Lenders say there’s a staff shortage…I say “hire someone!”by Peter Miller
For those who have not noticed, the housing mess is old news. You could argue that it started in April 2007, that’s when property values were at their peak, 19.8 percent higher than today. Or you could go back a year earlier, to April 2006, when the Association of License Law Officials was meeting in Jacksonville.
It was at the Jacksonville meeting–a time when the real estate market was boiling with good news–that one speaker said:
“We now have a situation where stated income loans, interest-only financing, option ARMs and excess equity loans have begun to season. That means we will soon begin to see more and more of these mortgages convert to phase two, a time when monthly payments must be substantially higher to amortize the loan.
“The result is that a growing number of recent property owners will find that they have homes and investments which cannot be sold at a profit–as well as homes and investments which cost too much to carry. The fruits of this impossible dilemma will be more properties for sale, more supply, more pressure to moderate if not lower prices, more foreclosures and more bankruptcies. Even those without a mortgage may find that the value of their home will drop as neighbors who financed imprudently rush to dump their properties on the market.”
I remember that speech. Not only was I there, those are my own words.
Is there really a staff shortage?
Alternatively, the New York Times now tell us that:
Although sales have picked up a bit in the last few weeks, banks and other lenders remain overwhelmed by the wave of foreclosures. In Atlanta, lenders are repossessing eight homes for each distressed home they sell, according to March data from RealtyTrac. In Minneapolis, they are bringing in at least six foreclosed homes for each one they sell. In once-hot markets like Chicago and Miami, the ratio still hovers close to two to one.
Before the housing implosion, the inflow and outflow figures were typically one-to-one.
The reasons for the backlog include inadequate staffs and delays imposed by the lenders because of investigations into foreclosure practices. The pileup could lead to $40 billion in additional losses for banks and other lenders as they sell houses at steep discounts over the next two years, according to Trepp, a real estate research firm.
We should be questioning the banks
I take issue with the Times report because it does not include a lot of yelling and screaming. Someone–say government regulators, the media or the public–should be yelling and screaming at the banks for two reasons.
First, you have to laugh at the idea of a staff shortage. I can easily understand a “staff shortage” for our friends and neighbors in Joplin, a place where tornadoes hit without warning in just the past few days and caused massive damage. However, a staff shortage for mortgage lenders trying to handle loan modifications and foreclosures?
This is a joke.
There is nothing sudden or unusual about the foreclosure crisis. It has been going on for at least four or five years, depending on which benchmark you prefer. The lending industry has had plenty of time to hire all the people they need.
Bank profits way up
The truth is that mortgage lenders could easily have ramped up the staff they need to better handle the foreclosure crisis. For instance, the FDIC reports that insured commercial banks and savings institutions had a $29 billion profit in the first quarter of 2011–that’s up 66.5 percent from a year earlier:
This is the seventh consecutive quarter that earnings registered a year-over-year increase. For the sixth consecutive quarter, reduced provisions for loan losses drove the improvement in earnings.
So the modification and staffing problems reported by the Times are not a byproduct of some cash shortage. The banks are doing great–far better than most businesses. Just look at today’s mortgage rates. What they’re not doing is spending their money where it should be spent, on efforts to clean up the foreclosure mess.
Smarter spending could go a long way
Imagine if bank profits were held down to a mere $28 billion in first quarter. That would give lenders an extra billion dollars to staff modification and foreclosure centers. This could be a good use of banking dollars if it prevented some of the $40 billion in additional losses mentioned by the Times, or if it meant that affidavits and other paperwork was filled out correctly before people lost their homes.
The paperwork problem is a growing issue, especially now given that the Maine Supreme Court has just stopped a foreclosure because the paperwork was “inherently untrustworthy,” a decision which could impact courts nationwide.
Instead of being short-sighted, banks should put their money where their problems are. Hire people. Get the paperwork right. Let’s clear out foreclosure inventories the right way, save banks money in the long run, and also reduce unemployment while we’re at it.
Peter G. Miller is syndicated to more than 100 newspapers and operates the real estate news site, OurBroker.com.