, 7-8:00pm, Tuesday, January 27, 2009 or listen to audio online at your convenience

Pulitzer Prize-winning New York Times business columnist, Gretchen Morgenson, told NPR / WBUR listeners that tax payers — who collectively will invest an estimated $1 trillion to rescue the banking system (see “The End of Banking as We Know It“) — should insist on more regulation to protect consumers. Thus far, only 1 in 4 foreclosures has been listed in the real estate industry’s multiple listing service (MLS), according to a recent article entitled “Banks to unleash flood of REOs.”

Morgenson’s recommendation and reader comments on WBUR’s blog (particularly Joe B and Peggy Gale), lead this blogger to ask if the Obama administration should enact three new regulations to insure an open and cost-effective foreclosure disposition process, particularly for prudent first-time buyers who sat out the housing bubble?

1. Require any vendor involved in foreclosure disposition to sign a “no conflict of interest policy” which, among other things, prohibits “dual agency” and “designated agency” — a business practice that allows real estate agents / agencies to represent both buyer and seller in the same real estate transaction. (See related blog post: “Double Bubble: How counterfeit buyer agents inflated the housing bubble.”)

2. Establish transparency guidelines for real estate offers so buyers, who are easily manipulated by fear of loss, don’t engage in irrational “bidding wars” and overpay for properties, particularly when there isn’t really a competing buyer. (Here’s an example of one software solution that banks could use with foreclosed properties, and potentially save tax-payer money by selling direct to home buyers without a listing agent.)

3. Set-aside a significant percent of the foreclosed inventory for low and moderate income, first-time homebuyers and non-profit agencies, so they do not have to compete against investors. The RTC (Resolution Trust Corporation) demonstrated the cost effectiveness of this policy during the last foreclosure cycle (1990-1995). (See Wall Street Journal editorial to “Resurrect the Resolution Trust Corp.”)

One of the last WBUR callers also talked about organizing a class action suit. That has a familiar ring to it. In fact, a story in the New York Times a year ago caused us to write this blog post, “Misleading home buyers: Conflict of interest? What conflict of interest?”

The NYTimes speculates that consumers, angry that their counterfeit
buyer agents did not provide adequate advice and protection, will
increasingly take legal action. Will their collection actions rise, at
some point in some overvalued market, to a class action lawsuit?

If readers feel they were harmed by dual agency or designated agency, please contact The Real Estate Cafe. Got other ideas about how to reform the residential real estate industry to avoid conflicts of interest and prevent future housing bubbles ? Listen to some idea starters.

Posted in Defensive Homebuying, Dual Agency Detective, Real Estate Consumer Bill of Rights, RECALL: Real Estate Consumer Alliance

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