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Bankers and short sales. Expecting common sense from a megabank? There's an oxymoron for you.

Mortgage and Lending with Crescent Bank & Trust

Go to fullsize imageWendy Herndon's post "Bankers, are you listening?" was excellent. Paraphrasing one of the other responses, "The basic problem is lack of personal contact. We need to return to small businesses dealing with community bankers." You're dealing with monolithic, soul-less entities that we (including myself) created and eagerly sustained by continuing to feed the beast "liar loans" long after we all realized we were contributing deck after soiled deck to what was becoming an increasingly rickety house of cards.

For the record, though we enjoyed the dubious distinction of having been "qualified" to do so, my bank (Crescent Bank of Jasper, GA) has not taken a dime of TARP money. That's not to say that we couldn't use a healthy infusion of capital. We simply prefer to keep Obama/Reid/Pelosi off the Board as long as humanly possible. . .

Back on subject, an AR Realtor posed the question to me last week of whether a lender is entitled to Go to fullsize imagecollect on PMI following a short sale. The answer is "no" and the logic behind it goes a long way toward addressing the issue Wendy raised.  When you boil it all down, when a lender accepts a short sale offer, they are voluntarily de-valuing both their asset (the loan itself) as well as the underlying asset (the real estate which serves as collateral, aka secondary repayment source). Therefore, the lender logically forfeits the right to collect on the PMI. Then, there's the issue of "recourse", which means the lender customarily reserves the right to seek a judgment against the borrower's remaining assets in order to ultimately collect the "short" (deficiency balance).  If the lender agrees to a NON-RECOURSE short sale (as hard as I've tried, I really can't think of a situation in which I'd ever consider doing this), there is a conscious and well-considered reason for forfeiting the right to collect a deficiency balance, which brings up other potential legal arguments.

Go to fullsize imageTaking off my "outhouse lawyer" hat, this is uncharted ground for ALL of us. Regardless of who ultimately created the monster (I suggest that you start with CRA legislation, which goes back several decades), throngs of Americans have become homeowners over the past 10 years who never had enough skin in the game to continue to do so. As I've blogged before, in both residential and commercial real estate, it all goes back to lack of skin in the game. Shame on Washington for incentivizing it, shame on lenders and realtors for living off it, and shame on Wall Street for putting it all in neatly-wrapped sacks of crap called MBS.

In 21 years of community banking, I have never been down this road before. Many of my colleagues have not done so in 30 or 40 years in the business. Though it sounds both trite and chidlishly simple, a big dollop of empathy between realtors & bankers will continue to take us a long, long way.

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North Metro Atlanta community banker, Woodstock, GA