I was reading an article on CNN Money.com today titled “How to rescue the housing market: Foreclosures!”. Not a great title I would say and more importantly in my opinion not a great concept at all.
The gist of the article is that the government needs to reverse the policies of the last 4 years since the housing downturn and actually encourage foreclosures as a means of “stabilizing” the housing market. They included this interesting graph (above) showing how more home owners are becoming delinquent for longer periods of time. (read on after the jump for more)
I get the idea. With the downturn across the economy, banks are suffering bigger losses than they otherwise would due to the increased time it takes to foreclose on the property. Theoretically, if the banks foreclosed “faster” on properties, they would suffer smaller losses as there would be fewer missed payments, less accrued interest and unpaid late fees, fewer legal fees, etc. While that may be true and may be better in the short term for the banks, foreclosures are not the solution to housing market woes.
In fact, foreclosures cause a large amount of “damage” to the local real estate community as banks leave properties to fall into disrepair, which affects the desirability of the entire neighborhoods. They also can, in large numbers, decimate property values as studies show that buyers expect to buy foreclosed properties on average 34% below market value. All those distressed homes sold as foreclosures/REO properties today become the “comps” appraisers use to establish value on the sale of non distressed Joe and Mary Homesellers’s property to Bobby and Sue Homebuyer, who now can’t get a mortgage for their purchase because the home won’t appraise at the price both parties agreed to.
So, if foreclosures aren’t the answer, what is? Something has to be done about that problem illustrated in the chart up there, doesn’t it?
The answer is …. the short sale! If banks want to move delinquent loan off their “balance sheets’ without the negative impact the lengthy foreclosure process brings, a short sale is the way to do it. The problem is though that banks many times are just as ill equipped to approve short sales as they are to deal with foreclosures. Whether it’s due to taking too long to respond to offers, denying a short sale based on an incorrect market value estimate or just plain screwing them up, there are many cases each day where banks miss an opportunity to avoid foreclosure by approving a short sale.
Here are 5 things I think the banks can do right now, today, to improve their short sale process and avoid foreclosures:
- Hire more people. Many short sale departments are under staffed, leading to over worked negotiators who simply are too busy to handle the volumes expected of them.
- Educate your people about the true cost of foreclosure and loosen up a little. I was working with a bank negotiator recently who was rejecting a very reasonable offer, one which would have resulted in a loss of about $14,000 for the bank. I told them that in the neighborhood the home was in, a foreclosure would result in a loss of at least $20,000 more (on top of the $14,000) for the bank. The negotiator’s response? “That’s not my concern, I can only approve a short sale with a net loss of X% to the Bank XYZ”.
- Get the Mortgage Insurance companies out of the decision making process. These MI companies are in the business of insuring losses. They underwrote these buyers. The buyers paid the insurance premiums. Now that the bank is facing a loss, they won’t allow a short sale without a cash contribution from the seller directly to them to offset their loss. What were the mortgage insurance premiums you collected for if not to offset this loss?
- Get the mythical “investor” who has to personally approve a short sale to work faster. Many of these deals are lost because the buyer gives up and walks away. Many buyers walk away after hearing for the last 3 weeks that the file was sent to the investor for approval and “I’m sorry, but they haven’t gotten to your file yet”
- Understand that in this market that the current buyer, the one who submitted the reasonable (assuming it’s reasonable) offer, the one who was willing to wait 90 days for approval, if that buyer walks away, another one might not come along in time to prevent a foreclosure and a larger loss from the bank.
Short sales are the answer to improving the housing market. The question is: are the banks ready to work with the real estate industry and the real estate consumers to make them a success?
If you are interested in selling your home as a Lancaster County Short Sale, or in purchasing a Lancaster County Short Sale or Lancaster County Foreclosure give me a call. For as many times the problems I outlined above happen, I can give you just as many examples of short sale approvals I have obtained for my clients, some in as little as 30-60 days! You can find success with selling or buying short sales, call me and I will be happy to help you find it!
If you want to search Lancaster County homes for sale, visit www.JasonsHomes.com and use my Easy MLS home search that shows you all the homes for sale in the Lancaster County PA Multiple Listing Service (MLS) !
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If you have questions, need real estate advice or want to buy or sell a home, you can call or text me at 717-371-0557, email me at Jason@JasonsHomes.com or contact me at the office at 717-291-1041!