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Will Equity Investors Save the Economy?

by Melissa Zavala on November 8, 2011 · 5 comments

Herman Cain Equity Investors

On September 7, Kerry Curry wrote an interesting article on Housing Wire entitled “New Normal Means a Lot More Pain to Come.” I read the article, which addresses our existing housing market. In it, an economist for the Federal Reserve Bank in St. Louis discusses how our “new normal” in housing is marked by 2% to 3% growth rates, more frequent recessions, and decreased consumer spending. The article also states that equity investors who can purchase properties and then rent them out may be the key to cutting our recovery time.

It’s a thought-provoking article, and you may want to check it out. But, here’s my problem. While I agree with the economist from the Federal Reserve Bank of St. Louis and I can see clear as day that equity investors who can purchase distressed properties are the key to the quickest possible resolution of our national economic problem, I’m not all too convinced that the banks are on board.

As a short sale agent, equity investors get no preference or preferable treatment in the purchase of most short sale transactions. For example, when Fannie Mae sends out an agent to perform a BPO, in most cases there ain’t no wiggle room on the price that they are willing to accept. Many times investor note holders stay so firm in their prices that the properties end up at auction. Additionally, few and far between are the cases I’ve seen where bank employees move more quickly just because there is a cash offer on the table.

Having been an REO listing agent, the same seems true here. In some parts of the United States, many banks are still listing their properties at high list prices and holding out for buyers that need to obtain loans—instead of accepting a lower cash offer and getting the deal closed fast.

With about a year before our next election, I’d like to propose a plan. It’s called the Single Page Plan (not to be confused with the 999 plan). Let’s get the equity buyers, the banks and the government all on the same page so that we can get these distressed properties off the books and begin to move our economy forward.

What say you?

Photo: flickr creative commons by Gageskidmore

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{ 5 comments… read them below or add one }

Jeff Brown November 8, 2011 at 2:27 pm

Hey Melissa — Point well made. There are literally thousands of 1-4 unit properties going unsold due to the Fannie Mae loan limitation rules. Eliminate that and a sizable chunk of inventory would disappear faster than we could say ‘common sense’.

Who are these investors being artificially shut out of the market? Superbly experienced, owning usually in excess of 10 properties (with loans). In my experience they have credit scores in the range of 725-805 or so. They never put down less than 20-50% — significant skin in the game. They don’t buy unless there’s gonna be cash flow.

Yeah, those are the buyers we should be keepin’ out of this market. Cash heavy, super credit, fat cash reserves, with massive experience.


Chris Clothier November 8, 2011 at 3:06 pm

Melissa –

Thanks for posting on the article. Thankfully someone on the Federal Reserve is talking some sense about how to deal with a problem that is really draining on the psyche of the American public. Great post.



steve werner November 9, 2011 at 1:15 pm

Why would they want to make it easy??

Investors are the KEY to absorb the abundance of property.

So U.S. Gov



Tom November 12, 2011 at 10:11 am

I don’t think Melissa’s point was that lenders are tight, which is true. I think her point is that the banks are not taking good cash offers, preferring to hold out for more and leaving the asset on their books, and this is bad for the economy as a whole.

So, why would they do this? Clearly, they are not willing to take the haircut, have the financial resources to carry them, and have firmly decided that the opportunity cost analysis says hold ‘em. They may change their minds as things drag on, but they certainly have the money to pay for the economists that they base such decisions on.

I tend to agree with the idea that, if you have the capital and no burning need or better place to deploy it, you might as well sit on you asset, pun intended. That stinks for investors in the market and looking for deals, but it seems to be the reality right now.


Melissa Zavala November 12, 2011 at 11:58 am

Love the pun, and yes that was exactly my point. Thanks!


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