Sunday, June 22nd, 2008 at 12:48 PM
Short Sale vs. Loan Mod
Jason commented again on his plight:
I just spoke with my bank last week about doing a loan modification. The girl I spoke to was trying to convince me in the direction of a short sale instead, to which I said I’d rather do a loan mod if possible.
She said they just approved 5000 short sales last week alone. Why would they rather lose money on a short sale than modify a loan and still have a good income from the loan?
By the way if anyone in the same boat as me is reading this, they take your financial information and then it takes a little over a month to get back to you for a loan mod. I’m not sure what they will do yet.
Here are my thoughts, but welcome other comments too.
1. While it may seem to be good income to you, the note-holders got into this game because they were promised double-digit yields. Whatever the new yield is, it’s less than they expected.
2. Because the original lender/packager sliced and diced these loans, there are multiple owners of each note. It has become too cumbersome for them to calculate and approve loan modifications.
3. The modification that will stick is one that cuts the payment in half, or less. The modifications the bank is willing to do won’t help enough – the payments are still too high.
4. There must be some financial benefit to the servicer to do a short sale. For the person answering the phone to tell you to short sale, rather than loan mod, is surprising. There must be something in it for them.
Jason, who is the lender you talked to?
Short sales are a great idea, if the banks/servicers can figure out how to do them quicker.
Asking buyers to wait 30-90 days to get bank approval is a deal-killer – they don’t want to wait, or if they do wait for a while, it’s inevitable that they’ll either see better deals and/or get talked out of buying altogether.
The buyers, and buyers’ agents, are already sick of short sales. The listing agents leave them in the MLS as active listings after the seller has signed a deal, so you don’t know if they’re available for sale, or not. If it is for sale, the buyers don’t know what price will work - did the listing agent put an artificially-low list price on it to generate more action, and can he close the deal at that price? Can I offer less?
The buyers’ agents don’t want to show them either – they want a clean chance at getting paid, and spending time trying to hold together a short sale is nerve-racking. The agents know the deal could fall apart any minute by problems on either side, and then to face the threat of having their commission cut by the bank at the end, is unattractive.
Unless the banks can streamline the process, don’t be surprised to see short sales become less popular, in spite of what the banks might tell you.
Posted on Sunday, June 22nd, 2008 at 12:48 PM in Short Sales | 15 Comments » | 
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What she said when washed through the honesty translator and converted to pats and til wags even a dawg can understand;
"You aren’t going to get enough relief with a loan mod so get ready for the next least bad thing, the short sale. We don’t have enough qualified staff to process and don’t have enough authority to approve and don’t have enough information to track the people who are qualified and authorized to do loan mods."
"Truthfully, my job is to get the next payment. That’s really the job of a portfolio servicer. What? You thought because of our name we were a bank? Silly, banks lend money, we process loans and sell them to others. Anyway, 30 seconds into your first phone call our proprietary software told us to flag your account and prepare for a failed short sale in 4 months (plus 2 months minus zero). From that point forward it has been our job to get 5 or more full payments from you while we get a jump on a speedy foreclosure and crush your Experian/TRW reports so that you won’t drain any more of your money."
I know that sounds harsh but ask yourself what choice do they have? Jason seems to think he can go back to car lot and tell them it is in their best interests to accept a lower payment because the value of his Hummer has depreciated.
Rob Dawg | June 22nd, 2008 at 1:30 pm"She said they just approved 5000 short sales last week alone." Really. In what country is that? Around here, all I see the short sales do is sit.
Simone | June 22nd, 2008 at 2:08 pmsimone, she is lying. People have to understand that it is her job to offer false hope or any other thing to grt the next payment. That’s why these things all take 30-60-90 days because th next payments are due in 30-60-90 days. you think they are going to say; ‘if you stop paying now it will be 8-10 months before we get around to you and at that time you’ll be in a much much stronger position to get better terms?" none of this is investment advice but once you cannot meet your loan obligations the bank becomes you enemy. That’s why they bend over trying to convince you they want to help. Maybe next time you play high stakes poker you show your hand to your opponent and ask what’s the best strategy. They’ll be glad to help you too just like the bank.
Rob Dawg | June 22nd, 2008 at 2:40 pmObviously, Jim, you’re right. 95% of these houses are going back to the bank by means of foreclosure.
The "sellers" should just enjoy their free rent while they have it.
Eventually this will all come to an end and we’ll have a "normal" real-estate market. We still have 2-3 years of declines, however.
greenlander | June 22nd, 2008 at 3:22 pmIf the magic real estate fairy came down and sprinkled powdered kool-aid over the SoCal market such that we returned to 1995 qualification standards and population adjusted sales rates and appreciation rates it would still take 2 years for all the houses already in trouble to work through the system. Every day that goes by adds two or three to the back end of this unprecedented series of events. This plays to Jim’s theme that there is no short waiting for things to get better for sellers who plan on selling now or in the foreseeable future.
Rob Dawg | June 22nd, 2008 at 5:23 pmIf the magic real estate fairy came down and sprinkled powdered kool-aid over the SoCal market such that we returned to 1995 qualification standards and population adjusted sales rates and appreciation rates it would still take 2 years for all the houses already in trouble to work through the system.
Lol. The real estate fairy is hung over and is in no mood for the bar brawl required to return the market to 2005. Its scary how little we’ve seen already. Until the banks take their medicine to move this pig through the python… its just going to be a long downturn.
Got Popcorn?
Neil | June 22nd, 2008 at 6:25 pmNeil
Jim it’s Indymac bank.
Rob Dawg, right now my interest rate is 7% and going down monthly. It’s tied to the MTA. I’m looking at the long term of the loan and trying to hang onto the house. If they can set the loan at 5% at 30 years or even better 40 years I can hold onto it(till the market comes back up and maybe even finally make money on it 20 years with eventuall appreciate and rent going up)
What you say about them saying what I need to hear to benefit them completely makes sense to me. The first guy I talked to also told me that prices real estate prices would be back up in 2 years and I would be able to sell then. I know realistically I’ll be lucky if I can sell for where the loan is now in 10 years.
Again I realize the idiocracy of my decision and you will beating a dead horse about how I got my self into this position. Almost feel like I need to tatoo a disclaimer on my head
I appreciate the posts and comments.
jason | June 22nd, 2008 at 6:31 pm"They’ll be glad to help you too just like the bank."
Too many people think they are the customers that banks and mortgage businesses service. It might help to think of the mortgage business like a McDonald’s. The mortgage is the grill. The servicers and brokers are the cooks. The revenue the lender collects is the finished and bagged burger. The lenders are the customers. What’s your role in this? You are the meat.
GeneK | June 22nd, 2008 at 6:41 pmPersonally, I think banks need cash now! Banks are looking to survive today and need cash at hand, and short sell give them immediate access to liquidity. Some banks are giving higher interest than their CDs if you deposit more than 100k and are a new customer (I mean switch the money to a new account at the same bank
). Did some of you read the news that how the MBIA might force to pay 7.4 billion dollars due to downgrades and it only has 4 billion in cash?
Arty | June 22nd, 2008 at 6:42 pmI think Arty’s got it.
Here’s what Jason said:
"If they can set the loan at 5% at 30 years or even better 40 years I can hold onto it"
————
Right now, **10-yr** Treasuries are at 4.17% and were at 4.27% a few days ago. A lender is unlikely to lock rates at 5% for 30 or 40 years, especially against declining collateral and a borrower who’s already shown financial weakness.
Some of us think rates will start rising in the near future, cutting the value of existing mortgages (especially low-rate FRMs). FRMs are NOT good investments when rates are at historic lows, and *that* is why ARMs were pushed so heavily over the past few years. It is illogical for a borrower to get an ARM when rates are so low; so lenders tried to entice people with all the exotic, teaser "loan products".
From a lender’s perspective, it’s best to take the short sale, especially if they think housing prices — and the value of their loans — will only go down from here. Best to release their money from their very bad bets and try to make up for their losses in other markets. At the end of 30 years, it’s likely they’ll do far better if they take what they can now and *wisely* invest it, rather than hope and pray their existing borrowers choose to continue paying on their underwater/undercollateralized mortgages.
Though it’s not often mentioned, many of the mortgage product buyers were pension plans, insurance companies, etc. that require a certain rate of return in order to stay in business/remain solvent. They need to increase their rate of return, and holding on to failed investments for many decades to come (decades that will require hisortic payouts, BTW) would be a very poor choice for them.
CA renter | June 22nd, 2008 at 10:10 pmBanks would much rather a loss on a short sale than a loan mod. They see it as if there is a problem paying now they should dump the loan, not modify and wait for it to happen again in the near future.
Jon Christopher | June 23rd, 2008 at 4:01 pmJonathan Christopher of Short Sale Way
I’ve experienced similar situations–basically the employees are human too, this person may have actually been trying to help you. If you are really in a hardship situation it can also help the bank–they would rather alleviate the situation upfront than go through a costly foreclosure.
USLoanMods Team
USLoanMods Team | July 8th, 2008 at 6:00 amUSLoanMods.com
It could be that they simply thought a loan mod would not be enough to help in your situation.
USLoanMods Team
USLoanMods.com | July 8th, 2008 at 6:01 amUSLoanMods.com
I need advice on what is better to do, a loan mod or short sale. We bought a house 3 yrs ago w/ 100% financing. The 80% loan is fixed for 3 yrs, then becomes ARM, w/c will happen this Sept.The 20% loan is fixed period. We just received a letter yesterday from Countrywide (the 80% loan) that our mortgage payment will increase around $500 starting Sept depending on the current index of whatever I don’t undertand. Our finances are stretched as it is. Our credit cards are near maxed out. Any increase in payment will make our situation worse.
teresa | July 9th, 2008 at 12:13 amWe are actually working w/ a mortgage broker right now who is will be helping us do a loan mod or shortsale, whichever we decide to do.
Originally, we were going to sell our house this year & use the equity we were supposed to get from this house to buy another house closer to where my husband & I work and closer to relatives. But like everyone else, no one foresaw that the market was going to go down like this. My broker recommeds that we short sale now as opposed to loan modification so we can cut our losses sooner. She said we can buy another house in 2 yrs as opposed to trying to hold on to a house that we want to give up anyways sometime. She said it will take another 5-7 yrs for the value of our house to back to its original value, meaning to get equity we can’t sell for another 8-9 yrs. My husband & I don’t want to wait that long. Living far away from work & relatives has caused so much stress, affecting our whole family. I don’t honestly know if we can do this for another 8 yrs. But we don’t want to ruin our good credit score. Both of us are in the mid 700s FICO score. Pls advice us on the best thing to do. And if we opt for short sale, how low will our score go down and how long will it take for our score to go up to 700s again. Thanks for your advice.
Teresa,
My husband and I are right there with you. Your situation depends on what state you are currently living in. We live in Virginia where your lender can pursue you for a deficiency judgment. If you owe $350,000 on the house and it sells short for $200,000 then your lender can sue you for the $150,000 they lost on the short sale. We are terrified about this possibility as this is where we are currently at. If you are in California, it is much more difficult to get a deficiency judgment. If you are a in a deficiency judgment state, then you have much more to worry about than a dip in your credit scores. Good luck.
Tristan | July 15th, 2008 at 7:32 pm