Yesterday I had the great opportunity to moderate a symposium on mortgage liquidity with a pretty heavy panel of mortgage bankers and industry executives.

I knew they would be guarded in their answers, as I asked about the new world of underwriting, the wind down of Fannie Mae and Freddie Mac, the tighter more expensive FHA, new federal regulation in the industry and a controversial new appraisal process.

And they were guarded, until I opened up the floor to the Realtors, who hammered them hard on foreclosures, short sales, and mortgage credit for independent contractors like themselves.

A Realtor from Wilmington, NC asked what are the plans for companies to put the shadow (foreclosed) inventory onto the market? Most agents believe banks are holding on to these properties to somehow game the market, but the bankers were firm in their rebuttal:

Cara Heiden/Wells Fargo [WFC 28.59 0.73 (+2.62%) ]: "With respect to shadow inventory, we are not holding on to properties. On average we do hold the REO about 160-70 days, but once they're listed they're sold in 90 days and the reason that we hold them for a period of time prior to listing is so that we can get them in better shape for sale and uphold, to the extent that we can, market values. So we're not holding other than for the purpose of getting that property to a level that does help maintain market values whenever possible."

Doug Jones/Bank of America [BAC 11.868 0.008 (+0.07%) ]: "We too don't hold to have any market placement or timing. We need to clear inventory, so as soon as we go through that process, the property is marketed as an REO and we move it out."

...but when the President of the National Association of Realtors, Ron Phipps, pushed the bankers on short sales, that is selling a property for less than the value of the mortgage, it got a bit trickier....

Cara Heiden: "When we get the offer in and the paperwork is ready to go, our goal is 5-15 days ... "

[the crowd of over 1000 broke out into a huge wave of laughter at this because they don't buy that for a second]

...subject to our investors and what we're authorized to do.

Ron Phipps: "In the field our experience is we don't get responses in a timely fashion."

Cara Heiden: "I'll just say short sales are frustrating for you and they're frustrating for us."

She went on to defend that they are adding staff, training staff, working to improve, etc. But there was no winning that one.

A Realtor from Midland, TX asked why banks aren't giving incentives to investors to buy up REO (bank owned foreclosures) properties.

Mike Williams, the CEO of Fannie Mae, which currently holds over 153,000 REOs on its books, took the question: "Our first priority is to make sure we preserve the value of the property for the company and secondly for the community."

Williams then said they give occupants the first option and then go to the public entities, like the cities.

Once that's done, he added, "I can tell you that investors play a crucial role in our ability to market and sell our properties."

Williams noted that Fannie Mae will offer loans to investors for a maximum of ten investor properties, but couldn't go much beyond that.

A Realtor from Philadelphia, PA then told a story of one of her clients, a young couple who had bought condo in 2006 and then had a baby. They want to move out to the suburbs, but are underwater on their mortgage. They are employed and have excellent credit but are upset that a short sale would ruin their credit, making it impossible to get a mortgage for their next home.

Dave Stevens, former FHA commissioner and now president of the Mortgage Bankers Association: "The first concern on negative equity is people in distress. This is a tough example and I think there's a lot of silence on this panel because at some point someone would have to pay the loss on that write down and the question is, who do you want to pay? do you want the taxpayers to pay it? Do you want the banks to pay it? Or is there something that would say if you pay it can the banks also get a share of any upside that occurs in any future appreciation because it isn't a one way option when you make and investment decision."

I agree with him, and I couldn't help but add my own rant on borrowers trying to game the housing crash.

But things really got uncomfortable when a Realtor from Colorado, a single mother who is current on mortgages on her home and a few investment properties, but is struggling due to loss of income, begged the bankers to take her on; she claims she can't get help because she's self-employed, an independent contractor with a 1099.

"Come on guys, I am the perfect save right here," she said to much applause.

Doug Jones/Bank of America: "The industry and investors require documentation, our balance sheet requires documentation. It's a problem, I respect your situation, it's very very challenging. I am not going to say today or tomorrow we have a solution where we can't document income. We don't have a solution for that."

by Diana Olick CNBC May 11, 2011