Our Sucky Real Estate Market

Los Angeles, Ca. --Everyday the news media talks about the sucky real estate industry. Headlines such as “Mortgages 30 days in arrears rise”, “Job scarcity raises foreclosure risk” and “Mortgage delinquencies up” vie for our attention. Because nobody seems to have a clue as to how to fix up the mortgage mess, here are my three ideas to help fix the muddle and jump-start the economy.

First: Penalize kiss-assy lenders who take forever to approve a short sale. If a server seated you at a table in a restaurant but then didn’t wait on you for 30 minutes, what would you do? You would probably leave. Then the restaurant would probably go out of business. It’s the same thing with a short sale except that it often takes months for a buyer to get an answer from the bank – usually by then, the buyer has found another house. Penalize the lenders who take over 60 days to get the short sale approved. I have one transaction right now where the buyer and seller have been waiting since September 2009 – and this is using a professional negotiating company. I won’t mention the name of the bank but they do have a TV commercial where a happy couple zips along on a boat earning extra “Saphire” points on their credit card.

This kind of waiting stinks – especially when this same lender boasts about their quick “Desktop Underwriter” software which allows them to underwrite a loan in ten minutes or less. Why can’t they figure out similar technology for a short-sale? For those of you who haven’t heard of a short sale, a short sale happens when the bank agrees to accept less than what is owed against the home. The lender benefits because they don’t have to evict an owner or worry about the empty house being destroyed by vandals. In effect, a short sale offers the market a “softer landing” because neighborhoods stay vibrant and buyers are paying current market value for the home when the offer is made. Therefore, penalize lenders who take too long to approve or disapprove. Make them hire more staff. That will help the sucky economy and create more jobs too.

Second: Penalize the banks who refuse to cooperate with other banks to finalize a short sale. Many homeowners purchased homes using two banks: one that was happy to provide a 20% down payment and the other happy to provide 80% of the financing. But sometimes the two banks refuse to cooperate with each other. Their “bank policy” states that the maximum they can pay the other bank is two thousand dollars so the other bank has to eat a loss of $99,000. Just make a rule that the second lender will get 10% of the amount. Most people might assume that the bank that is second in line stands to lose everything, they should take any bone thrown to it. Sadly, banks fight over small amounts that range from $4,000 - $6,000. And if the buyer agrees to pay a little extra, say $4,000, to satisfy one of the banks without the other bank knowing, that buyer might be liable for a crime called “defrauding a lender” as by law, th