Real estate practitioners across the country believe mortgage lenders are worsening the housing downturn by taking months to make decisions on short sales and sticking to high internal target prices.
As a result, home buyers are abandoning short sale properties, forcing them to be sold in foreclosure sales that typically result in lenders accepting lower prices than they could have achieved in a short sale.
"The only question banks should ask is can they make more in a short sale than in foreclosure," according to Lighthouse Point, Fla.-based real estate practitioner Ron Rosen, who cites a "broken" system. "The answer is that in nine out of 10 cases they will lose more money in a foreclosure. But banks seem to be asking a different question."
Some practitioners contend that lenders lack the appropriate systems and staff to handle short sale requests, while lenders insist the short sale process is complicated by the need for approvals from investors and mortgage insurers.
Still, practitioners note that a more efficient short sale process would boost prices and reduce inventory.
[Photo courtesy of beforethecoffee | flickr]
Ask and you shall receive.
The push-and-pull factors that has been rearing its ugly head in the foreclosure market has been, well, coming to a head in the recent months.
The common misnomer with the drop in recent home sales is that no one is buying these days.
However, a certain portion of the inventory, which is held hostage by lenders in short sales, just aren't closing in a timely fashion. There are actually deals in place, but the mortgagors are taking their sweet time -- months, even.
Lenders just aren't bending over backwards to speed up the process for borrowers, who are playing the short sale card with them. And why would they cut these borrowers some slack?
Put yourself in the lender's perspective. Would you take less money than what is owed to you, just because the borrower is threatening to walk away from the property? Other than charging interest -- which won't be coming to you anytime soon -- how would you recoup that loan balance?
You certainly wouldn't want to be stuck with the mortgage loan since you aren't in the business of owning property.
But even then, why would you want to be held hostage by the person you lent money to? The very same person who fought tooth and nail to get the mortgage in the first place?
The answer is: you wouldn't want to do any favors for such a person.
But the fact of the matter is business should never be personal, and the bottom line is you will eventually be holding the bag when the borrower does leave the property. And at that point, wouldn't it be in your best interest just to take deals that made sense?
So, for the sake of argument, let's assume the lenders get a clue and start running this foreclosure business like they do the finance industry. You need to cut losses, but you also need to invest your time and resources in segments that will return a yield.
In this case, that segment is the high volume of impending foreclosures. EVERYONE knows this. Even folks who don't own real estate know this. If you had a pulse in 2007, you knew this by just picking up a newspaper or reading Google news any day of the week!
So the lenders need to understand that this is, indeed, the new reality and they have to stop jimmy-jacking with agents who are trying their best to move these properties.
Take the highest and best price, and move on to the next deal. And we all know there will be a next deal... and one after that... and another...
They have to reposition their human resources and place them on the front lines. Not hiding behind the mountain of paperwork that is engulfing their cubicles.
There also needs to be a a widely-used system in place to help everyone involved streamline the negotiations and close deals.
Contrary to popular belief, there are buyers and *gasp* investors out there looking to purchase these loans from the mortgage lenders. How's that for your white knight?
And now even the National Association of Realtors have established a committee to do their part in ensuring these deals go as smoothly as possible: NAR considers new short-sale disclosure rules.
The onus, now, is on the lenders to get past the daze of the foreclosure crisis and rise up to the occasion. Yes, dozens of banks are reporting billions in write-downs, but that still doesn't preclude them from actually trying to divest some of these bad loans.
Get your bankers, employees, admin. assistants, CSR's, maintenance crew -- anyone! -- to pick up the phones at the loss mitigation department and process these deals.
The inventory needs to move! The sooner, the better. Not four to six months to close escrow.
//Phil De La Cruz
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