Freddie Mac CEO Ed Haldeman announced the number of its short sales increase by 600% from 2008!  An increase was certainly obvious, but 600%?   And with HAFA still ramping up, that number is sure to increase in the near future.

In a statement put out this week, Haldeman said Freddie Mac is doing everything it can to prevent more foreclosures, and that short sales are becoming an ever-popular tool in situations where foreclosure is imminent and modifications have failed.

The rationale behind this increase in foreclosure is, again, obvious for distressed homeowners.

“Foreclosure alternatives like short sales and deeds-in-lieu help borrowers to avoid the stigma of foreclosure, shorten the waiting period before they can buy a new home, and may inflict less damage on their credit reports,” Haldeman said.

He added that these alternatives are also helpful to lenders and insurers. Citing several independent studies, Haldeman said banks lose more than $50,000 per foreclosed home or as much as 30-to-60% of the outstanding mortgage.

You don’t need media reports like these to know that short sales are increasing dramatically, just ask your local realtor who handles a lot of short sales whether their short sale volume is increasing.

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]]> http://www.sanjoseshortsaleagent.com/2010/06/16/short-sale-properties-can-be-luxurious-and-beautiful-and-in-the-best-school-districts/feed/ 0 http://www.sanjoseshortsaleagent.com/2010/06/11/how-much-money-do-lenders-save-by-approving-a-short-sale/ http://www.sanjoseshortsaleagent.com/2010/06/11/how-much-money-do-lenders-save-by-approving-a-short-sale/#comments Fri, 11 Jun 2010 23:04:31 +0000 admin http://www.sanjoseshortsaleagent.com/?p=779

Why would banks agree to a short sale when they know they are going to be losing money?  This is the question I get posed to me frequently.  My answer: it costs them less money than to foreclose on a property; lenders’ primary responsibility is to mitigate their losses. Once we understand that, then the concept of a short sale is really not a mystery.

When you speak with short sale negotiators and other people in the industry, it is common knowledge that banks make more money when the sale is completed through a short sale, rather than permitting a property to go into foreclosure.  This was the unspoken truth that everyone acknowledged but no lender published any data to support or deny these truths.  Not having published data can be problematic for bloggers, as  postings are much more credible when there is data to support your contentions, rather than anecdotal evidence.

Today, for the first time, I discovered published data which sheds light into the true disparity between homes that are disposed as short sales vs. those disposed as REOs after returning to the lenders after foreclosures.    Short Sales net the banks between 13-26% more than REO sales according to Clayton Holdings after conducting a 6 month survey conducted between October 2009 – March 2010. (I’ve heard some higher numbers from other industry insiders).

13-26% is a nice tidy bag of cash for the lender holding those underwater mortgages; fantastic job of mitigating their loss.   And people still wonder why short sales are approved.

Many naysayers poo poo’ed the program, saying it was never going to fly and that lenders would not abide by the terms because it was not in their favor.  But you know, there always will be naysayers whose job it is to simply criticize any new idea that comes along which challenges the status quo.

Yes, there are still glitches in the system and many employees of banks do not understand or have not been trained in HAFA and we get to deal with a high percentage of them who are not helpful.  However, an announcement made last night will resonate and have long term impact on the dynamics of the distressed properties marketplace, in my opinion.

Matt Vernon, the executive in charge of short sales and REOs at Bank of America (BofA) announced that institution will now focus on short sales to liquidate their assets before they get into foreclosure.  “We’re going to do everything possible to liquidate property prior to foreclosure,” Vernon said. “REO will still be available, but we will do everything we can to do short sales.”   This is wonderful news for consumers as their underwater properties can be disposed of without having to be forced into foreclosure and devastating their credits.  This is also good for banks because industry surveys have shown that nets proceeds to banks are significantly higher when short sales are utilized as compared to REOs.  BofA is of course is still in the business of making money and has chosen a profitable method, but this method also benefits the homeowners as well. And with all of the loan modifications applications out there, and the unfortunate reality is that a large percentage of those loan modifications will default and end up on the foreclosure circuit.

Mr. Vernon has spoken previously and have been pushing for the notion of short sales taking a more prominent role at BofA. BofA was suffering  from backlash on their Loan Origination business as a consequence of them developing a notorious reputation in the short community as being difficult to work with.  This move will be followed by other banks in my opinion, like airlines follow and match fares when one major player comes out and takes a stand.

HAFA may not have lived up to the expectation people had about its efficacy in making  short sales easier to handle or process, but what it has done is provided an environment where a big player like BofA can come out and concentrate on short sales as a major tool to unload their real estate portfolio.  This move on the part of BofA has now pushed short sales out of the niche market and pushed it into the mainstream, making it easier for consumers to get short sale approval, and hopefully quicker too. Now here is truly a win-win solution for all involved parties.

One of the biggest benefits of a HAFA approved short sale is the cash contribution component to the homeowners for their moving expenses.  This was commonly called Cash for Keys in the REO world, and now it is available to the short sale world as well.

However, people have been asking to see some “official” details in writing.

So here it is.  Here is the  Making Home Affordable Progams’ letter which it will send out to distressed Home Owners who do not qualify for loan modifications.    It breaks down the program down into the Who, What and the Whys.

I was speaking to a fellow agent yesterday who told me about a horror situation with a bad agent doing a short sale for a client of hers. This particularly inadequate agent told the borrowers they had to vacate the house prior to the listing the house, so these borrowers had to move out to an apartment, believing that was required to do a short sale.   They won’t know how long this short sale will take to be approved, so they are now paying rent for an unspecified amount of time into the future.  This was a completely unnecessary move; and these borrowers did not have the financial wherewithal to make this move.

These borrowers, by not checking into the agent’s background and experience ended up having to spend thousands of dollars they did not have to spend.  A competent agent would not advise the borrower to move out before listing house, especially in this circumstance when there was nothing warranting such a move.

Ask for references. You don’t have to pay for the agent’s fee, so why would you not get the most experienced and qualified representation you can find out there?  This is a no brainer.  If an agent is good, his clients will vouch for him/her; conversely true if the agent is bad.

It was interesting to hear that they are focusing on dramatically  improving their short sale process because they want to re-establish their relationship with Realtors to strengthen their ties with us on their mortgage origination front . Apparently, there has been a lot of negative repercussion on  their mortgage origination front during this important time, when buyers are trying to buy properties to take advantage of the Federal Tax Credit. He emphasized this point at the beginning of the presentation and again at the end of the presentation.

They have re-defined the customer in their view of the short sale process. It is no longer, solely the investor, but the new definition includes:

1. Distressed homeowner
2. Listing Agent
3.  Buyer’s Agent
4. Investor

This was the order he placed  the various interested parties.  (Hmmm.  I wonder if their participation in the HAFA Program had anything to do with this?)

Then he went into full detail explaining how they are utilizing Equator to process short sales and how successful it has been for them from in the past few months from their own measurements.   I can attest to this fact.

This presentation today obviously was to address the negative image that Bank of America is suffering right now from Realtors who specialize in Short Sales.  However,  it was very refreshing for this huge organization to come out and pro-actively admit they have a problem and lay out what they are going to do to do as an institution to address the problem.   But most importantly, in my opinion,  learning that they are doing this because they are suffering on their loan origination side as a result of this bad publicity.

Call me old fashioned, but I always try to get to the root cause of why people or institutions change their behavior.  In this case, apparently, it is because of the money they are losing on the origination front.  This makes it real and insures Bank of America will follow through and live up to its announcement.   After all, it is about them making more money.