Another Typical Day

Erin on February 9, 2010 at 9:15 pm

I don’t see why a realtor wouldn’t put a listing on the MLS for people to compete for? You said you have buyers who would have paid 1.7 for that house, so hypothetically the property could have sold for more than it did if had been put on the MLS properly. More commission for the seller’s agent right? (or does she get more commission because it looks like she found the buyer too? shady!) ay yi yi….

tj & the bear on February 9, 2010 at 10:16 pm

Call me cynical, but the board/Sandicor/whatever won’t do anything north of lip service.

The RE industry nationwide is screaming for true legal regulation — open MLS, mandatory listing, all offers submitted, maximum commission rates, no single-repping, etc. Oh, and clean up all those MLS games, too, like relisting to change DOM.

p.s.: If I was the RE czar I’d kill VRMs, too, but that’s just me. 😉

3clicks from da beach on February 9, 2010 at 10:41 pm

Thanks Jim for all you do. I wish all perspective buyers and sellers visit, read and learn from your site.

pemeliza on February 10, 2010 at 2:56 am

If all distressed properties ended up as REOs within 6 months of a NOD, everyone that has anything to do with SD real estate would be better off.

François Caron on February 10, 2010 at 6:33 am

Introducing legislation to combat these shady deals will never fly. The extreme right-wingers will scream “socialism” at the top of their lungs and complain of “too much government interference in our lives.”

Result: the crooks win, and the home buyers lose.

Art Eclectic on February 10, 2010 at 6:51 am

Francois, our entire system is set up so that crooks win. You can still win being honest and ethical, but you’ll work a whole lot harder for it. Which isn’t saying that one shouldn’t strive for winning WITH ethics, but you can’t let the fact that crooks will always have an edge because they have fewer standards to live up to get you down.

The whole problem with the way we are currently practicing Capitalism in this country is that the rewards go to the most voracious, least ethical, biggest alpha male dog on the block. The rules have all been set up to encourage and reward this type of behavior – just look at our legal system. There is a wide chasm between what is “legal” and what is “right” or “fair.”

It isn’t just Real Estate, it is our entire economic system top to bottom.

Kingside on February 10, 2010 at 6:55 am

There is existing California law that can be used to spank the agent who put the listing in the MLS only so she could send a copy to the lender to mislead the lender into thinking it had been listed.

California Civil Code Section 1088:

“A listing may not be placed in a multiple listing service unless authorized or directed by the owner in the listing.

If an agent or appraiser places a listing or other information in the multiple listing service, that agent or appraiser shall be
responsible for the truth of all representations and statements made by the agent or appraiser of which that agent or appraiser had
knowledge or reasonably should have had knowledge to anyone injured by their falseness or inaccuracy.”

So if the lender receives a lower short sale price than they would have otherwise received, or the seller gets hit with a larger tax deficiency then they otherwise would have been hit with, and lawyers get involved, that agent could be in for a painfull experience, especially if the lender who finds out and wants to make an example.

shadash on February 10, 2010 at 7:22 am

Erin,

The reason this kind of stuff is happening is all the “under the table” deals that you don’t see.

In a short sale if the listing agent only shows the property to one buyer at a low number and is able to get the banks to bite. The one buyer will give the listing agent 20k-30k-60k? as a kickback after the sale for the “privilege” of being an exclusive buyer. If you can get the bank to accept a low enough number for the short sale this type of kickback makes sense.

This is just one way to cheat the system. There’s several others.

shadash on February 10, 2010 at 7:29 am

And the example I wrote above is 20k-30k-60k on top of the 3% realtor (maybe 6% depending on the deal) commission.

If you know a shady loan officer you can get kickbacks there as well.

I’m done trying to play the realtor game. I’ve decided to map out find out who lives where and walk the areas I want to live and try to work with home owners directly. Maybe bring in someone like Jim when an initial deal is made to keep all the paperwork correct.

Jim the Realtor on February 10, 2010 at 7:30 am

That’s my future, the hired gun.

shadash on February 10, 2010 at 7:31 am

And the example I wrote above is 20k-30k-60k on top of the 3% realtor (maybe 6% depending on the deal) commission.

If you know a shady loan officer you can get kickbacks there as well.

I’m done trying to play the mls game. I’ve decided to map out who lives where I want to live and walk the areas speaking with home owners directly. Maybe bring in someone like Jim when an initial deal is made to keep all the paperwork correct.

Jim the Realtor on February 10, 2010 at 8:28 am

Thanks Kingside for citing the code. What do you think could be a possible penalty for losing a civil case? Pay back the damages her actions caused? If is was publicized that realtors where losing cases in court and having to pony up $250,000 to $500,000 for their malpractice, it would cause agents to think twice.

alles_klar on February 10, 2010 at 8:55 am

Kingside, not sure if you are lawyer, but any idea who would have standing to sue under that code? I am curious as to whether any Joe Blow that sees the listing can sue, or if it needs to be the lender.

You may be able to assert an unfair competition claim as well; although the California courts have tightened up the standing requirements for these types of claims.

Jinx on February 10, 2010 at 9:31 am

Jim, you should add a permanent page to your site listing some of the shady deals that have occurred and the names of the agent responsible. A “wall of shame” of sorts.

chrisL on February 10, 2010 at 9:32 am

I just saw this yesterday. Thought it was something good to post about indymac bank and the FDIC. Viva la short sales:

http://www.thinkbigworksmall.com/mypage/player/tbws/23088/1168292

Erin on February 10, 2010 at 9:41 am

grrr…I just found another shady deal. A house I’ve been watching since it’s slated for auction. Just showed up listed today as contigent. Um…it was never even listed for sale?!

Susie on February 10, 2010 at 9:42 am

“…That’s what’s best for the clients. That’s why we’re here. Let’s do it. Let’s clean it up. Let’s make it right. I’m Jim the Realtor.”

Ding! Ding! Ding! We have a winner. Rock on, Jim, rock on! *Chuckle* don’t tell your wife, Donna, but you have a lady up on the Central Coast who you’ve never met who’s in love with you…

Susie on February 10, 2010 at 9:47 am

“By the way, that Code of Ethics ain’t workin’ while we’re on the Graft and Corruption Tour today”. (Jim)

There goes the coffee! Another JtR classic…

clearfund on February 10, 2010 at 9:54 am

Jim – not knowing the home on Lago Lindo exactly, however, if you put $700k into it to bring it up to decent RSF standards (including a modern driveway) you could be comfortable at a $2.5mm “all in” cost = resale value.

It wouldn’t be the ‘baddest dog on the block’ but it would be a very nice home on a top 25%street.

Thus I would agree that a long term owner/occ who wanted to be in the Ranch could be very happy paying $1.7-$1.9mm for that lot/house.

Now from a flippers perspective I would like to see it much lower as I’d have a hard time taking that older house and tossing a $3mm+ value on it as there is a vast amount of incredible product at $3mm+ (sub $3mm in an A location in RSF the pickins get slim)….but I just like to make my clients money, not lose it….then again I don’t work for a national real estate brokerage either…

JK on February 10, 2010 at 10:14 am

I believe Real Estate is in the top 3 for political contributions

I believe we will see flying dinosaurs before someone truly regulates RE agents

Kingside on February 10, 2010 at 10:34 am

“Kingside, not sure if you are lawyer, but any idea who would have standing to sue under that code? I am curious as to whether any Joe Blow that sees the listing can sue, or if it needs to be the lender.”

I am a lawyer, but I am just throwing the statute out there, without doing any kind of detailed legal analysis, as an idea that there are current legal remedies out there that can apply to this situation. Section 1088 has been traditionally used by buyers, but the language is broad enough to include “anyone injured”. It would be a little creative for lenders and sellers to use but the language fits. Under the statute, you need to establish 1) falseness or inaccuracy known or reasonably known by the agent or appraiser and 2) injury in order to recover. Of course there are other legal theories that could apply as well.

JTR, as in any civil lawsuit, the agent (and broker) will have to incur significant legal expenses if sued, or if covered under an error and omissions policy (not a given by any means under these circumstances), pay a deductible and going forward increased premiums and/or cancellation of the policy. The damages would be whatever losses could be established in a court proceeding. The ones that come to my mind are, for the lender, the difference between what the property sold for and what it would have sold for in the open market, and for the seller, increased tax liability for larger cancellation of indebtedness, or larger recourse deficiency claimed by the lender. Punitive damages for actual fraud might come into play. It is the seller that the agent owes a fiduciary duty to. A prospective buyer who did not have the opportunity to purchase the property at fair market value will have a tougher time showing monetary “injury”.

The thing that strikes me is this agent is not just slimy, she is an idiot. That “here today gone tomorrow” listing is a fixed in time smoking gun if it also turns up in the lenders file.

Julie Fisher on February 10, 2010 at 10:44 am

I’m a realtor, and in my few years in the business, I have been appalled at the rampant criminality going on, often with the listing agent, sometimes in cooperations with the distressed seller. My clients and I have been raked over the coals with these antics. A foreclosure property was posted on the MLS for about 5 seconds, immediately claimed to be in escrow. My client submitted an offer at market value (over the asking price). The property was taken off the market, then re-listed, same scenario, we submitted a new offer, same bologne. Home closed at 20% under market value, which hurt the neighborhood values (harder to re-fi or sell), hurt my client and me, hurt the taxpayer who is paying the bailouts to the banks. The new owner appears to be related to the distressed seller. How convenient.

Madog on February 10, 2010 at 10:56 am

You go Jim, policing up those unethical agents. As an appraiser it makes it more difficult to verify listing history of properties when listing agents play these games. BTW, keep the good work with all those videos you post.

chris g on February 10, 2010 at 11:19 am

I filed an ethical complaint against a realtor in another state, using the local realtors’ board, and I got some $$$ satisfaction. It was easier than a civil case and I didn’t pay a lawyer. I don’t know how it is in California but I was surprised at how easy & effective the process was.

Rob Dawg on February 10, 2010 at 11:21 am

I suggest we form:

JiMLS.

Honest;y. I’ve eaten your shrimp. You’ve even incautiously let let me within 50 feet of your family. How do you do this every day and not take a shower every few minutes?

chris g on February 10, 2010 at 11:28 am

The real loser is the TAXPAYER since they’re only getting $1.7 million for a $3 million loan. Form your complaint from the perspective of the taxpayer (as opposed to the broker who can’t get access to sell a property to make a commission, etc.)… the taxpayer might have recovered another $200k had it been listed properly.

pemeliza on February 10, 2010 at 11:48 am

“Home closed at 20% under market value, which hurt the neighborhood values (harder to re-fi or sell), hurt my client and me, hurt the taxpayer who is paying the bailouts to the banks.”

Thanks for sharing this info Julie. This is the real takeaway here. This foul play has deep consequences beyond someone pulling a fast one on the bank.

CA renter on February 10, 2010 at 11:52 am

That’s how I see it too, chris g. The taxpayers are the biggest losers in this fraudulent RE game — and that includes all the new listings that come on “contingent” and REOs that come on “pending” when listed.

Will law enforcement ever do anything about this?

DonnieB on February 10, 2010 at 12:19 pm

Jim,
Explain to me who is involved besides the seller, the listing/selling agent, buyer, and the lender IF a listing agent brings both the seller and the buyer to the short sale table? It is a straight forward negotiation with lender. The seller can not gain from from the short sale so it makes no difference. The buyer wants the best deal he can get from the lender. The lender is looking at the bottom line. Do I get more money if I foreclose or do I do better if I accept the short sale?

ewhac on February 10, 2010 at 12:25 pm

Dumb Questions Ahead:

Okay, so I’m a little confused here. If a realtor makes their money based on a percentage of the sale price of the property, then why would a realtor ever not publish to the MLS, since surely that is the best way to ensure all possible bids come in?

Second: In a short sale, who is the realtor representing? The distressed property owner? The bank? The potential buyer? All three?

Third: Assuming collusion between an unethical buyer and realtor, does the commission+kickback from the buyer to the realtor typically exceed the commission the realtor would have gotten (from the presumably higher sale price) had they listed the property openly?

Jim the Realtor on February 10, 2010 at 1:06 pm

No dumb questions on this topic, because the lack of transparency prevents full examination.

I’ll start with Donnie at comment #29. The others involved are the appraiser, and/or realtors who do a BPO (Broker Price Opinion), getting paid $75 by lender for a quickie, appraisal-like opinion of value.

But they are told the agreed-upon sales price, and throw together a couple of nearby comps to justify it, and on to the next one.

Are there appraisers who would object to an ultra-low sales price? Probably, but if their value came in 5% or 10% higher, the bank might have enough slush (taxpayer backing) to say “close-enough”.

With the apparent goal to be “kick can down road”, the lenders/servicers would probably let a suspect file sit untouched for months, hoping it might go away – hence Betsy’s June listing still hanging around.

But it also builds on each other – the REO listing down the street was priced low, had several offers, and it’s result was highly suspect.

For those buyers hoping for lower prices, these types of activities are sure to contribute to prices staying flat at best, but obtaining a deal is extremely hard. Know this – if you come across an agent who obviously screwing the bank, don’t be surprised that, if given a chance, they’ll screw you too.

pemeliza on February 10, 2010 at 1:07 pm

DonnieB, if an agent does not want to do an arm’s length transaction, then the listing should never ever be put on the MLS for any reason. There is a reason that courthouse deals are not listed in the MLS for example. Sales recorded on the MLS are used as comps and are used to determine market values. The sales price should represent market value not a sweetheart deal between a government subsidized bank and a lucky buyer.

JordanT on February 10, 2010 at 1:15 pm

If a realtor makes their money based on a percentage of the sale price of the property, then why would a realtor ever not publish to the MLS, since surely that is the best way to ensure all possible bids come in?

If you’re to guaranteed represent both the buyer and seller you get the full 6% instead of 3%. That would more than offset a 20% reduction in the total home price. The buyer may also be kicking in an extra $50K on the side as well to sweeten the pot. The seller could care less since it’s a short sale and it just doesn’t matter what it sells for to them. In some cases it cold be an unethical seller, unethical buyer, unethical realtor etc. colluding to free a seller from the heavy debt burden by having a straw buyer purchased at a heavily discounted price. The straw buyer could possible re-sell the house a few months down the road for a tidy profit as well.

This goes far deeper than a realtor just selling a house for below market price.

Jim the Realtor on February 10, 2010 at 1:15 pm

ewhac at #30:

I’ll call Betsy’s transaction a ‘quiet short sale’. In the QSS, where there is only one realtor, in my opinion she represents both buyer and seller, whether she knows it or not. Both parties are reliant on her expertise to close the deal.

The bank/servicer is unrepresented, and they should protect their interests. But you saw in the second clip how that is done – list the property with an Irvine agent who literally spent 60 seconds on his evaluation. He knew nothing about the comps and area, and based his $600,000 opinion entirely upon my listing, though he didn’t bother to go inside either house (my door was open). His listing was occupied, and he’d have to come down here a few times to manage the eviction, so rather than be bothered, just push another deal through. He owes it to his client, the bank, to do a better job, but what does the bank expect when they hire a guy from Irvine?

On your other question, the additional commission is no doubt a lure for agents, but also is the power-play. She gets to be a big-time deal maker, and have the buyers think very highly of her. It plays a bigger role than you might think. Other contributor is the inexperience – many agents cringe at the thought of how to handle a hot listing. They don’t know what to do, and it’s much easier to let their buyer friend plug in, than do what’s right.

I said in the video that she “owes it to us”, that’s us the realtors. The industry was built on the premise that what’s best for all parties involved is for me to share my listings with you, and you share yours with me. If it turns into a one-way street, the principle breaks down. That’s why I said the local board of realtors needs to do something – they need to preserve the basic practice that ensures the clients get a fair shake, and agents cooperate with one another.

It looks more and more that residential is going to evolve into the way commercial agents operate, that it’s dog-eat-dog and no sharing of listings. It’s too bad, because it’s not in the best interests of the buyers and sellers.

SMC on February 10, 2010 at 1:24 pm

With all the illegal activity that went on to create the bubble in the first place, no one should be surprised the same type behavior is happening on the way down. The same individuals are still in the game.

They didn’t get busted on the way up so figure nothing will happen on the way down either.

Jim the Realtor on February 10, 2010 at 1:36 pm

I have one simple fix, and I communicated it to the presidents of the local boards:

1. Issue guidelines on how to handle a short sale, and have all agents agree to use it.
2. Create the Sandicor public-MLS, and include a feedback forum for people to comment on each agent.

Boom, problem solved overnight. Any agent that would fight to have it created would be seen as a scumbag, and if they had a bunch of negative comments, they would likely change or die.

Sandicor says they have been working on this for two years, though it sounds like something you could have up and running in a weekend. If they never do it, which I doubt they will, then you know that the leaders of the realtor boards are wimps and wussbags too. If they do get it together, I’ll promote that we should name the new Chargers’ stadium after them.

Julie Fisher on February 10, 2010 at 1:37 pm

My understanding is that lenders have NO incentive to attempt to the get the most money from distressed (foreclosure) properties. The taxpayers are bailing out the losses, so why would the bank bother?
To regain control for the taxpayers and lessen these losses, here are some ideas I think would work well, and I think it would drastically lessen the cons going on by some real estate agents and even some owners. And, let’s face it, even frustrated buyers are playing games that are wasting everyone’s time and adding unnecessary costs.
Here are my thoughts.
For any property upon which a lender will get ANY government payoff for losses, the lender should have to do the following in order to qualify for any loss payments.
1) The property must be listed on the MLS for a full 3 weeks in a row (offers can be submitted, but NONE will be accepted until week #4).
2) Lender must have 2 independent appraisals before accepting an offer; the appraisals would be posted on-line the first day that the property goes on the MLS.
3) During the first 2 weeks on the MLS, the Property MUST have at least ONE Broker Open House Tour.
4) Public Open Houses must start within the first 7 days on the MLS. In 20 days, a total of SIX Public Open Houses must be done (4 weekend days and 2 midweek days), minimum time for each open house-THREE hours (10 am to 4 pm). Advertised and signed on streets to certain standards.
5) Offers must be submitted directly by the buyers’ agents to the lender via a lender website. (the listing agent and owner would only get a copy of the offers). This would stop the problem of unscrupulous agents who do NOT submit the highest and best offer.
6) The offers must be on a standardized form that is submitted ON-LINE, such that the lender can electronically screen the pertinent “fields” for the best offers.
7) The on-line offers would be available for the entire world to see (no confidential offers), and the current ranking of offers (high to low) would be clearly displayed so buyers would know their position at all times. (The method of ranking would be clearly discribed)
8) Simple, minimum bid increments would be required (example. $1,000 increments).
9) Buyers would pay a modest fee, varied to the value of the home ($10 to $100) just to submit an offer. This would narrow the buyers to only serious buyers. The fee would go to the lender to cover costs of the on-line services.
10) Buyers would agree to pay a modest non-refundable amount if they back out of an escrow, for any reason. This would reduce the current practice of buyers submitting many offers, only to walk away from most of them.
11) Buyers would agree to pay a penalty if they over-bid the higher appraisal and later pull out of escrow. This would reduce a common trick buyers use, which is to “over-bid”, simply as a means to “land the escrow”, only to ask for a price reduction during escrow, particularly after their own appraiser shows the market value at far under the offer price.
12) Once the lender has narrowed the potential offers down to 3 acceptable “highest” offers, those buyers’ and their agents would be contacted; the seller would then be allowed to select one of those offers The results would be posted on-line.
This “public auction” style would greatly lessen the secrecy and cons currently taking place, and it would ensure the best price for the property, and lessen the cost for taxpayers who are bailing out the lenders on properties in foreclosure or bank-owned properties.

Jim the Realtor on February 10, 2010 at 1:49 pm

Thanks Julie, a great suggestion!

UCGal on February 10, 2010 at 2:02 pm

I found a listing of the place from last year…

http://www.sdlookup.com/MLS-080053524-6060_Lago_Lindo_Rancho_Santa_Fe_CA_92067

A lot higher price back then.

And it’s scheduled for trustee sale on 3/22. It will be interesting to see if the short sale goes through or if it forcloses.

Julie Fisher on February 10, 2010 at 2:03 pm

The question from so many taxpayers and potential buyers is “why do the lenders who hold bad loans fail to foreclose on a property that is in default (i.e. behind in loan payments)?
Correct me if I am wrong, but understanding is that banks have minimum reserve requirements, and if their “assets” fall below a certain value, then they must raise their reserve amount.
Banks can make their assets appear to look better (more valuable) by NOT allowing a sale that would then “mark” (i.e. expose) the actual value of that asset on the bank’s books.

Thus, smaller monthly losses due to UNpaid loan payments may be a better option for a bank than allowing a sale that would result in a HUGE loss all at once, a loss that would have to be recorded, and that may lead the Feds to require that bank to have higher reserve funds.
Kind of like people’s credit card behavior…it’s easier to suffer monthly interest payments than pay off that huge credit card debt all at once.
Did I get this summed up pretty well?

Geotpf on February 10, 2010 at 2:25 pm

Julie Fisher-I’ve seen this argument before. However, I think that once a NoD has been issued, the bank has to write off the loan-so it wouldn’t matter. Can anybody confirm what stage in the process the bank no longer can keep a loan on the books at book value?

Julie Fisher on February 10, 2010 at 2:29 pm

Last post today.
I am so enraged…I’m panting ranting!

I, too, have registered complaints with the local realtor association, and I’ve talked about setting up a review panel to clean up the cons in the foreclosure/REO sales. Perhaps the realtor association is just overwhelmed, but I felt the result of my complaints and suggestions was that…the local realtor “board” was “bored” with that idea.
They seemed to have no interest in pursuing the idea of regulating the sale of foreclosure or bank-owned properties. Even a lawyer and active member of the board to whom I spoke did not care. He made a crazy comment, “we aren’t here to dictate ethics to real estate agents.” WOW! That is polar opposite of the classes we take that pump ethics down our throats….just don’t bother swallowing them…better to puke ’em back up when no one is looking?…kind of like Lima Beans when you were a kid! Is that the message we, as realtors, can be proud to promote?? I don’t think so!

chris g on February 10, 2010 at 3:09 pm

Julie,

Tell the lawyer that the whole point of a “professional organization” like the CFA Society, or the Bar (for lawyers), or the Board of Realtors for real estate agents, is to establish a code of conduct that respects the spirit of the law, respects fairness and improves the reputation of those who practice that profession.

In general, professional organizations hold their members to a higher standard than the law. Doing that is how they add value. That is why consumers (buyers and sellers) agree to trust them.

ps I think the bank could have a civil case against the realtor, too.

Chuck Ponzi on February 10, 2010 at 3:56 pm

a strange game. The only winning move is not to play
– WOPR from War Games

Everything I need to know, I learned from War Games:

Malvin: I can’t believe it, Jim. That girl’s standing over there listening and you’re telling him about our back doors?
Jim Sting: [yelling] Mister Potato Head! Mister Potato Head! Back doors are not secrets!
Malvin: Yeah, but Jim, you’re giving away all our best tricks!
Jim Sting: They’re not tricks.

DonnieB on February 10, 2010 at 3:58 pm

Great Discussion Here..
Jim.. Comment #31
The lender pays for and hires the BPO. They get paid the same whether the Short Sale goes thru for offer or 20% more.
So…who tells the agent/appraiser the offer? The Lender? The listing or selling agent?
The banks are relying on this BPO in their analysis. If they are not getting good info. from the BPO they need to pay for a real appraisal. Given the chance, the listing and/or selling broker is going to try to justify the offer price to the lender. “Smart” short sale negotiators say that you should always meet the BPO agent at the house and make sure he is aware of all the negatives. Is that ethical?
With regard to the slush and “taxpayer backing” the only lender I know has a sweetheart deal where the taxpayer directly picks up the loss on a foreclosure or short sale is IndyMac/One West Bank.
The lenders are really just looking at the bottom line.
pemleza Comment 32
The reason to put it in MLS is that the lenders require it. A box that has to be checked off for their short sale offer intake.

DonnieB on February 10, 2010 at 4:17 pm

Julie – Comment #37
You can not put all “Lenders” in the same category. Some Lenders are absolutely incentivized to get the most money from distressed properties. Like I asked earlier? Who besides IndyMac gets a direct bailout for a loss on a foreclosed property? Now, those “lenders/investors” who own Mortgage backed securities in the highest level traunch may not care about a foreclosure because their investment was insured. Typically by.. you guessed it.. AIG. And the bailout for AIG was, for a large measure, structured to cover the claims on this bond insurance. But the lower tier owners should be incentivized to get the most out the properties because they do NOT get any taxpayer bailout. Help me out if I am wrong!
This is an oldie but a goodie: http://www.businesspundit.com/sub-prime/
Cheers..

Chuck Ponzi on February 10, 2010 at 4:27 pm

Can anybody confirm what stage in the process the bank no longer can keep a loan on the books at book value?
Geotpf

Good question, but that would require some definitions… specifically the words “books”, “process”, “value”, and “is”. (j/k, threw that last one in there)

OK, keep in mind that banks always keep a loan on their books at book value until they no longer own that asset. On the other hand, they will set up reserves for losses as soon as 1 of the following happens:

1. The auditors believe it is non-performing
2. The regulatory body that oversees them believe it is nonperforming
3. Management gets around to actually looking at their loans and decides it’s nonperforming.

They’ll do an asset impairment for an entire class of assets (usually depending on a number of factors such as days in delinquency, and leverage ratio; each of which is different for different organizations and/or person deciding on the nonperforming status). They will not do an asset-by-asset impairment for the most part until they actually divest the note. Rare exceptions occur, but generally this is how it works. Some regulators have begun to realize that some localities are worse than others and start to impair greater on some places than others.

Keep in mind that assets are not impaired until they do not perform. As long as people make payments, they are not “non performing assets”. Institutions may make generic reserves based on their exposure and expected loss ratios, but for the most part are slow to recognize losses until they are forced to… this is because it effects their own leverage ratio and silly little things called bonuses.

They will not impair an asset based on a BPO, Offer, short sale listing, or any other realtor-generated numbers. Nor will they impair it based on an appraisal. To a bank, there is no “process”, there is only loss mitigation, if they ever get called in.

If the loan is insured, it’s very unlikely that they will ever impair the asset… they’re covered in case of losses and have little reason to rush a foreclosure, they get paid no matter what.

Chuck

CA renter on February 10, 2010 at 6:23 pm

This pretty much looks like an outline for the Fed’s policies. Might give us some insight into how they are thinking (though I disagree with some of their ideas), and what might lie ahead:

Effective Practices in Crisis Resolution and the Case of Sweden

http://www.clevelandfed.org/research/commentary/2009/0209.cfm

Jim the Realtor on February 10, 2010 at 8:43 pm

The lenders are really just looking at the bottom line.

Agreed that they’re looking at it, but they sure aren’t doing much to maximize it.

Who besides IndyMac gets a direct bailout for a loss on a foreclosed property?

Because it’s all kept secret from the taxpayers, who knows? But I doubt that IndyMac got the only help, plus the help comes in different ways (straight cash, buying of assets, FDIC takeovers, etc.)

CA renter on February 11, 2010 at 12:30 am

Because it’s all kept secret from the taxpayers, who knows? But I doubt that IndyMac got the only help, plus the help comes in different ways (straight cash, buying of assets, FDIC takeovers, etc.)
———————-

Exactly. Don’t forget the govt guarantees on bank debt, the TALF, etc. There has been so much money shoveled at the banks, I’m not sure anyone really knows how much the taxpayers are (potentially) on the hook for. It is in the trillions, though, if problems should arise — if the debts aren’t paid back and the collateral held against these loans turns out to be worth much less than it’s purported to be (and this is virtually guaranteed), taxpayers will be paying for it one way or another for many, many years (decades?) to come.

Susie on February 11, 2010 at 9:49 am

Wow–50 comments! Mahalo for the riveting discussion. I really think Jim should choose a byline for bubbleinfo that says something like this: “Miss a day, miss a lot!”

HiMomItsMe on February 12, 2010 at 10:32 am

The fraud will never go away its epidemic.

I’m just happy the fraud on the way down is creating price crushing comps which put the whole street underwater. Thus setting up more foreclosures/shorts in the future, and more affordable housing.

Remember the opposite during the boom was the new comps were like double what someone paid 2 years earlier? Well those loans are all going bad and creating these problems. This type of fraud is probably creating PERFORMING loans at the new below market short-sale-fraud price. So the tax payer at least is less likely to have to bailout that new loan.

Whats really sad is to see people resort to epidemic levels of fraud to get an affordable house due to the banks not foreclosing on vacant property for ‘accounting reasons’ and letting houses rot away useless that could be occupied with performing loans/loan owners in them. whata waste of resources! IMO We are collectively as a society sociopaths since the few honest people clearly are not in charge and incapable of controlling the fraud and waste.

Its like the 3rd world here now in the USA. Want to buy an affordable house? Youve got know someone AND bribe them (let a listing agent represent both sides or your offer gets flushed, assuming they dont have a brother already lined up to buy that house). Of course you are free to make an offer on any of the overpriced MLS listed homes, rotsa ruck.

Written by Jim the Realtor

February 9, 2010

52 Comments

52 Comments

Pin It on Pinterest