Monday, June 9, 2008 at 08:24PM
Are Banks Holding Back?
Are banks holding back from foreclosing, or selling their REO inventory?
Only those who work on the inside know for sure, but here's some anecdotal evidence to consider.
On April 22nd I started receiving emails from Countrywide regarding their REO properties. They were in the 'pre-listing' stage, which includes duties that I don't normally handle:
1. Getting occupants to vacate
2. Coordinate repairs
3. Pay for utilities
Getting occupants to vacate the premises includes the cash-for-keys program, where Countrywide will offer to pay $2,500 to occupants who move and clean in two weeks. It is a generous program if you ask me, they can deliver a three-day notice to vacate to any former owner (tenants get a minimum 30 days), yet they are willing to give then two weeks and $2,500? They don't offer it to everyone, and it seems haphazard as to who gets it, but it doesn't sound like evidence from a company that is looking to hold back on selling the properties.
Speaking of holding back, the properties assigned to me were all foreclosed just a few days before - and I thought, "yippee, these guys are really on it!" That thought was a bit premature.
Since the end of April when I had 20 properties sent to me, only three have made it to market. Another one got rescinded (stand-by, this one will be a story in itself) and three others have extenuating circumstances why they have stalled. But literally the other 13 are sitting vacant, waiting for Countrywide's asset managers to give me the green light to put them on the market.
I think they are overwhelmed - there have 60 asset managers at their servicing facility in Simi Valley, each with 100+ files on their desk. The majority of these mortgages are ones they sold to Deutsche Bank and HSBC, both foreign entities. Countrywide is just their servicing agent, meaning they collect the monthly payments, and handle the foreclosure proceedings. There isn't much incentive for them to not be expediting the sales, unless the banks that actually own the properties are telling them to stall. But why would Deutsche Bank or HSBC want to stall - they can't be waiting for a bailout, who is going to give them a hand? The U.S. Government? No way.
A large part of the overwhelm is from the old-fashioned processing. When I put the Oceanside half-duplex on the market and received seven offers, the Countrywide asset manager addressed each one, which meant she had to print out our 12-page offer form, add their 17-pager, and then sign each by hand.
That's a total of 203 pages for initials or signatures, then re-scan them, and upload them back onto the website where I can access them. If you are great at your job, that would still take you an hour or two to process - no surprise that they are buried.
To compound their problems, the market is hot for REO listings. They are probably getting dozens of offers every day that need attention. Yet in my Oceanside case they made it a point to formally answer every offer in writing - even the low ones that I told her had no chance (the agents who told me they wouldn't change their offer when we countered requesting highest-and-best).
Once we got the first one into escrow, the closing process has been pretty smooth. The problem seems to be the lack of proper staffing to handle the workload in getting the properties from trustee sale to accepted offer.
Take today for an example - early this morning I emailed each asset manager on every property I have ready to go to market, encouraging them to take action. I didn't get one return email all day.
When I first got my list of twenty properties in the span of about ten days, I thought, "Golly, I'd like to sell 20 of these every month!" Now I'm just wondering if I can get this group done by the end of summer.
Jim the Realtor
13 Comments
View Printer Friendly Version
Email Article to Friend
Reader Comments (13)
Sorry you have to deal with the slow processing. That can't be fun, given all the work for the (relatively) little pay, as most of these homes are probably low-priced at this point.
Also wondering if they are getting negative feedback from the ultimate lenders and/or if they are trying to hold back some of the inventory so REOs don't really overwhelm the market...which would set lower comps for the next batch of inventory they're holding.
Jim,
Thank you for the honest explanation about what's going on in the REO market.
As we all know demand is there if the price is right. Hopefully banks will get off their ass and start automating processes to allow for higher output.
The electronic-signature process is the best thing to happen to the real estate industry since plastic surgery.
I'm closing deals where the only actual signature is on the grant deed. If CHL would embrace the electronic signature process, it would double their productivity overnight - without having to hire one additional employee (which I'm sure is their big concern).
Docusign has an agreement with the CAR that includes them on the Winforms website, the place where we get our contracts and disclosure forms. I don't see many people using it yet - but once they try it, they'll be impressed.
Don't Deutsche and HSBC collect PMI the entire time the mortgage is not being paid? If so, its moral hazard, they are under no pressure to sell.
This is not surprising. I've seen the same thing in Orange County with the foreclosure service I use. A significant portion of the bank-owned properties are not back on the market yet.
I don't know how many purchased private mortgage insurance (PMI), but I doubt ther was much coverage. Every lender was doing the 1st & 2nd piggyback loans, and selling off the seconds as HELOCs separately.
I don't know of any borrowers who were paying PMI, so if it's in place, it's because the lenders purchased it after the fact. As crazy as it was on Wall Street, I don't think many bothered.
Jim,
Thanks for the insight -- prioeless!
Pretty funny to hear - this mess will still be going on during Christmas, well after the "hot" summer market has cooled.
Go lakers!
The banks are thinking big. One problem with market clearing pricing for REOs is that it places every other loan in the neighborhood in danger of turning NOD/NOTS. The banks very well might be thinking about their 6 other loans down the street when considering what to do with a REO.
That's longterm thinking. Are bankers capable of that?
The banks face a classic problem because they are a "they" and not an "it". Actions that make sense for each bank are collectively irrational. They _will_ be undercutting each other in the marketplace, placing further pressure on homeowners and increasing defaults, except where a particular bank owns a big chunk of the mortgages.
Worse, when executives start to look at the graphs of foreclosures they will see the writing on the wall. The best thing to do is to sell now, before anyone else. Unloading first means better sales prices. Waiting at this point is a guarantee of greater losses.
On a different note, is everyone in N. County a millionaire? I look at Redfin/Trulia/etc and see tons of $1-10 million homes. Who buys/owns these? Does everyone make $500k+? Very discouraging.
Rational expectations
North county is working off a totally new paradigm unlike any seen before, predicted a Northpark renter/troll. A shortage of land coupled with insane demand will keep prices rising on into the foreseeable future. Buy now or, you know the story!
"I look at Redfin/Trulia/etc and see tons of $1-10 million homes. Who buys/owns these? Does everyone make $500k+?"
No, they just live as if they do on their credit cards. If they really were making $500k+, their homes might not be on those websites.