No Real Solution for Short Sales is Poor Advice for
"Restoring" the Housing Market
New Federal Reserve "White Paper" released 01/04/2012 offers advice on restoring the Housing Market. You can read the summary at the Mortgage News Daily Here.
"In a letter to the chairs and ranking members of the Senate Banking and House Financial Services Committees on Wednesday, Federal Reserve Chairman Ben S. Bernanke said "Restoring the health of the housing market is a necessary part of a broader strategy for recovery." The letter accompanied a white paper developed by the Fed which Bernanke called a "framework for thinking about certain issues and tradeoffs that policymakers might consider."
Another Failed Housing Program on the way?
All of the Housing Programs so far have only accomplished just delaying the inevitable and prolonging any truly sustainable recovery. I remember being up to my ears in Las Vegas short sale listings back in 2008 and real estate experts saying this would be behind us by 2012. I was so looking forward to 2012. Unfortunately, "Home Program" after "Home Program" have only delayed a truly sustainable real estate recovery at an enormous cost to the U.S. Taxpayer.
Have we not Learned Anything Yet?
Housing prices did not tank because the economy tanked. The Economy tanked because the housing bubble popped after several years of lax lending inflated home values far above what they should have been. Throw in all of the excess inventory that was built during those days meeting an artificial demand and it's not too much different then printing up dollars to pay the bills.
Artificial Real Estate Boom Addressed by the Federal Reserve Bank of New York:
It only took Four Years for them to figure this out but at least they kind of figured it out.
"In states that experienced the largest housing booms and busts, at the peak of the market almost half of purchase mortgage originations were associated with investors."
(Speculators is a much better term to use by the way because that's what they were doing. "Speculating" that future appreciation rates would continue being in the double digits.)
Almost 10% of the New Mortgages originated in the "bubble" states (Nevada, Arizona, California and Florida) during 2006 by buyers who ALREADY had four or more mortgages. And for anybody with half a clue, we know these properties were not cash flowing. Speculators were buying them chasing the annual 20%+ appreciation dream. $300,000 for starter homes in Las Vegas that had an "appreciation" rate of 20%+! YAY! New home builders had no problem selling anything and everything all without even opening up model homes to view.
Well.... we obviously know what happened when that appreciation ended and owners got tired of paying that negative cash flow every month. They let them go and the house of cards came toppling down. What was left was more supply then true demand.
Basic Economics 101 formula: More Supply then demand = Lower Prices. Pretty simple stuff to figure out when you add in all of the new homes that were built and sold to purchasers who already owned three or four.... or five or seven.
Is the current drag on the real estate market due to houses not being able to sell or is the current drag on the real estate market due to the inefficiency of getting them through the system? I don't know about anybody else but I certainly do not have a shortage of buyers.... I have a shortage of great houses to buy.
And don't be fooled... there are far many bad home loans out there in the foreclosure stages then there were back in 2008 when the Financial System was supposedly going to collapse. An accounting rule change and printing up a couple of trillion has kept the music going today as the foreclosure process in many states has been delayed to whenever.
Manipulatation of a Market Does Not Work for Long Term Results
And that's what these suggestions are: More Manipulation and more proposed programs such as selling REO homes to institutional investors at "attractive prices" to turn them into rentals to "stabilize" prices. AKA artificially manipulating home values. How much has already been spent on all of this already?
For the big bankster conspiracy theorists out there.... you know exactly what this is all about.
So what is "Advised" on Short Sales in the Federal Reserve's White Paper?
"Short sales can be attractive because the property is transferred to a (presumably sustainable) new owner, keeping the property out of REO and reducing potential negative effects on communities from vacant properties. Both short sales and DILs, however, face barriers in current markets. Short sales require a willing buyer, a price that is acceptable to all parties, and a timeline that allows the transaction to close before foreclosure (which is likely proceeding on a parallel path)."
Given the scope of the economic losses associated with foreclosure, figuring out ways to surmount these obstacles is crucial."
Ummm... I've been doing Las Vegas Short Sales going on four years now. They have gotten much better then they were four years ago when the banks were trying to figure out what happened and thought it was only a temporary dip. Then we came up with a Help for Homeowners Program and they thought that would raise prices back up. Then the First Time Homebuyers tax credit giving people cash to buy homes was tried. Temporarily worked as people rushed out for free money... even bumped prices up a little bit. Then that program ended. Now I'm coming across these same buyers being buried and owing far more then their home is worth today. I've even been coming up with Las Vegas Homes that have been foreclosed on twice within five years.
Something all of these programs have in common is NO REAL Solution in streamlining Short Sales... especially for Fannie Mae, Freddie Mac and FHA owned loans. So the foreclosures have kept on coming...
As for the Short Sale PR Campaigns
Because that's what they are for the most part. Sure... the servicers have figured out how to keep track of all the paperwork submitted so it does not have to be submitted a dozen times but for the most part, it's still a very inefficient process to help keep homes from going to foreclosure in the first place. As for actual closings... My Las Vegas Short Sales Report for September pretty much sums up the results in actual closings reported on the Las Vegas Multiple Listing Service (MLS):
After a significant improvement in short sale closings (and avoiding Foreclosure) from September of 2009 to September of 2010, there was a decrease in year over year results from September of 2010 to September of 2011 of -8.55%.
Not much improvement as the short sale inventory increased as far as I'm concerned. No telling how many Las Vegas short sales went to foreclosure and became Las Vegas Bank Owned aka REO Homes to sit on the books somewhere as they sit vacant.
That's All the Advice Given Concerning Short Sales?
There are currently 2,616 Las Vegas short sales with buyers and sellers waiting for a decision where the homes are VACANT out of the 7,829 just waiting for an answer.
2,616 Vacant Las Vegas area Short Sales in Escrow!
What do you think is going to happen to those vacant Las Vegas homes if the sellers can't get a favorable answer?
Hmmmm.... Sellers move back in and pay their huge mortgage or they let the bank take the home back?
Pretty easy one to answer. You certainly do not need to go to Harvard or M.I.T. for the right answer. All you need to do is get out there in the real world on Main Street U.S.A. to see what's really going on for some common sense answers. So you turn tens of thousands of REO homes into rentals and tens of thousands of more homes will be coming along.
Is it just coincidence that since the foreclosure fiasco started in 2007 and today's advice for short sales is "figuring out ways to surmount these obstacles is crucial" has resulted in even more bad home loans out there today then there were 3 years ago?
We need to stop treating the symptoms of the illness and get straight down to curing the disease. Turning REO homes into rentals owned by entities that don't have a very good track record in the first place is certainly no answer to returning to a normal real estate market anytime soon.
The current "Advice" is nothing new. The plan of turning Fannie Mae and Freddie Mac owned homes into rentals was proposed several years ago but there were "better programs" to try first.
And here we are... All of the previous plans failed and we now have more bad home loans across the country in the foreclosure process then we did three years ago. Coming out with another plan to turn REO homes into rentals without being able to "Figure out ways to surmount the obstacles" concerning short sales.
Winners have track records.... as do Losers. Taking advice from people that have failed so much in the past several years is not very bright.