Here's an idea I had: the government should charge the banks late fees. I passed it along to my Oregon congressman as well as my Senator but I thought that I'd post it here too. Let us first examine the problem that this program will hope to accomplish.
Banks are moving too slowly
Right now, banks have very little incentive to close on short sales. Why is that? The answer, of course, is that they can take back the house via REO and sit on the government bailout money. If you knew that your company was going to get a big fat check from the government, what would you do? The problem with this is that the REOs are dragging down the market and effecting non-distressed home sale prices. This, in turn, has become a drag on our financial recovery. Banks are very slow to move on short sales right now. The only way to speed them up, is through a little incentive. A different kind of incentive than what they have now, but the banks should be very familiar with it: late fees.
Why do banks charge late fees? To get you to pay on time, or to get money. If you're late, that's fine with them, they just made upwards of $50 bucks or even more. If you pay on time, that's fine too, because that's what you agreed upon. Why do people pay on time? To avoid the fees, obviously. It's a nice little system. Now it's time to use the system to our advantage.
Solution: Every month the bank is late, they get a fee
Since the banks are so slow to respond to short sales, they should be given a maximum of 60 days, or else the government charges them $5,000 for every month that they are late. Simple, but effective nonetheless. The threat of being charged those fees will encourage banks to make quicker decisions, get these houses off of their books, and finally start us on our way to economic recovery.
This will have one of two effects:
- This will significantly speed up these transactions, leading to a faster economic recovery
- This will generate significant revenue for the federal government
What America needs right now is turnover. We need banks to get these loans off of their books as quickly as possible so that they may start lending again. In order to do that, these banks need motivation to do so. Right now, they have none.
