Friday, October 14, 2011

The Non-Negotiators

The nation's big banks are apparently beginning to ramp up their real estate foreclosure efforts.  Bloomberg BusinessWeek reported yesterday in the Washington Post and in other news outlets that notices to foreclose increased 14 percent in the third quarter of this year over the previous quarter.

Notices to foreclose are the first step in the process, which can take more than 300 days to the time the lock gets changed on the front door.  The story went on to say that this acceleration in the foreclosure activity is a harbinger of a faster turnaround in the housing market.


The story reasoned that such a turnaround couldn't happen as long as the dark cloud of potential foreclosures hovered over the marketplace.  There were more than 195,000 notices sent out in the third quarter, and more than 196,000 homes taken back.  Banks are on track to reclaim 800,000 homes this year.

Okay, enough of the bull, obviously from sources who aren't paying attention to the real world of housing, or who are oblivious to the reality of general and long held attitudes of non-negotiation by the financial institutions that are largely responsible for the housing debacle in the first place.  These financial wizards were more than willing to grant unaffordable mortgages on over valued properties.  Hey, assessments would catch up eventually, right?  And certainly income levels would increase at an even greater rate, wouldn't they?

Neither happened.

Potential faster turnaround in the housing market?  Seriously?  Adding some 800,000 on top of the more than a million from the year before to the inventory of homes on the market is a harbinger of good things to come?   I guess, in the eyes of some, a vacant, ill-kept home on every street is a good thing.  And, to be sure, adding to the housing stock through the foreclosure process might be providing a greater selection to the home buyer.  But real life tells a different tale.  Even when potential buyers come forward, there is a huge reluctance by banks to negotiate a sales price.

See, bankers have never been considered skilled business negotiators.  Most would never survive outside their walls of finance, where negotiation and compromise are an almost daily exercise and a skill well honed by the most successful.

Many of these new foreclosures are unnecessary and avoidable if only the banks were of a mind to negotiate new terms for the mortgages.  What if, for example, banks said to delinquents who at least had a job, they would restart the clock, forget about the missed payment periods, adjust the interest rate to one that was more affordable, and go forward from there.  In the end it would cost them less on the bottom line than the hit they'll experience with inventories that produce absolutely nothing to the revenue stream for an untold length of time.  The idea of restarting delinquent mortgages  is not a novel idea, certainly not original to me.  It has been suggested by the largest bonding company in the world, but apparently fell on deaf ears.

Congress and the president have urged banks to work with parties delinquent in their payments, and with a wink and a nod the bankers agreed...until the doors closed between them.  Then it was back to business as usual.

In other words, the majority of delinquent mortgages are non-negotiable because the bankers are either inept at the practice or unwilling.

Who benefits from this attitude?  No one.

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