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Please, will someone explain to me what the H-ll the banks or lenders are thinking?

Catherine Myers and I have teamed up to do short sales in Contra Costa County. We are getting calls even from out of state from our blog http://www.ccshortsales.com

We had a meeting with a possible short sale this past week. Where this womans home is located the prices have halved in the last year or so. She and her husband refinanced a few years back. Their loan was 7.5%.

They have been able to handle this interest rate, a little distraught they have lost equity but they love their home.

This april their interest jumps to 9%. They will not be able to handle the payments. They have not missed any payments, their credit is great. They went to the bank to explain their dilemma and asked if the bank would do a modification and keep at 7.5%.....Now , this 7.5% is certainly over the market interest rate today.

They were told NO. The bank stated they need to go find a good realtor and do a short sale. Now what this bank apparently does not realize by the time they either do a short sale and /or go into foreclosure the bank is going to lose at least $100000 more.

Why would they not do the modification and keep at 7.5%?

I know there are a lot of people who knowingly took out loans , took out equity and used it for toys instead of putting back into the home for upgrades. I understand that people lied on a lot of their applications.

But there are people who refinanced for whatever reason and were given assurance they could refinance again in a few years to maintain their status quo.

These particular homeowners have lived in this home for 13 years. They had no intention of selling or leaving.

WHY? Would a lender not work with them at 7.5% even if only for a few years until the economy turned around for them to refinance?

We did suggest this gal talk to one of our mortgage people who has been doing 3rd party intervention to see if he could make any headway with the bank in regards to modification of loan before proceeding with a short sale.

Perhaps they will get someone else on the phone who will be somewhat more reasonable and realistic.

It does appear the banks are starting to realize that short sales are the way to go instead of foreclosure in terms of additional capital being lost.

You know the banks have gotten mad at the realtors as they think they have the homes priced to low. Well , if the banks would stop the foreclosures and allowing these homes to go so low we wouldn't have to list for so low.

When you have 3 or 4 foreclosures of like property within a half mile of your target home and the other listings on for more have been sitting for 6 months or longer at a higher price it does not take a rocket scientist to figure out to lower the price to the recent sold foreclosures to draw the buyers in.

Ok I got that off my chest.........so, if you know of anyone who might benefit by our services please send them our way and/or have them check out http://www.ccshortsales.com

Posted by Terry Osburn, Broker Associate on 03/17/2008 12:06 AM

Comments (9)

short, short sales, foreclosures, default, mortgage short sale bankruptcy, past due property taxes, contra costa county

This post has been included in California Information

9 Comments on Please, will someone explain to me what the H-ll the banks or lenders are thinking?

MAR

2008

I thought about these stories i am hearing all over the usa...what if the banks said...hey I lended out all this money...why don't i keep the land for a whle till things simmer down? Hymm I was just thinking about that for a second. The only reason i thought of it was because I am hearing a lot about how banks are difficult to deal with in terms of getting the homes sold! Banks do not seem to be working with realtors in a favorable fashion...well anyway good blog.

Tom Davis , Realtor

I don't know...It sounds as if the banks are paralyzed as well. No one wants to take responsibility for making a "decision" in which the bank loses money. Did these banks expect to "clean up" on these ARMS????

It seems we are all looking for solutions but can't get on the same page.

Happy Birthday, Terry!

Tom the banks can't have property on their books, it's a liability to them.

Personal opinion would be to call back and demand to speak to a manager. This sounds like a low level employee that doesn't know what they are talking about. Either that or the bank isn't holding the note and only services it (very likely) and the short sale doesn't cost them a penny.

While a cartoon this might put it in a little perspective.

There is a matter of what the banks gave up to make that loan possible to these ARM buyers. In many cases the banks took BELOW-market rates of interest and issued the loan on the premise that later they'd get an above-market rate. And often they sold these loans, and sold them on this premise. Banks are generally not out to shaft anyone--but don't want to get shafted themselves either; they gave up some revenue at the start of the loan, and the borrowers knew and accepted that low rate.

Your people should be refinancing, shouldn't they?

Of course it is easy to see now that the bank doesn't stand to gain anything by maintaining its rate hike schedule; it will likely cost them more on this loan to get the property back than to keep the rate at 7.5%. But multiply this instance as a business practice and you can at least understand that banks can't accept such early losses and never take the later gain, as a business plan.

We have found that if you submit a complete package with all the information that is requested and add our suggested list of documents agents are getting short sales approved regularly. Cadey, my wife got two approvals this week (one with a full commission).

Alex Charfen
www.1cdpe.com
www.charfenteam.com

CDPE Designation Logo

Hi Terry- If they want to stay in their home, I would recommend they submit all the financials and paperwork of a typical short sale package, along with the hardship letter, to the bank with a request for a loan modification - not a short sale.

Perhaps after reviewing the financials, then the bank will realize that a loan modification is their best course of action. If not, then they may have to proceed with the short sale.

It's worth a shot. What I am hearing is that it's taking about 60 days or so for the bank to even respond to a request for a loan modification. If they can't wait that long, then consider listing the home now. If they get the loan modification, then they can always remove the home from the market if it hasn't sold yet.

Also, verify that they spoke to the right people at the lender - not the collections department, but the loss mitigation department.

Ken and Don, we did suggest she call back and/or contact the mortgage lender we suggested to see if he might be able to get thru to a different party.

Makes sense to me.

David- If this had been a 3.5% or 4% loan , I can understand partly their reasoning. But not at 7.5%

Further, this home once appraised at $600000 or more, will be lucky to get $325000 on short sale and if it goes to foreclosure most likely will sell for around $250000. This is what is happening in this particular area. This does not include all of the expenses the bank will occur taking the property back.

Further due to the amount of foreclosures happening in some of these areas, there is vandalism, squatting, meth labs being set up(which by the way costs thousands to have a special clean up crew come in and clean up before the home will be allowed to have occupancy again) so the reasoning the banks had at one point does not compute to me now.

The banks new they would be getting homes back when then lent out this money....I distinctly remember talking to a bank representative about 3-4 years ago. That is how they will make more money was quoted to me. Of course, at that time, they had no concept as to how this was going to snowball on them.....

Think about it...they knew they were getting these people into homes they could not afford, would have to refinance or let go and at that time thought they could take back and put back on market as REO with the value increasing, it was a no brainer to them......until the gravity of all the fraud and the extent to which it happened slammed them in the face.........

Alex-Yes we are aware that many banks are now cooperating . This particular situation the homeowners are not wanting to walk away even though their equity is at half nor are they anxious to do a short sale. They want to stay in their home and continue to pay at the 7.5% interest. The reason I bring this up is that we have many homeowners NOT in distress who are seeing their exact same models and/or bigger homes coming up for sale at half or less than what they paid for their present home go out and negotiate a loan for one of those less costly homes, close escrow and then walk away from their present home. Their reasoning is why should I continue to pay $3-4000 a month for this home which may or may not get its equity back when I can get the same or bigger home and have a $2000 a month mortgage? Some of those homeowners are still trying to do a short sale instead of foreclosure. Now apparently some of the banks have caught onto this. They are checking the homeowners credit record up front and during and towards the end to see if there has been activity in accessing a loan for another home. From what I have gathered, if they find evidence of such they will not allow short sale. I think what the homeowners need to understand is that even if California is a non recourse state, if they have refinanced and pulled out equity for other purposes than to improve the value of their present home may open them up to other penalties and tax consequences. That is why we highly encourage all considering a short sale or a foreclosure to talk to a real estate attorney and/or check with a CPA......The mortgage debt forgiveness act is only for the original purchase loan........

The banks apparently get some relief if they do a short sale and the rep gets a percent.

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