To quote the Scripture — and The Byrds: "for everything there is a season." And it seems that we might now be living in the season of the glitch, especially when it comes to the world of real estate and mortgage.
Last week, the Obama administration released some numbers reflecting the outcomes for homeowners who have sought loan modifications under the Making Home Affordable set of programs.
According to the Treasury Department, about 340,000 homeowners have been granted loan modifications under the program and are paying their modified mortgage payments on time. Sounds great, huh?
Well, yes, until you hear that 155,000 borrowers dropped out of the program — just in the last month! That makes a cumulative total of 436,000 borrowers who have dropped out of the program since its inception in March 2009.
Long story short — that means more people have left the program than those who have managed to receive permanent, successful modifications under it.
The banks often argue that the problem is missing income documentation, etc., but anyone who has ever attempted to submit one of these applications for themselves or for a client knows that many, many times, complete packages are submitted and resubmitted ad nauseum because the bank claims never to have received such and such piece of paper.
There is virtually no system of accountability set up under which a borrower can document what was submitted, and often the buck stops with no one — there’s no one person or there is an endlessly changing lineup of people on the bank’s end who are responsible for a given file.
Other borrowers say they did actually make on-time payments under their initial trial modifications, and the bank lost the payment!
But this is just the beginning of the big-time glitches that are throwing massive monkey wrenches into Americans’ best efforts to manage their weightiest financial and physical asset these days.
Last week, the National Association of Realtors also had a data release, announcing that despite the tax-credit driven influx of buyers into the market in April, closed deals were actually down 2.2 percent in May, compared to April! What’s to blame? Glitches, of course.
Super-long short sales, clunky REO (bank-owned property) sales with hard-to-corral asset managers (who must sign on the dotted line for the deal to close) and even "regular" deals with glitchful appraisals are stretching the escrow period out from the traditional 30 days to 45, 60 or sometimes many more moons.
These lender-side glitches are having such a massive impact that, even though Congress provided for a 60-day transaction length between the April 30 contract deadline for the tax credit and the June 30 closing deadline, according to NAR, 180,000 transactions that met the contract deadline will fail to close in time to qualify for the credit.
There has been a congressional effort to extend the closing deadline, though the outcome is uncertain.
But wait — there’s more! Rumor has it that many a transaction to buy a home along the Gulf Coast has fallen out of escrow due to the oil spill.
On top of that, the National Flood Insurance Program is about $19 billion in debt — largely from the effects of having to repeatedly rebuild homes destroyed or damaged by floods in a short period of time.
About 1 percent of properties insured by the program account for 38 percent of all claims! (Not surprisingly, these properties are also concentrated along the Gulf Coast, in areas hit by the double-whammy of hurricanes Katrina and Rita.)
So, Congress has let the program lapse twice this year. Given that real estate sales in the floodplain cannot close without this insurance, glitches in the program (currently alive under a short-term extension to Sept. 30, 2010) equal glitches in the transactions, full stop.
Well, it’s not always a full stop. Sometimes these glitches just create a comma — a breath-holding pause in the transaction while the buyers and sellers anxiously await news from the completely nebulous and untouchable powers that be (Congress in some cases, "the bank," in others) about when and whether they can restart their transaction, moving plans and their lives.
Other times, these glitches kill the deal, underline the cancellation, and shred the papers, metaphorically speaking — especially for sellers on the verge of losing their home if they don’t secure that modification or close that short sale quick-like.
It might not sound like the fanciest of economical prose or technical legalese, but glitch reduction is certainly a worthy, even necessary, aim of our collective efforts to heal the real estate industry.