To put things into perspective, my husband - Alex, ran an analysis on our clients who have given up on their home search due to the competition in buying a houses and waiting for Bank owned homes to hit the market. He was up until 3am, God bless him, doing the business recap. 16 Client gave up on their dream to buy a home...and we are just one team. I can't imagine the number of people who have given up.
Like many others, we are looking for some relief in a a drought of a market. We have heard that a new wave of bank owned homes will be coming to the market...but when? We have been told the same story over and over since March of this year. Can we truly expect a wave of foreclosures to provide an opportunity to first time that are bidding on multiple houses just to get one accepted? Yes and No...
We have to look at it from the Bank's perspective. Are they in a business to take huge losses simply to provide homebuyers with opportunities? No...unfortunately. They are in this to make money. The banks are currently getting government subsidies to TRY and modify loans, so as long as they are getting monies, they will be reluctant to foreclose on more homes. One of our clients vacated her house in July of 2008 - She had not paid her Mortgage 6 months prior to that. The house is still vacant, and the lender refuses to take it back. Instead they are sending her possible workout options...(grain of salt). These options are not very good one, but nonetheless they are offering something, and receiving bailout money as a result.
Secondly, bringing a large wave of foreclosures with tight lending guidelines is a recipe for disaster. This would cause the market to dip down again, and create greater uncertainty in the market. Remember, banks hire the smartest people to run their operations and mitigate losses. They are not going to cause more losses for banks. They are brought in to bring them back to a profitable level. Until something changes, I do not see banks flooding the market with homes for sale.
Now for the silver lining; On January 1st 2010 - the FHA guidelines are changing. No longer will brokers be responsible for making sure that the borrower meets all the FHA guidelines. This responsibility will fall solely on the banks giving out the loans. Some speculate that this will make it easier for brokers who were not FHA approved before to fund these types of loans. Some others say that the lender will be much stricter than they are right-now, so it will be more difficult to obtain financing than before.
Here is what I think: Banks are not in the business of losing money. Right? The are in the business of making money. They have convinced the FHA that it is for the Greater Good to turn over the FHA guideline review requirements to them. In doing so, they have full control of which loans to approve. Let me ask you - if you had hundreds of thousands of homes to liquidate, would you make it harder or easier to get a loan? My thoughts exactly! We anticipate that the banks will loosen their guidelines in a self-serving purpose to clear their inventory.
A few years from now, when people default on their mortgages, they can blame the low level staff for incompetency, and request the government to bail them out- again. Does the story sound familiar?
All in All, I think that banks will start to release more inventory when they feel that they are in a position to profit from it. Until then, they will allow home-buyers to bid the prices back up to reduce their losses.
We will see you here next week
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