So last Thursday my ‘union’ (California Association of Realtors, CAR) spent the equivalent of several thousand years’ worth of individual members’ dues publishing an ‘open letter’ in every major newspaper in California.
I use the term ‘union’ loosely here, as the preferred nomenclature is ‘trade association.’ While membership is not mandatory, it is compulsory in many offices, and dues are spent lobbying government for legislation that benefits members and improves their work environment and job security. They negotiate member benefits, such as reduced-cost health care and other insurance benefits only available to members, and fight with major employers in our trade against a drive to reduce pay scales (namely the banks that control most real estate transactions these days, either in the form of foreclosure or short sale listings). The definition of a union, per Wikipedia, is as follows:
“A trade union (British English) or labor union (American English) is an organisation of workers that have banded together to achieve common goals such as better working conditions. The trade union, through its leadership, bargains with the employer on behalf of union members (rank and file members) and negotiates labour contracts (collective bargaining) with employers. This may include the negotiation of wages, work rules, complaint procedures, rules governing hiring, firing and promotion of workers, benefits, workplace safety and policies. The agreements negotiated by the union leaders are binding on the rank and file members and the employer and in some cases on other non-member workers.”
While the people I’m compelled to send several hundred dollars to annually perform many (if not all) of these functions, they prefer to be referred to as a ‘trade organization.’ Most of the rank-and-file members protest the idea of a union as a device for the unequivocally lazy to collect greater pay than otherwise deserved, and therefore refuse to acknowledge their participation in a highly comparable group.
Tangent aside, let’s get back to this open letter that was published. I won’t bother copying and pasting the whole thing here, but if you didn’t get a chance to read it in the local fishwrap, you can take a peek at HERE.
The stated purpose of this commentary is to alert Californians to the peril homeowners in our state face: over 640,000 have lost their homes to foreclosure over the last 3 years, 30% of those who still own are ‘underwater,’ owing more (most times considerably more) than their homes are worth in today’s depressed market. We need help, and the current government intervention isn’t providing that help. The program that provided a hefty tax break to anyone bold enough to buy into a declining market steadied sales levels temporarily, as new buyers sought to profit off the misery of those who purchased at the peak of the market in the middle of the last decade, but once the credit expired sales once again began to dip. The Obama administration’s Home Affordable Modification Program, which aims to keep struggling and often underemployed borrowers in their home, admits that it is likely to assist less than 800,000 families nationwide before it expires in 2012, fewer people than have already faced the loss of their homes through foreclosure, short sale, or deed in lieu of foreclosure in our state alone, with more bleeding to come.
While this is indeed a travesty of the first order, I can’t imagine anyone who’s been paying attention these last few years is unaware of the magnitude of the crisis. What’s new in the letter is a public plea for action on the part of bankers and regulators that control the short sale process.
At present, a myriad of lenders impose vastly different procedures and timeframes on negotiating a short sale, where a borrower who can no longer afford a home due to either loss of income or changes in the terms of a loan that will often cause a payment to skyrocket to nearly double the level at which the borrower was initially making. In order to facilitate the sale, the lender agrees to write off the difference between the value of the home and the balance on the loan as a loss – the borrower loses any money they’d used as a down payment and forfeits any monies paid toward reducing the principal balance.
Recent state legislation has been enacted to ostensibly provide protection to consumers and make things more difficult for lenders, who one would believe should have been more sophisticated than the average borrower in assessing the risk of the mortgage loans they were offering. One major example is that banks are no longer allowed to force a borrower to sign an unsecured note for whatever loss they incur, meaning the person losing their home is still out all of their savings used for a down payment and home improvements, but that they’ll no longer have to spend years continuing to make payments on a house they don’t possess or face a lawsuit from their former lender seeking collection. There’s also a temporary forgiveness program that means borrowers (this year, at least) won’t have to report the amount their lender loses through a short sale or foreclosure action as if it was income, owing taxes on that money to the federal government as if they’d actually profited (imagine being told next tax season you’ve got to pay taxes on $100,000 or more of income you never received). But I think we can still agree that there’s no positive for a consumer facing short sale, other than the relief that comes once the burden of debt is finally lifted, hopefully before the inherent stress causes medical or family solidarity issues.
Still, a short sale or loan modification (that allows a borrower to re-negotiate payments but usually not debt levels in order to remain in their home) is exceedingly difficult to achieve – the California Association of Realtors estimates that only about 60% of short sales with a ready, willing, and able buyer already located are allowed to close escrow by the seller’s banks. It can take 90 days or more for a bank to even look at an offer they’ve been presented, and banks are notorious for losing paperwork or failing to review it before the documentation provided has grown stale and needs to be updated. It’s not uncommon to provide the same documents 10 times or more before their receipt is acknowledged by the bank’s processors, and the open letter alludes to some banks demanding the same paperwork 50 or even 100 times. During this waiting period, a buyer may tire of waiting for sale approval and move onto another house, starting the process all over again for the buyer and their agent.
What do we need to fix this situation? Surprisingly, C.A.R. advocates a position that starkly contrasts the usual free-market ideology of its leadership and white-collar members: more government regulation. They want a standardized format for gathering and submitting information. They want the government to impose strict time frames for a lender to process an application and render a decision. They even want the government to force the banks to hire a staff adequate in number to efficiently handle the volume of work they’re tasked with.
For once, I agree with them.