Short on Smart

Somebody's got to tell the bankers that this business of rampant incompetence in the short sale process is reprehensible. And then somebody's got to make them fix it. Here's how it currently works, and when I say works, I mean it doesn't work: A seller with a property at risk for foreclosure lists the property with an agent at a price that seems reasonable for the product and the market. The agent, we hope, knows the product and the market so this is a responsible and well-thought-out listing. The agent pursues a marketing strategy geared to the product and the neighborhood to draw in the target buyer. A buyer, however cautiously, eventually makes an offer - usually a lowball because 'getting a deal' is the name of the game right now. The agent works with his/her seller to determine whether or not this will be a viable offer from the lender's perspective. This process is conducted in pitch-dark, because banks won't provide concrete guidelines for what they will and won't find acceptable, values are constantly in flux, and most of these at-risk sellers also have 2nd tier loans on their properties that complicate the whole mess... but I digress. The seller finally accepts an offer he/she thinks will work, and sends the offer, along with a sordid financial history and documents to prove hardship, to the bank.The bank then sucks that packet of documents into the vacuum they like to call 'loss mitigation', where it sits collecting dust and the frustration of all interested parties. In the meantime, the average short sale seller doesn't get more capable of paying his/her debts, but less. Often during this time, the bank, unbeknownst to itself, initiates foreclosure. The seller panics. The agent makes a call. At which point, the bank - like a dad taking credit for remembering his wife's birthday when it was really the kids - has a moment of clarity. The short sale might prevent the need for foreclosure. With this mantra temporarily installed the bank sets out on a course of institutional schizophrenia which would be funny if it weren't near-criminal in stupidity: it pauses its own foreclosure in favor of allowing itself time to further delay the short sale. By the time the bank assigns the short sale file to a caseworker, who will likely admit he/she received little or no training except being burned by the long-line of on-fire files he/she has to work on, the buyer has grown weary. We're usually four months into it at this point.The caseworker does little or no work to establish the validity of the short sale claim - hardship is pretty easy to prove these days - so he/she goes straight to the ordering of a BPO (Broker Price Opinion). Remember way back when - at the beginning of this process - when an experienced agent reviewed the market statistics with some actual knowledge of the area and the product and came to a conclusion on a reasonable list price? Well, now this BPO is going to drive by the house - which is usually some 40 minutes away from his/her area of expertise - and completely eradicate the validity of the listing process by telling the bank that they could get way more for the property. The bank believes this drivel and counters the buyer with some absurd number. Everyone's supposed to be grateful that they're still willing to 'play ball'. The seller's agent wrings hands together with the seller and, in a later call, with the buyer's agent until finally, the buyer is approached with the new number.If you're working one of those miracle sales, the buyer still wants it and is willing to up his number.The bank is notified and sends the package with the alacrity of a dead-tulip race to the holder of the 2nd mortgage. If it's with the same bank, the speed dials down a notch or two. The 2nd mortgage lender receives and assigns the file, using the same dust-collecting method of the first lender. Like minds and all that jazz. As luck would have it, the 2nd mortgage company is willing to approve the short sale! But wait - the approval is conditioned on receipt of a promissory note from the current owner, indicating that - sight unseen - he/she will promise to pay an amount three times greater than his/her current income (which is often zero at this point). Not to belabor a pretty obvious element in our story but - the seller is broke! The banks know this - they're the ones that broke him! So making him promise to pay is like making your dog promise not to pee. Meet "Stupid". Your seller, worn and withered at this point, agrees. What's another promise he can't keep? The bank accepts with smug satisfaction and orders that everyone now remember the 'time is of the essence' clause in the contract, requiring everyone to complete all the remaining work in less than three weeks. Meet "Irony".All parties lurch into action; the buyer spends on an inspection, has his attorney review the contract, the buyer's lender sends out an appraiser and then.... screech... STOP right there mister! The buyer's lender finds that the property isn't worth as much as the buyer is willing to pay. For those of you still hanging on for the anti-climatic conclusion, this is the part where Stupidity and Irony meet, fall in love and have a baby.Further hand-wringing ensues, with some bad language and a few glasses of wine thrown in. Through a bible-worthy act of God, let's say the buyer is willing to make up the difference in cash and wants to keep at it. The seller's lender is notified and away we go. Naaaht. Because at this point in the primer on 'How Incompetent Can We Get?' the bank re-assigns the person who's been working your file and the documents get transferred to a new person. This person's got about the same level of short sale processing experience as a Malaysian goat, but proffers the attitude of that babe who ran the magazine in "The Devil Wears Prada". Ultimately, the outcome of this scenario is irrelevant. The seller is already ruined, the buyer is already disgusted, and the agents on both sides have spent more money on cell phone minutes than they'll make in the transaction. This is the bank's contribution to recovery. Really?This is not how we're going to resolve this problem. Banks need to apply the same level of zeal to short-sale processing that they did to looping all these hapless, unqualified buyers into buying these homes in the first place. The faster and more efficiently these properties change hands from the overwrought to the eager the sooner we can all return to a stable and healthy market. Don't kid yourself - that market is a long way off - no doubt. But the rampant incompetence in the short sale process is equivalent to poking a hole in your gas tank right before you take off on a long and arduous road trip. Smell that?Somebody does need to take notice of this and somebody does need to fix it. We do. We, as real estate professionals, must demand a more competent and effective partner in our recovery. We as community members, must cooperate with one another in controlling and managing the property inventory. And we, as citizens, must require our elected officials to do the jobs they were hired to do: regulate, oversee, make accountable. Otherwise we, as Americans, will all suffer the consequences.

Today's the Big Day!

Effective July 30, 2009, there are new rules regarding Truth in Lending (TIL) disclosures. These rules, which affect all lenders, are contained in the Mortgage Disclosure Improvement Act (MDIA). The MDIA is intended to protect consumers and make it easier for them to understand TIL disclosures. You can look at the rules by visiting the federal reserve printing at http://www.federalreserve.gov/reportforms/formsreview/RegZ_20090519_ffr.pdf

The primary purpose of the Truth in Lending Act (TILA), 15 U.S.C. 1601 etseq., is to promote the informed use of consumer credit by requiring disclosures about its terms and cost. This is the so called 'fine print rule', which attempts to explain all the microscopic caveats on the forms so you know, in plain numbers, what it all means. (From my perspective, this is like taking birthing clasess. You know, but you really don't know!)

The MDIA is likely to cause some delicious delays in the process now, as everyone becomes accustomed to new timetables, new steps leading to the closing table, etc. Until MDIA has been in effect for some period of time, its real impact on lending practices will be muddled by the frustration these new processes and inherent delays will create. However, the good thing to take away from this is that we are scrubbing clean the mess that was made during the heady days of the real estate boon. Once done, and with some necessary fits and starts, the achievement of homeownership will mean something again, the professionals who work in all aspects of our industry will deserve some respect again, and the 'truth' will be rightfully returned to its place in the process.

And that is some good news.

The News Is Good (Sort Of)

U.S. New-Home Sales Climb 11%, Most in Eight Years
By Courtney Schlisserman - July 27 (Bloomberg)

Purchases of new homes in the U.S. climbed 11 percent in June, the biggest gain in eight years, underscoring evidence that the deepest housing slump since the Great Depression is starting to stabilize.

That was the news being sent around yesterday. Whoopee! Good news! Rarer than diamonds in this business nowadays, good news is greeted with relief and some air of triumph. "This is it," the guilty-smug smiles tell you. "We rode it out!" We try not to congratulate ourselves, but we're so desperate we can't help ourselves.

We used to congratulate ourselves for much loftier accomplishments - market share, million-dollar sales awards, multi-million dollar development listings. Aaaah the good 'ol days. No more. Today's mantra is "If I ride it out, at the end of the storm I will be stronger and better than ever!" Translate that as: "If I can hang on without losing my dignity I'll be the only one left when its over!" Clinging to dignity has become perilous in this market, no doubt, but I consider it my version of "Survivor".

Of course, that strategy is completely counterintuitive to all the training you've gotten, which has told you that each challenge is an opportunity for success. But when chasing down the status of a short sale turns into a real-time exercise in "Who's on first?" the training-manual ideas seem ridiculous. Today, the formulas for success that get stamped on binders and re-printed in handouts are dated, irrelevant and comical, from my point of view. I can't chase around my homeowners for referrals when a good chunk of them are on the brink of losing their own homes. I can't throw parties with branded merchandise when I'm trying to figure out how to pay for my kids' birthday party with dollar-store cups and plates. My sphere of influence is panicking, just like everyone else.

So, of course, when the good news comes along, I'm eager to share it, take some completely undeserved credit for it, and convince myself I can treat my family out to dinner because of it. But, as with all things, good news is not all it seems on the surface. And this is the sentence in the above-referenced article that woke me from my sugar-induced euphoria.

"The number of houses on the market dropped to the lowest level in more than a decade."

You've seen it yourself. There are less signs on the street in many Chicago neighborhoods. Looks less frantic. Good, yes? Maybe. But what, really, does it mean?

Yes, we've done a good job clearing out alot of the bottom-dwellers in the market, but there's plenty more where that came from. Yes, we've made significant headway in removing at-risk homesellers from the inventory through the influx of short-sales, but who isn't short these days? And yes, some homesellers have decided to pull back and wait for a better selling season. My kingdom to know when that'll be.

When you're looking at numbers, stand in the center and look around. Then stand in every corner of the room and look inward. Make sure you understand what's good and bad in the statistics. No question that increased sales and diminished inventory will be indicators of improvement. The fact that we're looking at those now instead of consistent downward slides is, indeed, good news. But because we didn't sink in one tragic misstep, we won't be redeemed in one cathartic leap forward. Instead, we'll struggle forward in fits and starts, with some good days and some bad days. The challenge is to continue forward. We do.

As for the hope promised in the article from Bloomberg? I think suggesting an overall start toward stability may be a Jordan-esque reach toward that evasive moment in the cycle when we can really claim triumph, pat each other on the back, and pay un-borrwed cash for that meal out with the family. I'm going out to dinner anyway. We got some really good news yesterday.

I can't stand it any longer

I was recently made privy to a story about a well-known agent in our town who’d been interviewed for a magazine article on real estate. She felt her remarks had been misconstrued and took the real story directly to the people through her blog. I read it. It was very triumphant. Cape flapping in the wind, you’d imagine. (I should say at the outset - she’s a badass. Awesome. Top of every list you could think of. God bless her. I wish her nothing but luck for continued success. ) But I’ve got to say that her perspective offers a very limited spectrum for shared experience.

The essence of it was that she felt her area should not be described as ‘troubled’ based on her remarks. She then combated the numbers and statistics in the featured article with her own numbers, more current numbers and different points of view about the old numbers.

Seriously? That kind of silliness is what contributed significantly to the terrible trouble we are in. We’re in trouble. So is she. And so are all the people in her area. No one is immune. To suggest otherwise is a lie, no matter how hard you try to sell it. Other than to establish that no one is immune, broad characterizations about either the health or decline of the real estate market provide false premises upon which we can no longer stand. And on that one point, we should all agree. The truth is necessary.

The honest truth is the residential real estate market is suffering, loudly and with flapping ARMs. Some things are getting better, some things may get worse before they improve. There's a mixed bag. Any professional worth his or her salt in this business must tell the truth about the whole thing, good and bad, in order to further the remedy.

Until then, I can’t stand by any longer and allow myself to be affiliated with the puff and circus-pants (as my daughter once characterized ‘pomp and circumstance’) about the state of our business. I encourage you to join me. Provide your stories, good ones and not so goods. Laugh at me, fume at me, I welcome it all. Let’s get it all out there and tell the truth. I’ve heard that kind of thing can be very freeing.