BANK CRISIS – It's no secret that there has been a significant increase in the number of foreclosures around the country. We all know the mortgage business is in utter caos. The debate will rage for years as to who is responsible. What nobody, including the media is talking about yet, is the horrific mismanagement by these banks to effectively deal with this issue in a manner that protects shareholder value.

It seems that the basic principal of maximizing shareholder value these by these public company managers is the very last thing being considered at the moment. When the New York Times, Wall Street Journal, CNBC, or other major media company finally breaks this story, shareholders will surely begin screaming at management about minimizing these losses and protecting their investment. The big question seems to be, will big media let the rabbit out of the hat, or will they continue to protect this secret for the very companies that spend millions in advertising dollars at their companies?  

Here’s a thought, how about asking a real estate company how to fix the problem instead of waiting for the government to bail the bank out. By the way, when that happens guess who pays the ultimate price?  You got it....the shareholder and the taxpayer! For purposes of keeping this understable for us average Joe's out here, here’s how I’d deal with the problem:

1)  Rework the loans of homeowners who can actually afford to stay in the house under reasonable mortgage terms. This is being done to some extent now.

2)  Adopt a policy that keeps homeowners in the house while professionals in the industry market the home to find a new buyer.

3)  Speed up the decision making process and accept reasonable short sale offers to avoid the significant losses that will occur if the property is vacated.

3)  Lend money to NEW qualified buyers on that property. Make them prove income and credit worthiness, but give them an incentive to buy the house at great values with lower interest rates or reasonable downpayment requirements. The market will not always remain in devaluation mode.

Obviously that is a very simplistic view of dealing with this massive problem. But why does everything have to be so complicated all the time? Here are the facts:

* There is tremendous red tape and systems are not in place at these banks which make it almost impossible to help them reduce their losses.

* By dealing with a sale at the default stage instead of letting the property go thru the foreclosure process, the bank could save a significant amount of equity in the home.

* It is estimated the true cost to the bank on vacated foreclosures may reach 50-60% of the original loan.

* The minute the house is abandoned, heat is turned off, weeds grow, and vandalism occurs it destroys the equity in the property.

* The brunt of those losses are the burden of the shareholders, not the managers that seem to ignore the problem. Massive right downs and capital raising events destroy shareholder value thru reduced share prices and dilution.

* Getting local real estate professionals involved to help the homeowner and bank find a 'retail' buyer could save the bank hundreds of millions of dollars if a policy of 'default' liquidation management is adopted.



Lets assume for a minute that all of the proper proceedurs are followed durning the 'short sale' process, again for simplicity sake. The real problem is that it takes the bank way to long to make a decision on an offer once it is presented. In most cases, the buyer gives up and walks away from the offer because the bank cant get their act together. When an offer is presented as requested by the bank, it can take 20 phone calls and 30 days just to get a customer service rep assigned to the case.  It can take another 3-6 months to get the bank’s approval on the short sale. What retail buyer is going to wait 30 days to 6 months to find out if their offer has been accepted? That leaves only investors who buy property at 50-60% of market value as the only viable buyer of these properties. See the delima? The bank doesn’t want to accept an offer that low. After weeks of hiring appraisers and Broker Price Opinion companies, by the way, the Realtor selling the property has access to the exact same information already and usually sends that in their package, it becomes a wait and see game. If a miracle occurs and you get a short sale approval, it has been common practice for the bank to then begin stripping the commission out from the deal making it impossible to get a real estate professional to take on these cases. Who wants to spend months and money marketing a property only to have reasonable offers stalled or have their commissions stripped in order to get the deal done? Do they begin docking their own employees in this capacity? Maybe they should when bad decisions are being made that cost them millions. Lets face it, ultimately it’s the bank teller and middle management who ends up paying the price thru lost jobs because the bank has to cut costs to curb the tremendous losses they are incurring due to these decisions.

I have no doubt that if a shareholder instead of a manager was the decision maker and was presented the same option of either agreeing to a short sale now and taking a 10-15% loss, or gambling during the 9 months that it will sit empty during the foreclosure process that no damage is done, water pipes don’t break, or windows don’t get broken resulting in a 40-60% loss.

I dont have the PHD's that many of these politicians and economists have so I cant be called an 'expert'. My experience comes from 15 years of real estate industry experience. I've been on every side of the real estate business over that time frame which include investing, internet marketing, and Realtor sales. Through our consumer real estate website www.sellmyhouse.com, we get hundreds of daily visitors asking the question “what options are available to me to avoid a foreclosure”. In the majority of cases, they are willing to cooperate while the property is being marketed to find a buyer. What is stunning is the fact that most tell us that their bank gives them very little direction or information about what they can do to help themselves, and lets face it, by helping themselves they are really helping the bank protect their investment. Every single day we have buyers who walk away from a purchase offer because the bank takes to long to make a decision. The end result is the homeowner gets frustrated and walks away from the house. At that very minute you can begin watching the value of that property begin to deteriorate rapidly with every month that it sits empty.

Let the professionals do their job! In the end they will help the banks save money and protect their shareholders. Put the government’s bailout plan to work and get the money out on the street. Let real estate networks like www.sellmyhouse.com market these homes during the default stage to find somebody who is going to move into it. They pay retail prices, investors do not. Sell houses in need of work to investors. They are taking the risk of renovation and deserve a profit. Finally, pay the Realtors. Is it good business practice to cut their commission at the last minute after they have spent hours and hours working to help you SAVE MONEY! The fees being charged by these short sale negotiation companies could be avoided if the red tape is reduced.

So why aren’t banks actively working with homeowners and companies to help save this equity? There are hundreds of thousands of homeowners around the country and millions of bank shareholders that are asking that same question. Maybe Bill O'Reilly over at Fox will help us break the story and get to the bottom of this once and for all. Bank shareholders across the country sure could use a need a 'no spin' approach to deal with this massive problem!