So, we’ve gone over what properties qualify in the proposed guidelines, how the bank will qualify a seller to be in the program, and the rules and regulations the banks will have to follow if they choose to be in the program. Now, I’m gonna get down to the problems with this document and its implementation in the real world. (You know, the place where we can’t pay our mortgages with kittens and rainbows).
1. This program assumes that the banks are capable of meeting these timelines with the amount of faulty loans on their books. That, my friends, is just crazy talk. Some of the little banks may be able to meet the expectations outlined in this document, but the big boys will never be able to hold up their end of the bargain. First, these banks are horribly under staffed in their loss mitigation departments. Why? Well, who wants to work in a loss mitigation department? You get yelled at all day and get the joy of working with emotional train wrecks. Employee turn-over is extremely high in these departments. So, the banks will have to hire more employees to handle the amount of short sales that will be requested and processed. Where are the banks going to get the money to not only pay these new employees, but train them adequately to do the job effectively? Oh, that’s right, bail out money… cause we know the CEOs will not be foregoing their bonuses to make the banks work more smoothly. Another problem in the this arena is that the banks are being asked to hire more people to facilitate this program and the bank’s benefit is $1000 a transaction. Ummmm… $1000 a transaction does not offset the cost of an employee. It seems that from this perspective the banks have very little incentive to participate.
2. Yes, I said participate. This is an OPTIONAL program. Banks had until the end of December to alert the Treasury Department that they would be participating. I’m surprised we all didn’t get trampled in the mad rush to sign up. (sarcasm) Many of the larger banks are working on streamlining their own short sale process that is advantageous to their bank. Why on earth would they participate in a program that limited their ability to recuperate funds? Now, I’m not a business major, but I don’t think banks are in business to lose money. And at this point in history, they are trying to mitigate their losses. The $1000 participation bonus just isn’t enough incentive to take bigger losses by not being able to go after the defaulting borrower civilly. The guidelines state the the lien holders must fully release the borrower from future liability for the debt. At some point consumers need to held responsible for taking out risky loans. Houses are one of the few products that people purchase and expect to be able to sell it at a profit. When we buy a car, we expect to sell it at a loss. When we buy a tv, we expect to sell it at a loss. Investments are risky and there are no guarantees. Again, it just doesn’t make sense.
3. The banks are all expected to have the same standard process, the same documentation, and the same timeframes. We might as well all take jobs herding cats. Banks don’t even understand their own paperwork, much less buearocratic paperwork. And, what happens to all of the short sales that are currently in the system? Do we have to start all over?
4. One of my favorite guidelines is that REALTORS(R) will be expected to pay the cost of any contractors the banks hire to help facilitate the process. Well, thank you Treasury Department for telling the banks that they can no longer cut reasonable commissions, but allowing them to charge me to do THEIR job. Loss mitigation departments are already under staffed so we can safely assume that banks will need to hire contractors to facilitate these deals. And, Yay! I get to pay for that. Well, I’m here to tell you, I WON’T pay for a bank to hire someone else to do the job they should be doing. I didn’t give out the bad loan, I didn’t default on the mortgage, and I’m not responsible for the economy tanking.
5. The guidelines also state that transferring all of the documents through electronic means could be a problem. They haven’t quite worked this detail out, but I’m sure they will before the program really takes effect in April. (sarcasm)
6. One of the biggest problems I have is that banks will be establishing the minimum net they are willing to take on the property BEFORE the property is under contract. This can cause huge problems. I recently had a short sale where the bank insisted on a net. The purchase price had to be $410,000 to meet that net. The house appraised at $400,000. The bank demanded the purchaser pay more for the house than what it was worth by bringing $10,000 in cash to the table to make up for the difference. Isn’t this type of behavior what got us into this mess? The market bears what the market bears. I don’t see banks brushing up on market data and conditions for every area that they have loaned in. They are doing short sales to mitigate loss. That’s what they will do, regardless of how it effects the consumer.
7. One of the funnier guidelines in the document is that properties that can qualify for the HAFA program should have also applied for the HAMP program. The HAMP program is the loan modification program. What a successful program. (sarcasm) How many loans have been successfully remodified? How many homes have been saved from loan remodification? Maybe a handful. Loan remodification only allows to the banks to adjust their numbers and the borrower to postpone a short sale or foreclosure. It is not the end all, be all answer to our problems. It is band-aid.
These are the points that I see wrong with this document. I know that NAR and many designation and certifications for REALTORS(R) are touting this document as the glue that will bring the real estate market back together, but I can’t agree with them. I think this document gives false hope to consumers and REALTORS(R). I think it is pretty poorly thought out by individuals who aren’t dealing with the consumer side of short sales. I think the document means well, but all in all, it’s a waste of paper. I wanted to explain the document so that everyone would start thinking about what changes, if any, this will bring to the real estate market. Let me know your thoughts. I’d love to hear them!
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