Many factors have caused the current economic turmoil and certainly the answer must be as complex. I certainly do not profess being an expert economist with all worldly knowledge of how the flow of money between banks and the fluidity of secondary mortgage markets effects the economy as a whole. In the housing market, however, it does not take a brain surgeon or a world class economist to understand the laws of supply and demand.
The lion's share of the answer has to focus on reducing total inventory of homes for sale, reducing poor quality inventory and increasing good inventory. I have become somewhat of an expert in the Cleveland, Ohio area in listing short sale properties and also selling bank owned properties. I have learned some valuable things:
•1. Banks must get better at accepting short sales and taking the hit now. I understand how a company's financials work; that publicly trade banks are accountable to shareholders, etc., but to save this quarter's P&L to next quarter's demise is just plain stupid. Case in point, I presented a short sale offer to a bank recently that took over three months to answer. The offer was $315,000 on a $325,000 list price. The bank got an appraisal for $305,000. The seller, who was relocated to Arizona with no protection package from his employer, bought the house for $345,000 three years ago could not afford the loss. The bank demanded the seller take on a personal note to remove the lien. They basically are forcing the seller into bankruptcy as he does not qualify for bankruptcy without the house note and since his credit is already shot there is no benefit to him to take on the note. The buyer walked away and now the bank will incur massive expenses to foreclose, carrying costs, possible vandalism and a bank owned tag when they eventually get have sell it. I guarantee that the bank just threw away over $100,000, no doubt about it. That will be an actual cash loss. It will be months and maybe over a year from now. The bank have their $300,000, lend it to someone else, and MAKE MONEY instead of throwing it away. I don't care the reason, on paper or otherwise, it was an awful decision.
•2. Banks must have looser guidelines on restructuring variable rate mortgages at today's rates for those borrowers that were current on their payments prior to a rate adjustment. I understand that to qualify for new financing banks require higher credit scores and more down payment unless it is an FHA deal. There are some other programs out there, but for the most part lending is tight. The government should provide some additional protection for banks to reset an amortization table if the borrower's debt ratios and new payment still meet acceptable standards. They must be able to ignore credit scores caused by late mortgage payments. Let's give these homeowners that were able to perform the ability to perform and keep these properties off the market and out of foreclosure. Let's stop the talk of refinancing homes at today's market value vs. what the buyer paid and stop talking about taking losses today that may never have to be incurred. If the borrower eventually cannot afford the house, it will foreclose farther down the line and not in today's market where we are experiencing the highest level of foreclosures in history.
•3. Banks must get better at securing, improving and disposing of their properties. Again, it's not rocket science. It takes these banks and asset managers WAY too long to get these houses on the market. They need to do a better job at protecting these properties by working harder to get a deed in lieu of foreclosure, getting the borrower's assistance in listing for short sale, securing them IMMEDIATELY after the confirmation of sheriff's sale and getting them on the market right away! I have buyers in some areas waiting months for foreclosed properties to be listed. Not just investors, but normal buyers too. After many calls to many offices and personnel, I am still told I must wait for it to be listed by many institutions. I'm talking six to nine months sometimes. I'm fine waiting for the listing, but LIST IT ALREADY! Properties get vandalized, landscaping overgrows, plaster and tape lines crack, rodents and insects infest, and on and on, adding to the loss that the bank (and now the TAXPAYER) must endure. I suggest that part of the Bail-Out funds be used to assist banks to hire and/or subcontract more personnel to more quickly and effectively dispose of these properties. Also, I suggest that Federal short term loans be provided to banks to improve properties and make them more sellable. The funds can be paid back to the government at closing but will create better inventory in the marketplace, reduce market time and increase home values.
I know I don't have all the answers, but I hope I have provided food for thought....and hopefully action.