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A memo from mortgage lenders to real estate professionals.

Dear Real Estate Professionals,

First off, this entire letter is meant to be “transparent,” since those cowboy regulators say we have to be more “transparent.”  After looking up the word, we held some private meetings and decided the best way to accomplish this “transparency” business is to change the word “transparency” to “adjustable truth.” This new definition prevents us from having to overhaul certain crucial accounting standards we have set in place in order to avoid insolvency, which we have decided to rename “lack of adjustable truth.”

On to the important stuff.

Our accountants have recently told us there is an uptick in our lack of adjustable truth, and suggest it has something to do with real estate. We feel we have done our part to push the industry, and we are writing today to ask you: What gives?

We would like to point out the numerous and varied ways we helped create the housing boom:

  1. You never saw us quibbling with an applicant over the little things like income or asset documentation.
  2. We bent over backwards with creative financing arrangements such as the adjustable rate mortgages (ARMs) which allowed nearly anyone to qualify for a loan.
  3. For those who didn’t qualify for the simple ARMs, we created option ARMs and interest-only ARMs.
  4. For those who didn’t qualify for a traditional loan, we lowered the bar and created the Alt-A market.
  5. For those who didn’t qualify for the Alt-A market, we further lowered the bar and created the ultra-subprime market.
  6. Then, we made option ARMs and interest-only ARMs available to those markets.
  7. We robo-stamped all those appraisals proving those properties were definitely worth what people were willing to pay, without forcing anyone to laboriously toil to figure out if it all made “financial sense.” (Pardon the industry jargon.)
  8. We got Wall Street in on the act securitizing and bundling these loans. (For the sake of adjustable truth, you’ll have to take our word when we say that Wall Street makes everything worth more.)
  9. We even had our legislative representatives look the other way while this was all happening.  Who needs the red tape?

As you can see, this housing crisis thing (and we must object to the severity of the word “crisis”; perhaps we can agree to call it the housing “blip”?) is obviously not our fault.

Still, we realize something must be done, and it appears it’s up to us (again).  We have taken the liberty of preparing a list of helpful suggestions so you can pick up the slack on your end. You will find them in keeping with the tenor of our past successes, and therefore, foolproof:

  1. Raise your fees. 6% is simply not enough, but don’t talk “flat fees,” talk “fat fees!”
  2. Practice on a need-to-know basis – that’s what the “as-is” disclaimer is for. Who wants a buyer asking all those persnickety questions, anyway? Close more deals by revealing less! You will find it works as we have.  [For more information about the unreasonable agency duties required of real estate professionals, see the November 2010 first tuesday article, Holmes v. Summer: dilatory disclosures and the damage done.]
  3. Keep telling people everything is perfect. Housing is up, up, up and it always will be!  This worked before, and we see no reason why it shouldn’t work again. [For more information about how to practice adjustable truth with statistics, see the January 2012 first tuesday article, NAR pads the numbers.]
  4. Keep paying those union dues. CAR dealers have the best reputations. [For more information about how highly the public esteems real estate professionals, see the November 2011 first tuesday article, Damage control: restoring public trust in real estate professionals.]
  5. Get creative with your office organization. In addition to your cut of your agent’s fees, you can set up a subsidiary “agent management company (AMC)” which will manage your office for a cut of the agent’s fees. That way, you receive fees on both ends, and it’s legal! (Owning appraisal management companies is really working out for us.) [For more information about the success of appraisal management companies, see the December 2011 first tuesday article, Appraisal management to the rescue?]
  6. Due-on clauses. We’re not sure how this can be useful to you, but just so you know, it’s going to be a big winner for us. Just sit back and watch us over the next few years. [For more information about how due-on is going to give us undue power and allow us to continue to keep our hands in the proverbial pies, see the January 2012 first tuesday article, The due-on time bomb.]
  7. Create a moral hierarchy, and place yourself at the top. Frankly, this is a weak point in your current handling of real estate, yet one of the fundamental cornerstones of adjustable truth. “Strategic defaulters” are “morally bankrupt.” Nevermind what their reasoning is: your way is right; their way is wrong. You adjust their truth for them, see. [For more information about your failure to sufficiently scare homeowners away from strategic default, see the January 2012 first tuesday article, The morality of strategic default: businesses vs. homeowners.]

Finally, we would like to remind you to please practice adjustable truth in absolute secrecy; we wouldn’t want the rabble to get wind of what we’re doing, otherwise none of us would ever make any money at all.

Thank you for your immediate compliance.

The Mortgage Lenders

P.S. Pursuant to #9 of the first list, we have written to our representatives in Congress to suggest they may want to keep their names and contact information out of the public eye to avoid the appearance of a conflict of interest. People may get the wrong idea about whom they actually represent.

Inspired by “From alpha to smart beta” from The Economist