Banking practices need a closer examination
Since my column on Tuesday about how banks are screwing up the housing market, I've received some interesting responses with some possible explanations. Banks are holding onto to "under water" property despite reasonable offers from prospective buyers because banks can make money (what a surprise) by doing so.
Here are some:
Your article is spot on. As a real estate attorney in Illinois for over 17 years I am amazed on a daily basis at how slow to act/respond the banks have become with respect to short sales.
I will tell you the truth that the banks do not want you to know:
When a house is foreclosed on by a bank, and when the "fault" of the foreclosure is the homeowner the banks simply cash in the "no-fault" insurance they bought to protect them from a homeowner default. The bank recovers 80% of the original note from their insurer. They then foreclose and take the property. Eventually they will sell it at a "loss" by selling for half of original mortgage. They basically get 130% of the original value AND they get a government incentive for removing a bad loan from their books. They also get to depreciate the "loss" they incurred by selling the house under market. This just crushes the local area values even more.
We have been duped and scammed by the powers that be into believing the banks would actually help anyone other than themselves.
If that doesn't open your eyes and make you angry, then here's another:
Correct me if I am wrong, but doesn't the government guarantee the banks a stop loss figure on the original loan? In other words, the government covers a certain percentage of the total loss in the event of a non performing loan. If so, and I think that is correct, there is no incentive for the bank to unload these toxic assets since no matter what happens to the home they get paid. I ran across this here in California where a bank (OneWest Bank) would not sell a asset at a reduced figure since the government was paying the interest in the original loan amount and guaranteed the bank no more than a 20% loss on the original loan as well. We made an offer to purchase a property but the bank refused stating it was not in their best interest to sell rather to wait until the government stop paying the loan. So, no one can buy this property as long as the government is involved and paying monthly interest which stagnates the entire real estate market further deepening the recession. In another case, which I was not involved in, the original loan was $ 20 million dollars for a piece of land which had been foreclosed on. A new buyer offered $ 18 million to purchase the site but again, the bank refused to sell. Same situation as above. It appears that the federal government is causing more harm than good and in the same breath subsidizing bank profits at the expense of the taxpayer.
How true. Your article is spot on.
My big question is: Why are the banks selling the foreclosures at such ridiculously low prices???
I am a Realtor in Elgin. Homes are going for $30,000.00 and such. There over 150 homes priced below $100,000.00. and many lower than $50,000.00???
AND real estate taxes are not affected by these lower prices. The county will not recognize this, so taxes are still high. But get an appraiser out and they DO look at recent foreclosure sales to determinethe value of homes.
We can't win!
Dennis -- Good article on the banks today. In conversations with multiple family and friends that have been engaged in short sales in the last couple years. the turnaround time required by the bank truly befuddles me. It takes them 6 minutes to underwrite a new loan, but 6 months to make a decision on a short sale. Most banks would say that this is due to a huge backlog of requests. Well, wouldn't it make sense to hire a few more people to process those requests? In a real estate market that most financial minds (including said banks' own "experts") speculate will, at best, be flat for the next few years, if not continuing to trend downward, it does not take a rocket surgeon (sic) to conclude that it would be behoove all sides to process these requests quicker. Another example of penny wise, dollar foolish.