Some might blame the banks for the prices of houses declining, and I would agree to a point. While the banks are not the only problem, or even the major problem, they are a contributing factor in today’s market. The entire problem is too complicated to explain in a single article or blog post, but I will do my best to spell out the banks part in this mess.

Last week I was contacted by Rick Kupchella from Kare 11 News about the relationship between Short Sales and foreclosures and how this is affecting the market. Here is the video that aired on Kare 11 Extra on 3/29/2009.

Extra: Banks moving slow on home sales

I spent several hours with Rick talking about the challenges the everyone faces with Short Sales and why so many of them never get accepted and why the properties eventually make it back to the banks as an REO (Real Estate Owned – This is the name of the division within banks that owns the properties from foreclosure) and eventually sell for as much as half of what the bank could have received if they accepted the Short Sale offer several months ago.

The first thing that you have to realize is that when the housing markets first started to decline, most people never heard the term Short Sale. I have talked to many Realtors and Mortgage Brokers who have been in the business for several years that have just recently heard the term Short Sale. So two years ago, only the realtors and investors who specialized in foreclosures and pre-foreclosures knew what a Short Sale was. Also at this time, the markets were just starting to decline which made Short Sales more popular and the lenders didn’t want to accept such deep discounts from investors because they thought the properties were still worth at least as much as the mortgage balances. This is the reason in the beginning why the lenders were not accepting Short Sale Offers.

When the lenders foreclosed on these properties, the markets had already declined and the condition of the properties had also declined from the time of the initial Short Sale offer to the time that the banks owned the properties. As these properties sat on the market, they were forced to lower the prices to get a fast sale. This is also about the time that everyone’s adjustable rate mortgages started to adjust and when they went to refinance, they found that because of the bank owned properties on the market, they were not able to get an appraisal to match what they owed on their properties so they could no longer refinance.

This caused a lot of people to sell their houses which flooded the markets with inventory. This also precipitated a further decline in property values. Once the lenders caught on to the fact that property values were declining, they started to agree to lower Short Sale offers, but at this time, the offers were coming in even lower than the banks were willing to go, because they were working on current values and we were making our offers on future values because of the continues decline in values. This continued the increase in properties that went to foreclosure which increased the number of houses on the market that were bank owned properties. The more bank owned properties there are on the market, the lower the market values continue to decline.

By this time the term Short Sale was very popular in the real estate industry. Every Realtor, Mortgage Broker and investor now knew what a Short Sale was and how to work one. This is when the Loss Mitigators at the banks became overwhelmed by the sheer volume of Short Sale files that they now had to work, which started to cause the long delays in their response times to Short Sale offers.

By now the lenders were willing to accept deep discounts on Short Sale offers to prevent the foreclosures, but the loss mitigators simply couldn’t keep up with the volume of files they had to work and many times the properties went to foreclosure or the buyers simply walked away from the deal because it was taking so long to get an answer from the loss mitigators.

In November 2008 FannieMae and Freddie Mac put a hold on foreclosures so that they had the time to hire and train new Loss Mitigators. By the time they were ready to go, congress and the president of the United States started advertising to the general public that they should contact their lenders to negotiate a Short Sale or mortgage modification, which just happens to be the job of the loss mitigators. So now that the banks had enough trained loss mitigators to handle the sheer volume of Short Sale offers, they also had to deal with the rest of the general public to negotiate a loan modification.

Because of the advertising that congress and the presidents administration did in the 4th Quarter of 2008 and the 1st Quarter of 2009, the entire population of the United States of America knew what a Short Sale and a loan modification was and they overwhelmed the banks and the loss mitigators to the point that the loss mitigators simple couldn’t respond to everyone on time.

This is one of the many reasons why in January and February 2009 50% - 60% percent of all transaction as reported by the Nation Association of Realtors was a lender mitigated sale, which means that the sale was either a Short Sale or a foreclosure, and my belief is that the majority of those sales were Bank REO’s.

This is a question that has crossed many people’s minds lately. There is no question about the fact that the banks are taking forever to respond to short sale offers. In fact, many times, the property goes to foreclosure and/or the buyers walk from their offer before the lenders respond to the original short sale offer. This has caused a lot of good properties to go through the entire foreclosure process and make it back on the market as a Bank Owned REO. These properties now sell for as much as half of what the original short sale offer that was submitted months before could have generated for the bank.

This has caused a lot of people to ask why? And Rick Kupchella from Kare 11 news was the next person on a long list of people who are asking why. Rick Kupchella contacted me last week to see if I had an answer and all I could give him was explanations as to what is going on with the lenders, but even I cannot answer the ultimate question of why the banks would rather take a property back rather than accept a short sale.

Watch the TV segment that aired 2 weeks ago from Rick Kupchella
Extra: Banks slow to respond to homeowners in trouble

On Friday, I spent half the day with Rick Kupchella from KARE 11 News talking about foreclosures and short sales. The segment is slated to air Sunday night March 29, 2009 on the 10pm news.

At the February 2009 MnREIA (Minnesota Real Estate Investors Association) Monthly Meeting, I did an explanation of the Foreclosure Process for Minnesota. We got such good feed back about the presentation that I decided to record the explanation and post it on YouTube.

There are 6 short videos totaling about 33 minutes. Here is a link to the play list were you can watch each video play automatically one after another.
The Foreclosure Process - Play all 6 Video's

Inventory is declining, pending sales are goin up and interest rates are going down. These are all good things. Lender mitigated sales are increasing as buyers flock to the market to purchase good deals. The housing affordability index is at a whopping 239%. Things couldn’t be better.

Watch a short clip from the Minneapolis Association of Realtors about the current market conditions.

Ever wonder were all that money is going from the stimulus bill that congress passed without even ready what was in the bill? I have, and thanks to a colleague of mine who just sent me a link to a very cool website, we can now start tracking were the money is going.

Stimulus Watch is a website setup by many talented programmers that got together to create a website that compiles all the information about projects across the country that’s getting their funding directly from the stimulus bill. Simple got to Stimulus Watch and select your state.

You have to see this YouTube Clip:

The Housing Bubble bursts on a speculator. Parody using a clip with Hitler as the real estate investor. He bought a house to flip, faces foreclosure, and now wants to get bailed out.

Parody Fair Use of clip. See:
www.publaw.com/parody.html

Laughter is the best cure for the blues and I know a lot of us can use a good dose of laughter these days. Hope you enjoyed this one.

If you have a house for sale, or are planning on selling one, then you need to know about the first time home buyers tax credit for 2009. This tax credit will give first time home buyers upto an $8,000 tax credit this year if they purchase a house by December 31, 2009.

IRS - First-Time Homebuyer Credit

This year, qualifying taxpayers who buy a home before Dec. 1, 2009, can claim the credit on either their 2008 or 2009 tax returns. They do not have to repay the credit, provided the home remains their main home for 36 months after the purchase date. They can claim 10 percent of the purchase price up to $8,000, or $4,000 for married individuals filing separately. http://www.irs.gov/newsroom/article/0,,id=204671,00.html

This credit does not have to be paid back like the $7,500 tax credit/loan issued in 2008 as long as the buyers remain in the property as thier primary residence for at least 36 months (3 years).