I was talking to my hunny bunny today about the mortgage crisis. You see, we’re not having a crisis. We have our house for sale because we found a house that we really love and want to buy. However, in order to buy it, we have to sell this one first. So we’re trying to find a buyer… (Notes: I use bank and lender interchangeably here so deal with it 🙂 )
So that started a whole discussion about finding a buyer. And why we’ve been on the market for so long without any solid offers. Oh, we’ve had an offer. But they gave us some low-ball figure – offering less than I owe and significantly less than I can afford to accept – because that was all they could approved for. The family really wanted the house and the even though the man owns his own concrete business and even tried to collateralize both his business and just his equipment, he wasn’t able to get enough of a mortgage to make the purchase. Despite having many thousands of dollars tied up in equipment for his business (trucks, etc.) and offering his unencumbered equipment as collateral for the loan, he was only able to get approved for $140,000. The bank wasn’t interested in using his equipment or his business as collateral and refused to consider it.
Given our rotten experience with our real estate agent, we started discussing some of this. My hunny bunny is a lawyer and so he’s got some other insights into the process. His first complaint is that there is no – meaning NONE – advocate for the homeowner in the foreclosure process. There’s not any part of the mortgage contract that protects the home owner from any kind of a temporary hiccup. You have a 30 year contract in which you are not allowed to miss a single payment due to illness, job loss, or any of a number of other circumstances which may be beyond the control of the home owner. Its very draconian – miss a couple of payments and we take your house.
Some states have instituted a mandatory arbitration prior to foreclosure and that’s something that I’d like to see here in Texas. It does several things for the housing market. Lots of people are afraid to buy foreclosures because they’re worried that the foreclosure might have been conducted improperly and may result in them being forced to give the house back in the future. Having a mandatory arbitration prior to foreclosure resolves that fear and it will help the banks move their inventory of foreclosed properties. It also helps keep people out of foreclosure. One of the things I honestly expect to see are some class action suits against some of the banks because they’ve robo-signed people into foreclosure without offering them the alternative financing they should have and which they are now LEGALLY required to do.
The next step is to send the file to lawyers to start the legal foreclosure proceedings. In many cases, once the file gets sent to the attorneys for processing for foreclosure, the attorney will actively dodge the home owner so that they can go to court and testify that they have not been contacted by the home owner. There are many many documented cases of this from too many places to ignore and pretend that this doesn’t happen. Why? Because if the foreclosure doesn’t actually happen, the lawyer doesn’t get paid. Like the rest of buying and selling real estate, he is financially motivated to screw the home owner over. Even attorneys for the home owners often are unable to “contact” the foreclosure attorney despite threats of disbarment complaints, etc. And having mandatory arbitration would short-circuit this process by giving the home owner a chance to request that the payments be moved to the end of the note, request an adjustment in the interest rate, etc. This would also reduce the inventory of bank owned properties on the market.
You would think that this would benefit the lender some how, yet when we look at it. it doesn’t in any obvious ways. Even when the real estate market was “hot” (pre-bubble bursting) banks still lost money on foreclosing vs working out a creative deal to allow the home owner to keep the house. So why do it? Why not work out a refinancing agreement? Well… That brings us to the next part of the problem – real estate agents.
My hunny bunny has been through the entire short sale process from both sides of the table. It’s not pretty. You hire an agent who has to do a lot of work to convince the lender that your house is indeed over valued. You have to convince your lender that you can’t make the current payments. The agent (who still gets a 6% commission BTW) will list the house and try to drive traffic in order to generate an offer. In my hunny bunnys case, once the first offer came in the real estate agent felt like his job was done and became resistant to trying to generate any other offers, possibly higher offers or in the best of all possible wars, creating a bidding war.
In the case of bank owned properties, the real estate agents kind of suck. I have eschewed a buyers agent after our experience with the in-DUH-vidual who listed my house. I’d rather deal with the seller’s agent directly. I am, after all, perfectly capable of downloading the NTREC forms myself and filling in the blanks to make an offer, etc. Quite frankly, if the in-DUH-vidual who listed my house can be a real estate agent, I feel quite capable. Having looked at the forms, I feel even more confident in my ability to check boxes and fill in blanks. Hells Bells, any 4th grader that can bubble in a Scan-Tron and play Mad-Libs can handle this. The language isn’t that hard to understand. The fourth grader might need a dictionary for some of the words, but that’s the biggest hurdle I see.
Here’s the real kicker. We found a house we wanted to pay cash for. It wasn’t in good shape but it was in a nice area. It looked like an ideal candidate for us to test our reno skills and maybe get some new ones. So we made an offer on it. Normally, the seller’s agent would split the standard 6% commission with the buyer’s agent so that the seller’s real estate agent and my real estate agent would each get 3%. However, since I have decided not to use an agent, I asked for the 3% that the seller’s agent would get to be applied to the purchase price of the house. I was told when I ask for a 3% discount on the property that the realtor will be keeping the entire 6%. I wave the bull shit flag on this because I’ve done everything that the buyer’s agent should except go take the class and get my real estate license. I don’t see why I can’t have the 3% as a discount either off my closing costs or something else. So I told the real estate agent “Good luck in finding another cash buyer” and walked.
Too many of the real estate agents I see on these bank owned properties don’t want to be bothered with showing them. We tried to look at FOUR houses on Wednesday. Magically, there wasn’t a single real estate agent in several of the list offices that was available to show the houses. Ok, so this is the Wednesday before Thanksgiving, but guess what? It is still a work day for 90% of America. I just happened to burn a day of leave to have a “stay-cation” with my hunny-bunny. Now, none of these are expensive houses, but again we’re looking for something we can cut our reno teeth on. One of our criteria is to find a house that we won’t be able to hurt very much should we totally f*** something up.
Then you have the real estate agents who list a $150,000 house on the market with 4 photos none of which show the interior or any outbuildings. You get more photos when you go to buy a $15,000 car!! I don’t care if its rough. Photograph it and let me see just how rough it is. I might still want to see it. Add to that the fact that they don’t want to return phone calls or emails or get off that fat a** to show the place because it’s bank owned. Since it’s bank owned there isn’t someone breathing down their necks to get more showings, find a buyer, etc. As absolutely LAZY as a lot of these agents have become, I suspect that come this time next year, they won’t be real estate agents.
Taking 4 photos and parking something on the MLS might have been enough to sell it 2 years ago. Now… That just doesn’t fly. You have to work to sell stuff. Qualified buyers just don’t come popping out of the wood work. And the new mortgage restrictions are unreal. If your credit score isn’t 700, they don’t want to talk to you. And to get a credit score of 700 or better pretty much means that you ALREADY have a mortgage and probably won’t qualify for another. Depending on how much equity you have, you might be able to refinance your existing house, but you won’t be able to buy a different one without selling the one you’re currently in first. Which means that no one is selling anything despite the absolutely ridiculous rates right now.
So the banks are sitting on a huge and ever growing inventory of houses waiting for the market to pick back up so that they can sell them off. It’s the same business model that the “Tote the Note” car lots work on. We’re going to sell you something that’s over priced to start off. We’re going to charge you a ridiculous interest rate for it. When you miss a payment, we’ll repo it. Once we have it back, we sell it again. By the time we’ve sold it a few times, we’ll be profitable just from the down payments. Any payments we’ve gotten will be gravy.