Warm Southern Breeze

"… there is no such thing as nothing."

Banks encourage “short” sales to invigorate economy, public not enthused

Posted by Warm Southern Breeze on Wednesday, May 18, 2011

Our nation’s economy has for years rested upon manufacturing, which has been the “backbone” of any industrialized nation. (Note the phrase “industrialized nation.”) Now that industry has been “out-sourced” to China, India, and other nations with emerging economies, not only has America become dependent upon other nations (not independent), but our national security and standard of living has been compromised.

Thus, banks, insurance companies and stock brokerage houses – who have again been allowed to enjoy their incestuous fiscal orgies because the Glass-Stegall Act was repealed – are forced to invent artificial commercial paper (derivatives, etc., which no one can thoroughly explain) to increase profits. In conjunction with the computer-driven algorithms of auto-traders and futures markets, the risks Wall Street and banks make (upon the backs of the people) are increasingly becoming a veritable “house of cards” built upon shifting sands.

The uncertainty of our economic future is even more precarious, and is no more clearly demonstrated than in this instance, when banks can’t sell houses they own, even after taking significant reductions (losses), and providing incentives for private buyers.

After reading the following news story, consider the implications for our economy.

Banks are stumbling in efforts to clear inventories of unsold US homes through a strategy known as “short sales” – in which distressed borrowers are given approval to sell properties for less than the value of their mortgages.

Market-watchers say an unexpectedly large number of prospective home buyers are walking away from such deals rather than endure a closing process that is so complicated it can take up to two years to complete.

Mark Zandi, chief economist of Moody’s Analytics, said such short sales have accounted for only 10 per cent of home sales this year – half as much as he expected. Movoto, an online firm that connects home buyers with local real estate agents, said about one-fifth of short sales were falling through.

The results are disappointing bankers and economists who had hoped that short sales would continue to gain in popularity as a way for distressed borrowers to settle their debts and banks to clear their books of troubled loans.

Mark Brandemuehl, Movoto’s vice-president of marketing, said: “The main problem is getting the bank to agree on the terms of the sale.

“There is a list of 50 things that have to be negotiated, including whether there will be forgiveness on the loan, and getting that list down to zero can take for ever.”

Banks said they were not at fault. They point to the difficulties in closing a transaction in which the seller has also taken out a second mortgage, also known as a junior lien, or the mortgage has been packaged into a security sold to investors.

Falling home prices or less favourable appraisals can also complicate these deals.

“If it’s a loan we own and it doesn’t have junior liens, we can make a decision in a few days,” said JK Huey, who oversees short sales for Wells Fargo.

Banks have been trying to make short sales easier. JPMorgan Chase recently started paying borrowers $10,000 to $20,000 in cash and forgiving the principal balances on some loans as a way to encourage short sales. Banks tend to recover 20 per cent more when a home is sold short, compared with homes sold at foreclosure.

Milton Knight, a Miami real estate broker, said many of his clients’ short sales were still awaiting the green light from banks more than a year after a bid and the required paper work was submitted.

One of his clients had received approval from her bank to sell her $240,000 home for $57,000.

When the appraisal came back for $49,000, the buyer wanted to renegotiate.

Mr Knight said he resubmitted the paperwork 10 months ago and was still waiting to hear from the bank.


One Response to “Banks encourage “short” sales to invigorate economy, public not enthused”

  1. Warm Southern Breeze said

    (NOTE to the reader: While these are not my remarks, I share the sentiment.) They are going to have to simplify the loan process and revert back to collateral and stop loaning people more money than their equity. I think a lot of it is pure greed on the part of the loan originators. Appraisals are so inaccurate it borders on criminality. These people have no integrity and lacking a conscience and I’m not sure these things can ever be worked out because of the social rot and moral decay. I can’t imagine a scenario that would ever straighten this nightmare out. Can you?


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