I had a rather short but interesting conversation the other day with a real estate broker concerning the new market trends and mortgaging. I have been hearing from a few friends and acquaintances about their experiences with the banks lately and they all confirmed the tightening lending practices both home and business that TARP was to have done away with, and few oddities

One friend was in the process of buying a house, which for him should have been a piece of cake since he has a stratospheric credit score very near to the perfect FICO number of 850, he is just shy a few points. He was describing to me the number of delays the bank he was dealing with was causing, he was especially perplexed in the fact at closing he would be applying a down payment of 50%, this should have been a no brainier for the bank in that this was also a repossessed home being sold at a price 25% below the current appraised value, even in this market. During these delays he discovered this particular repossession was more than half paid off when the homeowner lost his job and was forced into default. It was also revealed that the selling bank did not mitigate any terms with the foreclosed, not really his concern but an irregularity given most mortgages require at least some mitigation attempt.

As it turns out the bank he was using to obtain his mortgage was a bit miffed, that he was buying a home from a competing bank, and not just another bank, but also a competitor that would end up making a very nice profit from the foreclosure sale. Through these delays, and most likely the purpose for them, his mortgaging bank kept trying to get him to change the property he was buying to a foreclosed home that was now one of their holdings. They even went as far as declaring the title search invalid to force him to make another choice for which they provided many options. My friend held firm, mainly because the house he was attempting to purchase had some particular handicap conversions he needed for his son. I might also add he was a commercial customer of the mortgaging bank for his company’s business accounts for over twenty years. Frustrated and five and a half months after his application was approved the deal was finally closed, but only after he threatened to walk away from the deal entirely and pull his commercial accounts. Pretty odd business behavior even for a bank.

Another story I came across was a woman who was building a house in Clermont, Florida. This woman apparently obtained a construction loan to begin building but when the house was completed the bank walked away from the deal. This bank refused to pay substantial completion and final draws to the contractors and refused to issue, per formal agreement, a final homeowners mortgage to pay off the construction loan. Then pursuant to Florida law, the contractors placed liens on the property for outstanding amounts that were not paid by the bank in accordance with the original construction loan. These construction liens have prevented this home from obtaining its final building inspections and clearances so it cannot be occupied.

This is incredibly strange behavior since the bank issuing the construction loan and the one that had been paying the construction costs through the “rough” portion of the building process, which is approximately 55% of the cost of building an home, through the issue of a homeowners’ mortgage recoups its investment as a security plus makes a tidy little profit on the construction loan interest. So now your thinking okay she can just go to another bank, she is obviously credit worthy, get a mortgage and pay off the construction loan and done right? Wrong. Because of the construction liens no clear title can be issued and since the home has not been certified with a certificate of occupancy it cannot be occupied. I’m not sure where this one is headed, to court if this woman has the funds I’d imagine, but why in the first place. The only thing I can think of for the banks refusal to complete the transactions in this situation is that the completed market value of the home will be considerably less than the building costs and thereby no longer support the mortgage amount. Or does the bank just want the house. Craziness.

Anyway getting back to the real estate broker, these stories and quite a few others in my head, I asked her directly, “Are your clients having difficulty getting mortgages on anything but foreclosed properties?”

The answer was clear and definite, no minced words,

“Yes.”

“Can a mortgage be obtained on a regular sale?”

“Doubtful.”

“Are you getting any normal sales?”

“No”

I followed up with “on any foreclosed home or just those on a particular banks list?”

Again the response, clear to the point,

“Just the list.”

“Are these tactics driving homes values further downward?”

“Yes”

“Do your think the banks are deliberately harming the normal housing market?”

“Yes”

"How long do you think the recovery will take?"

“I’m scared to death”

A woman of few words, but very poignant, given her 30 plus years in real estate.

I asked another agent I know the same questions and in more “flourishing” words I received the same answers. I did ask her one more question, ‘are first time homeowners buying new homes, normal sales or foreclosures?

The answer. “Foreclosures, but most don’t qualify.”

So, where are the banks in this economic recovery?

Apparently driving the housing market and home values further into the ground and thereby killing future retirements, real estate tax revenues and jobs.

This is just one more reason for the President to issue an Executive Order for an immediate moratorium on foreclosures.

 Also see:

http://hubpages.com/hub/Is-the-Government-About-to-be-Stealing-Homes

http://hubpages.com/hub/Wheres-the-Media-on-Unemployment

http://hubpages.com/hub/Unemployment-Benefits-Running-Out-for-Millions