Irvine Housing Blog |  |
| realtors lobby to increase banking losses and make their jobs easier Posted: 26 Aug 2011 03:30 AM PDT realtors successfully lobbied for passage of SB 458 which forces banks to increase their losses by writing off debts in a short sale, then they lobbied the banks to perform more short sales by speeding up the process. Irvine Home Address ... 12 GOLDBLUFF Irvine, CA 92604
I like it when lenders pay a price for what happened in the housing bubble. They unleashed a Ponzi scheme, and if they don't experience the pain of that failure, they will repeat their mistakes. California has passed a new law that increases the pain on the banks. Kudos. With lobbying from CAr, the State of California passed a debt forgiveness law that says a borrower is fully released from all debts related to mortgage once the short sale is agreed upon. When the realtor association does something I agree with -- like preventing the debt slavery of an entire generation -- I like what they lobbied for despite my past disagreements with them. Without some kind of debt forgiveness, the people who live in our neighborhoods will owe hundreds of thousands of dollars in zombie debt collection for years. (This issue is one of the reasons for civil unrest in Spain.) This will drain the local economy of resources, and it will drain the emotions of the people facing zombie debts. As with any kind of debt forgiveness, moral hazard can be a problem if borrowers don't come to believe they made a mistake. I like this law despite the fact it creates moral hazard because its a greater moral tragedy to sentence these people to debt servitude and being hounded by zombie debt collectors. This law could also be titled the "Death to Zombie Collection Act." The passage of this law may prevent bankruptcies because the borrowers won't need bankruptcy in order to eliminate this one debt problem. Otherwise creditworthy borrowers will be able to obtain new debt, and the enormous loan losses get washed away. The increased disposable income will boost the local economy. Nevada will be the test case for what widespread debt purging can do for a local economy. The $70,000 single-family detached homes I sell in Las Vegas have monthly payments of about $300 per month. Even if you are a minimum wage worker, you can afford a house payment on a single-family detached home. Once this purging is done, the average wage earner will spend a smaller percentage of their income on housing than any area of the country. I believe this excess spending power will stimulate the local economy greatly -- most of it will end up in the casinos. Californian's who sell their house through a short sale will now enjoy the increased disposable income of debt purging. I believe this will boost the California economy. Gov. signs SB 458 into law July 15, 2011
Now that the SB 458 is law, short sales are more effective at purging debt than foreclosures. People still tend to walk away from their debts in foreclosure, but that doesn't mean the debt is fully extinguished, just much more difficult to collect. From now on, those people who go through a short sale will no longer face the harassing calls of zombie debt collectors. Banks won't have a buyer for their extinguished short-sale zombie debt, so the write-offs will increase. The larger losses will make lenders more willing to foreclose and keep their zombie debt on life support. Passage of this law should cause banks to shift away from short sales in California and move to foreclosure roulette to select a quota of kills from the herd. Short sale negotiations will now be much more difficult for banks because they don't have the threat of lingering debt to hold over the borrower. If the borrower doesn't agree, the bank has no leverage to force them to. The borrower can escape the debt fully in short sale or take their chances after a foreclosure -- chances which usually work out in their favor. The realtor association that applauded the short sale law is now demanding the banks close more short sales. That's a knife that cuts both ways: lenders take bigger losses and realtors make more money. CAR chastises lenders over short sales by LIZ ENOCHS -- Thursday, August 25th, 2011, 12:26 am
Short sale negotiations are never going to be easy because the loan loss severities are so large that banks can't take the pain. This survival pressure is forcing banks to make unreasonable demands on borrowers which is causing most short sales to die a slow death. The whole negotiation is a big game of poker, and the foreclosure deadline is the river card -- the default option when the two parties can't agree on a settlement over the house debt.
Actually, no. I see nothing critical about expediting short sales. The MLS can't absorb a fraction of the distressed properties in the system, so lenders could shift 100% to foreclosure and 0% short sales, and the only difference would be the process for disposal on the MLS: bank REO or CAr short sale listing. realtors really shouldn't care either. There willl be a sale on the MLS eventually. It will either be a short sale, or it will be an REO listing or a flipper listing. No matter how it gets on the MLS, the final disposition to a stable buyer will generate a sales commission.
Is this issue merely realtor whining about the difficulty with short sales? Get over it, and get the job done.
I agree that expediting the transition from unstable owners to stable ones is key to the market recovery. I don't agree with the contention that expediting short sales is a superior method.
I don't think the bank is too worried about whether or not a short sale is better for the borrower. They are interested in whether or not it is better for the bank. Basically, anyone with assets is probably better off trying to negotiate a short sale. Lenders are going to want borrowers to make an effort to pay them back by selling some of their valueable stuff. If borrowers won't do this, it's in the lender's best interest to sue them and take it as settlement for the debt. If borrowers with assets go through a foreclosure, the lender could also sue to recover, and the losses are more severe. Fortunately for most borrowers, lenders rarely attempt to collect on debt detached from the property in a foreclosure. Does it really take 639 days for a bank to make a decision? Foreclosure Record Foreclosure Record Foreclosure Record WTF is taking the bank so long? How does it take 639 days to make a decision? ------------------------------------------------------------------------------------------------------------------------------------------- Irvine House Address ... 12 GOLDBLUFF Irvine, CA 92604 Im not sure why, but I found this site amusing: realtors in cars. Becky Buck in Virginia Beach, Virginia... Thank you, baby...
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The owner of todays featured property bought on 4/26/2005 for $675,000. This near peak purchase was financed with a $540,000 first mortgage and a $72,101 second mortgage, and a $62,988 down payment. They didn't refinance, but falling prices have left them underwater. The stopped paying the mortage back in mid 2009, and they have been negotiatiing a short sale ever since.
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