Is That Fear? (Bank Short Sales)
The Market Ticker ® - Commentary on The Capital Markets
Posted 2012-02-07 11:52
by Karl Denninger
in Housing
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Is That Fear? (Bank Short Sales)
 

You have to wonder....

Banks, accelerating efforts to move troubled mortgages off their books, are offering as much as $35,000 or more in cash to delinquent homeowners to sell their properties for less than they owe.

Lenders have routinely delayed or blocked such transactions, known as short sales, in which they accept less from a buyer than the seller’s outstanding loan. Now banks have decided the deals are faster and less costly than foreclosures, which have slowed in response to regulatory probes of abusive practices. Banks are nudging potential sellers by pre-approving deals, streamlining the closing process, forgoing their right to pursue unpaid debt and in some cases providing large cash incentives, said Bill Fricke, senior credit officer for Moody’s Investors Service in New York.

You mean like, for example, Nevada deciding to actually treat perjury as the felony that it is, and issue a 606 count indictment (along with materially beefing up laws that criminalize this practice.)

It seems to me that perhaps -- just perhaps -- banks are coming to the conclusion that recovering something on an improperly-documented loan beats recovering nothing, and the latter is becoming increasingly likely.

The better question however is what sort of title is something who buys such a short sale getting?  Is the chain of title any good and did they actually get marketable title?  If not, and they bought owner's title insurance, is that insurance able to pay (and is the defect not excluded)?

For homeowners who are dramatically underwater and not paying, however, these sorts of "bribes" do make sense.  Recovery value is going to be dramatically impaired if the person in the house is uncooperative and simply sits and waits for the sheriff to show up.  It's also often that person's best move if their credit is already trashed, and if they haven't paid in a year, it is.

One item I've noted in the local area is that banks are stringing along short-sale buyers for months, often allegedly telling them they'll approve a deal in 60 or 90 days and then when there's a week or two left they ask for more time -- usually another month.  Not only does that prevent the house from becoming part of the "cleaning" in the market it also holds the proposed buyer off the market -- they are neither a homeowner or looking for another, conventional deal!

To the extent that we're actually getting decisions and clearing of the market, even as a small incremental step, this is a positive development -- even if the motive of the bank making the offer is questionable at best.

Discussion below (registration required to post)
 

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User Info Is That Fear? (Bank Short Sales) in forum [Market-Ticker]
Randy123
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Nothing is what they will get. Hold your ground.

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Rule10
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The messed up chain of title will only become an issue when the title companies refuse to insure them. They are still insuring them and will continue to. The criminals always have an out. Banks will simply start their own Title Company ( they already have) and insure the titles themselves or through affiliates.

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Mannfm11
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My understanding of title insurance Karl is it is more like a performance bond than actual insurance. Representations have been made at closing by seller and others involved and they insure these representations, with the power to subrogate. Thus if you sold your house and it turned out you didn't have clear title, the warranty on your deed isn't any good to the extent of the cloud. The title company would have to cure the cloud, but they probably the goods on you.

Of course, who owns the rights and interests of the trust deed is what is the true concern. Even if we are dealing with MERS, the true holder should be able to prove their ownership. That should be remedy enough. If the note is extinguished, the Deed of Trust is a dead document.

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Genesis
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Mann: Yep.

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What part of "shall not be infringed" was unclear?
Etz
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Jump you ****ers!
Quote:
One of the largest companies that provided home foreclosure services to lenders across the nation, DocX, has been indicted on forgery charges by a Missouri grand jury — one of the few criminal actions to follow reports of widespread improprieties against homeowners.

A grand jury in Boone County, Mo., handed up an indictment Friday accusing DocX of 136 counts of forgery in the preparation of documents used to evict financially strained borrowers from their homes. Lorraine O. Brown, the company’s founder and former president, was indicted on the same charges.
...

http://www.nytimes.com/auth/login?URI=/2....


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Andysvw
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Etz

That is big! Step 2 calling the AG on it.
Steelhead23
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Good news indeed, Karl. I am not quite the free market fanatic you are, but I understand incentives and moral hazard. My bitch with government involvement in the default/foreclosure mess is that the measures typically did more for bank losses than homeowner losses, effectively reducing the incentive for banksters to modify loans or accept short sales. As you know, some of the TBTF banks have huge inventories of underperforming mortgages and MBS on their books they value at par when they are worth far less. If government truly wanted to keep Americans in their homes they would play hardball with bank reserves, not whiffle ball. Only when banks face bankruptcy and know that government will not bail them out will the banks allow the system to clear. Obama hasn't got a clue.

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Mortgageguymn
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Steel,

Most homeowners being foreclosed have no actual loss (although the emotional turmoil can be tough). They either put next-to-nothing down when they bought and eventually lived in the house for as long as a couple of years without making payments or they sucked out their paper equity with cash-out refinances to subsidize living beyond their means. Arguably the guy NEXT DOOR to the foreclosed house had a real loss.

In my experience, the truly lengthy short sales are the ones where there are two mortgages held by different banks. The 2nd mortgage bank is offered a pittance ($2,500) to go away, but they often refuse, sometimes seemingly out of spite. One local bank routinely demands that the homeowner sign an unsecured note for most of the bank's loss. The homeowners usually refuse, so it just proceeds to foreclosure. I just hope that the homeowners know to name the second mortgage in their bankruptcy schedule if they file bankruptcy. I would advise them so if they were my customers, but my customer is usually the person wanting to by the house as a short sale. Short sales are usually nightmares.
Stuki
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<tinfoil>
I have no information about this, but this change in policy "sounds" like something banks have gotten the nudge-nudge-wink-wink about being protected from fallout from by HRH Benny B.
</tinfoil>
Medicdan
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This type of thing always makes me wonder what they see on their radar?!?! Hmmm...

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Dji
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Got a friend that hasn't made a payment for 3 years counting now, and hasn't been kicked out yet. WTF?

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