The “Big Bad Bank” Mentality

Have you ever made a loan? Perhaps to a family member or a friend, or as an investment to small business or a colleague. When you made the loan, you likely had an understanding – an agreement – as to how the loan would be repaid. Now imagine that loan was not repaid . . . what would you do? Would you try to get repaid? Now imagine that after losing money due to non payment, YOU became the bad guy. How could this make sense? Well, it probably doesn’t. But this is exactly what’s happening in this time of the “Big, Bad Bank” mentality.

In the rush to vilify the Big Bad Banks, much is made of the practices that result in throwing “innocent homeowners” out of their properties. Consider this: the average foreclosure timeline in Florida was 180 days in the middle part of the decade (up to 2007). Now, it takes roughly 2 years to complete the average foreclosure and lenders are waiting longer to initiate the suits. So where’s the rush? There isn’t one.

I am not without compassion for hardship cases. If one cannot make payments due to illness, underemployment or unemployment, programs such as loan modification, short sale or deed in lieu of foreclosure should be made available. This is distinguished from defaults as a result of mortgage fraud, strategic default (having the ability to pay but choose not to) and reckless real estate investment.

I realize that everyone has to make a living but I have yet to hear from a foreclosure defense attorney that his client did not default on their mortgage and was foreclosed on anyway. Most will readily admit that absent the borrower making loan payments as agreed, they can only delay the inevitable through stall tactics such as “show me the note” or lately, the uproar about “Robo” signers. Rarely is it disputed that the borrower did not repay the loan according to the agreed upon terms. The reality is that there are very few valid defenses to loan default.

Cities, towns and even HOAs are also piling onto the Big Bad Bank mentality. Once a home is foreclosed upon, the banks are left to clean up a litany of code violations, fines and assessments that result from property neglect and unpaid association dues. Although the banks did not cause these issues, they are held financially responsible for them. Many local governments are charging $150.00 ($54,750 a year!) or more per day in fines for tall grass and unkempt properties to lenders who did not own nor had the legal ability to correct the violations prior to foreclosure. Some HOAs are gauging the lenders for thousands of dollars for frivolous “violations” such as trash cans being left out or the color of the curtains facing the outside.These supposed violations occur prior to foreclosure but the bank is left with the bill.

Who else loses with the Big Bad Bank mentality? If you are among the roughly 90% of borrowers who pay their loans on time, you lose as well. The greater the losses incurred, the less likely they are to make future loans at favorable terms. Without the government propping up the mortgage markets, interest rates will surely rise and availability of loans will be reduced.

It’s time that the banks start to fight back. It’s time to shout “we are taking the losses, we are cleaning up the mess and we are not the “Big Bad Bank” that is sited in the press. It’s time for the home-owning public to realize that they bear the cost when properties go into foreclosure on their street, in their neighborhood and in the their city or town. Mortgage default and property neglect brings down all neighboring property values, stripping hard earned equity from those who are paying their loans on time. Place anger and action where it should be directed, at those who borrowed money they did not repay.

There is enough blame go around. In many instances, banks lent money without sufficient underwriting standards (remember stated income loans?) and borrowers refinanced their homes for cars, boats and other discretionary purchases with the notion that home values were rising and always would. If banks continue to be blamed for the foreclosure crisis, and delays keep properties from being turned over to new owners, real estate values and the economy in general will remain stagnant.


Jim Banford,
President, Real Estate Asset Disposition Corp.
Mr. Banford has worked in the default industry for 16 years.

Bank Owned Properties and the Foreclosure Process

News that some lenders have cause to revisit their foreclosure procedures has dominated the headlines recently. And while everyone agrees that proper protocol should be followed, the errors in processing are not likely to change the outcome. That is, without mortgage loan payments being made, foreclosure is almost certain.

Real Estate Asset Disposition Corp represents over 45 lenders, banks and servicing companies including some that have announced a temporary halt in selling already foreclosed property. The good news for home buyers looking for a great value is that we have hundreds of Bank Owned Properties (AKA Real Estate Owned or "REO") that are available for immediate purchase.

Our firm is exclusively dedicated to managing and selling REO throughout Florida and has done so for almost 10 years. Headquartered in West Palm Beach, Real Estate Asset Disposition Corp., is the States leading seller of REO Properties. In just the last 3 years, we have sold $350,000,000 in REO inventory to families, investors and anyone looking to buy real estate at values no seen in over a decade. Please let us know what we can do to include yo among our satisfied clients.

Jim Banford
jbanford@readcorpreo.com
CEO

Some Foreclosure Cases and REO Sales Being Halted – Florida to See Brunt of impact

Everyday brings a new story of a lender halting foreclosure cases, and now several are halting REO sales as well. Real Estate Asset Disposition Corp., at the direction of its bank clients, have had REO closings suspended by major lenders due to "the assets coming from a pool known to have title issues"

We are in uncharted territory with the uncertainty of the foreclosures. As some point however, common sense should prevail. Lenders agreed to lend and borrowers agreed to repay those loans and it is the failure of the promise to repay that leads to foreclosure.

This basic concept is getting lost in the noise of how intimate the knowledge was of the banker who signed the documents to start the foreclosure. The terms in the note and mortgage stipulated that lenders lend and borrowers borrow and repay. And, the recourse for not repaying is foreclosing out of the borrower’s property rights.

Contrary to what the new crop of foreclosure defense firms will say, there simply are not a lot of legitimate defenses for non-payment. While there are true hardship cases and even more poorly thought out purchases, these are not defenses to foreclosure. Sooner or later, these same cases will complete the foreclosure process and will be resold.

One silver lining to the temporary halt is that the existing REO properties that are sellable may experience appreciation, as the available volume is stunted during this period of uncertainty. Our REO properties in Miami, Ft. Lauderdale, West Palm Beach, Port St. Lucie, Orlando, Tampa and Jacksonville have been selling quickly this year. And now with the flow of new properties being slowed, the existing ones should be even more marketable.

Good News and Bad News for Foreclosing Lenders

This week brought good news and bad news for bank clients of Real Estate Asset Disposition Corp, Florida’s largest broker of Bank Owned Properties. Actually, the news is mixed for any lender foreclosing on a defaulted mortgage in Florida.

SB 1196 passed in the State Senate and is on its way to the Florida House for a final vote. The Bill has, among other provisions, a requirement that institutions taking title via foreclosure pay delinquent condo fees for 12 months prior to the date of foreclosure. Currently, condo associations can collect just 6 months or 1% of the mortgage balance while Homeowner Associations can collect 12 months. This is part of a growing public and political sentiment that banks are bad and “we” should stick it to them at every chance. What many fail to realize is that as lien holders, condo associations have the option to foreclose on unit owners not paying monthly or quarterly assessments but often rely on the lender to do the dirty work.

As a former bank employee and current service provider to more than 45 financial institutions, I know firsthand that the idea that all banks are bad and should be punished via new laws and regulation (like SB 1196) is flawed and short sighted. In the simplest of terms, higher costs put upon the lenders, result in greater losses on the bad loans and this will lead to lower availability and higher costs loans for future borrowers.

Okay, I promised good news as well. Part of Florida’s 2010-2011 budget that was passed on April 30th provides for $6 million to hire additional judges and $3.6 for County Clerk’s offices to address the estimated backlog of 500,000 to 550,000 pending foreclosure cases. This is a good thing for those who seek more efficient foreclosure case processing. Florida foreclosure cases can now take more than 14 months to complete up from an average of just 6 months in 2006.

One of the most common delays in my REO business pertains to Certificates of Title not being recorded in a timely manner by the Clerk of the Court in most Florida Counties combined with a lack of follow up from the foreclosing law firms to ensure that the court has everything it needs to complete the process.

Traditionally, the foreclosure deed AKA Certificate of Title (CT) would be recorded within 10 days after the foreclosure sale was held. Delays in the recording now run in months, not days or weeks. As a result, lenders are unable to resell bank owned property until title properly vests in their name. And again, the more costs that are put upon the lenders (in the form of timeline delays in this case), the greater the losses on the bad loans will be and this will result in lower availability of loans and higher costs for future borrowers. Yes, there is a recurring theme.

Jim Banford

Bitter Medicine Prescribed As Cure For Housing Market

Everyone agrees that the housing market has been a pretty sick patient for a long time now. But not all agree on a cure.

Go to certain economic doctors and they will tell you that the cure for ailing home sales is job creation. Their prescription is that when enough people are employed again, the housing market will recover. But job growth has been practically non-existent with unemployment still near 10%, underemployment much higher and some forecasting a jobless recovery. Foreclosures continue glut the market with more than ever expected in 2010.

Since information is power in both health and economic matters, it's always a good idea to seek a second opinion.

Edward Pinto, a consultant to the mortgage-finance industry and former chief credit officer at Fannie Mae, isn't shy about offering some alternative medicine. He says very bluntly that the hole that's been dug by bad loans is too deep to be offset by a modest rise in future employment.
And Pinto strongly disagrees with the government response to the housing bust: to provide medicines (loan modifications) that prevent the market-clearing process and delay the inevitable purging of buyers who can't pay off even modified loans. I've never been much for purging myself but according to Pinto, the market needs painfully cleanse (that's better) its system so that traditional housing forces can return to the scene.

What are traditional housing forces, Doctor?

Buyers with something at stake in their homes, in other words, a substantial down payment, along with the documented ability to cover all the monthly expenses associated with home ownership. "All we are doing is kicking the can down the street," Pinto said. "The loan modification programs that were designed to help people stay in their homes have been abject failures", depressing prices while foreclosures continue to flood the market.
So what should be done? Pinto would halt all housing stimulus funds and take some basic steps to curtail foreclosures. The initial steps would be tougher on at risk homeowners, but he believes they are critical to restore balance:

1. Separating borrowers who can qualify to pay a lesser mortgage amount from those who cannot.

2. Allowing lenders to accept deeds in lieu of foreclosure whereby the borrower deeds the property back to the lender and avoids the foreclosure process.

3. Banks lowering the loan amount and reducing mortgage principal amount to no less than 90 percent of loan-to-value and negotiating affordable terms and rates.

4. Make loans "judicial" enabling the bank to seek the borrowers' other assets in the event of default.

With all that in place, Pinto believes the result would be that only qualified borrowers would remain in homes, homes would cost less and many more genuine buyers would surface because the "bottom" has been reached. This sounds like tough and bitter medicine for those who lose their homes but Edward Pinto thinks it's the only way to finally cure what's ailing the housing market.

“New York Times” article got it right - Loan Modification is not the Answer, Foreclosure is

A January 2nd article in the "New York Times" by Peter S.Goodman got it right by essentially stating that the Federal Government's Making Home Affordable program has been largely ineffective and likely is causing more harm than good.
The article, U.S. loan Effort is Seen as Adding Housing Woes, covers a lot of ground but several of the main points brought by the sources referenced in the article are: 1) The Program has hurt an economic recovery by stalling the eventual outcome - foreclosure -- as most homeowners in foreclosure cannot make or choose not to make even a reduced monthly payment, and 2) the modifications along with the high re-default rate give homeowners the false sense in the short term that they can keep their home only to ultimately loose it to foreclosure.
By some estimates, the leading cause of loan default is not mortgage payment affordability but strategic in nature. Simply stated, the borrower understands that they owe, often by a large margin, more than the home is worth. He or she then decides the best course of action is to stop paying the loan as it would take many years to recover the lost equity. For example, a home purchased for $200,000 in 2006 and worth $100,000 today, a common scenario in Florida, will take almost 15 years at an average annual appreciation of 5% to be worth $200,000 again. I know of examples whereby a borrower buys a comparable home for half of what he owes and then stops making payments on the original home, thus securing the new home prior to taking the credit rating hit.
The government's efforts, via directives to the lenders, to modify loans is akin to putting a band aid on a broken arm in most instances. At some point, the arm will need to be reset and cast to ensure proper healing. Foreclosure, while painful in the short term, allows the lender to recover a portion of its loan loss and relend the money to a presumably higher credit quality borrower and put the home into the hands of someone more likely to be able to afford and maintain it, thus addressing the negative influence on the neighborhood of a poorly maintained home. Foreclosure is a necessary healing process.
Jim Banford