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Lenders Are Causing Property Values to Drop

Lenders are a major cause of property values dropping in many communities. I am not going to argue about their lending practices and the volume bad loans they issued. I think that is a given.

The incompetent way lenders have dealt with these bad loans is causing the problem to escalate in communities across the country. They have made it such a painful, lengthy and expensive process for buyers to purchase these properties that the lenders are forced to accept less money than they otherwise would. Once they start that cycle in a neighborhood, property values drop, making it impossible for more struggling home owners to sell their properties, causing another wave of short sales and foreclosures. The lenders continue to mismanage them causing the cycle to repeat.

It is bad enough that the lenders with pressure from congress gave out loans to people who could never afford them. It is criminal that lenders are now causing innocent citizens to lose their homes because of the incompetent way they are handling the properties are under their control.

I have heard the story about how overwhelmed they are with the volume of homes involved. All I can say is BooHoo. Let me get out my violin.

The amount of money lenders are losing they can easily justify hiring an army of people to expedite these in a more professional way. There are real estate agents, loan officers and other lending industry workers out of work all over the country. The homes I was looking at in the last few days were being sold anywhere from $50,000 to $100,000 below market value. The more they sell like that the more the prices will go down further.

The bottom line is that the better the lenders handle the sale of distressed properties, the less of them there will be in the future. Lenders will also take smaller losses on each one.

Posted by Randy L. Prothero - Hawaii REALTOR® on 10/08/2008 11:15 PM

Comments (61)

Short Sales and REOs in the Mortgage / Finance Channel

mortgage, reo, short sales

Originally posted at: Hawaii Randy's Real Estate Opinions: Lenders Are Causing Property Values to Drop

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61 Comments on Lenders Are Causing Property Values to Drop

OCT

2008

O.K. All together now.. .

Banks do not know how to sell real estate.

When it comes to selling real estate, banks are just behind the consumer in understanding the dynamics of real estate sales.

But, with their arrogance, they're incapable of learning. The first step to knowledge is knowing that you don't have it.

Lenn - That is a so true. The arrogance comes through loud and clear.

I agree with you that lenders suck at selling real estate, but it is the buyers and the bargain hunters mentality that is driving the prices down. Econ 101 says that if the supply of homes is greater than the demand, prices will drop, and that is simply the case in Ohio. What we need is for people to pay their loans and slow the foreclosures.

I believe Dennis has the solution...but will that really happen? I don' believe so given what may be happening to the job market.

Dennis - I see the problem as more than that. If I were to buy a short sale, the lender will drive up my cost of buying it and put me through a living hell. It will have to be one heck of a bargain for me to do that. Very few buyers I speak to are willing to deal with them. They have drastically devalued the property by this.

And now the Federal Gov. will put their hands in it as well. Prices will drop even more?

Trey - In Hawaii, we have had a lot less foreclosures than almost anywhere in the country. In a few communities where we are getting them, you can see how the lenders are pushing values down, by their incompetent behavior.

Richard - You are right, the government is even more incompetent than the lenders.

It's all about erasing the lines of the classes isn't it? No upper class, no middle class, no lower class. Everyone on an equal playing field,... right? I mean it's only fair,... right? What do you mean I don't get a tax refund because I didn't pay any taxes because I didn't work!? That's not fair,... right?

The only place I've ever seen the eroded boundaries of the classes work is Gilligan's Island. And even then Mr. & Mrs. Howell employed Gilligan.

My pet peeve is some of the REO listing agents these Lenders find. I think there resume has to say incompetent,rude and wont call you back.

Great post Randy. It's getting desperate out here.

Laura- How funny and how true.

Nationwide, we are at least more than a year into dealing with foreclosure and short sale properties. What I truly don't understand is WHY the banks aren't turning to us to help deal with the problem. WHY are the majority of agents trying to sell these properties IGNORED for months?

One question continually is asked by the buyers I've worked with is, "Wouldn't the bank prefer to just unload the property than have to deal with it for months and months?" And I'm not talking about buyers who write unbelievably lowball offers. Real, legitimate, comped out offers on properties that have been vacant for a long time are left to sit far too long.

I too am tired of having to say, well there are just so many of these properties now, its hard for the bank to process the offers and sales.

Enough Already!

Wow! its '08 and we are having the same conversation we were having in '06. Banks do not know how to read a market and then plan accordingly.

Randy,

Lets face it...they made their bed now they can't even sleep in it....I read a blog about how there are laws to be met in short sales. That's a bunch of bull crap...there aren't any laws for the people who are incompetent...constantly lose paperwork..don't return calls or emails..just walk away...it's almost like they want us to fail and not be successful in trying to fix things...why not just foreclose and save countless hours? They are very fast to put a fair market value on a property yet could be thousands of miles away and really don't know anything. I'll send you some fresh strings for their violin.

Hi Randy,
So many good comments above that I agree with so I'll just add "whatever happened to professionalism, responsibility, competence and plain old common sense"?

It is a true inigma. But, then the truism is that

Banks don't know how to sell real estate.

Randy - well Lenn says it best. Banks don't know how to sell RE, and the asset managers don't have a clue about the market either. Too bad so many of the agents they engage to list their properties don't seem to know either.

Jeff

Randy - You posted what most real estate agents know to be a clear and self-evident truth. Most of us have an experience or two to back it up.

You have to be in the streets to know what is happening there---not an asset manager sitting in a high rise office in another state.

Randy glad I took the time to read the blog slowwwwwwwwwwwly because at first the use of the word Lender throw me off. When I hear or read Lender to me it implies someone DOING a loan, but in this case you are referring to banks who own the property or doing short sales. I think this is an import difference, because those of us who are having to deal with the same banks on loans that we are trying to do for our Borrowers, are just as frustrated with the process, especially with expiring rate locks and lack of communication, because of how they drag their feet on approvals. So in this case you are really talking about banks acting more in a selling capacity then lending capacity. To some this might seem like spliting hairs, but not to those in my end of the business. For us there is a very big difference.

You are so right. If the lenders would have worked with the homeowner, losses wouldhave been lot less, and values would have stay higher, making it easier to re-fi. Banks would have lost a few thousand in potential profit, but acting the way they did, they lost millions in equity!

Rob & Jeannie - I don't think that will ever be possible.

Laura - I have found that to be the case frequently, but not always. The transaction that stimulated this post has a real nice agent, who is good.

Ellie - Here it has not been anything like what we read on the mainland, but we are seeing the desperate here also.

Amy - I agree completely. The one that kills me are the vacant properties that are being vandalized in parts of the country that the bank sits bank and allows the value to evaporate.

Scott - They probably never will.

Neal - I think I will get a lot of practice playing sad songs for them.

Cynthia - You hit it on the head.

Lenn - They are proving that everyday.

Jeff - Let's put it this way. The best agents won't touch them. Why would they want to submit themselves to the pain and misery of dealing with the lenders on a daily basis.

Norma - Even if the asset manager is not a market expert; that does not explain the long delays and the unnecessary devaluing of properties by their incompetent behavior.

George - Very Good Point. It was not designed to insult those on your side of the industry. That will be my next post (Just Kidding) :)

William - They also caused values to drop across the board in many communities, creating even more distressed properties.

I like your boohoo get out the violin :)

In any event...that IS why values are dropping in Ewa. The appraisers are classifying this area as a declining market. We got agents listing short sales that don't know didly and trying to list at such bottom prices hoping a bunch of people will jump on it. No such luck. Then you got the agents who don't know didly about a short sale either...and classifying themselves as "experts". There are some that are listed as short sales and they say "paperwork not complete yet" ...well, then...how can it be a short sale if they didn't approve it a short sale. Burning me up...but my buyers are out there taking advantage of that market. Too bad...because many are upside down because of all this.

We've noticed some price drops but none to cause alarm. I think 1.5% /100k is still not a big decrease. Nonetheless the points you made are valid and should be adressed.

OCT

2008

Randy, great post, I loved a lot of the comments also. It is true, we had a foreclosure in our area, I am sure that this happens all over the country, an agent in our office submitted an offer that the bank rejected, (we were helping this agent with their business while they were out of town, thats how i know about this) a couple of months later the home is listed for less than the offer that this client submitted. Right now is where Lenn's line comes in BANKS DO NOT KNOW HOW TO SELL REAL ESTATE.

Sally - According to local experts, up to 50% of all current short sales in the state may be in violation of state law. (ACT 137). So much for the short sale experts.

Castellum Realty - I think it is criminal that lenders are negatively impacting other peoples property values by their actions.

Tony & Darcy - Lenn is right on the money with her comments.

Randy

And how fast they are leeting them drop.

Sincerely

Tom Braatz

Tom - It should be considered criminal negligence.

Randy,

What a great perspective. As someone who used to work in Loss Mitigation at Mellon Bank, I hope I can shed a little light. The people working in these departments are wage earners and, simply put, don't have a stake in making things happen. Oh, they do, don't get me wrong: we are ALL being hurt by our current economic climate. But, when someone goes to work, collects a paycheck regardless of whether they get the job done or not, they don't see beyond their abililty to pay their own bills.

Mellon Bank sold their mortgage side to Chase a LONG time ago. When Chase came in, did their re-organization, things changed - and not for the better. I jumped ship and moved to the origination side of the business - first as a processor, then an underwriter, now my husband and I own our own broker office. Trust me, things aren't any easier for the Mortgage Professional who is trying to get these financed for your client. What a mess! And, since I know what's happening on THEIR side of the business, and that it's NOT ROCKET SCIENCE, it just ... well, I can't say what I want to and maintain my professionalism. But, I'll let you guess.

Thanks for the great post!

Randy, 3 years ago in Poinciana I purchased the cheapest building lot available for $54,000 and sold it the same day for $74,000. You could not buy a house for less than $200,000. We now have REOs on the market for as low as $39,000!!!! And you can't sell a house for more than $125,000. The sad thing is that it's getting worse.

The banks are truly destroying property values.

Randy: First let me say that in my opinion, getting the federal government involved in ANYTHING is the wrong thing to do. By the same token, the only group worse than the feds is the bankers! I have really shyed away from doing REO transactions for years because of the pain of dealing with these incompetents. Nevertheless, the volume of REO's here is Texas has dictated that I must now jump into that side of the business more frequently - ARGH! Also I argue that banks (in light of the current financial mess), need more regulation from some entity. I doubt they will get it since they have an army of lobbyists in Washington, but they need it regardless. I feel your pain my friend!

Here's a thought. Boycott the short sales and buy them as REO's. They are much easier to deal with, offers come back quick, and closings can happen in 30 days or so.

Randy, every lender professes to be of the best character, morals, business dealings, following guidelines, etc. when in fact everyone has been bitten by the "greed bug".

We have had several call for two different appraisals just so they can c.y.a now.

They are consistently inconsistent.

Aloha...

Bobby Wallace

Lenders can not escape the responsibiity as you point out. Until "they" reduce the inventory the valkues will continue to slip.

Hi Randy ,

I have seen a house that is empty for allmost 1 year . Realtors try to sell but the bank does not want to act .

Great Post, I hope things will get better soon for all of us .

Truthfully, wish I had a ton of dough so I could take advantage of those good deals!

Randy,

I would hope they would improve with experience. Some banks have great systems and others leave a lot to be desired.

Do you really think that lenders should take the blame for declining values? I think it is way bigger than that.

I agree that lenders do not know how to market properties, and they are finally figuring this out.

That is why taking the route of restructuring loans so that these properties never even go on the market is a far better solution.

Its funny that this whole mess started with lenders, it is the lenders that need the bail out and it still is the lenders that are getting the most out of this crisis.

KMG - Thank you for adding your experience. It is truly a mess.

B.B. - Consumers are getting slammed by these lenders. If Congress wants to investigate something this should be a starting point.

I may want to buy something while visiting Florida next month.

Steve - Our state government made their attempt to get a handle on this mess. The new law has turned it into a bigger mess for the real estate industry and consumers.

To a commenter above, the problem with boycotting short sales and buying them as REO's is that you are hurting the homeowners in the process. I know that can't be your intention, and I know in speaking with several agents the frustration in this issue, especially the issue of short sales, is huge. Now just imagine the frustration of the homeowners. For many short sale is their last hope.

I'm not speaking out of turn here. I am a consumer and I did sell my home on a short sale 4 years ago due to a divorce and to get out of a bad situation to be able to adequately raise my three children. If agents in my area had boycotted short sales I would have been SCREWED.

Just not a good way to raise consumer confidence.

Dennis - I have an offer in on an REO currently. They told us verbally we have an excepted offer. It will be 30 days or more just to get the accepted contract so we can open escrow. I am not so convinced they do any better with REOs. It appears to be the same incompetent turkeys at the lenders.

Bobby - That is true. Inconsistency is the only consistent thing about them.

Gary - Unfortunately they are causing the inventories to grow.

Randy, thank you for your response. I did not take what you wrote as insulting my side of the industry. I have read enough of your blogs over the last two years to know that you do not insult others and treat people with respect. But I did feel that it was neccessary to make the distinction between the people handling Short Sales and the Lending side of the business.

The banks do not know how to deal with all the inventory they have -- and it seems unlikely they are magically overnight going to get trained people , enough people at all to make a difference in their process.

Randy:

Thanks for your post. Banks for the most part are giving these homes away in many parts of the southeast - Atlanta area. There is rampant vandalism and values are plummeting. However, there are actually a few Banks here who are unwilling to take on that much of a loss and working with Realtors to make the best of a bad situation, thankfully.

As for investment opportunities, there are plenty out there, unfortunately unscrupulous investors and flippers were a big part of the problem and investors are going to be the ones who come back to buy up a majority of these properties, since regular homebuyers are finding it very difficult to get loans.

Whomever the buyers may be, the bottom line is we need to get these homes SOLD, revitalize these areas and get home values going back up in the right direction soon!

I agree if lenders/banks throw up their hands and sell out, just to get these homes off their books, they are killing home values in many neighborhoods and shooting themselves in the foot.

Indeed, there are many real estate professionals out of work and banks can help stop the bleeding. But you know your advice is just too practical for lenders to put their arms around!

Peter Vekselman

Randy,

While I have seen my share of completely illogical responses on the part of banks in dealing with a short sale, you have left out a key contributor to the misery we endure with a short sale - The Listing Agent.

If the agent who takes the listing is proactive in dealing with the bank, and "selling" the short sale to them, there is far less difficulty in the transaction. Can you blame the bank for their response when the first news they hear about the property being in a short sale position is the signed around offer?! If the listing agent had already negotiatied with the bank to find out what they would accept, everyone would know what kind of offer would be successful.

Now we have the government getting involved (never a good idea IMHO) which leads the bank to believe they have another avenue to pursue, thereby giving them a reason not to respond to you. Nothing like seeing your client be "outbid" for a home by their own government! The banks are required to keep a proper ratio of assets to liabilities by the FDIC, and as long as they have a functioning Note/Mortgage (even in poor payment) that value stays on the ledger, and their ratio is good enough to keep the doors open.

Everyone needs to stand up and take responsibilty for our current "crisis," I don't remember seeing any realtors tell a buyer not to buy, even when they felt the buyer was over reaching. Everyone involved in the process was happy when they were cashing checks.

It never ceases to amaze me.... the incompetence of these lenders at selling properties.

Georg - I think the neighbors and the town should be able to go after the bank for that.

Cathleen - We all wish we had a ton of dough either way. :)

Diane - I haven't seen the one with the great system. Hopefully I will see it one day.

Janet - I do believe lenders are partially responsible for values dropping. (A big part)

James - The politicians seem to have their fingers in the cookie jar also.

Rebecca - I may not be boycotting them, but I have to say that buyers are not willing to take on that pain unless they can get them real cheap. Lenders have created that environment. I absolutely dread the thought of having to deal with some of these lenders on short sales. I am not so sure it gets much better on an REO.

George - I guess I do use the term lender in a more generic form. The companies that have the mortgages and are doing the short sales, I consider lenders.

Bob & Carolin - They have shown no desire to correct the problem.

Peter - Good points. You are right it is too practical for the banks to embrace.

Ron - In Hawaii we have a new law, ACT 137. It makes it illegal for the real estate agent to have some of those communications with the banks. I am still trying to learn all of the finer details of the law. It appears that about half of the current short sales are being done in violation of that law.

Tom - The part that amazes me is that they are not improving or learning.

Amen - where you been? I couldn't agree more, they made the bad loan, now they get screwed again because of total mismanagement, etc. It's like they are burning money right next to their desks! Bonfire in cubicle #3! You are correct that if they wanted to CONTROL the situation, they would hiremore people to handle their workload. How about a realtor or two? Appraisers aren't doing much either are they? After a few of these short sales or foreclosures the prices have to come down because there are no other comps to use. Makes me want to scream!

Lyn - I would almost like to see short sales and REOs not used as comps for appraisals.

You are going to see everyone covering their tail for the next 6 months are so. Whining will not solve it. We are just going to have to deal with what is given us and explain what is going on to our clients. If that means telling our clients to hold off a few months, that may be the best move....as your blog will not change lending activities. They are assuming that the market will get worse...and they may be right. Can't blaim them for coverint their tail. Just remember the deals we got that I could not figure out how they could justify the high price that we got for a home.....and that was just 4 months ago.

Tim - I agree that we need to inform our clients about what the actual conditions on the ground are. I disagree that this is only them covering their tail. I think it is incompetence and borderline criminal negligence.

I am not seeing the massive accross the board drops in values here that many are seeing on the mainland. I am seeing lenders causing harm to a few neighborhoods and their stock holders by their actions. it is wrong, it is making the problem worse and it will keep those areas from recovering in the near future.

OCT

2008

They were waiting on the government to bail them out. As time ticks the demand dropped. It is sort of like someone having a great hand of cards, but playing them wrong. Then you lose.

Jim - From what I am seeing these banks are still waiting and at others expense.

OCT

2008

Unfortunately, banks are a disease that feeds upon itself. When the market started declining and loans started going bad, impacting their bottom lines, they cut staff to save money through salaries that they didn't have to pay. Now people are actually trying to buy foreclosed properties and REO's, but the banks don't have enough staff to handle the demand. Catch-22.

OCT

2008

Russel - They are sure losing more than they are saving.

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