First is that flipping homes is in no way illegal.  The only time that it is, is when the seller has a buyer for a higher price and doesn’t disclose it.  Of course there are always other ways to make it illegal, but the simple act of buying a home, then selling it for more money is not illegal.

Banks are trying to force buyers to not flip the home they are buying.  Banks are:

banks are requiring everyone involved in a transaction, from the real estate agent to the mortgage broker, to sign affidavits swearing they have aren’t in the flipping business with anyone else involved in the sale.  Source

Of course they are doing this at the same time as they are jacking buyers around, not processing short sales for 6 months or more, and demanding buyers to use them as the lender.  Effectively they are forcing people to buy all cash, and who has the cash?  Investors of course.

Then there is complaints that flipping drives up prices.  How can that be?  Didn’t the new and improved lending rules make that impossible by making the appraiser report to the bank not the borrower?  Oh, and while they are at it, the banks cut the fees to the appraisers who now outsource as much of the work as they can.  Can you say ‘super accurate Zillow based appraisals?’

What about the ‘added value’ issue?  Part of the complaint is that flipping homes doesn’t add any value.  Two thoughts here.  One, is that I have yet to see a house get flipped that didn’t get at least a minimum of cleanup and repackaging done to it.  That is added value.  Second is that by screwing around with buyers like they have, the banks have created a situation where a property is more valuable simply because it is not a short sale or REO! 

Buyers are sick of the games the banks are playing and are paying more for properties that won’t have to have bank approval to sell.  This of course drops the price of bank owned ones even further.  As I see it, simply having the cash and patience to fight with a bank for 6 months to close the sale of a home is added value enough to warrant a flip.

Enough ranting from me on the banks and how they are screwing up the market and blaming it on everyone else.  Now that you know my opinion on this, let me know what yours is.  Are the banks to blame, or are they being hurt by dirty real estate investors that are flipping properties?

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Investors alone could not have crashed the market!

While it is true that builders went insane with how many units they were producing, and that flippers were everywhere, there are two other places that need to be looked at.  These are the loans that were out and out fraudulent and the loan programs lenders were strong armed into making for the subprime market.

Powered by Jimmy Carter’s 1977 Community Reinvestment Act (CRA) ‘community groups like the now deceased and fully discredited ACORN worked for years pushing banks to make loans available to low income families. Using its ties to the government and the Federal Reserve they forced banks do loans they otherwise wouldn’t have.

The Federal Reserve Board has been ACORN’s “partner” in this endeavor ever since 1977, when the Fed was given responsibility (along with the Comptroller of the Currency) for enforcing the CRA. For those who are not yet familiar with the CRA, which was significantly strengthened during the Clinton administration, it works like this: The ostensible purpose of the Act is to get banks to make more mortgage loans in “minority and low-income” neighborhoods. These loans have been defined by the government as “sub-prime” loans, implying that the borrowers have credit ratings just a tiny, tiny smidgen below the “prime” or highest-credit-rating borrowers. This of course is a farce, as nearly everyone now knows. The Fed keeps track of such loans, and gives each lender a CRA ranking. A poor ranking can destroy a bank’s plans for branch expansions, mergers, and other activities.
The Federal Reserve ACORN Racket

So banks were pushed into making loans to high risk individuals.  Not a great business plan, but banks are a business and if they have to play ball with ACORN and the Fed to stay in the game, they will do what they have to do.  Faced with big portfolios of questionable loans, the banks found ways to repackage them and sell them off to investors.  Shady, yes but not surprising.

Fraud on the street had a hand to play as well!

With low income loans available as well as low-doc and no-doc loans, you know fraud was going to show up.  Not nearly enough light has been put on the number of buyers that were put in homes using totally falsified information.  Sometimes these were actually people wanting to buy a home.  I would be willing to bet though that in the areas with the highest home loan default rate, you will find the highest levels of flat out bogus loans. 

The number of different scams people played with the banks is amazing and bounded only by human ingenuity.  The lowest of our society will always look for ways to scam and defraud those of us that are actually working legitimately to make a profit.

What is the solution to this whole mess? It will be a while before the scars of this crash heal up, but primarily what we need right now is the government to get out of the business of playing with the markets and for banks to start lending again.  If those two things happen, supply and demand will even things out and we will start moving some of these short sale homes off the market and that is what we need to do before things will fully start to turn around.

As for banks doing short sales, as the esteemed cooking show how Alton Brown would put it, “that is another show.”  Right now they seem to be totally insane in musings as to why they are doing what they are would take hours.

Where else and who else do you see at fault for the current state of the real estate market.  Do you have a prediction for when it will turn around and what it will take to make that happen?