Do you see a end in sight? Real estate solutions will not be easy for banks, investors, or communities.

Even a stimulus bill creeps to Congress,  bank prices fell yesterday in light of the news.  This is indicative of the fact that investors and banking investors were not confident that the stimulus bill will completely revive the industry.  The fact is that the industry will not find solutions from more money.  These mistakes were created by giving out loans to people who did not have good credit or income.  

Couple these mistakes with the fact that now banks are completely shutting off loans.  It does not bode well that the banks will be rebounding on their own.  If banks do not make loans to quality individuals (credit scores above 650 with solid income history), then how are they planning to increase revenues to offset losses?

If a bank portfolio is filled with bad loans, and you are in the business of making loans (traditionally the bank swere designed to make money off by lending on consumer deposits); then  making good loans would seem to be a long term plan or solution.  What is the long term plan for turning this situation around?  Are they planning to just increase fees on there customers?   This seems like a viscious cycle to driving away consumer deposits. Without those deposits, then how will they create the liquidity needed for loans?

If I were banks, I would cut the losses on the bad portfolios. Keeping the properties on their books trying to artificially keep the prices higher, only keeps the banks hemorraging funds.   How many times have you seen notices of abandonment and foreclosure, but the property is not listed yet?   Obviously, this would be beneficial to investors, but it would help inject back in liquidity for banks.  Banks only spend money or properties lose value while the properties lay vacant.

Additionally, while the property lays vacant it drags down the property upkeep and maintenace; this further depresses prices in a region.

Banks should work with HOA associations to help try to insure regulations are their for maintenance of property.  For those owners in condo complexes, they should work to have regulations in place to possibly deal with maintenance and leasing issues.  To avoid dragging down a community, investors must have regulation in place to insure that the tenants that they bring in are quality people.   Investors often have a short term view, and this short sightedness leads them to make desperate moves (renting to risky tenants,  no vetting for criminal issue, no enforcement of  property cleanliness).   

One way the  Federal government can force the banks to take their medicine is to force them to be in full compliance with maintenance standards of a community.  This way, they full absorb the carrying cost and reduce the delaying and stalling tactics that they use with their REO portfolios.    Banks strategy seem to be predicated that the Government will bail these portfolios at former market prices.

Banks should cut their losses, use whatever funding is received to improve liquidity, and not overreact in the lending arena to remove solid prospects.

Medicine often is bitter, and in this case everyone is taking a dose of it.