The Golden Rule is that when you assume you make an ass out of you and me which is what you and so many lenders do, assume that the seller’s asking price reflects the true value of the home. For example, buyer purchases a home at the seller’s asking price of $100k. Lender approves the loan because buyer has a low debt to income ratio but requires a 10 percent down payment to minimize the probability that buyer will default on the loan because of buyer’s assumed 10 percent equity interest in the property even though the home’s true value is $50k which is very common in a commission driven industry.

Along comes the biggest economic crisis since the Great Depression revealing all this worthless paper wiping out phantom equity resulting in the biggest bank bailout and many underwater homeowners foreclosing on their homes because they refused to continue to make mortgage payments on homes that were not worth the ink they used at closing to obligate themselves.

1. As a Buyer’s Agent, my mission is to negotiate a Sale Price that is below market value “recent sales of similar homes in the area” and below local value “the municipality’s appraised value of the home”. This minimizes the probability that financed buyers will experience negative equity because market value is mostly driven by real estate agents to inflate home values for bigger commissions, henced the term “worthless paper”; while local value tends to more accurately reflect the home’s “true” value. In all my years of exercising this strategy, I’ve NEVER had a buyer to experience negative equity despite the collapse in the housing industry.

2. Financing Terms ie. interest rate, fixed or variable, down payment, points, prepayment penalties, etc. are determined based on a buyer’s credit risk unless you’re dealing with an unscrupulous Mortgage Broker or Loan Officer whose objective is to railroad any buyer regardless of their credit worthiness. I serve in the capacity of a Mortgage Broker for ALL my financed buyers and negotiate fixed below market interest rates, low down payments, zero points and no prepayment penalties for early payoffs. I have been successful at achieving these financing terms on behalf of my buyers because I personally evaluate their financial condition to ensure that they are ready, willing, and able to purchase a home before I present their loan application to the lender for approval.

3. Property taxes are determined by the local municipality where the home is located. Financed buyers will generally have property taxes reflected in their monthly mortgage. It is imperative that a Buyer’s Agent inform the buyer of the property tax amount before the Sale Price is presented to the seller to ensure that the buyer has a debt to income ratio that will enable them to more than afford their mortgage.

4. Hazard Insurance is mainly based on the credit risk of the buyer. High credit risk buyers regardless of a big down payment will have high insurance premiums. Because all my buyers are low credit risks, I negotiate extremely low insurance premiums for them which are usually reflected in a financed buyer’s monthly mortgage payment.

Therefore, low credit risk financed buyers with PROPER buyer representation tend to purchase homes with a Sale Price below market and local values, receive below market financing terms, avoid homes that have too high property taxes in relation to their debt to income, and benefit from low hazard insurance premiums that are directly reflected in their low monthly mortgage payments ultimately minimizing the probability that these buyers will experience negative equity or foreclosures in the event of a financial or housing crisis.

The loan officer said manifest I like that word when do they need to close. I said tomorrow morning one at 9 and the other at 10. He said if I had a few days to work with I could close the deals for you but do you really need them closed tomorrow and I said Yes. He said ok here’s the name and number to a Mortgage Broker who says he can close any deal just let him know I referred you.

I said thanks for your time, consideration and referral then immediately called up the Mortgage Broker, let him know who referred me to him, and began explaining to him that I have these mother and daughter clients who have been renting the same apartment for over forty years where the mother has been maintaining the landlords property the entire time. I continued to say that they are good credit risks, the contracts are under $50k each but the deals have to close tomorrow morning per contract terms and the Mortgage Broker has backed out of the deals.

He said it seems like these people just need to catch a break. I’ll do the deals under one condition. I said What. He said, find me the kind of house that you found your clients. I said Done. The next morning he brought two checks to closing and both the mother and daughter cried like new born babies spanked at birth because they had achieved the American Dream of homeownership with financing terms that were extremely favorable to them.

It was a few weeks later that I accompanied the Mortgage Broker to his home closing and on that date he confessed to me that he was from a trailer park and never believed he could achieve the American Dream of homeownership for under a $100k. The deal I negotiated for him was in a working class neighborhood just like the mother and daughter’s deals and the purchase price was $32k. After his closing, I obtained an exemption from my state to operate as a Mortgage Broker on the real estate sale contracts I originated to ensure that I never faced that mother and daughter predicament again.

As a former bank regulator, a high down payment is not the answer to curtailing foreclosures. Banking is the most conservative industry where the evaluation of a potential borrower’s credit worthiness is easily determined. I fully support the Community Reinvestment Act that enables low to moderate income buyers to purchase homes at affordable terms. However, government intervention only made it easier to exploit loopholes in the system that collapsed the housing market. Unfortunately, Dodd-Frank has failed to address these loopholes.