Foreclosures - Why are the banks taking so long to decide?

Keep beating the drum.

If I've said it once, I've said it a dozen times, banks do not know how to sell real estate.

Judy, it is so obvious that with the banks using Title companies out of the area that the transaction is not a smooth one. I don't get the fact that something so obvious isn't even acknowledged and changed by those asset managers at the banks. It is mind boggling isn't it?

I have one right now, just like you where I am suppose to send a deposit check but have no idea what the address is, the escrow number and who the escrow officer is...what's up with these banks? And you are right even the listing agent hasn't got a clue.

Truly AMAZING!

All I can say is we are in a sad state of affairs right now...  I do believe that the banks are overwhelmed, especially the ones going under themselves.  My sister works for Wachovia, and she was just laid off, along with 90% of the other workers in her building.  She was a supervising appraiser.  The only person left in her department is a woman with 30 years tenure.

I also believe that, yes, some unscrupulous agents sit on the offers in the hopes of double-ending the transaction, and some are overwhelmed from trying to manage too many listings.  These agents are doing a disservice to the banks, and they make the buyer's agents look inept in the eyes of their clients.

I wish I had an answer, but I don't...

My understanding of the PMI question above is as follows: Banks lend, say, $100K on a purchase. PMI covers about 80% of that amount. So it would seem that the bank would only be out the difference, say in this example, $20K. But this is an overly simplified view... in point of fact, the banks are highly leveraged in their lending, meaning that they retain only a small percentage of deposits and lend some amount more than that, as permitted by law, often 30 times the deposit amount. So losses such as this are amplified by the leveraged amount.

Not only that, but the real issue is in the fact that the lenders also sold the debt on the market, in such products as derivitives of mortgage backed securities, so while the PMI insures the loan for the original lender, the mortgage backed securities remain uninsured, and these are debt resulting from the leverage mentioned above... The losses there are complete. It is these derivitive products that are causing the largest pain in the financial markets.

I might not be clear on this, and for certain my numbers are rough estimates. But I think that is the general concept.

Hope that helps.

This is indeed a fascinating post and topic.

I think they're jsut overwhelmed with the volume.

Great post, Judy!  And right on target.  They may be somewhat overwhelmed by the volume, but that's no excuse.  The shape that they're in now is partially due to not running their business properly in the first place.  And the way they act now toward the foreclosures makes the poor management practices just that much more evident.

REGARDING PMI

Who the actual "investor" is in a short sale or REO is hard to determine. Notes get shuffled, packaged, and re-packaged, in and out of trust, servicers claiming full rights of ownership with the consent of the owners. For insight look at the 10-Q reports to the SEC that are submitted by the big lenders.

IN SOME CASES - PMI will make a deal with the lender like this, "We will insure this batch of loans totalling $250 billion dollars. We will cover 80%. BUT, if more than 6% of these loans end in default - we will not insure anything in the batch whatsover and will shove it back in your face." In these cases the lenders will go to extreme measures to avoid that 6% mark.

It is a very complicated process and in the end doesn't mean much to the end buyer. Many of the investors on short sales end up being PMI. Do some research into MGIC and look at their 10-q reports. Look at big lenders 10-q reports. They often mention local markets and their "inability to move REO properties" in those markets. They are explaining losses to the SEC.

Amount owed is meaningless. List price is meaningless. Current and immediate future value is meaningful.

I am a mortgage broker specializing in construction lending.  Many times seller agents set on offers made by nonninvestors because they know the appraisal will come back with repair conditions and they feel the potential buyer will not be able to satisfy the condition and close.  They wait on a cash offer from an investor.  I'm involved in trying to clean up these situation daily.  The best solution is for the agent to have their client PREAPPROVED for a one time close that buys the house as is and also provides funds for need repairs and/or remodeling.  Make sure the offer makes it very clear that the sale can close quickly if the offer is excepted.

Judy, you really hit a nerve. I spoke to an asset manager a week ago who promised to get back to me asap. I've been talking to her since April! Still, no answers.

I'm one of the agents who recently had cash buyers wanting to buy a foreclosure...with a guaranteed closing in 7 days. It took the bank 3 weeks to even give us a counter offer. How ridiculous is that? In that case, the agent was so upset, because she knew that she would never get a better offer on the home. We did close, but it was a long and winding road. GBU!

Fewer lenders, Judy. Fewer employees in the industry to address housing concerns, hence the overload for many loss mitigation teams still in existence. Hundreds of thousands of defaults looming because of resetting pay options and other high risk loans over the next year. Hope your having a fine week. 

Great post Judy. I'm sick of hearing how overworked these listing agents are. Overworked or incompetent?  One foreclosure I just closed on you could bet the agent just didn't know what was going on from one day to the next.  Another problem was I was being double-teamed by her sidekick.  Two nincompoops for the price of one!  I was told that I just expected things to happen too quickly. They asked for the earnest money & I brought it in the next day - that was unheard of. Well not really if your buyer wants to house it's not!  They didn't even record the foreclosure deed and wondered why we asked them who had the authority to sell the house!  Selling something is tough enough and these guys make it just tougher!

I have written a few posts about the issue I have with REOs... it's stupid.  And I sometimes think that the banks don't want to actually sell the properties...  It's all just crazy. 

WHY?  I can tell you why with 700 BILLION reasons!

The banks want the MONEY from the "bailout" AND they want the property!

They keep the foreclosures on the books for a reason.  Oh . . . poor banks!  BOO HOO!

We save and save and save . . . and they steal and steal and steal.  Now it's the pensions and 401(k).

The United States of America rewards SNIDELY WHIPLASH robber barrons.  Don't people get it?!?

Same scenarios with short sales.  The banks do NOT want to accept the offers they get.  They are forcing forclosures.  If they was really a "crisis" they take the money and run.  Just like our SELLERS are doing when they have assets in the home.  They are taking LESS then LIST all the time just to get the deal closed.  Banks aren't having to do this because Uncle Sam is cashing them out!

Where are the Senators . . . aren't they reading ACTIVE RAIN?!?

P.S.  I've been reading the responses about how overworked and backlogged they (banks, financial institutions) are . . . HMMMMM . . . HIRE TEMPS! 

Don't we have some parts of the nation with 7% unemployment?!?  HIRE PEOPLE!   Didn't they just lay-off HIGHLY skilled mortgage people??  Not all were bad.  What about the underwriters?  HIRE THEM!!  Stop this stupd game!  It's ridiculous.  The gloom and doom is SO stupid.  Why are the banks sitting on these properties???  There are buyers who would LOVE to buy them.

Carla: 8.35 percent unemployment in Rhode Island, one of the worst two in teh country. It is a matter of greed to accept more listings than one can handle... and we have seen how greed works in teh banking industry...

The banks are taking a long time to decide on foreclosures for one reason. They can't do it any faster. Many asset managers are handling 500 files per month. The banks are overwhelmed with foreclosures and understaffed. Not only are they dealing with potential sales, but there are a flood of other homes in foreclosure that need to be listed and put on the market, in addition to tons of others receiving notices of default.

Banking insiders -- sources that I cannot name -- have told me the banks are withholding foreclosures from the market and releasing them when inventory begins to dip. They are allegedly withholding these homes to drive up prices on their existing inventory. If too many homes hit the market at one time, competition will dwindle and prices will plunge even further.

It's like juggling ten balls in the air. These banks didn't expect the foreclosure crisis and are ill-prepared to deal with the mounting number of foreclosures. This is not in defense of the REO lenders, it's just the way it is. If buyers want these homes, then they work within the confines of the bank's limitations, and smart agents will write contracts with 45-day closings instead of 30.

The Short Sale, from Archer Ellison, coming January 2009.

Here is a thought!  Let's use our tax money to buy these properties!  That sounds like a FABULOUS idea!