Today, Forbes.com asked “Where Were the Realtors?” Moreover, “How is it… that millions of borrowers took on toxic subprime mortgages that could cost them their homes? Why did their agents not warn them off?” Well, it’s pretty simple: real estate agents are not mortgage brokers. More to the point, real estate agents are not lawyers or accountants.

Sure, smart agents begin by having potential buyers sit down with a trustworthy mortgage broker. This serves several purposes: it separates those who want to buy a house from those who just want to look at them; it determines exactly how much the client can afford to spend; it enlists another person who has a vested interest in getting a deal done. On one hand, that means the mortgage broker will make sure all his paperwork is done correctly and shepherd it through the system in a timely fashion — nobody wants closing to be delayed or even canceled because the mortgage didn’t come through. On the other hand, an unscrupulous broker might be inspired to push a bad deal through the system just because it is a deal. How do you know you have a “trustworthy” mortgage broker? You have a little faith, you ask around the office, and you get a second opinion. I am not above calling my current mortgage company and asking what they can do for me on a new place.

Forbes goes on:

At the heart of the matter is the way agents are paid–traditionally through a commission, paid by the seller, of 5% or 6% of the home’s sales price. Nudging buyers toward subprime loans, or keeping mum about the risks, means more sales go through. Also, the low teaser rate on a subprime loan allows the buyer to borrow more, helping to boost sales prices and commissions. “You can’t lie,” [Wharton real estate professor Georgette Chapman] Phillips said of the agents. “You cannot intentionally mislead somebody. But you work for the seller.”

I’m sorry, that paragraph is flatly misleading. Sure, the commissions come out of the seller’s proceeds. But nobody gets paid anything until there is both a willing seller and a willing buyer. The buyer’s agent works for the buyer and has certain fiduciary duties towards the buyer he or she represents. Nevada, like many states, has a specific form outlining these “duties owed” which must be provided to and signed by the client. Sure, if the buyer has no agent, the buyer is at the mercy of the seller and his/her agent. But in an environment where there are thousands of houses available in any given metropolitan area at any given time? The buyer is free to walk away if he doesn’t like the terms of the deal. There is no deal — and no commission — without a willing buyer and seller.

And they go on:

“It is my experience that real estate agents have been pushing people to buy more expensive homes than they were initially qualified to buy under 30-year, fixed-rate [loan]s,” said [Shanna] Smith [President] of the National Fair Housing Alliance.

She recalled a young Washington, D.C., couple that had pre-qualified for a fixed-rate loan no larger than $310,000. “Their agent kept pressing them to look at $400,000-plus properties because he could get the same payment, or even lower payment, for them for a more expensive home,” she said. How? By encouraging them to get a “2/28″ subprime, 30-year loan that started with a low rate, which would reset two years later, and then again in each of the 28 subsequent years. The borrowers qualify for such a loan based on their ability to make the initial, low payments, even if they cannot afford the higher payments likely to come later. By selling the more expensive home, the agent earns a larger commission, she noted.

This behavior is outrageous, and I refuse to believe it is common. Forgive me, I am one of those radicals who thinks if you take care of the clients, the commissions take care of themselves. If an agent is pressuring you to purchase a home that does not fit your needs — and “price range” is part of your needs — you tell them what you need, you tell them not to show you anything that doesn’t fit your needs, and if they persist you tell them to get lost. You walk away. You consider reporting them to the state agency that regulates real estate agents.

I am forced to wonder if that agent is even still an agent. He’s certainly not getting repeat business or referrals from families like that.

On the second page, they make an attempt to be even-handed. “But experts are divided over the agent’s legal and ethical responsibilities”? I must not be an expert then; I know that an agent’s legal and ethical responsibility is to encourage clients to seek experts when there are issues. Oh, and the National Association of Realtors agrees. From the Forbes article, page 2:

“It’s pretty complicated,” said NAR policy expert Jeff Lischer. “A good agent, in order to get the job done and help the person buy or sell … is going to do whatever has to be done to [accomplish that].” In his view, an agent working for the seller might be free to suggest that the buyer get professional help with lending issues, but a seller’s agent should not give advice on the pros and cons of different types of loans.

The NAR has a consumers’ brochure describing the pros and cons of various loans, and another one warning home buyers about predatory lending. But Lischer said he did not know how many agents hand the brochures out. The NAR also has a lengthy code of ethics which calls for agents to “treat all parties honestly” and to “protect and promote the interests of their client,” whether the client be buyer or seller. Since it is usually the seller, a realtor could run afoul of the code by warning a buyer off a particular loan and killing a deal. Moreover, the code bars realtors from professing to be experts in areas in which they are not.

Funny, the law says the same thing. Oh, and REALTOR® is a term specifically referring to members of NAR; not all real estate agents are REALTORS®.

I guess I’m not impressed with Wharton’s and Forbes’s real estate experts.