I have been puzzled about something recently. With the lack of liquidity in the banks, the glut of real estate on the market and the disappearance of qualified buyers ? why do the banks think that doing the same old thing when it comes to working with investors, will get them anywhere other than where they are now?



This has been as close to a perfect storm as one can get in the housing market. In fact it's so perfect, several banks have been forced to close (9 so far this year), and now Fannie Mae and Freddie Mac are about to be taken over by the Government ? according to an article in the journal this week.

I don't think I am going out on a limb here when I say that a Big Fat Finger of Blame for these recent activities is due to an over exuberant, and risky loan acquisition strategy, combined with a tight fisted and arrogant disposition strategy. The first part of this accusation has been vetted over and over in the media, blogosphere and any rag that mentions foreclosure. What has not been explored is the disposition process. It is more than evident that the bank's internal departments have different incentives and goals when it comes to disposing of their housing assets. One group, loss mitigation, the yard dogs of the bank, appear to be incented on how few deals they can make, while the other, asset management is left holding the proverbial bag ? having to clear up not only the REO, but the mounds of additional expense that gets added through the foreclosure process.

Let's start with the loss mitigation department. As any investor who works with short-sales can tell you, this group has to be seated with the nastiest group of people in the banking business. I am convinced that they take the hardest, of the hard-ass collectors and promote them to loss mitigation. Then they tell Loss-mitters never answer the phone, make it impossible to get to you and ? if one of these pesky investor types gets through ? throw them into bureaucratic purgatory ? then get rid of them. Now, it may not be reality at every bank, but for those fellow investors out there ? I ask you to bear witness. The point of this is, that after all the wrangling you have to go through to make a deal with a loss mitigation group ? precious time has gone by, and time lost, especially in the money game, is money lost. This group is costing the bank more money that it is willing to admit, by holding on to processes designed for a market with a lower rate of foreclosure and one that is moving upward or is flat ? not one that is free falling..

Once the non-performing loan has become ? a non performing asset by taking it back through the foreclosure process ? 120 to 180 days, on average, has gone by without payments, and with additional expenses around advertisement, trustee or legal fees, property management and other related recovery costs, as well as additional money placed into reserve that the bank cannot use to lend out, this process has become a real costly process. The bank now has to prepare the asset for sale and usually hires a local realtor to do a BPO and set a price for sale. This is where; once again, they have become disconnected with the reality of this market. The bank begins a strategy of Price High compared to the market, sit, and then lower the price after x days, then sit, and lower it again.. Finally ? maybe they hit the market level that starts attracting interest, then, when they finally make the deal ? concessions and commissions are the norm. More days have gone by and more money lost, when if they had made the deal in the first part of this process (at the loss mitigation level) they would probably have received the same price, or better and a better net.

You see, an investor should be seen as one of the prime partner segments of the bank. Through purchasing the non-performing asset the investor injects liquidity and free up reserves that can get back into the cycle of lending, where it is free to make more money. Why is it taking so long for banks to learn one of the fundamental lessons most smart investors know ? cut your losses fast and move on..