Why Is The 2nd Lender So Stupid?

I usually like to be objective when writting these blogs but if there is one thing that really gets to me is sheer stupidity on the part of many lenders who tend to be the 2nd and sometimes the 3rd lender.

The following discusion involves short sale transactions and the unwillingness of 2nd lenders to approve the sale of the property.

In a short sale, the homeowner sells the property for less than what is owed, conditioned upon the approval of all lien holders also know as banks or lenders.

As the US government continues to put pressure on the mortgage industry in an effort to stabilize the housing market and stem the foreclosure crisis, we’ve made great strides with short sales and most lenders are working to improve their short sale approval process.

Unfortunately this only applies to the 1st lender.

Most of the short sales that end up falling apart do so due to the excecive demands of a 2nd lender. Ironically the one party to the transaction which has the most to loose should it not be succesful is in fact the 2nd.

When a property is foreclosed on, the property will revert back to the 1st lender wiping out all other loans including the 2nd. So to recap, if the short sale is not approved and the property gets foreclosed the 2nd gets 0.

So why do 2nd and sometimes 3rd lenders make it so difficult when they stand to loose the most? It’s just incredible to me how illogical these lenders can be.
If there’s one thing I know having dealt with many Banks in transactions is the fact that they usually aren’t rational.

Although the government has gotten involved to “stream line” the short sale proccess it’s going to take much more pressure to force these 2nd lenders to be reasonable. This alone would decrease the pace of foreclosures significantly and allow home values to rebound.