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Housing help still comes up short
Yet another government intervention into the housing market is about to begin. As we reported on the Marketplace Morning Report, beginning in April, the government will provide funds to banks and homeowners if they do a short sale in lieu of foreclosure. Like the mortgage modification program, this has little chance of succeeding.
Our New York reporter Alisa Roth describes short selling and the government's program:
Roth: The idea of this latest plan is to encourage homeowners accept a short sale. That's where you sell the property for less than the amount that's left on the mortgage. So to do that, the government says it'll pay $1,000 to the bank that's in charge of the mortgage. If there's a second mortgage on the property, the government will give up to $1,000 to the bank that holds it. And finally, it'll pay the homeowner $1,500 in what it's calling relocation assistance.
Perhaps some homeowners will appreciate a little moving money and the peace of mind that comes with getting the house sold instead of the impending doom of foreclosure. The problem is -- the banks just aren't that interested. Short sales are extremely labor and paperwork intensive. Plus, banks will only accept so much of a discount, while homebuyers are looking for a much lower price. More from the New York Times:
In many cases, big banks do not actually own the mortgages; they simply administer them and collect payments. J. K. Huey, a Wells Fargo vice president, said a short sale, like a loan modification, would have to meet the requirements of the investor who owns the loan.
"This is not an opportunity for the customer to just walk away," Ms. Huey said. "If someone doesn't come to us saying, 'I've done everything I can, I used all my savings, I borrowed money and, by the way, I'm losing my job and moving to another city, and have all the documentation,' we're not going to do a short sale."
And the banks -- one in particular -- seem woefully unprepared for a wave of short sales. From the Orlando Sentinel
The chairman of the Orlando Regional Realtor Association, Kathleen Gallagher McIver, said recently that Bank of America has the worst record for expediting short sales, "and there's not anyone out there who will tell you otherwise."
Bank of America acknowledges it needs help with its short sales.
"We clearly recognize the need to improve the short-sale process for both our customers and the real-estate professionals who are critical to a successful transaction," said Jumana Bauwen, a bank spokeswoman.
B of A is working on it. But if the mortgage mod program is any indication, the short sale program has little chance of making a difference:
Clermont resident George Simmons said he is now totally frustrated, having tried for more than a year to get Bank of America to convert a series of trial modifications into something permanent.
"Let's see, the last correspondence I had from them said they didn't have my income-tax return and my Social Security records," Simmons said. "I sent it to them so many times. I've got my fax receipts and my certified postal receipts. They just keep asking for the same paperwork over and over and over again."
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I love this, "If someone doesn’t come to us saying, ‘I’ve done everything I can, I used all my savings, I borrowed money and, by the way, I’m losing my job and moving to another city, and have all the documentation,’ we’re not going to do a short sale."
If this does not illustrate the banks' obstinate sense of entitlement and feeling that they are innocent bystanders in this mess and that they are justified in their near stand-still efforts to help resolve it then I dont know what to expect next.... seeing banks become property management companies??? oh wait! They ARE property management companies!
I read an interesting article from the Journal of the American Enterprise Institute about why there have been no bank failures in Canada. I'd say maybe we could learn a little something from the frozen folks up north:
http://american.com/archive/2010/february/due-north-canadas-marvelous-mo...
I think it was a NPR story I heard a while back on this topic. To summarize, the story consisted of Canadians that couldn't afford housing. They said that prices were quite high and that reasonable down payments were require to purchase a house. Would that fly in America? It seems to me our government/voters likes to put poor people in housing.
Ned, thanks so much for the great link. So much of it is good advice, and yet so much of it is typical AEI.
Point 8, mortgage origination from brokers, is a huge one that I agree with independent of the other points, however it is in stark contrast to point 6, where they try to rail against the CRA once again.
Brokerages, such as Countrywide, were not thrift institutions and therefore not governed by CRA. Countrywide and their peers underwrote bad loans of their own volition, not because of CRA.
Secondly, CRA was already becoming outdated in the 90's with the interstate banking act and internet-originated lending. Since then, one no longer required a bank in their community to get a bad loan.
Just when I thought that this article was purely pro-bank speak, I re-read a line that I thought was brilliantly qualifying: "Below is a summary of some of the distinctly different features of Canada’s banks and mortgage markets".
Hah! Distinctly different, sure, but not prime in causation! How else could you write an article comparing banking systems and omit leverage requirements?
Which leads to a thought I had, maybe the banks could get together and help people move from one "underwater" house to another if they need to move to get a job.
A slightly different sort of "credit swap," so to speak.
They could create an exchange market to trade homes and the end result is that people might actually start paying again once they got a better job by moving.
Okay, I hear the laughing, but it isn't any worse than the idea in this article, is it?
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