Why the army of 1.2 million Realtors should be deployed to fight the war against negative equity.
By any measure, the administration’s attempts to resolve the housing crisis have been, and continue to be, dreadfully ineffective. And they’ll continue to fail while they offer solutions that are worse than the policies that created the crisis in the first place.
Instead, let’s find real solutions and engage an army of Realtors, 1.2 million strong, to address the real problem.
The problem isn’t a big mortgage payment or a temporary drop in home value. The problem is $4 trillion in negative equity that was created by an epic credit bubble.
The best Washington can come up with is to incentivize mortgage servicers and lenders to push payment-focused loan modifications, which only leave homeowners upside down in a prison of debt, albeit with affordable payments. If we ever want to return to a healthy housing market, or a strong consumer base in our consumer driven economy, we’ll have to address the reality that millions of U.S. households are terminally upside down. And, as the administration has already realized, that can only be accomplished the way Realtors do things, one household at a time.
Realtors are on the front lines in this struggle. Like homeowners, their personal wealth has been adversely affected by the dramatic change in the housing market. Some may say Realtors took advantage of the housing bubble and helped create the crisis. However, in reality, they simply and dutifully followed our leaders in Washington, and the powerful financial institutions on Wall Street who rewrote the rules of the game.
Yes, these rules were often supported by the Realtor’s own industry leaders, who pushed for new loan programs, home-buyer tax credits and unsustainably low interest rates. Those same leaders encouraged them to ignore negative signs in the market and ceaselessly insisted that “now is a great time to buy;” even writing and promoting books on why the bubble would never burst.
We shouldn’t blame the foot soldiers for the mistakes of their generals.
It is in every Realtor’s best interest to see this nation get back to a healthy housing market. One where 25 percent of homeowners aren’t upside down in their mortgage, one where homeowners make their mortgage payments, and one where foreclosure isn’t a daily headline.
What we need are for our generals in Washington to develop policies that make sense, translate them into coherent marching orders, and unleash a troop surge of ready, willing, and able-bodied Realtors that can and will make real gains in the struggle against negative equity and return us to a healthy housing market, one household at a time.
The reality is that there is no one solution to this problem. Some owners are in homes they will never be able to afford; some are suffering temporary job loss; while others have already abandoned their home and moved on. Mortgage servicers are not equipped to address the problem. They lack the manpower to answer their phones, let alone talk with each owner, visit their home, and walk them through their options. Realtor’s have the manpower, and are eagerly awaiting clear instructions on how to best help homeowners and make a difference in their community. The truth is that their livelihoods depend on it.
Our army of Realtors should be mobilized now, as they can be the front-line resource for homeowners looking for a rational way to win their personal housing battle that will, in turn, lead to our winning the war against negative equity, returning us to a healthy housing market, and perhaps even a strong national economy.
Interesting post.
One question … it seems you’re saying, “we have all these bullets, but need something to shoot …”
To what end would you mobilize the troops? Why depend on the “generals” in Washington who have proven their incompetence?
Unfortunately we need the generals to put in place workable programs for the troops to take to the streets. Today Realtors face a byzantine set of rules for short sales, and are totally on the sidelines for things like loan mods.
For some owners a loan mod is the best bet, yet servicers claim the number one problem is getting complete packages from homeowners. Why not pay Realtors to help homeowners gather and submit that. Makes more sense to me then paying servicers as the current HAMP program does.
If the owner doesn’t qualify for a mod, or they simply need to sell, lets put in place short sale programs with clear guidelines and timeframes.
And if the home is abandoned or is in a state of disrepair that keeps it from being sellable, lets put a local Realtor on cleaning it up and selling it (something REO Brokers do already on foreclosed homes).
That’s just a start, but hopefully conveys the idea.
Sean, this is a good post. On a daily basis I work with short sales and if the banks could streamline their process it would benefit more people. For example, I represented a seller who had been denied a loan mod, then tried a short sale before completely moving on. I brought the bank a full market value offer of $425K plus several good back-up offers, but they denied the short sale because the negotiator didn’t agree with the seller’s hardship. As a result, the seller abandoned the home and rented another one. Today that same home sold at trustee sale for $350K. Not a smart use of TARP money, is it?
In my opinion, if the banks would be more cooperative all of this could be over more quickly.
Another problem I see is allowing investors to purchase blocks of foreclosed/REO homes for cheap and then sell high again! This is perpetuating the problem, especially in California. Homes should be affordable and the investment/cash cow mentality of housing needs to end in order to secure real estate markets.
I’m all for paying Realtors to help get the job done but what IS the job?
Collecting info is a good start but then what? Trying to reach owners who don’t want to be contacted is time consuming and unproductive – a job that won’t be pursued for long. Sending information, applications, offers to under staffed and unqualified bank employees is ineffective. No question that an steamlined process needs to be created. But who is going to find a program that most lenders will agree to follow?
Short Sales: Why sell short when you can live in the house for free for many months? What’s the motivation to the seller?
Loan Mods: How do you make a loan affordable to someone who will never afford the loan or who DOESN’T want to afford it? Reducing the principal in large chunks appears to be the only solution – another bailout?
Sean, your past comments are right on target – we have people in homes who will never afford them, who don’t want to make payments on debt that is double the value of the asset, who have given up trying to communicate.
Aren’t all of these efforts simply delaying the inevitable? And, at what cost to all of us?
I don’t disagree David that the programs as they stand are just delaying the inevitable. But imagine if we could give clear marching orders to a field force that could go out and assess each property one at a time. This is what servicers have been tasked with under HAMP, but they are failing for lack of manpower and the fact that they sit in call centers hours away.
If as you point out the homeowner has given up and is simply taking advantage of free rent, then lets find that out and give them a simple choice: participate in a reasonable loan mod or shortsale, or face immediate foreclosure. Period.
I think, as I believe you do, the cost of delaying this is far too high and that it is time to get things moving.
Though David brings up many good points, know that he IS a fairly prominent REO broker in his area.
So his perspective may be a bit…. slanted… towards seeing foreclosure as the best solution.
His toolbox has that one tool and that one tool is the one that pays.
Seller motivation to short: to move on with a bit more dignity/on more of your own terms, be more responsible, but the biggest benefit is for those that want (possible) less damage to their overall credit. Most importantly, not being subjected to the 5yr “penalty box” for a new loan if one has a foreclosure on their credit.
For example, if one knows what they are doing in short sale negotiations, the seller may have dinged credit but at least they are not automatically excluded to getting another home loan.
And, after all, “it’s a great time to buy.”
We may also negotiate a “paid as agreed” entry on the loan obligation in the credit file. Deficiencies can be effectively negotiated and, of course, there is no debt-forgiveness IRS exposure through 2012 (then the world ends cuz, y’know, that whole Mayan calendar thing).
If short sales are done correctly, they can actually be a “win” over just squatting until the sheriff arrives. That free rent turns out to be not-so-free.
But therein lies the rub, most agents don’t know what the hell they’re doing in a short sale. Looking at the data, it seems only about 15-25% of listed short sales are successful. So Sean unleashing the hoard of 1.2 million Realtors(r) is too scary a fate to imagine: Night of the Living Realtors (most of whom are bumbling and clueless – like zombies).
Think of it as recycling the housing stock and owners. Now, some would argue that why do all this shuffling? Why not let folks stay in their current homes and do a big (principal reduction) loan mod?
From my point of view: a penalty. Let these over-extended “owners” feel a little pain. Take some responsibility for their actions. Participating in unwinding their bad debt and the hassle of moving is at least some punishment for their (often) irresponsible borrowing. The whole “innocent homeowner” meme is way tired and inaccurate more often than not. I was on the frontlines during this whole credit bubble run-up. If you tried to warn people, they just blew you off and danced down the street to the next person who would whisper credit sweet-nothings in their ear. Most of the stated income loans were FRAUDS. And for homeowners to say they were duped, etc is garbage. Excuse me, is this your signature on the 1003? You either signed it knowing it had fraudulent data on it or you signed something without reading it. Either way is no excuse.
But, yeah, all these contortions just to kick the can down the road the bit is immature, irresponsible, and self-defeating.
So, I’m back to the trenches, doing what I do: unwinding one homeowner at a time as many times as I can effectively do it.
I agree that an efficient short sale is the best solution for all. The borrower has a better exit strategy, the lender loses less money, the Realtor makes more money. This firm also closes a significant amount of short sale escrows. The reason that we’re “a fairly prominent REO broker” is that processing REO is far more productive, number of closings-wise so it appears that we only process REO.
Until the lenders can find enough qualified people to properly process short sales, until multiple lender situations can be resolved quickly, and until borrowers have true motivation to complete a short sale, the process will not improve.
It now seems to be socially acceptable to default on one’s mortgage and, I agree, lack of penalty is a driving force in those defaults. Foreclosure IS that penalty.
Although everyone wants to see foreclosures stop, there doesn’t, unfortunately, seem to be a viable alternative. Most of the reasons that “it’s a great time to buy” are artificially created by government induced supply shortages, lower interest rates, and tax credits. Take those away and how many sales would there be? What would happen to market values?
How long can the taxpayers afford to pay for this?
Lenders are already reaching out to homeowners that don’t respond to loan modification offers by employing companies that use realtors to contact the homeowners in person. The pay is a pittance ($30 to $75 per visit) but at least I feel like I am helping out. Sometimes we also get an opportunity to list a home as a short sale if the homeowner is no longer interested or qualified for a loan mod.