This may not be the most politically correct piece that I’ll write but that’s never been my goal here on OC Voice.  So here goes….

One of my clients sent me a link to an article published online on CNBC about ‘Mortgage Re-Defaults Rising with No Sign of Slowing’.  The article states that, “…after 6 months, nearly 37 percent of mortgage loans modified in the first quarter were 60 or more days delinquent,”  and goes on to say that, “after three months, 19 percent were 60 or more days delinquent or in the process of foreclosure.”

There is no question that watching a family lose their home is beyond heartbreaking.  The article did point out a small piece of good news in this fiasco – 9 out of 10 home loans are current.

The article has me thinking about a few things.  Why does someone default?

The rates on the adjustables are actually lower in recent months than they were a year ago.  In addition to that, some of the Interest Only notes have yet to adjust at all.  Payments in many cases are the same, or even less than they were one year ago.

I’ve seen that in some instances, people frankly are not interested in paying $500,000 for a home that is now worth $375,000 and decide to walk away from the property.  Does a loan modification make sense for those owners?

Lending restrictions were way too lenient up until recently.  Some folks were approved for loans that they never would have qualified for under the strict requirements of today’s lending standards.  Does a loan modification make sense for those owners?

Temporarily reducing the interest rate, tacking on the arrears to the back-end of the loan may provide immediate relief but is it only delaying the inevitable?  Do loan modifications like this make sense?

Maybe it’s time to be honest and say that current levels of home ownership are higher than they’ve ever been, and just maybe, that isn’t a good thing.  It’s not good for the homeowners that aren’t really qualified, and it’s not good for the housing market.

Maybe it’s time to really help those homeowners get out from underneath the homes that they cannot sell for what they owe.  Maybe it’s time to let this market run it’s course without trying to fix it with band-aides and superglue.  Maybe it’s time to get a really efficient and effective short sale process to assist these distressed homeowners.

Bailout plans that focus on loan modifications and saving the homes may not necessarily be the answer.  As I’ve said before, where is a Bailout plan that really deals with the heart of the crisis?  Where is a plan that is effectively dealing with the real issues on Mainstreet?   I’m waiting…and not patiently.

There has been much discussion about the big bailout.  But in case anyone with any influence is listening – I have an idea that could make a big contribution to our market recovery.  Just call anytime and I’ll share my insight with you – from the trenches.  I’ll be waiting for your call.

For the rest of you that might be curious about what I have in mind, I’ll share with you some of what happened to me this week.  Brace yourself because I feel a rant coming on….

As I have said countless times on this blog, short sales are a HUGE factor that is driving our market prices and inventory in Orange County.  For example, 64% of the active homes on the market today in Rancho Santa Margarita, under $500,000, are short sales!  In Mission Viejo, 50% of homes active on the market today under $500,000 are short sales. 

These short sales have offers that have been submitted to banks and are just awaiting approval.  They may have multiple offers.  This is buyer demand that is waiting and the last thing we need in this market is pent up buyer demand waiting.

I’d like to share with you a story about one of my short sale listings.  Within 72 hoursof listing the home back in May, I had 4 offers for asking price, and over.  We submitted them to the bank, along with the package from my seller that clearly qualified for a hardship.  The following dialogue is from this week between my short sale coordinator and the the banking institution’s (a very common and well known lender) negotiator.

My Short Sale Coordinator:

“We now had 4 buyer’s who have cancelled, including the last offer we submitted due to the fact that this process has taken almost 6 months.  We just can’t keep buyers around that long and we can’t keep the value the same for that period of time.  Values are dropping.  We do have another offer, but it is lower than any offer we have received.

“At this point we, as long with the seller, are at a loss as to what to do.  Do you have any suggestions, or any time frame that we can tell buyers?”

The Bank Negotiator:

“I will have to cancel this file because the buyers are no longer interested.  I suggest faxing in the new offer.  Because it is a new offer it will be considered a new file.  Anytime you have a new buyer it starts all over.  A short sale can take 4 - 6 months.  When you send in a  new contract the time frame starts all over. ”

The negotiator goes on to say that they are trying to make time frames shorter and the last response time was 30 days.  But in my experience, that response is inconsistent at best and clearly, they aren’t willing to commit to anything better than 4 to 6 months.

So what’s my big idea?  Let’s save a big bailout expense.  Forget giving money to banks with no accountability for how they use it.  Instead, let’s create an efficient, streamlined method of handling the massive number of properties that are in foreclosure and that are short sales. 

In the case of my listing, it may take one year to get a buyer in that property and a closed sale.  In the meantime, values are detrimentally impacted,  inventory remains misleadingly high,  property condition deteriorates, and suffering sellers can’t restart their lives.  If you shorten this process to 90 days, can you imagine the positive impact on our market?  Just think, 6 months ago I had 4 buyers that wanted to pay full or over list price.  Today’s buyers are thinking about 20% less than that.  THAT is a huge reason prices continue to decline in Orange County and in many parts of the country.

Maybe this is too simplistic.  Maybe this addresses only part of the problem.  But, if we are looking at some of the real, on the ground solutions for the much touted ‘Main Street,’ this seems like a great place to start.  Like I said, to those influential individuals and government institutions dying to hear my Bailout alternative, I’ll be standing by waiting for your call.