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And I thought the idea was they were trying to sell these loans at market
good morning Tanta! i think you mean sell these homes at market...
Yeah, but I spelled it right. Doesn't that count for something?
yes, you get a rainbow sticker.
It's the bacon dreamz & Tanta morning show!
Had just this situation with a Countrywide short sale last year. After 6 weeks of feet draging on their part, we gave it up. Too bad for them. But that was a year ago. Maybe they're a little more cooperative now.
According to the hawk SFPWG report ptooie we looked at yesterday, in January the servicers surveyed had 31,450 short sales pending and closed 3,943. They had closed 3,456 in October, or a 14% increase October to January. Back in October the in-process short sale pipeline was 24,365 loans.
Can you frame that relitter quote and put it in a prominent place on the new layout?
I, too, complain about my opinion. Why can't I just have a good one that doesn't always turn out so wrong? Why can't my opinion just quit following me? Damn you opinion. I know everyone's got one, but why does mine have to be so bad?
I like this line
...she decided she could not afford the $2,200 monthly mortgage payment.
I'm SURE the Realtor would be willing to forgo their 6% fee if that's what it took for the short sale to happen.
Because it's about making the seller happy and not about making, or at least not losing, money. Right?
Maybe these fee-less sales should be touted as a way out for homeowners unable to pay their mortgages and who need the extra money to pay off their loans.
Yeah I see this happening.
I'm a real estate broker, but not a realtor, and the biggest problem I've had negotiating short sales is that the seller has loaded the property with second and third mortgages and the first mortgage holder will do fine in a foreclosure which will wipe out the subsequent mortgages but the junior mortgage folks quite humanly won't take a haircut if the first holder won't.
Therefore, I don't do short sales unless there is more than on mortgage.
Where seller's equity has already been completely tapped out by adding new mortgages and declining prices make them upside down and they are now unable to keep up payments, I advise them to halt all mortgage payments, put the cash in the bank as they will need it to pay a full year's rent in advance when they are finally foreclosed on.
Great, more "journalism." I can't believe they left out the very basic facts about the purchase price and loan amount!
Part of this stems from the journalist's drive to put a "human face" on things, with personal anecdotes, profiles, etc.
But we always seem to end up with this mangy mutt of a story style, that starts out as (supposedly) a business story, informing us about current market issues, and then somehow turns into a lifestyle segment, with a sort of Steinbeck-style little person caught up in the evil machinationis of a cruel and pitiless world. Or vice versa. Or something.
I am not against this sort of human interest story, I just mean to point out that Judie's experience with a botched or incomplete short sale may or may not be typical of the Georgia banking climate.
The reality is, Judie's experiences may turn out to be relevant only to Judie, with no broader conclusions or insights at all. Can't really tell from this story.
As Tom C said to Matt Lauer, it is glib.
oops...I meant I won't handle a short sale unless there is ONLY one mortgage...duh..it's early.
It's very unlikely that BPOs are inflating the market. I haven't seen a BPO that came in higher than an appraisal or AVM.
swampfella, don't feel bad. You can have half my rainbow sticker.
Judie's experience with a botched or incomplete short sale may or may not be typical of the Georgia banking climate.
It may or may not be typical of Georgia's climate, but as Judie lives within spittin' distance of Motown, it is probably more relevant to ask if it's typical of Michigan's climate.
Wouldja like the other half of my rainbow sticker?
Interesting how these broker 'asks' in the MLS and the 'bids' they think are fair are so far apart. Looks to me like residential RE market needs a decimalization rule like the one that was so successfully implemented by Clinton/Levitt
Oh sure, the floor brokers howled all sorts of crazy, nonsensical objections at the time ...and the RE brokers will do the same.
But imagine getting that residential RE spread down to - what was the rule nicknamed again? - oh yea, down to a penny.
Broker, let me get you the number for the American Truck Driving School.
Loading up a property with second and third mortgages and withdrawing all equity can never be wrong, because people do it, and in America the people are always right.
The banking business is morphing into the retail housing inventory business.......with depreciating inventory.
The last season of The Wire (HBO) exposed the newspaper decline--and the reporter that just made things up. Seems to be happening all over--even in the business sections of national news services.
What I love about real estate stories is that everybody turns out to be the bad guy, eventually.
I've kept track of quite a few shorts in the markets I follow. It's better than a Harold LLoyd film. At two OH I visited, sellers admitted they hadn't yet approached the bank about this whole short sale thingie. On the other side of the table, Countrywide was imposing an amusing list of restrictions long as my arm on potential buyers. You had to make a $10K non-refundable earnest money deposit--not down payment, earnest money; use Countrywide as your lender; put no contingencies at all into your offer; and, of course, expect many, many months to pass before a phone call to be returned no matter how much homework the seller had done. I believe it was the same compelling package they were offering on their REOs, or close to it. THose houses eventually sold for a fraction of list, and as best as I can tell from the deeds database, without at least some of those restrictions.
" the biggest problem I've had negotiating short sales "
A question, if you will. At what point is "short sale" even a viable conversation to have with the home loan owner who has multiple liens on their property? Of course the seconds and thirds aren't going to whimsically be forgiven.
I honestly don't understand how it's ever a plausible thought for the home loan owner - "Oh, this person will forgive their entire mortgage value and we'll just sell the house short!"
I'd be curious how many people with seconds and thirds have that conversation with someone. Possibly the only benefit would be a metric indicating impending doom, but still.
You had to make a $10K non-refundable earnest money deposit--not down payment, earnest money
I take it that means "non-refundable" in the sense that if the buyer walks, the EM is forfeit. Not that the EM won't be credited toward down payment if the deal closes.
I don't want to shill for Countrywide this early in the day--that's mostly an afternoon thing for me--but what is "typical" EM in the OH market? My wrinkled reptilian snout seems to remember a time when that was common, especially for someone offering less than list . . .
Slightly OT - I was a dinner with a new guy in my industry who is just starting out. He was talking about how he was going to use his money. One of the first things he said is he wasn't going to buy a house for awhile, because housing scared him.
Why does it? Well, he just had 3 different friends' parents get foreclosed on. And, he said, these were kids that had everything growing up. IMO, this will be the common story about middle America going broke over the next few years. And, BTW, these families don't live in one of the hyper appreciation/depreciation states, either. Hold on. This ride is going to get very rough.
And, am I imagining things, or does it seem M. Nick (warning, Monsieur alert!) only really spoke with realtors before writing (a.k.a. typing) this? Wells F. gets a little e-mail in, but everybody else is a Realtor opining on everything. So, now that we have the realtors' take on banking, could we hear their plans for military strategy in Kurdistan and the intellectual rigor of string theory?
Under Murdoch, WSJ reporters have been told to "spice up" their stories. Swell, that's all we need. As if business journamalism isn't bad enough already.
Markel writes:
What I love about real estate stories is that everybody turns out to be the bad guy, eventually.
Its like Jerry Springer for people who can read.
since the subject came up, i was reading this thingy about junior liens this week that directed me to this other thingy (which i haven't read yet), which happens to be freely available on the intertoobz:
Adopting Restatement Mortgage Subrogation Principles:
Saving Billions of Dollars for Refinancing Homeowners
SSRN-Adopting Restatement Mortgage Subrogation Principles: Saving Billions of Dollars for Refinancing Homeowners by Grant Nelson, Dale Whitman
Oops. Judie is, in fact, in Michigan. It is Mr. Van Johnson who is from Georgia. I do like rainbow stickers, though.
Now the only question is, why did we ask the president of the Georgia Association of Realtors for his general opinion on short sales when our supposed "human face of the problem" is in Michigan?!
Aaaargh! At least we found out that all of the appraisals in Chicago are fair, now that appraisers in Illinois have been subjected to raised eyebrows.
Thanks for finding this stuff, Tanta.
Is it possible these " quick, inexpensive online property assessments" are actually just AVMs? That would explain why realtors are critical of them.
Its like Jerry Springer for people who can read.
dryfly, please accept my thoughtful little edit to your post:
Its like Jerry Springer.
We're not clear about the rest
ot to pile on, but the article also describes a BPO as a "quick, inexpensive online property assessment".
Looks like someone confused a BPO with an AVM.
This is from an honest appraisers perspective on the subject. Yes, appraisers were part of the problem when it came to inflated values; some were, but not all. So let's get the notion that all appraisers were pumping up the numbers. The plain truth is that the lenders greedy loan originators, (and most by the way, are still unlicensed)and the bank boards themselves offered tons of repeat business to the appraisers that they could control. The ones that didn't play the numbers game were simply shut out. Now, the lenders are taking huge losses and are "a little nervous" because they will likely go under. TOO BAD! The lenders created the mess and committed mortgage fraud on a massive scale, tried to get away with cheap BPO's to bypass the appraisal process, which was designed to protect the public. Now they are trying to save their own asses by selling the Repo's for top dollar. Guess what? It doesn't work that way. I'm glad the brokers realize that the appraiser is the only party who can offer an objective and accurate opinion of value. The key is "objective". How can you be objective if you are paid a commission? You can't. For those of you who invested in real estate, my simple advice is this; hire only qualified, certified residential or certified general appraisers to appraise you property, and use the brokers to market your property. Each party has a role in the market. As far as the lenders are concerned, they are all the same and should not be trusted. Go to your local credit union for a loan. Their loan originators are not commissioned and they will not give you a loan that you aren't qualified for. Also, stay away from foreclosures; the bottom line is that you have to sift through a massive number of them before you find one or two deals that might be good investments. Besides, contrary to what the main stream media is reporting, and the National Association of Realtors as well, this economy will get worse, much worse. The term "buyer beware" is something that you should burn into your memory each and every time you look at a property. Remember, everyone wants your hard earned money.
Good luck and please be wary!
What I don't quite understand, what boggles the mind... How is it that a lender actually allows someone who is most clearly at the end of their career to owe more on their house than it is actually worth. I mean, the person is 67 years old. Obviously they are going to either have problems that preclude work or will develop them shortly.
I don't think that I would feel comfortable loaning such an old person a lot of money leaving them with too little equity to withstand some level of market volatility.
I don't know if they're confused about BPO vs. AVM or just flabbergasted--stunned and surprised, even!--that you can order a BPO online these days. If you are, say, a servicer and you have an account with a BPO vendor. You know, *Ocwen Financial Corporation or whatever.
The implication being that those BPOs would be so much more accurate if the lender sent a carrier pidgeon to the broker's office with an engraved request . . .
I don't quite get Tanta's point. Is she infering that lenders prefer letting homes go into foreclosure rather than allow short sales? How can foreclosure possiblly be a better deal than a short sale for banks?
It's not as if lenders could possibly expect these home-owners who are significantly under water to keep making payments on their mortgage even if they have the wherwithall to do so. Who is going to keep making payments if their home is worth significantly less than the mortgage?
How is it that a lender actually allows someone who is most clearly at the end of their career to owe more on their house than it is actually worth.
It is ILLEGAL in this country to discriminate against mortgage borrowers by reason of age. As long as a borrower is old enough to sign a contract and qualifies for the loan, you cannot withhold or condition the credit request because the borrower's likely remaining lifespan is less than the terms of the loan.
You don't know but that Judie doesn't have a big fat 401(k) that the lender took into account when the loan was made. And that she doesn't want to empty out to pay the shortfall at closing. I'm not sure I blame her for that, but if the lender knows that money is there, how excited do you think it will be about a short sale?
bacon - FirstAm's goons are coming for you now, you know.
I can tell you this from the front lines.
When a bank orders out a valuation on a property they will generally get multiple BPO's. The highest BPO wins. Second, they pay $50 for a friggen BPO. I have done a couple and don't need the money that bad. What do the Banks expect someone to do for $50? Make a 100 mile round trip and actually spend a couple hours on the computer?
I know you are going to say that the agent accepted the BPO offer and what not and I agree. However the system is set up to get incentives the agents to inflate the BPO to make that expenditure of time and gas worth it by capturing the REO listing down the road.
AS for the banks accepting short sales. I see them get done all the time in my market. They take forever and many times the decisions and actions by the banks make you scratch your head but if you are aware that some short sales just won't happen then life is just fine.
You can also order a candy bar online, but I would wouldn't consider that part of describing what a candy bar is.
Is she infering that lenders prefer letting homes go into foreclosure rather than allow short sales?
Lenders are perfectly capable of accepting the lesser of two evils. If two evils are on the table.
But if the borrower is not deliquent, has never been delinquent, what reason does the lender have to believe that foreclosure will happen if the short sale does not go through?
It seems, in this case, that FC did occur. But again, without knowing how many liens are out there and how much is owed, we don't yet even know that FC will actually cost the first-lien lender any more than a short sale would have.
No bank or servicer is going to take the position that any and all loans will end up in foreclosure, therefore any and all non-delinquent borrowers asking for a short sale are in fact offering the lesser of two evils. They just aren't. They have no data, no models, no theoretical analysis that tells them that 100% of all mortgagors are likely to go to FC next quarter. They don't.
You have to find some way to convince them that you are truly in financial hardship, and that default is reasonably forseeable. You notice that we get no information about whether Judie went through this with her servicer before she tried to get a short offer.
Sniglet writes:
Who is going to keep making payments if their home is worth significantly less than the mortgage?
Since you're having trouble explaining the lenders' behavior when you make this assumption, you might want to question the assumption.
Lots of people continue to make payments when they're underwater, and continuing to receive the monthly payment is often a superior option for the servicer than either foreclosure or a short sale.
You can also order a candy bar online, but I would wouldn't consider that part of describing what a candy bar is.
No. But the word "online" is not, you notice, in quotation marks. I suspect this is the reporter's definition of a BPO. The same reporter who defines a short sale as selling "below market."
Is she infering that lenders prefer letting homes go into foreclosure rather than allow short sales?
I'd say she is inferring that there exists an option "c": if a borrower wishes to sell a property for an amount less than what is required to payoff the mortgage, then said borrower may have to - God forbid - cough up the difference out of his/her own pocket.
--
I agree with Tanta's sentiments.
The problem IS and HAS BEEN too many dishonest players in the game. People pursuing self-interest in an honest way is the ultimate in creating prosperous society. More and more Americans have come to believe that you get ahead by any means as long as you don't get caught, or penalized. “Not getting caught” as guiding principle is a result of legalism.
Legalism is a morally bankrupt ideology and America would prove that beyond doubt. Rules and laws are only as good as the people, or participants. Deception, fraud and manipulation are the new American values to get ahead, on Wall Street as well as Main Street.
Focusing on the root causes of problems being discussed,
Jas
But if the borrower is not deliquent, has never been delinquent, what reason does the lender have to believe that foreclosure will happen if the short sale does not go through?
So, borrowers who want to make a short sale should make sure they stop making payments first? I don't see how that helps the lenders, but if that is what they would like borrowers to do in order to allow short sales, then people will just have to follow the rules.
Amen to what swampfella said. I recently put a strong offer on a short sale--about $10k less than a recent comp to account for a new roof and a bathroom floor. I haven't heard back and don't expect to hear back. The mortgage is a 2-year-old zero down piggyback. With my offer, the holder of the second gets nothing. He won't get anything when the house forecloses next month either, but at least he can hold the short sale hostage. Junior lienholders often just don't have much incentive to make short sales work.
And we're bailing these goons out?
"That without any indication that the lender would have to foreclose, the lender is not highly motivated to accept a short sale that is "less loss" than the foreclosure that doesn't appear to be on the table? The bank has to mention this?"
So, borrowers who want to make a short sale should make sure they stop making payments first?
Let's try an analogy.
You can get medical care in this country at an emergency room even if you are uninsured and have no ability to pay for your care. But you do have to have some kind of illness or injury first.
So if you want free medical care in an ER, even if you aren't sick or injured, then yes, you'd have to hack off one of your own limbs or swallow poison or something first, in order to qualify.
If you just march into the ER, perfectly healthy, and demand your free medical care, you will be shown to the door. You could, possibly, threaten at this point that if they make you leave, you'll go hurt yourself. I guess they might call the Psychiatry attending for a consult at that point. Probably they'd just call Security.
I do not understand your "borrowers who want a short sale." You are saying, borrowers who "want" the equivalent of a foreclosure with no credit dings, no public humiliation, and no out-of-pocket expenses are being somehow "asked" to stop making mortgage payments first.
They are actually being "asked" to continue to make their payments. Or, as Shnapsterissimo says, to cough up some of the shortfall themselves.
but what is "typical" EM in the OH market? My wrinkled reptilian snout seems to remember a time when that was common, especially for someone offering less than list . . .
In Mass., it's long been $1000.00. That's what I gave when I offered in '94, and what I got when we sold in '05. (Yes, we timed the bubble with uncanny precision. Go figure.)
I don't know how it works elsewhere, but here you put down another chunk at the conclusion of the P&S. That's where you can get into the 10K-50K range. But asking for 10K just for the privilege of writing an offer is unheard of.
It's especially difficult when you don't trust the bank. I heard this second hand, so it may be pure legend but: Lender demands big EM deposit, requires buyer to get loan with its own self, refuses mortgage to buyer, then wants to keep buyer's deposit.
Even if the story is apocryphal, there's nothing in this arrangement to prevent it from happening. And while it's possible to get a seller to disgorge a deposit in court, it's time-consuming and not pretty. So, I steer clear of these arrangements. So do most people.
"but what is "typical" EM in the OH market? My wrinkled reptilian snout seems to remember a time when that was common, especially for someone offering less than list . ."
Ha! Dunno about OH but here in MD the earnest money was $1,000 and a "pre-approval letter" for 100% financing from some internet "lender" who answered the phone "Hello?".
This was last year about this time. Fortunately there were local lenders stil making 100% loans for folks with no money back then...
"As long as a borrower is old enough to sign a contract and qualifies for the loan, you cannot withhold or condition the credit request because the borrower's likely remaining lifespan is less than the terms of the loan."
Tanta,
I'm surprised-I would have thought a loan originator would take into account how close a person is to retirement and if that person has enough retirement income to pay the mortgage. Would it be acceptable for a loan officer to ask someone in their earlier 60s, who is applying for a mortgage, for proof of income after retirement,401k etc?
I had a buyer in Orange County that made an offer on a Countrywide REO. It was listed at $549,000, and our offer was $520,000. The true market value is around $535,000, and dropping.
CW came back with a counter-offer at $560,000. Again - it was listed at $549,000, and there were no other offers. CW was not aware that their list price had recently been dropped by $30,000.
So what are they going to do? I was just informed that they are rejecting our offer, and the home is going to be auctioned off. At the auction next month, I will be shocked if they get anywhere near $500,000.
Would it be acceptable for a loan officer to ask someone in their earlier 60s, who is applying for a mortgage, for proof of income after retirement,401k etc?
Outside of the stated income fantasy world, every borrower has to verify income that has the probability of continuation for at least three years. (That is not because lenders don't care about your paying off the loan over its terms; it is because it's just they're trying to eliminate "windfall" income or someone on a short-term contract with no prospects of getting another.)
So if the borrower is within three years of retirement, then there has to be documented retirement income of some sort that can cover the payment. Social Security, pensions, 401(k)s, whatever you have.
There is nothing wrong with people using retirement income to pay their monthly housing costs with. You might want a house-payment free retirement, but there's no law that says anyone has to.
A lot of people buy a home just prior to retirement, with the expectation that they will pay it off or pay it down when they're old enough to withdraw 401(k) money without a penalty.
--
Hey, Tanta, Diana Ohlick reports that Hopebuilders don’t want to sell home below their cost. Looks like everyone is fighting the market. Market is the clearing mechanism and people (“owners” of all stripes) don’t want to clear the garbage in the pipeline. The pipeline is getting clogged. So, the complaints will continue.
Jas
Lender demands big EM deposit, requires buyer to get loan with its own self, refuses mortgage to buyer, then wants to keep buyer's deposit.
Isn't that why EM usually goes into an escrow account?
Large Carbon, you have to understand something about the people that deal with requests like these. They are very process oriented and they do not think, nor do they act as we would...to get the deal done and move on. They have sheet, schedules, procedures and they follow them even with the desired result is as plain as day. It's a mindset. Whenever I've worked on any project with any sort of financial institution, we all scratch our heads and wonder how any of them make any money because they seem to always take 10x longer than any other sector and won't deviate from any written rule or policy.
Now, if you or I were at CW, we'd look at the offer, run an analysis and say up or down...and if up get it done and done quickly. These people will follow whatever procedure the bank has codified, no matter what the likely outcome. This behavior has it advantages (loans SHOULD have been more scrutinized on the front end), and disadvantages (they're taking in the shorts on the backend).
The fun happens when a non-linear thinker (obviously you or me) has to interact with a linear one. It's maddening. At my own place of employment, this happens whenever ipodius has to deal with HR. He inevitably leaves and bangs his head on a wall.
I was just informed that they are rejecting our offer, and the home is going to be auctioned off.
Is your buyer able to bid at the auction?
"But asking for 10K just for the privilege of writing an offer is unheard of."
I have heard of those $1000 EM, but in my neck of the woods, it is standard to put down 3% of purchase price (so I put $20k in escrow when I last purchased).
But asking for 10K just for the privilege of writing an offer is unheard of
Yes, here the usual is a 1k check to accompany an offer (has been and still is the amount). That check is usually not cashed until the offer is accepted, if at all. In most cases it was never even cashed and when we went to P&S the real deposit came, as that has more legal teeth. That money is then kept by the realtor NOT by anyone else and is brought to closing. If the deal doesn't happen and none of the covenants of the P&S broken, the realtor returns the money and everyone walks away.
Perhaps there are different procedures in different states.
Large Carbon,
Why don't you just bid at the auction next month, then?
Can you provide link to the property in question on their reo site?
There is nothing wrong with people using retirement income to pay their monthly housing costs with. You might want a house-payment free retirement, but there's no law that says anyone has to.
In some areas, at least, this is the seed of a housing crisis that will extend decades into the future.
Huge numbers of Boomers in Mass. bought, for instance, renovated Victorians in Cambridge, or modernized row houses in Boston's hip South End, with mortgages that will last until they are 85. Every shred of data from groups ranging from the ICI to the AARP indicates even most well-heeled types do not have the savings or investments to maintain anything close to current income in retirement. They bought on the expectation of endless, 10% annual appreciation, and an easy sale when they were ready to decamp to Boca.
To make matters worse, a lot will try to sell long before they reach decrepitude. I wouldn't want to climb three stories every night to my luxury master suite in the attic myself, and I'm not yet 50. A couple of recent studies suggest that Boston will start experiencing a tide of retired Boomer sellers in the next couple of years.
Nothing like kicking a market when it's down. And kicking it. And kicking it.
"Perhaps there are different procedures in different states."
Yes...in Ca the earnest deposit is cashed within 3 days of acceptance of the offer, and held in escrow. And like I said above, it is typically 3% of the purchase price in my neck of the woods.
Huge numbers of Boomers in Mass. bought, for instance, renovated Victorians in Cambridge, or modernized row houses in Boston's hip South End
EX-hip South End Markel now that they moved in
But yes, very true. Also a lot of young people bought in the South End and such areas instead of renting and, as soon as they hit child producing phase, will need to sell because these places are mostly small and not conducive to raising a family well. And no one in these neighborhoods actually sends their kids to Boston Public schools either.
So you'll see a demographic double-squeeze...aging boomers discovering that a walk-up is no way to spend retirement, and twenty to thirty somethings discovering that condo is too small for three. As there was a mass influx, there will be a mass exodus.
God I hate it when I don't close a tag!!
Markel, that's all true. But I got the impression from previous comments that the idea was to turn the borrower down for a purchase-money loan at this advanced age.
Which would leave them renting through retirement, assuming they're not trying to "upgrade." And retirement income will then be going to pay the rent.
Obviously the issue is not the borrower's age, per se. It's the relative prices of ownership and rent and the borrower's actual retirement resources. What is illegal discrimination is to ignore all that and just say "you're too old, no loan."
Elvis, that's something to remember for the future. Foreclosures effect the risk tolerence not just of those foreclosed on, but alos their neighbors and family. Personaly, I bought my house at an older age than most because my old college roommate got foreclosed on and that left me nearly paranoid about making SURE I could afford my house.
I recently talked to my (retired) mom on the phone. She informed me that they have a mortgage on their new house even though they have more savings than the house is worth. Apparently "all the financial advisors" are advising these retirees with savings to take out a mortgage, invest their savings and pocket the difference (taking the tax break into account). My mother complained that their investment yields are pretty much flat or negative these days. Apparently this financial advisor advised her and my dad that they can afford to live until they are 96.
Tanta,
Time for the language police.
The speaker/writer implies.
The listener/reader infers.
And while I'm at it, since when did "loan" become a verb. To my generation of contract draftsmen, "loan" is a noun and the corresponding verb is "lend".
Obviously the issue is not the borrower's age, per se. It's the relative prices of ownership and rent and the borrower's actual retirement resources. What is illegal discrimination is to ignore all that and just say "you're too old, no loan."
I guess saying these borrowers are too old for 30-year mortgages is just sloppy shorthand designed for a message board comment, not a formal rule we would expect lenders to follow.
But as shorthand, it's not that far off--because of the context. We know that neither the banks nor the borrowers soberly contemplated buyers' ability to make the mortgage nut in retirement. And this was yet one more laxity in lending that helped drive up prices. It was years into the boom before I realized that I, with my insistence on being able to afford a 15- or 20-year mortgage, was competing with other buyers cheerfully planning to post their future mortgage payments from the Saggy Ass Lane retirement home.
Is your buyer able to bid at the auction?
They can and may bid at the auction, but currently she is fed up and may move onto another property.
Certified General Appraiser, I would argue that the appraisel isn't to protect, the public, it is to protect the lender. The idea is to ensure sufficient security for the loan and minimize losses in the event of default. The problem is that with the securitization process the actual lender is the bond-purchaser, and the appraisal is bought and paid for by somebody else. Somebody who has a short term vested interest in making sure that the deal goes through, and only a long term motivation to make sure that the appraisal is accurate.
I do not understand your "borrowers who want a short sale." You are saying, borrowers who "want" the equivalent of a foreclosure with no credit dings, no public humiliation, and no out-of-pocket expenses are being somehow "asked" to stop making mortgage payments first.
What I am talking about is the situation where a home-owner has decided that they don't think it's in their financial interest to keep making payments on a mortgage that is worth far more than the value of the house, even though they have the financial ability to keep making payments.
In these cases (i.e. where financially sound people have absolutely decided they want to ruthlessly default despite the negative credit implications), is it in the interest of the lender to actually have the home go to foreclosure or does the bank come out ahead (compared to foreclosure) by working out some sort of short sale agreement with the borrower?
since when did "loan" become a verb
About 800 years ago.
It probably won't sell at auction either. Most don't. They start bidding low, but there an unstated reserve price and that's rarely met. Then it goes on the market on as an REO and probably sells for even less. Quite the system they have going here.
In those cases, Sniglet, I'd say a judicial foreclosure is in order.
ipodius, I don't know if you're right about the kids factor. Baby carriages have exploded in the South End. I was raised in a city, so I have no problem with that per se, although I question the wisdom of buying pricey real estate in an area so heavily pocked with particularly crime-ridden housing projects. Though, the families and Boomers have indeed made the South End less cool.
There are two big problems with the urban redevelopment model this city has been following.
First, obviously, a lot of gentrification was fueled by lender funny money, not real economic activity. I don't think I need to go into that here.
Second, though, the historically most important engine of Boston gentrification has turned off. From Charles Street to the once-dangerous Back Bay to the South End, a flock of gay men used to descend on these areas, sprinkle "fairy dust" (not my formulation), and then less-adventurous yuppies would move in once petunias had been hung from all the lampposts. Then the gay horde would leave, and descend on another blighted neighborhood with beautiful but neglected architecture. The reason why this was so important for Boston--unlike other blighted cities that failed to renew themselves--was that this group reclaimed entire areas as walkable, livable, attractive, and much safer neighborhoods, one at a time.
Well, that's all stopped. Gay men no longer feel the need to live in ghettos, and the boom has made all areas too pricey for DIY rehab anyway. So that's why so much of the recent gentrification is doomed. Instead of swarming into one area, making it a safe enclave and attractive destination, less-imaginative developers tried to promote isolated lofts in Lowell and single flipped houses in Eastie as "up and coming." It doesn't work that way, and now a lot of people are stuck in Southie on remote islands of granite countertops and stainless appliances next to some guy who breeds pit bulls.
Oy, how did I drone on so long OT in a Tanta thread? Sorry.
Markel LOL...right on. And there have actually been studies done on that "gay effect" in Boston and other cities too. The units tend to be bigger in other areas of the city though, so I think that's the issue. The SE was rehabbed by gay men who really didn't think of adding extra bedrooms for kids. JP is very family conducive, for instance.
Also the SE has the highest turnover rate in the city, followed by the Back Bay, btw.
Anyhow, that was a good rant
In these cases (i.e. where financially sound people have absolutely decided they want to ruthlessly default despite the negative credit implications), is it in the interest of the lender to actually have the home go to foreclosure or does the bank come out ahead (compared to foreclosure) by working out some sort of short sale agreement with the borrower?
Of course it is not in the lender's best interests to do what these people want! For the love of Peat!
You want to "ruthlessly" default? OK, welcome to ruthless lenders. Your voyage out the door will be made as hard and painful for you as the lender can make it. It's not about retribution; it's about deterrence.
The very least you can do to yourself is rack up a nice ugly 90-day delinquency that will fuck up all your credit cards, if you're playing the "ruthless" game. Whyever do you think a lender would willingly make it easy on you?
The issue here is not the "ruthless" part. It's that these people seem to think it isn't "default." Of course the lenders will take the position that they need to be reminded of that.
"What I am talking about is the situation where a home-owner has decided that they don't think it's in their financial interest to keep making payments on a mortgage that is worth far more than the value of the house, even though they have the financial ability to keep making payments."
Why on earth would a bank work with a borrower until they have demonstrated their inability or unwillingness to pay by going into default?
Why on earth would a bank even talk to a borrower who called up and said my house isn't worth the amount of the loan balance and I don't want to pay anymore, but I don't want a default or foreclosure on my credit record? I believe the response would be something like: "Sounds like a personal problem to me."
Your argument that it is in the best interest of the lender to do a short sale defies prior experience. If the lenders had a history of doing what was in their best long-term interest we wouldn't be in this mess.
Everyone in the industry has a role to play in how we got here! And I would agree that while the banks say they are eager to do short sales, they are not so eager that they answer in a reasonable timeframe-- I have had banks wait 12 weeks to give an answer! How can you sell ahome at market rate if the buyer is going to be expect to sit idle and wait 3 months for an answer on if they can buy that house or not?
I think the source of the belief that banks would want to work with a "ruthless short-seller" is the widley circulated, but mistaken, impression that the "mortgage contract" is essentially a contract whereby the bank agrees that if you don't pay the loan, the bank will take the house as satisfaction. Of course this isn't true for more reasons than I want to discuss (maybe a good post idea?).
I did write a post about that once, zaleriana, but it obviously didn't "take" for some people.
Calculated Risk: Options Theory and Mortgage Pricing
I like to imagine these people being confronted by their own teenagers:
"Dad, as I see it, you can buy me a brand new Corvette, or you can buy me this 2-year-old Beemer I'm looking at. The Beemer is obviously your less expensive option. But I'll have you know that I'm not riding that effing school bus now that I've got a license, so you're over a barrel, dude. Surely you will be rational and accept the least loss deal. Right?"
How naive do you have to be to expect a short sale when you have the ability to pay? Do you call up the bank and say:
"Hi, I borrowed $250,000 from you but I'm only going to pay you back $200,000 because the asset I invested that money is worth that much."
fuck up all your credit cards
Oh my. Tanta dropped the f bomb! At my last company, they used to bet on how many minutes it took me to do that in a meeting
baruza writes:
It probably won't sell at auction either. Most don't. They start bidding low, but there an unstated reserve price and that's rarely met. Then it goes on the market on as an REO and probably sells for even less. Quite the system they have going here.
Yeah, there's a lot of fishy stuff going on with Countrywide's REO auction merry-go-round. My business partner goes to those home auctions and says that several properties come back to auction during the auction. He's also been trying to keep tabs on some that do go through to see if they come back the next time, yup.
As I daid before, CW's REO list, which has leveled off at 14K for a few months is not a true reflection of what's going on with their REO. I guess we'll have to wait for B of A to turn over the rocks.
Woohoo! I'm tuning in for the next real estate Jerry Springer show!
Nice one Dryfly
At my last company, they used to bet on how many minutes it took me to do that in a meeting
That's why I used to just walk in the door, put down my coffee cup and notepad, and say "OK, I'm here for your fucking meeting." That got the First Manifestation out of the way early and freed up everyone's attention span for whatever of substance the fucking meeting was supposed to be about.
I did periodically get yelled at about obscenity. So I'd spend the next several weeks saying "Goshen!" and "Heavens to Betsy!" and "Fuzzy Baby Bunnies!" and stuff like that until they were so annoyed they'd tell me to fucking knock it off.
It's that these people seem to think it isn't "default." Yes, that certainly would seem to be behind this statement: "I wanted to save my credit rating, so I tried to arrange a short sale," Quinn said While I'd guess that a short sale is not as bad on your credit as a foreclosure (with or without a defficiency judgement) I certainly think that it would do some damage to one's fico.
Thanks for making me laugh Tanta! Has a familiar ring. A past job was at a hubris-ridden high-end internet consultancy. It had a HUGE Mormon contingency. When I said something like "gosh-darn" or "foolish" in a meeting, people would spit out their caffine-free drinks all over the place.
"Gee Willikers!" - I effin' loved that teenager analogy.
Stories from the foreclosure wars.
Here in beautiful South Florida, I have few ruthless defaulters. Until just recently. 2 in the last 2 days.
One put 30% down, and is still underwater I told him to make a few more payments in hopes that cramdown degislation will get passed.
One, as posted yesterday, really is gonna buy a new bigger house, and then let the little condo (with 4 people) go.
No lenders are asking for deficiency judgments yet. (And besides Carthage must be destroyed.) For reasons posted by me on numerous occasions.
A short sale IS market value. In fact in areas like this one, where virtually nothing is moving, it might be over future mkt value.
That said, when I was advising the guy who put the 30% down, what crossed my mind was, well, how low can it go by next year? How can we prove that it's really really low? So, if I who have an idea of what honesty is, start thinking like this vis-a-vis cram downs, how is everybody else going to react.
And truly, if a market is full of speculation and fraud, what is an honest appraiser to do? Mine has been known to call banks and brokers and realtors and ask what the skinny is on a strange looking sale, but if all the comps are outrageously high, who could the appraiser justify a low appraisal. Aside from the fact that they wouldn't get any more asignments from anybody.
"I did periodically get yelled at about obscenity. So I'd spend the next several weeks saying "Goshen!" and "Heavens to Betsy!" and "Fuzzy Baby Bunnies!" and stuff like that until they were so annoyed they'd tell me to fucking knock it off."
When this happens to me (and it does, frequently), I resort to Bug Bunny/Yosemite Sam expletives. Rassafrassen Whippersnappers!
That's why I used to just walk in the door, put down my coffee cup and notepad, and say "OK, I'm here for your fucking meeting." That got the First Manifestation out of the way early and freed up everyone's attention span for whatever of substance the fucking meeting was supposed to be about.
I did periodically get yelled at about obscenity. So I'd spend the next several weeks saying "Goshen!" and "Heavens to Betsy!" and "Fuzzy Baby Bunnies!" and stuff like that until they were so annoyed they'd tell me to fucking knock it off.
let's see...it looks like Tanta owes four more nickles into the swear jar, bringing the updated grand total to $3894.65.
That's what I love about this blog: charts from CR and snark from Tanta.
A problem with short sales that most people don't realize is that putting "contract subject to lender approval" or something similar in the listing instantly reduces the marketablity of a property. Most buyers just won't deal with the grief. And hence, it is rare that a short sale sells for market value, the ones that do sell end up selling for (guesstimate here) 10% under what they would if they were not subject to a short sale.
it looks like Tanta owes four more nickles into the swear jar, bringing the updated grand total to $3894.65.
Oh, that takes me back. The SVP of Servicing at a bank I worked for back in the day had a swear jar, only it cost a buck (even then).
I was in Secondary Marketing at the time. The servicing people would just walk down the corridor a bit and step into our area, emit a string of obscenities, sigh deeply, and then go back to their desks. One of our people--I think it was the pipeline manager--tried to collect a quarter from each of them, on the grounds that it "saved" 75 cents. As I recall, the pipeline manager was told to go engage in self-referential reproductive activity.
One of our people--I think it was the pipeline manager--tried to collect a quarter from each of them, on the grounds that it "saved" 75 cents. Now THAT'S loss mitigation!
the pipeline manager was told to go engage in self-referential reproductive activity.
Hey, that's nothing to joke about. Recent studies have shown that most self-abuse goes unreported.
iPodius:
You really hit the nail on the head with your nonlinear vs linear mindsets!
As I am actively involved in REO issues at a well-known institution, I can tell you that the REO disposition system is nearly FUBAR and highly dysfunctional.
Here's a quick view of the "process":
So this thing is a fuckin' racket. On one hand you have the linear, paper-pushing, robotic clock punchers who couldn't do a deal if their life depended on it. On the other, you have the "contractors" cleaning up on the largesse; even though the contractors themselves suck but are just "on the list" so the shit is just handed to 'em. A little REO monopoly.
Who couldanode that REOs could resemble the Iraq war model?
Operation Enduring REO Hucksters
My view from the frontlines - the shit is out of control. Why else are CW and IndyMac not even reporting their REO numbers anymore? There is a HUGE amount of "phantom REO" inventory in the wings. I am shocked, SHOCKED I tell you that, that the property strippers haven't caught on to the huge dismantling opportunity out there. There are tons of vacant properties that are just sitting ducks. I know some get hit, but I'm amazed how many have NOT been hit... yet. Business opportunity alert for the felonious minded. Damn my probation!
We gots a ways to go in this thing and I laugh at the sanguine remarks about how the worst is over.
And while I'm at it, since when did "loan" become a verb. To my generation of contract draftsmen, "loan" is a noun and the corresponding verb is "lend".
In my part of the woods, lend is spelled borrow, as in "Hey George, borrow me your tractor so I can plow the road." (yes, it is snowing at the moment)
We also go "up to town" even there is no elevation change in the entire 5 mile trip.
I did periodically get yelled at about obscenity. So I'd spend the next several weeks saying "Goshen!" and "Heavens to Betsy!" and "Fuzzy Baby Bunnies!" and stuff like that until they were so annoyed they'd tell me to fucking knock it off.
What, you never heard of " Oh Fetch!!!"? which does not refer to getting the ball your master just threw...
Oh, that takes me back. The SVP of Servicing at a bank I worked for back in the day had a swear jar, only it cost a buck (even then).
I read that the actress Loretta Young hated cussing and kept a swear jar on every movie set and stage where she worked, trying to encourage people to keep their speech pure.
One day, Ethel Merman was visiting the set of one of Young's movies. She stuffed a bill in the jar and said "Here's five bucks, Loretta. Now go **** yourself."
The tenacity of seller denial be they lenders or the average joe trying to sell a home, is a key reason why real estate busts take so long for price corrections.
Documented though out history is this tenacious denial. It is only after years and forced liquidations bringing down comparable sales do we finally get seller capitulation.
Real estate agents don't seem to get it either. They still seem to offer all sorts of free advertising and otherwise free of charge services to unrealistic sellers. I am telling real estate agents to ignore sellers and focus on buyers. Sellers will just waste their time and money.
John Stark
If Loretta actually did that, it would be one of the more hilariously hypocritical bits of faux-moralism I've read in some time, e.g.
A. Swearing on a movie set - anathema, must be fined!
B. Boinking Clark Gable and bearing his child, while telling everyone said child was an adoptee -- A-OK!
I don't know whether I should blame it on Hollywood or the Catholic girl in her. Either explanation seems to work.
I am a realtor in arizona and we have seen the bottom in the real estate market. The realty market will soar in 09
Hi-- newbie here; please be kind! Thought i'd throw in some short sales info from my area--Norfolk VA. Big housing bubble here also, but largely underreported by media, who always seem to focus on the DC bust when speaking of VA.
Anyway, I've heard/read that local lenders are only agreeing to short sales IF the seller is, and stays, current on the mortgage. Meaning, sellers who know they'll soon be unable to make the note are urged to contact their lender to "work something out". Lenders then offer the short sale carrot--"if you stay current, we'll allow a short sale & you'll avoid the credit ding of foreclosure."
Deluded seller agrees, & scrapes up the monthly payment for as long as they can while house sits on the MLS. Tho potential buyers make offers, they give up in disgust at glacial pace of lender's "approval". Well, there's no incentive for lender to hurry up & accept a lower bid as long as the mortgage is still being paid, right? Why would they?
This dance goes on till seller runs out of money, & then lender forecloses anyway.
Is it cynical to suggest that lenders keep short sales dangling,until such time as they wish to take the accounting write-off? (I've read this has something to do with GAP-- that foreclosures must be a "loss", while short sales drop earnings per share, or something.)
Also, may I ask dumb question-- Why is it conventional wisdom that foreclosures are such a big loss for banks? Cuz it seems like a perfect self-serving circle to me-- most RE agencies have "partner lenders" who loaned/"lent" the money to the uncreditworthy buyers the RE agents lured in. Well, when that loan goes into foreclosure-- as the buyer's poor FICO so presciently predicted it would-- then the lender takes the house back & lists it as a rental with that same "partner" RE agency's property management division. Banks can afford to hold onto the properties as rentals, & take some tax advantages, till the market rises, can't they? And when when/if it rises, they can divest their rentals at increased FMV, rather than dumping them now for lowball offers in a glutted market, right??
Suzuki Samurai, you Bensonhurst piece of shit!
zuzu - foreclosures are a losing proposition for lenders, it doesn't matter if they are literally 'boinking' the RE agent who brought in the borrower.