Thursday, April 24, 2008

Brokers Complain About Their Own Opinions

by Tanta on 4/24/2008 08:46:00 AM

Reuters has the news:

LIVONIA, Michigan (Reuters) - Realtors in many U.S. states say lenders are demanding excessively high prices before allowing distressed borrowers to offload their homes in "short sales," making the housing crisis worse.

In a short sale, a borrower dumps the home at below-market value and the bank forgives the rest of the debt. The borrower's credit rating is hurt but for less time than in a foreclosure. Such sales have been touted by banks as a way out for homeowners unable to pay their mortgages.
Below market, huh? And I thought the idea was they were trying to sell these homes at market, which unfortunately happens to be less than the loan amount. Whatever. My head is still spinning over the banks having "touted" such sales. Was I having a nap when that happened? How come nobody woke me up?

We get one "example":
Borrowers like Judie Quinn echo that, saying their lenders have been uncooperative and have passed up solid offers.

Quinn, 67, is a steel industry sales representative whose home in the Detroit suburb of Belleville had been on sale since August 2005. After back surgery in 2007 left her with large medical bills and out of work for two months, she decided she could not afford the $2,200 monthly mortgage payment.

"I wanted to save my credit rating, so I tried to arrange a short sale," Quinn said at the Livonia, Michigan, office of Linda McGonagle, a Realtor at Quality GMAC Real Estate.

The loan was from Wells Fargo & Co (WFC.N: Quote, Profile, Research) and serviced through an affiliate, America's Servicing Co.

Between April and October 2007, Quinn received four offers, McGonagle said. The first offer of $289,900 -- the asking price was $299,000 -- was rejected by the lender because Quinn was not yet in loan default. "No one at the bank mentioned she had to be in default until after that offer was rejected," she said.

She said the lender ignored the third and best offer of $299,000 long after the bidder had given up. The home went into foreclosure in October.

"The lender was unresponsive and unhelpful, so Judie wasted time and money trying to do the right thing," McGonagle said. "I tell other agents to avoid short sales because you just can't win. This is a commission-based business and if you can't get deals done, you don't get paid," she added.
How much does Judie owe on this house? We didn't get that part. Could the fact that the home had been "on sale" for two years before Judie decided she needed to sell short imply something problematic about Judie's expectations? When did she acquire this property, anyway? And at what exact time yesterday was her Real Estate Professional born? Nobody at the bank mentioned that short sales are widely held to be "work out options" for delinquent loans? That without any indication that the lender would have to foreclose, the lender is not highly motivated to accept a short sale that is "less loss" than the foreclosure that doesn't appear to be on the table? The bank has to mention this?

But I really liked this part:
Some Realtors said banks have an inflated view of what they can expect when home values in many areas have fallen sharply.

"Some lenders harbor unrealistic expectations of what they can get in a down market," said Van Johnson, president of the Georgia Association of Realtors.

He said widespread use by lenders of "broker price opinions" -- quick, inexpensive online property assessment -- resulted in only a "simple best guess."

Andrea Gellar, a Realtor at Sudler Sotheby's in Chicago, said property appraisals there are fair because "appraisers are being called on the carpet to be accurate" after years of inflated evaluations during the property boom.
Banks have inflated ideas of what these houses could sell for. How come? Because they rely on "price opinions" that are prepared by real estate brokers. Like the real estate brokers quoted in the article. Who are now claiming that it's really only the appraisers who have any clue. Because they've been "called on the carpet" and now are afraid to make stuff up.

The solution seems obvious to me: welcome to the carpet, brokers. We expect your next price opinion to be somewhat more sober.