by Tanta on 1/13/2008 10:43:00 AM
Sunday, January 13, 2008
And Gretchen Morgenson has real live scientific evidence to prove it:
BUT it is possible to get a feel for what is happening on the ground from a new survey of 2,400 real estate agents sponsored by Inside Mortgage Finance Publications. The survey taps into the outlook of people who see troubled borrowers firsthand, when they try to sell their homes before foreclosure occurs.Mr. Popick, if they were selling the property to someone else who could "afford it," would we be talkin' short sale here? Do you folks actually listen to yourself talk?
For example, agents participating in the survey confirmed what many borrowers say: that loan servicers are downright unresponsive. This is especially true when distressed owners try to sell their homes before being put through the trials of foreclosure. When they sell at a price that is lower than the outstanding mortgage debt, that is known as a short sale.
Asked how servicers could streamline such sales, one said: “Allow you to go directly to the loss mitigation department without having to speak or argue with eight people before they finally give in and transfer you.” Another said: “Respond to offers within five business days — they are killing the market by taking upwards of three months to respond to an offer.”
A third participant said: “Answer their phone, make it easier to talk with the appropriate people, instead of playing Mickey Mouse games. I have never understood why these companies who are owners of a defaulted loan do not make it easier to communicate with agents who are trying to sell these homes.”
Thomas Popick, principal at Geosegment Systems, the designer of the survey and a supplier of data to financial services firms, said its findings show that loan servicers are averse to short sales, even though they may be the best solution for many borrowers, lenders and the overall real estate market.
“In many cases, loan modifications — no matter how generous the terms — only delay foreclosures on properties where the mortgage balance far exceeds the current property value,” he said. Homeowners who try instead to sell “know they cannot afford the property and are trying to do the responsible thing — sell the property to someone else who can afford it.”
It seems like a good time to discuss short sales in simple, basic terms that everyone can follow without moving their lips. First of all, anybody at any time can sell a home for less than the amount owed on it. There is no law against this. However, the buyer will not get clear title until the lender is either paid in full from other sources that make up for the shortfall, or agrees to "settle for less" and release the lien with less than full payment. So when we talk about "short sales," what we really mean are the ones where the lender is being asked to just take less than a full payoff of the loan while releasing the lien.
Why would any lender accept a short sale? Well, the idea is that a short sale is a form of loss mitigation or workout: the lender (investor) is presented with a choice between a smaller loss in a short sale or a larger loss in foreclosure, so accepting the short sale "mitigates the loss."
The first thing you need, then, is a lender who believes that it would have to foreclose, if it doesn't approve the short sale. Traditionally, you see, short sale offers come up when borrowers are already delinquent, and have probably already been having some contact with the servicer's collection department, and the idea of possible foreclosure isn't coming out of the blue for any party. In cases like this, even a cruddy servicer will probably have already given this borrower a contact in the default servicing department somewhere who, when reached on the phone, will have access to logs of the previous contacts and be able to respond to the idea of a short sale without being unduly startled.
What we seem to have going on, at least in some cases here, are borrowers who are not delinquent, who have attempted to sell the property, who have ended up with no offers except short ones, and whose Relitters therefore dial up the 800 number for the servicer, wanting someone who can make a deal, right now, soup-to-nuts in five days. Strangely enough, they're talking to your basic customer service rep who doesn't make short sale deals. And the CSR doesn't just transfer them to the Loss Mit Squad because, well, the loan isn't delinquent, which the CSR can see just by typing in a loan number and looking at the monitor. Are you likely to get someone saying, "Um, are you sure we're talking about the same customer?" Yes. You are likely to get that. Can you see why?
You can call this "Mickey Mouse" all you want, and we all know there's plenty of bureaucratic nonsense all over the corporate world, including but not limited to mortgage servicers. But the first necessary condition for "loss mitigation" is "evidence that loss will occur." Nobody takes the lesser of two evils unless both evils are on the table. If you have never been delinquent on your mortgage, and your financial situation has not changed since the loan was made (you still make what you made then, your non-discretionary expenses are still what they were), and you don't have some other circumstance like a forced job relocation, your servicer isn't exactly being dense by wondering why we're already supposed to be negotiating a short sale.
Every servicer, even the cruddy ones, has a process in place for dealing with this situation. If you "cannot afford the property," as Mr. Popick says, you are going to have to call your servicer and explain that you will very soon default, if you have not missed a payment already. The servicer will request financial information from you--possibly more of it than it asked for when the loan was made, but that's where we are. The servicer will also order an appraisal with an interior and exterior inspection. If you do not allow an appraiser (or broker for a BPO) access to the interior of your home, your case will go directly to the foreclosure department without passing "Go." If you have already listed the property, the servicer will need all the information from you about the listing date and the list price to determine whether your property has been "exposed to the market" adequately.
No servicer will ever, as far as I know, approve a short sale without asking you to pay something--even if it's just a token amount--in cash to offset the lender's loss. That might take the form of signing away your rights to your current escrow balance. It might mean you write an actual check. A large part of the reason that the lender makes you go through the part about sending copies of your bank statements to the Loss Mit people before a short sale is approved involves the lender making sure that you are either really a hardship case, or if not, that it removes some money from your pocket. Short sales are not actually "free puts."
You will absolutely be required to show evidence that the proposed short sale is an arm's length transaction. If the buyer of the property is getting "creative financing" from somebody in order to make the deal work, count on extra time while the servicer of your mortgage exercises its rights to examine the terms of the buyer's financing, even if the servicer of your mortgage isn't providing that financing. If the deal being contemplated involves this nice guy in a suit who came to your door and had you sign over title to your home with a promise that he could arrange a short sale for you for just a modest fee, your servicer is going to object.
If you, the borrower, are a real estate agent and plan on making a commission on the short sale of your own property, the servicer is going to double-object. If the buyer making the short offer is an LLC formed by a principal in another LLC who happens to be, um, you, the servicer will extra-triple-super object. This kind of thing happens--or tries to happen--often enough that investors do in fact demand a lot of details about the proposed transaction to prevent being scammed. Yes, we are aware that they should have been this vigilant when they made your loan to you, but they weren't and here we are. No deals are going to get made, start to finish, in five business days, just to make an RE broker happy.
If you have a second lien on the property with another servicer, you'll be dealing with two sets of negotiations. This will not speed things up any. If you have only one loan, but you originally had mortgage insurance, the MI will be a party to the negotiations as well. The MI takes most or all of the loss here. The MI gets to have an opinion.
Any sales contract you sign will have to have special contingencies in it reserving rights to the mortgage servicer. When the transaction actually closes, you will not be allowed to receive any funds directly. This will mean that the Settlement Statement will have to be sent to your mortgage servicer for review before your buyer gets the keys. It may all strike you as "Mickey Mouse." I can pretty much promise you that if you let that attitude show in your conversations with the servicer, the process will get even longer.
Is it the job of the Loss Mitigation Department to care about clearing your local RE market? No. Is it their job to care about keeping your buyer wiggling on the hook long enough to get papers signed? No. Is a short sale supposed to be a painless alternative to foreclosure for anyone involved? No. There are no painless alternatives. There shouldn't be. There cannot be.
Like anyone else with a functioning brain, I accept the principle of loss mitigation: a smaller loss on a short sale beats a larger loss on a foreclosure. However, I have a little bit of a problem with being told by an RE broker that I'd better hurry up and complete this short sale "before it gets worse." Are you telling me that the current transaction isn't, actually, short enough? In that case, are we transferring this property to "someone who can afford it," or are we just throwing in a "pinch borrower" who will be calling me up in six months with the same story I just heard from the former owner? Just exactly how often does an arm's length market produce a short sale price that is so much better than a foreclosure auction price? Why does it do that? You might want to think about it for a minute.
Real estate agents: you might want to be careful what you wish for. I don't know what all the various servicers will do--or will be forced by circumstances to do--but I know what I do every time someone tells me to hurry up and take a pig in a poke.
*From the CS Monitor:
But Dr. Baen of the University of North Texas is optimistic about their futures. "These people are hustlers, hard workers. They're used to getting on the phone," he says. "They'll end up in insurance, in mutual funds, in retirement planning, and commodities."And this guy is one of your defenders, my friends on the RE sales side.
Posted by Tanta on 1/13/2008 10:43:00 AM