Friday, May 27, 2011

Racing to the bottom

The San Jose Murky News reports that short sales are a plague upon the Silly Cone Valley housing market, with over 40% of short sales failing to conclude and with the average short sale taking 8 months to happen. According to the article, lenders are preferring to foreclose rather than to accept a reasonable offer -- even second lenders who have no equity and will get nothing if the home is foreclosed are refusing to release their liens even though they get nothing either way.

Then there's what happens to those homes when they do foreclose. The banks won't/can't lend money on homes that don't appraise (i.e., the loan would be for more than what an appraiser says the home is worth, based on comparable recent sales). So they're selling the homes for cash to investors and refusing much higher financed offers. The pool of investors with cash to spare for buying homes is far smaller than the pool of potential homeowners who'd like to buy a home but need financing to buy it. Fewer buyers means lower sale prices, it's simple supply and demand, few buyers, many foreclosed homes, prices go down. This reduces the value of the comparables for the *next* batch of homes to come on the market, meaning *they* won't appraise. Meaning *more* cash investors buy up those homes for even *less*.

The housing market is broke and the banks driving housing prices into the gutter with their deliberate policies is a big part of the problem. It's in a race to the bottom where banks foreclose and then won't finance the homes they foreclosed upon because they're afraid of... what? That the next batch of buyers would similarly not be able to pay the mortgage on the home? What do the banksters know, that we don't? And why do they fight efforts to deal with the situation of bankster-caused housing price collapse so vehemently?

-- Badtux the Baffled Penguin


  1. Simple answer, the bankster's rich buddies buy low and will do a rent to own at a much higher price. The USL'S (Urban Slum Landlords) will require a much higher down payment with higher than bank finance charges and the poor buyers will never own the home. Just like the "We tote the note" car scammers. Plus the banks get to write off the loses against the large profits their making right now avoiding even more taxes.
    Banks are creating a whole new generation of USL'S .

  2. I forget where I read it now -- some econoblog that tracks the nuts and bolts of the mortgage business, probably Calculated Risk or Naked Capitalism -- and it laid out why banks make more money foreclosing than short-selling. It was tied up with how they could write off the loss and get repaid by the FedGov, which backs the loans through Fannie and Freddie.

    If you're curious, here's a short take on how that works, and if you don't mind reading the HuffPo, here's post which is not written so clearly, but it had an embedded bit from the National Consumer Law Center about the issue.

    Basically, the banks win if they screw people who have fallen behind on payments, so why should they care about disrupting peoples' lives? Sociopathic organizations only look at bottom-line dollar figures, not humans.


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