The Immoral Short Sale

University of Arizona Professor Brent White is causing quite a buzz with his defense of the individual who is walking away from a mortgage. To summarize: corporations are expected to walk away from bad debt obligations but individual home owners are made out to be a moral disgrace if they do the same thing.



I agree with the professor and will take it a step further and say that a foreclosure is the moral thing to do as opposed to a short sale- which is being tauted as the only thing that will save the housing market.



I think one thing should be stated right up front- both situations have the very same origination: a homeowner is not going to live up to the mortgage obligation that they originated with a lender. So if that is the sin that makes a foreclosure "immoral," then both situations include it.



A foreclosure is straight forward- the owner defaults and the lender takes back the property. The property is returned to the market place and sold to another owner. There is no ambiguity on behalf of either original party or the next owner.



With a short sale, the borrower composes a hardship letter, the lender decides if it is hardship enough, a random price is placed on the property and, in general, the property is not subjected to market forces. The original borrower and the new buyer spend an undetermined period of time waiting to see if the lender is going to approve the transaction and the real estate professionals wonder if they are going to get paid what was promised.



The most "immoral" part of the short sale is that it is prolonging the recovery of the real estate market and the overall economy in general. However, it is being advocated by real estate brokers, real estate lawyers and real estate escrow companies. Why are these parties such strong advocates? Their own financial requirements. Brokers would rather have 400 agents seeking short sale listings than 5 agents being assigned foreclosure listings. Short sales are legal hotbeds and create millions of dollars in billing fees. Title companies that are not associated with a lender account can conduct normal business with agents and try to get their escrows- which they cannot do with REO properties because they are already assigned.

Short sales are a curse on the real estate market right now. They are a dull rusty butter knife trying to cut a loaf of bread. As bad as it sounds, a foreclosure is a clean serrated knife. The bread has to be cut to be eaten and the serrated knife is a much better tool to do the work. The real estate market is the loaf of bread that will feed our economy and foreclosures are the best method to do the cutting.

On "connecting the dots"

The war on terror- we are losing it. Let there be no mistake in that assessment. The bad guys are winning and there is no brightness in the near future.

In terms of lives, we may have killed more of them than they have killed but I am not sure of those numbers. I will never minimize one innocent life taken randomly in the name of a God or ideology but it goes beyond that because we are losing lives and money for no gain with our current strategy.

Think of the cost that the bombers and shooters put out in terms of money and then think of the money that is being spent by the American taxpayer chasing these ghosts. Think of the disruptions that we go through in order to be "safe."

I say we choose the path of passive resistance. Withdraw our troops from Iraq and Afghanistan. cut out the airport hassles when flying. Dissolve the money bleeding government agencies created after 9-11.

So what would happen? My theory is that after so many senseless acts of bloodshed in the name of any religion or cause, that religion or cause would soon be on the hit list of every person in the world. In the case of Islam, any person named Mohammad or Abdul would be publicly scrutinized and assumed to be guilty. There would be no place to hide or plot because the hatred and understanding of the hate would be common and not soldiered by the US government. The dislike and mistrust would be pure and with cause. Even the blind and apathetic would see the hate and brutality motivating the enemy.

Meanwhile, our assets would be preserved and held by the people. Our governments would remain solvent.

Is this giving up or in? I don't think so, it is just another way to fight a battle that we are losing on two fronts. People are dying anyway and while we fight a war with 4 years expectations and judgements- in the form of elections- the enemy looks at the timeline as one of centuries or eternity. At our current rate, we will lose from a slow bleeding death.

Live free or die!

2010 Predictions

Happy New Year!

Home prices will be determined by what buyers earn as opposed to what they can get a loan for. This ratio has already taken a massive correction- which is good.

Home prices- the macro number will indicate that prices are stable or are increasing. This will be the macro "median" price. On a closer inspection I think the numbers will show that homes that are now listed for $500k will be reduced to $399k and below. Homes that are now listed at $350k will drop in price to well below the $300k level. All of these sales will "increase" the median price but the individual sellers and owners will see these numbers as dramatic value depreciation.

The number of real estate agents will continue to decrease. As renewal fees and subscriptions come due, the cost benefit analysis will lead agents to let their license expire and move on to other, less expensive, income searches.

Brokers, lawyers and title companies will continue to push for more short sales. The reason for this is purely economic and has nothing to do with concerns for the market or the economy as a whole. Brokers want more short sales because they can then have 400 agents trying to get listings as opposed to 40 agents with the REO listing accounts. Lawyers want them because they are a legal goldmine and title companies want them if they do not have a REO account from a major defaulted note holder.

The economic recovery will be prolonged by this "short sale fixation." While foreclosure sounds bad, it is actually a good thing for the market. The results are fast and quantifiable. They are generally without prejudice- meaning there is not a "hardship letter" detailing why a person needs relief. Heck, we all need relief but it comes down to whether or not we can pay the bills. If you don't pay your cable bill- they turn off your cable; don't have the money for a Ferrari, you buy a Ford. Utilities are public and have other guidelines- at times. We do not want to have 2,000 home public housing areas scattered across the country.

There is still pain to had but a clean sharp knife is generally faster than a dull, rusty blade that has uncertain results.

ts