On Monday, CR had this SS post and graph on the increase in short sales. The information used was part of a package that included a national audio conference held that day about short sales, and the upcoming HAFA, which begins April 5th.
There were three speakers, from Bank of America, Wells Fargo Bank, and Freddie Mac, who discussed what they are doing about making short sales more palatable.
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Bank of America rolled out their new short sale phone number, 866-880-1232, and mentioned that agents can now use their REO-processing website for short sales. The presentation was a little light on details, but I can report a recent success.
We submitted a short sale on behalf of our seller that only took six weeks to get an approval (and the notice came over on a Sunday, from Plano, Texas).
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Wells Fargo Bank announced that they are placing short-sale managers in the field. They will be interviewing the sellers on-site, going to their houses to determine their eligibility, and collecting the necessary financial documents. Once in process they’ll order an appraisal, and have a response in 7-10 business days.
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I think the banks are too optimistic about the sellers’ willingness to cooperate, after training them to crave the free cheese. WFB is giving $5,000 cash-for-keys to the sellers, but they need to threaten them with foreclosure if we’re going to see any real movement.
Both banks promised to pick up the pace – if they could close short sales within 60 days, it would be a big improvement. To keep the sales urgency higher, the banks have to move quicker to determine the acceptable price of the properties – buyers would be more willing to wait out the process if they knew their price was approved.
It’s hard to believe that the servicers will push to pre-approve any short-sale prices, or especially in the volumes necessary to make a difference. Pre-approvals are, in effect, a voluntary principal reduction, and servicers aren’t going to be rushing those out. Will they approve a fully-packaged short sale in 2-6 weeks? It’s possible, and getting an accurate valuation quickly is the key.
Other hurdles:
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The junior lienholders have to agree to lose money too.
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In the Q&A, it was asked if there are going to be deficiency judgments, or are the sellers off the hook. Freddie Mac confirmed that sellers in HAFA are released from liability, but the representatives from Bank of America and WFB were conspicuously silent.
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Sellers are still subject to deficiency judgements from junior lienholders, and liable for income tax on capital gains.
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For possession and occupancy to be delivered to the buyers, the sellers have to get out of the house. But they are addicted to the free rent, plus their credit report will reflect 6 to 18 months of late payments on their mortgages.
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Once the short sale is approved, the buyers then conduct their physical inspection. Any required repairs fall on the realtor to resolve – expect many potential short sales to fail at this juncture due to inexperience/ineffectiveness.
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The rampant fraud being committed by realtors is a turn-off.
The housing bailouts have a history of not benefiting the masses. For short sales to increase significantly, the lenders would have to commit to losing big money, and lately there has been reluctance and feet-dragging.
I can see short sales speeding up approval time for securitized mortgages, servicers pushing through more short sales faster if they are incentivised.
But for portfolio loans without PMI, banks would be taking effectively massive write downs quickly if they sped up the process. This does not seem to fit the delay and pray program very well, given that they are not forced to try to fix their balance sheets, and their stock prices are not tanking.
So I would be a bit surprised to see loans outside the HAFA plan speeding up for short sale approvals. Should be an interesting year.
Good post.
Hey Jim, when you gonna tour Baja Carlsbad again?
“I think the banks are too optimistic about the sellers’ willingness to cooperate”
Aren’t short sales initiated by the seller to avoid foreclosure? I wouldn’t expect this to be an issue. Also, $5k cash for keys is quite a motivator! Don’t tell my wife or she’ll stop writing our mortgage checks. 😉
With Tarp banks have access to unlimited funds why would they need to short sell at loss?
This is important to consider. Especially the timing. the Mortgage Debt Forgiveness Relief Act of 2008 was trying to grease the skids of recovery (but everything else the government did was to slow it down)
http://www.irs.gov/individuals/article/0,,id=179414,00.html
It’s important to consider the lienholders’ position and what that money was used for, as well as recourse status to determine which is better for the borrower, short sale or foreclosure.
As I have long said, and is still true to this day, foreclosure and bankruptcy are SOLUTIONS to the problem of too much debt. The fact remains, people already have a problem, the only question is what is the solution.
In many, of not most short sales, they will require the borrower to sign a promissory note that basically extends the debt into perpetuity and assures that they can come after you at any point in the future. In this case, foreclosure is often much better for the borrower than a short sale. Just get ‘er done and be done with it so you can rebuild your financial lives.
Too many people believe in the tooth fairy of real estate, hoping that somehow there is a loophole that is better than the normal path. There isn’t. There is no such thing as a free lunch.
Chuck Ponzi
Even before these banks proposed their “new and improved” streamlined process, I can attest that Jim pulled out all the stops to get our short sale purchase done in about 90 days! He’s got real courage and goes where no other realtor goes, staying on the case and even getting the listing broker’s attorney involved. I don’t think we’d be here if it wasn’t for Jim the Realtor! A big thanks!
$4,000 buyer paid “negotiator fee?”
Who do you think ultimately ends up with that negotiator fee? It seems like that’s just a form of payola to the seller.
Otherwise, as you have pointed out, the seller doesn’t get much from a short sale. (I think you put it that short sales are only for the listing agent to earn a commission, or something like that.)
Jim,the rampant fraud that NO ONE in authority is paying attention to.Not the state,not the CAR or NAR,not the local board of Realtors.There are ethical and competent brokers and sales people and I count several among my friends,but quite a few have left the field out of disgust.
It’s a sorry state when the local board sends an 11-minute video message to explain that the two SD boards of realtors are thinking of merging, and the only point is for us to not complain, and trust that the board of directors can handle it.
I don’t think anyone gives a hoot about the board of realtors, They have done so little for so long that it’s too late. I had told their clerk earlier in the day that Sandicor will be out of business within five years, and then caught myself and said – “Make it three”.
I will dance on Sandicor’s grave.