Economist's Commentary: February 13, 2008
Priorities
By Lawrence Yun, Chief Economist
A recent survey of REALTORS® regarding the most important policy issues impacting real estate reveals the mindset of NAR members. The top two issues (out of 34) are
1. Preserving the mortgage interest deduction and
2. Preserving the capital gains exclusion from the sale of a principal residence.
These two issues are the foundation of an ownership society. As such, they have always been -- and will likely continue to be -- the top issues for REALTORS®. Fortunately for both REALTORS® and for homeowners, these policy issues are rarely in danger of being overthrown. Why? Well, one reason is because politicians of all stripes understand that nearly 70 percent of the population are homeowners, and voter turnout is heaviest among owners.
The next two issues on the top of the policy priority list for REALTORS® are more interesting, specifically because they are in play. REALTORS® want to keep the banks out of real estate and they also want to see measures enacted that will prevent abusive lending practices. Much has been written about the concerns that would arise if banks are allowed to effectively be real estate brokerage firms. (You can access NAR's information on banks in real estate via REALTOR.org.)
As to the issue of abuse lending, late last year the Federal Reserve came out with its policy guidelines on mortgage lending. The guidelines were nearly identical to those recommendations that had been advocated by NAR for quite some time. They include establishing escrow accounts for property taxes and insurance, removing pre-payment penalties on mortgage refinances, and fully indexing adjustable rate mortgages so that borrowers do not go deep into debt -- all are common-sense lending standards.
Why do REALTORS® place such a high importance on the issue of abusive lending? Perhaps it has to do with the fact that for most of their clients, REALTORS® are regarded as trusted advisors on households' real estate decisions. Also, it is simply a good business decision. Every successful REALTOR® understands the critical importance of repeat and referral business. Consider also, 68 percent of recent homebuyers said that they would definitely use the same agent again or definitely recommend their agent to others. An additional 19 percent of buyers indicated they would probably use their agent again.
It should then be not surprising that REALTORS® initiated the development of brochures explaining "the risks and advantages of non-traditional mortgages" and "how to avoid predatory lending." (The NAR brochures on understanding today's mortgages were developed in conjunction with the Center for Responsible Lending and are also available via the web site.)
It is in no one’s interest to have people buy a home and then for those homeowners to face foreclosure. Certainly, there were excess exuberance and greed during the housing market boom. The global capital providers were chasing after high yields from subprime loans. The ratings agencies gave triple-A ratings to in order to increase business revenue. Mortgage lenders made loans even though many well knew that the borrowers sitting right across the table would be unable to make payments after the interest-rate resets. Infomercial books on real estate sprouted up en masse. And it should be said: Anyone, including real estate agents, who engaged in fraud, needs to face the full consequences of the law.
Home sales have now retreated back to the pre-boom years. Excesses have been removed. REALTORS® clearly understand that their interests and those of consumers are the same. Moreover, REALTORS® serve in the communities in which they live. They have both a personal and professional interest in promoting sustainable homeownership and stable neighborhoods. Policy changes that encourage homeownership while preventing lending abuse are to everyone's benefit.
This is one in a series of commentaries by the Research staff of the National Association of REALTORS®.
