Jobs, Supply, and Demand alone DO NOT Solve Housing Crisis

We are avid watchers of Fox News.  Consistently, they refer to how the “mainstream” media fails to report the entire story of relevant news.

Yet Fox News, just like virtually every other media outlet, always seem to have the same usual suspects of real estate “experts” on, “enlightening” their viewers about the housing crisis.  Frequently, we’ve heard the poor real estate market is because of:

1. Too much supply.
2. Not enough demand.
3. High unemployment.

With that, most of these same “experts” are “convinced” that the housing market has reached near bottom, and that we’d be foolish not to take advantage of such an exciting time to buy.   We watched with amusement as one person told Matt Lauer on NBC that real estate has all but recovered because there is much larger attendance at open houses.

Using Seth Meyer’s and Amy Poehler’s “Weekend Update” Line, we say “Really?”

1.  Really?  Then explain the 36% decline in real estate values when a property becomes a foreclosure using the supply and demand  model.

2.  Really?  Then explain the 36% decline in real estate values when a property becomes a foreclosure using the “high unemployment” model.

3.  Really?  Then explain the $80 Billion lost in real estate values when a property becomes a foreclosure using the supply and demand model.

4.  Really? Then explain to me how we can use a supply and demand model in real estate when the supply number is UNKNOWN.  Yes….we refer here to the “Shadow Inventory” of foreclosure properties that are owned by banks and not yet released to the market.

The public, the homeowner, and the taxpayer have been burned plenty in the past on how banks granted mortgages at inflated values.  They’ve been burned again in the “robo-signing scandal”.  Why?  Because they did not fully understand the implications, and the media does not understand it, so they don’t report it.  History has a way of repeating itself.

This is EXACTLY what is happening in our current housing crisis.  The public does not understand all the factors driving real estate values down.  The media is not reporting on it, because they don’t understand it, and have failed to introduce people that can tell the entire story.

As we have been contending for some time, the business practices of HOW banks sell their distressed properties are a major contributing factor to the real estate crisis.  Until these business practices are understood, addressed, and fixed, this is a perpetual $80 Billion annual problem.

The Keystone Cops Have Now Infiltrated Foreclosure Sales

A property was under contract, and the buyer wanted to switch financing from Conventional to FHA.

The seller approved this request.

In a normal and sane world, the process would be easy:

1.  Draft an addendum.

2.  Both parties sign.

3.  Addendum is attached to contract.

Note: This process should take minutes to complete.  Few people are involved.

In the world of foreclosure sales, here is what one recipient of tax payer bailout money demands:

1.  Orginal offer has to be “canceled” in their system.

2. Since the old offer was “canceled,” the agent must complete a new broker price opinion.

3.  Since the offer was “canceled,” the agent must sign an extension to their listing agreement.

4.  Since the offer was “canceled,” the agent must upload a new copy of an updated MLS.

5.  Since the offer was “canceled,” the agent must field calls from prospective clients about this “newly active property,” during the time the “new” contract is processed.

6.  Buyer must sign owner occupancy documents not needed on the “canceled” transaction.

7.  Listing agent must submit a “new” offer changing only the terms of the financing of previous transaction.

8.  Seller will generate “new” addendums upon “approval”

9.  Listing agent will generate “new” addendums.

10.  Listing agent will uploaded “new” contract, consisting of the old contract with an amendment changing the financing from Conventional to FHA.

11. Property will new be switched in the “system” as “under contract.”

Note: This process takes many hours of paperwork, touches two to three times more people than it should, and will take days to fully complete.

As you know, last year we had 830,000 foreclosure properties sold, representing 1 in 4 transactions.  How much lost time, productivity, sales, and process was evident here.  This is but one example.

This, our friends, is Keystone Cops personified.

Burying Our Heads In The Sand

There has been a lot written lately on the epic failures of the loan modification programs.   One of the most common is the “Home Affordable Modification Program,” or  HAMP.  These were created in theory to help homeowners stay in their homes.

Not too long ago, the public was faced with the “robo-signing” scandal.  Banks were signing foreclosure documentation in ways that side stepped process and placed into question the validity of some of the foreclosures conducted.  The states and the fed have been intimately involved in this.  Among the findings, DS News reports that services were “unprepared for the record number of loan delinquencies brought on by the housing bubble burst…servicers have relied on inexperienced workers who failed to track paperwork or improperly signed thousands of legal documents.”.

Both of these examples tell a story about banks having too much work and processes to refine, and not enough time or people to do it.  The interesting thing about these issues is that they transcend political parties or party politics.  This is an AMERICAN problem, and we ALL have a vested interest in solving it.

For some time, the general public has been largely uneducated and the media has been deficient in reporting the foreclosure process and the foreclosure industry.  As we have been saying for some time, supply and demand issues are only part of the reason why foreclosure properties sell at such massive discounts.

History has a way of being a predictive model for the future.  Why would we just explain away a 36% discount on foreclosure property sales as supply and demand driven only?  We have two solid data points in the failure of HAMP and the “robo-signing” scandal that show that banks have been ill prepared and lack adequate business processes to handle them.

Why, then, should we believe that these same banks are exemplars in how they are selling the same properties in which they now hold in inventory?

It’s because we are burying our heads in the sand and hope that the problem goes away.  Sorry to report that this will not happen.

Action MUST be taken.  You can help by sharing your stories.  E-mail us at stories@foreclosurefollies.com or comment below.

Foreclosure Meltdown

Don’t get too excited when you read that the numbers on foreclosure Nationwide have dropped.

1 in 4 properties sold nationally as foreclosures last year.  There is a shadow inventory of properties that have not hit the market. Nationwide, such properties have sold for discounts above 36%.  One state, Illinois, saw properties sell at a 46% discount when they are foreclosures.  The public needs to be educated with how the banks sell foreclosures.  You think it’s supply and demand driven only?  The decline in home values were first caused by the banks by WHO they gave mortgages to.  Now they are now being perpetuated by HOW these very same banks sell the properties they have foreclosed on.

Guess what?  These practices are causing a perpetual creation of a NEW class of distressed homeowners.  For example, take “cookie cutter” communities with a few model name homes that have foreclosed properties that are sold for prices that make no logical sense.  These non supply and demand factors cause homeowners to become underwater in their mortgages.  Those seeking home equity lines of credit are denied.  Some have had their home equity lines of credit terminated.  Why?  Because now IN ADDITION TO SUPPLY AND DEMAND FACTORS,  homeowners are losing any equity they had because of  how the banks are selling properties IN YOUR NEIGHBORHOOD.  Think about the impact this has on all other areas of our economy.  Those new kitchen cabinets, basement finishing projects, or outdoor deck projects are gone.  Just ask your local contractor how good business is right now.

This is a logical extension of the robo signing scandal.  The banks were ill prepared to deal with the number of foreclosures they had to process.  Last year there were over 830,000 foreclosed properties sold, and this year we just don’t know the numbers because of the shadow inventory that has yet to hit the market.  The banks have not built an infrastructure with how to properly sell foreclosures at maximum value.  Until they do, these February numbers are but a “blip” and this housing crisis goes on as a perpetual problem.

We would be interested in any stories that you, your friends, or your neighbors may have experienced that speak to this.

E-mail us at stories@foreclosurefollies.com or reply to this post your comments directly below this page.

$73K Loss, At Taxpayer Expense

It’s amusing that the alleged “experts” the media delivers to the public today about real estate explain that the reason for the value decline is simply due to over supply and limited demand.

Baloney.

If this were the case, then we’d like someone to explain the following foreclosure folly to us:

Two properties.  Both foreclosures.  Both in similar condition.  Both sold by the same bank.

Within 60 days of one another, one sold for: $72,500.

The other sold for: $145,900.

Why?  Great question.  The reason is that the banks have little control and understanding of their own properties.

How would you feel if your home was in this neighborhood?

Oh, by the way: This was one of the banks that taxpayers bailed out.

The Purpose of Foreclosure Follies

It’s hard to imagine life without Wikipedia.  They define foreclosure as:  ”the legal and professional proceeding in which a mortgagee, or other lien holder, usually a lender, obtains a court ordered termination of a mortagors equitable right of redemption.”  We love the defintion of follies, courtesy of Dictionary.com: “the state or quality of being foolish; lack of understanding or sense.”

Foreclosure Follies is intended to share stories with you about the foreclosure process, and how it often lacks critical understanding that is detrimental to people and their communities.  Foreclosure follies contribute to an $80+ billion dollar loss in real estate values annually.

Foreclosure Follies will be a living, breathing, and evolving set of stories.  You need to be a part of this process too!  New follies are discovered every new day that passes.  We already have a vault full of stories.  Help us make it better!

The stories provided are true, to the best of our knowledge.

It’s often been stated that “truth is stranger than fiction.”  This should be a wild ride.