Thursday, April 07, 2005

‘I don't see that price appreciation is a bubble'

By Albert C. Pacciorini

Despite higher interest rates and a still-sluggish economy, the price of real estate continues to appreciate at astounding levels, especially in California. Consumers are not only seeing record home sales and prices, but are confronted with an array of new loan options. And because of the booming real estate market, the number of licensed real estate agents has jumped in one year from 375,000 to more than 428,000. Appointed by Gov. Arnold Schwarzenegger, Monterey Realtor Jeff Davi took control of the state Department of Real Estate on Oct. 5. The department is charged with protecting the public in real estate transactions — it qualifies applicants for real estate licensing, regulates the agents and approves new subdivisions. Davi talked about the real estate market and industry with Examiner Business Editor Albert C. Pacciorini.

EXAMINER: You've been in the real estate business a long time, through many cycles. People are talking about a real estate bubble. Is there one?

JEFF DAVI: Historically, the real estate market has been cyclical. I have never believed that the California real estate market consists of a "bubble." Yes, in looking back you can find communities throughout the state where appreciation occurred and when the real estate market cycle came to a downturn, those areas realized price depreciation, but overall and throughout the state, I do not see that the price appreciation is an empty shell (a bubble).

Q: What kinds of cautions do you have for homebuyers?

A: I always encourage people to work toward homeownership, however, they should be careful they do not overextend themselves with a home they may not be able to afford. I would caution buyers about being aware of the home they are contemplating buying, compare the price to comparable sales, be sure to learn about the financing options and prepare yourself to buy. A decision to buy a house — your first house or your fourth house — should be one that is made with information and planning.

Q: What about cautions for people applying for loans?

A: Obviously, the loan is critical. There are so many options out there, and so many financing instruments. I suggest a borrower do research on the types of loans that are out there, fixed vs. adjustable. This is not to scare borrowers, but to explain that there are many different loan products, limits and conditions that a person needs to be aware of so they properly understand their obligations. Lenders are required to disclose information about the loan. If your lender doesn't appear to have answers to your questions, then you may want to reconsider your lender.

Q: What about the risks of some new types of loans?

A: As I said, there are so many products out there. They are available as a result of such a diverse demand in the real estate market. Interest-only vs. amortized loans; be sure you understand the difference. If you pay interest only, your loan principal is not going to be reduced, unless you make additional payments, which means over several years your loan balance will never change. Compare that to an amortized loan that does not allow negative amortization. In this case, your loan balance should be reduced over time. Of course, your payments, depending upon the rate, may be higher than an interest-only product. Keep in mind that with some adjustable loans, your principal balance may increase over time. Again, be sure you understand the loan product you are getting. Remember, be fully informed so there are no surprises.

Q: Are there particular areas of lending abuse — reverse mortgages; first-time buyers; the elderly?

A: I would say that you have just listed the major risk categories of the types of borrowers that can be taken advantage of. The elderly are always susceptible to potential wrongdoing by an unscrupulous lender. In many instances, the borrower is promised one thing, and the loan that is approved and funded is completely different than the loan originally quoted. The key is to be sure you know what you are getting into, whether you are elderly getting a reverse mortgage, or a first-time buyer getting a 100 percent loan to purchase. Ask questions and be sure you understand the answers and that they make sense.

Q: What should people watch out for? What can and is the DRE and Schwarzenegger administration doing to help?

A: The borrowers need to look for the required disclosure documentation that accompanies every loan application. The DRE has … loan-related information on its Web site ( for the use of consumers. The department also has a number of publications available on this subject. If you believe that you have encountered a mortgage loan broker that is engaging in unethical practices, you can go to our Web site and obtain the forms to file a complaint against that person or firm with the DRE. Before conducting business with a mortgage loan broker, consumers should search out his or her name on the DRE Web site and verify that they are a licensee in good standing. … The DRE just added a button on its Web site that links to the Department of Corporations, Department of Financial Institutions and the Office of Real Estate Appraisers, so that consumers can more easily search their databases as well.

Q: Are there weaknesses in the state's policing of real estate agents? What are you doing about it?

A: There are people, like in any industry, who take advantage and violate the law. Those people need to be investigated and prosecuted. Our biggest obstacle is finding out who they are. Most consumers that are taken advantage of do not even realize it until it is too late. Other agents working in the marketplace are sometimes hesitant to turn a peer in, so they may look the other way. The department has to rely on consumers and the industry to bring to our attention the "bad agents," if you will, so that we can take appropriate action against them.

Q: Often, people don't know where to turn. Is the DRE adequately staffed to police this growing industry?

A: Every complaint we receive within our jurisdiction gets investigated and a determination is made as to any wrongdoing. The department has been focusing on ways to be more efficient, in effect, doing more with less. In this regard, we have increased the use of our Web site, which has freed up staff time. We have also added helpful information that makes for more knowledgeable consumers who can make better informed decisions. The real issue here is timely services. Our goal is to reduce the amount of time it takes to investigate and make a determination about a case. We are diligently working to achieve this. In the face of a growing licensee population, this goal does become more difficult to achieve.

Q: Are the penalties severe enough to reduce any abuses? What should be changed?

A: As to predatory lending and covered loans, the penalties are set forth in statute. When you are talking about a real estate agent or broker and a disciplinary action is taken that revokes their license, other than financial penalties, what more can you do? You are taking away a person's livelihood. The department has that authority and I have in my short time at the DRE revoked a significant number of licenses for misconduct by licensees. Also, if a criminal offense has taken place, a referral can be made to the local district attorney.

Q: What about the phenomena of many new people getting real estate licenses?

A: The growth in terms of our licensee population has been extraordinary. We have over 428,000 licensees today. We will test over 150,000 applicants this year alone, which is the most we've tested in the history of the department. There is a strong interest in becoming a real estate agent today, and I'm not seeing that interest temper in any way. I am aware that as history has taught us, once the real estate market starts to stabilize, we usually see license applications decline with a 6-12 month lag time, but those indicators are not out there yet. So for now, we are doing our best to schedule applicants for the license exam in a timely manner.

Q: What can be done to increase access to affordable housing?

A: Under the leadership of Secretary Sunne McPeak (secretary of the Business, Transportation and Housing Agency), the governor's housing team consists of the following three departments: Housing and Community Development, California Housing Finance Agency and the Department of Real Estate. These three departments have been meeting regularly and working with stakeholders to determine the best solutions to address the housing issues facing the state today. … This is a unique process, because I am not aware of any prior administration bringing in the Department of Real Estate for input on housing issues. This administration recognizes that the DRE, with its involvement in subdivisions and with my background in affordable housing, can offer assistance with respect to housing. It is another example of how this administration is trying to reform the way the state of California conducts business.


At 7:04 PM, Anonymous Anonymous said...

Being a professional Realtor himself, would Mr. Jeff Davi say anything else but "I don't see that price appreciation is a bubble". I wasn't born yesterday, were you?

At 7:55 PM, Anonymous lenen said...

Hi Blogger! Ik ben op zoek naar lenen Zou Afab echt zo goed zijn als iedereen beweert? Of kan ik beter zoiets als Geldshop proberen?

Groetjes Albert


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