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Even if you’re qualified to buy now the banks couldn’t care less.
I’ve been looking at the housing market lately from a different perspective — that of a hopeful buyer. I can tell you, despite whatever exhortations are coming out of Washington, it’s going to be a long time before this market recovers.
You’d think we would be great buyer material. In the town we live in, just 12 miles north of the George Washington Bridge, practically every third house is for sale, some on the market for two or three years. One place we looked at sold for $1 million seven years ago. They’re now asking $500,000 with no takers. As the real estate agents keep telling us, “You couldn’t find a better time to buy.”
With the proceeds of a house sold a month before the 2008 crash, we’re also in position to make a sizable down payment. Interest rates are hitting new lows every month. What could be more to our advantage?
Well, first there’s something called a “short sale.” You may not know the term, but it’s enough to strike fear into the heart of any real estate agent.
A short sale is where the owner has stopped making mortgage payments but the bank has not yet foreclosed, meaning the bank is still carrying the property on its books without making any money. You’d think the banks would be dying to sell. Well, apparently they are.
The first short sale we looked at — the former $1 million property — aroused my curiosity. It seemed like such a great bargain. Why had it been on the market for two years?
“None of the prospective buyers were able to respond quickly enough to the bank’s demands,” our realtor informed us. “They all had houses they had to sell first. When the bank accepts an offer, it wants to close within weeks.”
Hmm, that’s nice to know. Since we’ve already sold our house and are ready to buy right now, we may have a big advantage. When another short sale comes up within our price range, we make an offer only $25,000 below the asking price. It seems like a slam-dunk.
That was seven weeks ago. We haven’t heard anything since then.
It turns out that although banks want you to act with great dispatch when they finally make up their minds, until that point it may take them forever to respond. Banks, after all, are bureaucracies and your offer may be sitting on someone’s desk for months before anyone takes notice. We do some Internet research and find there are what amounts to support groups for people in short sales. It’s not unknown for such transactions to take two years.
“What’s going on?” we ask our realtor.
“Well, the problem seems to be that all these mortgages are insured by Fannie Mae or Freddie Mac or the Federal Housing Administration,” she tells us. “The banks know ultimately they’re not going to lose any money. So they don’t mind fiddling around waiting to see if prices go up again. It’s only when they decide to accept your offer that they want you to act immediately.”
So we wait. Now we’re starting having a problem with our rental. Our lease expires in September and the landlord says he doesn’t want to have to show the apartment during the winter. If we haven’t left by September, he wants us to sign another year’s lease. All this seemed inconsequential back in May when we put in our bid, but now it’s mid-July and nothing has happened. I start checking out motels and storage lockers just in case.
“It’s only going to get worse,” our realtor tells us. “Dodd-Frank is just going into effect and the banks are going to be dealing with a whole new set of regulations. It will slow things down even more.” The object, of course, will be to prevent the banks from making any more of those high-risk loans that the government forced them to make for two decades under the Community Reinvestment Act.
Then of course we have to get a mortgage. Our bank does a credit check and finds we score below 700, the dividing line for acceptable customers. It turns out I had a cell phone bill sent to a collection agency four years ago. I don’t even remember but I think it happened when I forget to put in a change-of-address after we moved. Also, it would help if I had more credit cards. Frugality doesn’t necessarily pay off in the credit world.
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