The Local Foreclosure Market / Bankers View Point

[asphaltgambler]

This blog; posted today is from an agent that I know, who is also very good at her j-o-b. The house in question is in the Northern Va area. Interesting stuff

" Sad Ending"
Date: Feb. 25, 2009
Tags: Short Sale, Foreclosure, Fauquier County, Bank, Lender, Vandalism, Vacant House

"A smarter agent/blogger would no doubt have waited to write this blog. Emotions are still pretty raw.

I learned today that a house I have listed for sale in Fauquier has gone into foreclosure.

We've had this listed as a short sale for at least seven months. For slightly less than six months we've had an offer on the table, an offer very close to what the bank's own BPO came in at. We've been unable, despite daily phone calls, to get the bank to move forward with that offer.

In the interim, as the house has sat empty, it's been repeatedly vandalized. The first incident resulted in the theft of both heat pumps. The most recent theft involved copper plumbing and the water heater.

And, over these six months, property values have continued to decline.

The bank is now sitting on a property worth substantially less than the offer they had in their hands.

The owners will have a foreclosure on their credit record rather than the short sale that would have been less damaging.

The potential buyers have wasted all these months and so many hopes and dreams on a house they won't be buying any time soon.

I'm out many months of work for no compensation at all.

And, it didn't have to work this way.

This is the first short sale that I haven't been able to get to settlement. I'll admit to being angry as well as sad.

Would I take another short sale where this same bank held the note? Absolutely not! Will I be warning other agents about dealing with this particular bank? Of course!

If there are days I seem less than sympathetic to the losses being suffered by many financial institutions, here's a good reason why. "

[126coupe]

So what bank?

[911Freak]

This example hits the nail on the head as to why in this current market short sales are very risky.

Risky to the home owner, R/E agent and prospective buyer.

The Banks just don't get it.

Out here in SoCal, we stay away from the short sales like the plague! It's bad enough getting a REO asset manager to pass along a real offer to the REO Bank and receiving a response in reasonable time. Just stupidity on the Banks part.

On the other hand, our "REO pool" business is booming, the banks can unload these non-performing loans off of their books, and be done with it. They get their money, and move on. New buyer of the auctioned home gets a great deal and the home is back in the hands of a homeowner who can make a commitment to revitalizing that home and eventually the neighborhood.

Unfortunately the Banks don't care about anyone involved with the short sale process, seriously!

I feel for your invested time and energy gone to waste. It only took my similar experience to learn never to deal with short sales again.

I hope the buyer found a decent home.

We are in uncharted territory folks, anyone who thinks they can forecast whats going to happen is just kidding them selves and anyone who takes them seriously!

Best of luck to you in your future deals.

[Danimal16]

If the short sell is going to cost the bank a lions share of the principal, why don't they just do a principal reduction with the current owner and save all of the time. It will be a loss for the bank anyway you look at it. Can someone please explain that too me?

[911Freak]

Originally Posted by Danimal16

If the short sell is going to cost the bank a lions share of the principal, why don't they just do a principal reduction with the current owner and save all of the time. It will be a loss for the bank anyway you look at it. Can someone please explain that too me?

57% of loan modifications end up in foreclosure anyway, so as far as the Banks are concerned whats the point to delay the inevitable.

As far as their concerned it's better to just blow it out off of their balance sheet and let someone else clean up the mess.

Do I agree, not totally, but that's todays reality

[Danimal16]

Thanks 911Freak,

It helps but it seems that if they were to quickly write off the loss that it would eliminate the cost of the foreclousure proceeding which has got to be a chunk of change. This would seem to me to stabilize the market? Has any banks ever tried this? And what has been the outcome? I am sure there is way more to this than an engineer understands. So what say you financial guys? Educate me?

[GDSOB]

I call BS. Someone isn't coming clean on this. Sometimes it is the bank, but they are very motivated lately.

We list a lot of REO's and as a set fee broker, we end up with quite a few short sales.

These deals get locked up for many reasons - first mortgage, second mtg, or Mortgage insurance companies can't get the deal done. Seller could be lying about bank accounts, assets or not getting the paperwork done as requested. Or maybe the agent can't follow directions.

I hate realtors. Well, most of them.

Big bad bank. Bad bank.

[turbo6bar]

Banks act irrationally. I hate it passionately, but it's not my fault they like to lose money.

[Rick Lee]

Originally Posted by 911Freak

57% of loan modifications end up in foreclosure anyway, so as far as the Banks are concerned whats the point to delay the inevitable.

Yup. There's a saying in the biz. "Good loans stay good. Shaky loans only get worse."

[jyl]

Different types of loan modifications are being done. The ones that merely reduce the interest rate and leave the principal unchanged or even increased have a high repeat default rate. The ones where the principal is substantially reduced have a lower repeat default rate. Most of the banks have been unwilling to substantially reduce the principal. Remember the program during the last administration where the govt would guarantee the modified loan if the bank cut the principal, and the bank would also get a share of future appreciation? It went nowhere, banks were not interested. I've never understood the mentality, when they are suffering 50 pct losses on foreclosure sales. I realize in many cases the servicer has no incentive to compromise.

[djmcmath]

We were the above-described buyer, twice. We put in our offer -- which was certainly fair, for the neighborhood, condition of the house, etc., and were ignored for months. One bank wouldn't even return either Realtor's phone calls. It was bizarre! Glad to hear it wasn't just us.

Dan

[Big Ed]

Some banks "get it", but a whole lot of them do not. I have a deal I'm trying to piece together for a short sale, been working on it so far about 6 weeks. Bank has not been paid a dime in 7 months -- and owners have moved out. A fair offer is in hand, ready to go. I have been authorized in writing by the sellers to speak to their bank...the bank has acknowledged in writing that they will speak to me about a short sale. "A loss mitigation specialist will be contacting you, thank you for your patience." I've called everybody at this bank repeatedly, I simply cannot reach a decision maker.

Let's also rewind to November 2007. I had a 4 family rental listed for sale, bank was owed about $225K. Place was full, all tenants were paying (owner was pocketing the rents). The place was foreclosed during my listing. Immediately after foreclosure, one of the investors I had showed it to decided he wanted it, and put together an offer of $215K, close in 30 days, wanted all the tenants to remain.

Forwarded the offer to the REO agency who was going to be relisting the property (my listing cancelled automatically at foreclosure). Agency forwarded offer to bank, who refused to consider it -- "we must evict all the tenants and conduct a formal appraisal before we'll consider any offers". Are you $hitting me? As it would happen, that same property is still available today, currently listed at $130K and will probably sell for much less than that. But at least they got those pesky tenants out and got to properly appraise their asset.

[m21sniper]

Originally Posted by Big Ed

Some banks "get it", but a whole lot of them do not. I have a deal I'm trying to piece together for a short sale, been working on it so far about 6 weeks. Bank has not been paid a dime in 7 months -- and owners have moved out. A fair offer is in hand, ready to go. I have been authorized in writing by the sellers to speak to their bank...the bank has acknowledged in writing that they will speak to me about a short sale. "A loss mitigation specialist will be contacting you, thank you for your patience." I've called everybody at this bank repeatedly, I simply cannot reach a decision maker.

Let's also rewind to November 2007. I had a 4 family rental listed for sale, bank was owed about $225K. Place was full, all tenants were paying (owner was pocketing the rents). The place was foreclosed during my listing. Immediately after foreclosure, one of the investors I had showed it to decided he wanted it, and put together an offer of $215K, close in 30 days, wanted all the tenants to remain.

Forwarded the offer to the REO agency who was going to be relisting the property (my listing cancelled automatically at foreclosure). Agency forwarded offer to bank, who refused to consider it -- "we must evict all the tenants and conduct a formal appraisal before we'll consider any offers". Are you $hitting me? As it would happen, that same property is still available today, currently listed at $130K and will probably sell for much less than that. But at least they got those pesky tenants out and got to properly appraise their asset.

See, now me being me, i would call that bank and taunt them at least once a week over their brilliant business sense.

[David]

I don't condone what the banks are doing or not doing, but there seems to be a catch-22 for them.

They way I understand it, if they start writing down a bunch of loans, they will have to write down all their loans which are upside down. Sort of the whole mark to market issue.

This would have the effect of dramatically reducing their already beat down asset portfolio.

So essentially they're damned if they do and damned if they don't.

[jyl]

No, if a loan is nonperforming it has to be charged off regardless of how other loans are treated.

I don't condone what the banks are doing or not doing, but there seems to be a catch-22 for them.



They way I understand it, if they start writing down a bunch of loans, they will have to write down all their loans which are upside down. Sort of the whole mark to market issue.



This would have the effect of dramatically reducing their already beat down asset portfolio.



So essentially they're damned if they do and damned if they don't.

[turbo6bar]

Originally Posted by jyl

No, if a loan is nonperforming it has to be charged off regardless of how other loans are treated.

True, but if the principal writedowns are done, there is probably great risk of insolvency. They do not have the type of reserves necessary to handle the carnage in CA, FL, and other bubble areas. The banks need a sugar daddy. Otherwise, they have to play tough and try to survive. I agree it is a catch-22 situation.

The federal government is playing the only card available: push this mess down the road and hope inflation saves the day.
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I've noticed new foreclosures in very nice neighborhoods (suburbs, crime-free, good schools), but with the retail buyer locked out or disinterested, the prices must fall a lot. They simply will not cash-flow or pencil out using any rational methodology, so the spread b/t investor bid price and asking price is wide.

[jyl]

From another thread, my observation

"The banks in the news are the big ones, C BAC JPM etc. I recently looked at some data for various small cap banks. Loan loss reserves, chargeoffs, composition of assets, capital ratio, etc. I am not a banks expert so take this with a pound of salt. But this is what I think I saw. The typical small cap bank has loan loss reserves equal to a year or two of current chargeoffs, meaning if their loans and investment securities keep going bad at the current rate they will have to raise their reserves in a couple quarters to a year and a half. Most of them are not terribly far from minimum capital levels, so would probably have to raise more capital in that event. About half of their assets are C&I and CRE loans, maybe a tenth to a fifth is investment securities. Default rates on C&I and CRE has been rising rapidly but is still well below the peaks of 1991. Implies chargeoffs will continue and, my guess, accelerate which could accelerate the need for additional capital. Most of these banks are cut off from equity capital at this point. The TARP money helped many of them rebuild their loss reserves and capital ratios, but that was a one time help. Bottomline, to my non-expert eyes it looks like many of these small cap banks will go below minimum capital ratios and be forced to close or be fire-sold. None of them are "too big to fail"."

Absent more govt help, that is.

Originally Posted by turbo6bar

True, but if the principal writedowns are done, there is probably great risk of insolvency. They do not have the type of reserves necessary to handle the carnage in CA, FL, and other bubble areas. The banks need a sugar daddy. Otherwise, they have to play tough and try to survive. I agree it is a catch-22 situation.

The federal government is playing the only card available: push this mess down the road and hope inflation saves the day.
------------------------

I've noticed new foreclosures in very nice neighborhoods (suburbs, crime-free, good schools), but with the retail buyer locked out or disinterested, the prices must fall a lot. They simply will not cash-flow or pencil out using any rational methodology, so the spread b/t investor bid price and asking price is wide.

[asphaltgambler]

She did not mention what bank it was..................................... I asked