November 21, 2013
Getting back to my 'Sunday Afternoon Musings'...it's been a few weeks since i wrote something here, but want to share some recent experiences here in Charlotte:
A new friend told me that a recent study revealed the following: Among 14-18 year olds, one of the Top 5 questions they had about financial matters was 'What's a foreclosure?' Among those, one of the top questions was: 'How does one make money off foreclosures?' This would have been a surprise to me, except that i had to explain this concept to my own 14-year old, not because he really cared about the topic, but because he had heard so much about it from me that he was simply curious.
Our top choice for the home to buy in Charlotte happened to be a short sale (wherein the market value of the home is much lower than the liens on the home), which is not a problem in itself for a buyer, except that one gets to see the worst effects of the mortgage crisis in the US, and more importantly its abuse by those who are protected by recent laws, which were actually designed to protect them from lenders. So, to make a long story short: buyer makes a bid on a house close to market price; seller 'accepts'; first lien-holder accepts after a revised higher bid; second lien-holder rejects offer because the first lien-holder offered them the minimum amount required by the new law, which is a small fraction of what they are owed. The result of all this is that the house is not sold, the buyer has wasted 2 precious months in which he could have found another home, the 2 lien holders have not received the money owed to them, and the seller stays in the house for free, hoping to continue to do so for many more months/years until the house goes into foreclosure...sad! The seller probably bought a new home from the home equity loan from this house, which they are obviously not repaying. This is a depressing case study for those curious 14 year olds! And then another friend tells me of someone else in Chicago who has been living in his house for free for 3 years as the process stumbles along!
I am sure the new laws resulting from the recent mortgage crisis in the US protects many borrowers, but I witnessed first-hand, or actually suffered because of, the dark underbelly of these seemingly well-intentioned bandages to the mortgage crisis problem.
However, there is another side to this story... Although it's hard to establish causality between the two, especially because the innovation story is probably dated - it's just i experienced it first hand only recently. Having gone through 3 home mortgage loan applications with 3 different banks in a span of 2 months, i was able to experience the efficiency and efficacy with which mortgage lenders sell, process and underwrite hone loans. Real-time credit checks, electronic signatures, automated follow-ups - all contribute to the ease with which a new home loan can be approved. In my case, this streamlined process was a boon because i was actually to go from plan A to plan B to plan C rapidly; however, it makes me wonder whether this efficiency is actually a good thing under normal circumstances. One quick form filled on an online mortgage referral web-site resulted in almost instantaneous incoming calls from lenders (at night) offering rate quotes with minimal information.
Did the innovation in the mortgage world cause the mortgage crisis or does the pain from the crisis deserve to be eased by the innovation?