Why Are Lenders Making It Hard To Stimulate The Economy?

Ron's Blog

I don’t know about you, but as a real estate broker and professional auctioneer, I have to wear many hats. One of the hats we have to wear is that of working short sales for a client that is upside down financially, viz., owing more on their home than what it is worth in today’s market.

I don’t recall the exact source, I want to say it was NAR, [National Association of Realtors] but back in May-June etc., 2012, almost 30% of the homes sold were purchased by investor’s via short sales or REO. The investor bought the property with the idea of re-selling it for a profit. Now that is stimulating the economy by way of moving money around, providing liquidity, etc.

However, have you tried to work a short sale lately? Many lenders want the current owner of the property to have been on title for 30 to 90 days before they will approve a loan by a new buyer. It is called seasoning. Most investors hold property for a short period of time. They may make improvements on the property, if needed, or may sell it in an “as is” condition.

This whole process of seasoning has slowed down investor’s purchasing and stimulating the economy because they want to keep turning their money over. Having to hold onto a property for 30 to 90 days adds additional cost and cuts into the investor’s profit.

The negotiating process normally takes three to six months to go full cycle. And now the investor is told he or she must hold the property for an additional 30 to 90 days after purchase. I think you are beginning to see the picture. Less homes being purchased means more “toxic assets,” less money is available to the banks to lend out.

In looking at our records, here are some of the related industries who make money off of a successful short sale:

  • Foreclosing Lender (they make far more in a short sale then when they foreclose)
  • Listing Agents and Buying Agents
  • Attorneys and Title Companies
  • Mortgage Broker/Direct Lender
  • Fannie Mae, Freddie Mac, FHA or whomever buys this loan in the secondary market
  • The Appraiser
  • The Home Inspector
  • Plumbers
  • Contractors
  • Electricians
  • Cities and Towns
  • Insurance Company
  • The IRS
  • Accountants
  • Marketing Companies (Direct Mail and Signs)
  • Printing Shops

What’s the best way to stimulate the economy? The lender’s can start by making the short sale process a lot easier.

For more information on how we work with homeowners and realtors with short sales and pre-foreclosures, click here.

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