I read an excellent piece this morning in the New York Times written by Greg Smith about why he was leaving Goldman Sachs. In short, he says it’s become too sleazy as short-term profit motives are now trumping all other considerations.
In the past 2.5 years I’ve been investing in real estate in my home town Pueblo, Colorado. What I’ve found is that large banks are dragging out the foreclosure process so that homes are left vacant for 18 months or more. This is bad for everyone.
- It’s bad for the banks because while the homes sit vacant they deteriorate and lose value.
- It’s bad for the neighborhood because it drives down prices and vacant homes invite criminal activity.
- It’s bad for local government because the value decline results in lower revenue while additional criminal activity requires higher expenditures.
- It’s bad for investors and prospective buyers because they have to spend more money on repairs.
- It’s bad for renters because the reduced housing inventory decreases supply and drives up rental costs.
I’ve read a smattering of articles about the “shadow inventory” and everyone seems to accept what the banks are doing. The argument seems to be that holding back the houses is reasonable behavior because the banks don’t want to “flood the market” and drive prices lower than they’ve fallen already. What a crock.
The real reason that banks are stalling is because
- they don’t want to recognize the losses on their books
- they don’t want to report those losses to Wall Street
- and, they don’t want to take the ensuing haircut on their stock prices.
In other words, their actions are driven by short-term greed just like Greg Smith’s description of the culture at Goldman Sachs.
I would love to do an analysis to demonstrate the correlation between slow-moving foreclosures and crime but the raw data aren’t readily available or they cost too much from providers like CoreLogic and RealtyTrac. The federal government could help by requiring that these banks – who owe their survival to taxpayers – disclose all the details of their foreclosure inventory (addresses, amount owed, estimated value, square footage, bedrooms, baths, etc) and post it to data.gov or some other central repository where anyone can download the data for analysis.
This would allow everyone, including Wall Street, to more readily assess the losses that will be coming when the homes are liquidated by the banks. If the banks are no longer able to hide their impending losses, hopefully they’ll do a better job of processing foreclosures more efficiently so American neighborhoods can begin to recover.