WBUR: What's Next for Banks? Three proposals to protect home buyers & tax payers' investment
Tuesday, January 27, 2009 at 10:53AM 
Comment on WBUR / OnPointRadio talk show: What's Next for Banks?
Listen to rebroadcast on 90.9fm in Boston, 7-8:00pm, Tuesday, January 27, 2009 or listen to audio online at your convenience
Pulitzer Prize-winning New York Times business columnist, Gretchen Morgenson, told NPR / WBUR listeners that tax payers -- who collectively will invest an estimated $1 trillion to rescue the banking system (see "The End of Banking as We Know It") -- should insist on more regulation to protect consumers. Thus far, only 1 in 4 foreclosures has been listed in the real estate industry's multiple listing service (MLS), according to a recent article entitled "Banks to unleash flood of REOs."
Morgenson's recommendation and reader comments on WBUR's blog (particularly , lead this blogger to ask if the Obama administration should enact three new regulations to insure an open and cost-effective foreclosure disposition process, particularly for prudent first-time buyers who sat out the housing bubble?
1. Require any vendor involved in foreclosure disposition to sign a "no conflict of interest policy" which, among other things, prohibits "dual agency" and "designated agency" -- a business practice that allows real estate agents / agencies to represent both buyer and seller in the same real estate transaction. (See related blog post: "Double Bubble: How counterfeit buyer agents inflated the housing bubble.")
2. Establish transparency guidelines for real estate offers so buyers, who are easily manipulated by fear of loss, don't engage in irrational "bidding wars" and overpay for properties, particularly when there isn't really a competing buyer. (Here's an example of one software solution that banks could use with foreclosed properties, and potentially save tax-payer money by selling direct to home buyers without a listing agent.)
3. Set-aside a significant percent of the foreclosed inventory for low and moderate income, first-time homebuyers and non-profit agencies, so they do not have to compete against investors. The RTC (Resolution Trust Corporation) demonstrated the cost effectiveness of this policy during the last foreclosure cycle (1990-1995). (See Wall Street Journal editorial to "Resurrect the Resolution Trust Corp.")
One of the last WBUR callers also talked about organizing a class action suit. That has a familiar ring to it. In fact, a story in the New York Times a year ago caused us to write this blog post, "Misleading home buyers: Conflict of interest? What conflict of interest?"
The NYTimes speculates that consumers, angry that their counterfeit
buyer agents did not provide adequate advice and protection, will
increasingly take legal action. Will their collection actions rise, at
some point in some overvalued market, to a class action lawsuit?
If readers feel they were harmed by dual agency or designated agency, please contact The Real Estate Cafe. Got other ideas about how to reform the residential real estate industry to avoid conflicts of interest and prevent future housing bubbles ? Listen to some idea starters.
Reader Comments (3)
Nice, the irrational exuberance is gone. Now it is clean up time after the party.
Key pull quotes from follow-up article also published by Inman News:
Obstacles delay REO sales
Part II: Banks to unleash flood of REOs
1/27/09
EXCERPT #1: Documentation that 1 in 4 properties not listed in MLS
By disposing of some properties through auctions, asset managers can keep them out of the MLS, Thompson said. That way, agents running comps on their other properties don't have to factor in those discounted sales. This could be one partial explanation for RealtyTrac's discovery that as many as three out of four REO properties are not listed in the MLS (see part one), he said.
"Lenders have turned much more immediately to auctioneers as the best way to get rid of properties quickly," said Joshua Olshin, president of New York, N.Y.-based Tranzon Integrated Property Group. "When they realize the waiting game is a losing game, they are much more willing to move in to auctions."
EXCERPT #2: Proof that banks can save money by selling direct, Rec #2 above
Stickel said some banks may want to sell their REOs themselves because they don't want to pay a Realtor's commission.
"So it's not necessarily that the house is not on the market, it's just not in the MLS," she said.
EXCERPT #3: Justification to restrict some sales to low-mod buyers, rec #3 above
At the same time, Miller and Sklarz say lenders sometimes underestimate the value of some REO properties in their inventories by relying on macro-level data -- such as the Standard & Poor's Case-Shiller indexes -- that don't reflect the unique characteristics of individual neighborhoods.
Such undervaluations by lenders can create windfalls for savvy local real estate investors who purchase and flip these properties, Milller and Sklarz say, but fire-sale pricing can also hurt neighborhood property values (the two are the co-founders of Collateral Intelligence, a Sherborn, Mass.-based firm that helps lenders tackle valuation issues).
EXCERPT #4: Justification to manage bid process to prevent bidding wars, rec #2 above
Michael Davin, president and co-founder of Hermosa Beach, Calif.-based discount brokerage CataList Homes Inc., said that REO homes will fetch fair value if they are listed in an MLS.
"I am a broker so I believe in the MLS and its market," Davin said. "It's just almost impossible to pick off deals that are below-market. Because if you price it really low, you'll stimulate a multi-offer scenario."
Davin said CataList recently handled an REO listing for Wells Fargo that had seven offers and sold above its list price.
FULL TEXT: http://tinyurl.com/REOFlood2
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