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.

Today, Fannie Mae announced how it would deal with strategic defaulters: they will be punished by being unable to qualify for a loan for up to 7 years through Fannie Mae and the latter will reserve the right to take legal action to recoup the losses in states that permit deficiency judgments (not the case in California).  The line has been drawn in the sand.

Strategic defaulters, or those borrowers who have the financial ability to pay their mortgages but who choose not to and walk away because the value of their homes are underwater, are becoming a big problem for banks as the stigma is becoming less and less meaningful and the distressed properties market is ever increasing.   One study puts strategic default at 1/3 of all defaults which eventually lead to foreclosures.

Fannie Mae is addressing a big problem for itself and trying to force strategic defaulters to think twice before walking away from their mortgage obligations.  It’s a perfectly understandable move on its part as it is trying to do potential future damage control.   This reason is also why it has agreed to participate in the HAFA program guideline to encourage negotiated and approved short sales rather than have homeowners simply walk away. Fannie Mae and Freddie Mac have figured out it is better to work with the distressed borrowers and, for those who qualify, work out an agreed short sale resolution rather than have the property foreclose, as the loss to them will be significantly greater in the end. They are simply engaging in good business practices by mitigating their loss.

Steve Mun | Keller Williams Realty | (650) 605-3188 10280 Park Green Ln, #839, Cupertino, CA Live the truly luxurious lifestyle in the heart of Cupertino, centrally located to everything. 4BR/3+1BA Townhouse offered at $960,000 Year Built 2006 Sq Footage 2,058 Bedrooms 4 Bathrooms 3 full, 1 partial Floors 3 Parking 2 Car garage Lot Size 2,176 sqft HOA/Maint $226 per month DESCRIPTION Luxury end-unit townhome located on the interior side of the complex, away from the street exudes impeccable style and flair. Everything screams quality: Sub Zero/Wolf appliances; Kohler chef sink and faucet; Venetian Gold granite countertops; tumbled travertine backsplash and floors; exquisite dining area with hand rubbed hardwood floors; Thomasville lights; 13 ft. ceiling; cabinets in shaker beech with chocolate finish; upgraded carpets; family room and living room with pre-wired speakers; main entrance with intercom that is pre-wired for video camera. Lose yourself in pure luxury. see additional photos below PROPERTY FEATURES - Central A/C - Central heat - Fireplace - High/Vaulted ceiling - Walk-in closet - Hardwood floor - Tile floor - Family room - Living room - Dining room - Refrigerator - Stove/Oven - Microwave - Granite countertop - Stainless steel appliances - Laundry area – inside - Balcony, Deck, or Patio COMMUNITY FEATURES - Guest parking OTHER SPECIAL FEATURES - Truly top of the line luxury ADDITIONAL PHOTOS Main Entrance Communal Area Park Family Room First Floor Suite First Floor Suite Bathroo Bedroom 2 Bedroom 3 Bathroom 2 Laundry Room Master Suite Master Suite Master Suite Bathroom Living Room Living Room Kitchen/Dining Room Kitchen/Dining Room Kitchen/Dining Room Contact info: Steve Mun Keller Williams Realty DRE#:01358433 (650) 605-3188 For sale by agent/broker Equal Opportunity Housing Posted: Jun 16, 2010, 7:12am PDT

]]> 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.

Let me just start by saying this is my effort at sharing an experience I encountered today so that newer agents out there do not fall into the same trap.  Hopefully someone can walk away having learned something positive from this experience.

I have always believed the first rule of negotiations is to know where you stand before you engage the other party. Pretty elementary, right?  Sort of the first rule of negotiations 101.

Well, it seems that little gem of advice is sometimes lost to Realtors out there who proclaim themselves as  being “professional negotiators” as if that were a special badge of honor that only a handful secretly receive.  We Realtors are all negotiators, it just seems some are better prepared and do the prep work to insure they do not look incompetent.

Unfortunately, these days, in their desperation to close any deal, agents sometimes open themselves up to ridicule and more importantly, do their clients a dis-service by not being adequately prepared when they negotiate. Not only will they not get a deal, they may possibly lose the client whom they failed to protect.

I am engaged with a veteran agent (probably 30 years in the business) who is on the buy side of a deal.   The deal is taking longer than anticipated because one of the lenders is dragging their feet in coming to a decision on a short sale.  Everyone is frustrated including me, so I understand his impatience.  But nothing can happen until the second approves the deal.

But today he was trying to re-negotiate the price on the deal in a back-handed way which I did not really appreciate.  First, he claimed that the prices in the complex were falling drastically in the past two weeks and he now believed his client was over-paying for the property.  I told him if he believed that to be true, then his clients had the right to back out and I would return the deposit; I have a back up offer that will be glad to fill in.  (His claim of prices in the complex dropping is incorrect).   Secondly, he claimed we may not close in time to claim his client’s $8,000 tax credit because we cannot, at this point close escrow by June 30 (This is true).  Finally, he claimed his client was further harmed because the California Tax Credit (up to $10,000) had been exhausted within 2 weeks of it being announced (This was news to me) and he couldn’t get that either, so he wanted to reduce the offer price.

I understood the message he was trying to convey: 1) that the prices in the complex were falling and 2) the California Tax Incentives had run out and his client was depending on that.  He was claiming his client was hit with a double whammy.  Well, I would have been sympathetic if he had verified these claims before he made them to me and tried to unilaterally re-negotiate the contract.

1.  He was simply uninformed about the prices in the complex.  They were not falling dramatically, an identical unit had come on the market only 7 days ago for nearly $10,000 more than the price he offered to pay.  This is basic stuff, you check the comps before you talk prices.   2.  His claim that the Tax Credit fund had been exhausted, was again, an incorrect claim.  http://www.ftb.ca.gov/individuals/new_home_credit.shtml The fund is only 57% depleted!  I have no reason to lower the price; I am thinking he should raise the price since the house looks like a better deal now than before.

I shot down the grounds for his argument in 5 minutes.  He could easily have verified the information if he took 10 minutes to go online and look them up before he made these false claims to me. This is an individual who has been selling real estate for probably close to 30 years.  This was simply embarrassing for him and certainly did not make his client’s case any stronger.  Now I question whether I want to continue to do business with him or simply deal with the back up offer.   What was he thinking?  All he managed to demonstrate today was that he doesn’t know the first thing about negotiating and now has planted a seed in my head as to whether he is a competent agent or not.

Folks, check the comps and do your due diligence before you start making claims which could back fire on you and your clients.  That’s your job.

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.

Here are the latest numbers from the Mortgage Bankers Association Survey about Delinquencies for Q1 10.

Sub-prime mortgages continue to dominate a lion’s share of the delinquencies nationally at a rate of 41.15% of all such loans.

An area of concern now is the FHA mortgage, which is/was the prime method of purchases in the past couple of years.  The delinquency rate is an alarming 16.02%. Given how often this product was used, this number should be growing in the coming months.

The total delinquency for all mortgages:  14.01%.

What is the cause? Under-employment nationally was at 16.7% nationally as of April 2010.

As I have said over and over again, until we can address the unemployment issue, people will continue to have difficulties paying their mortgages.  Any reasonable person will pay their grocery bills over their mortgage payments.

For those of you who have been following HAFA, one thing that bothered most people was the fact that the large GSEs Fannie Mae and Freddie Mac were not participating in the HAFA program.  Well, as of June 1, that is no longer the case.  Both Fannie and Freddie have announced they will implement their own version of HAFA starting August 1, 2010. Like the private sector’s  HAFA program, the program will end on December 31, 2012.

However, some of the major differences offered by the new Fannie Mae and Freddie Mac HAFA programs include, but are not limited to:

- Both institutions will pay the servicer a $2,200 incentive fee for successful short sales
- Both institutions will pay the servicer a $1,500 incentive fee for all successful DILs
- The Deed for Lease (D4L) is available for borrowers who request and are approved to remain in the property following a successful DIL

The specific details on these programs are listed in their websites.  eFannieMae.com andFreddie Mac Bulletin.

What does this latest move mean?  It simply means that with the two large Government Sponsored Enterprises (GSE) now on board with HAFA, the short sale process and its effect on how the process will be handled in the future is now complete.  The days of lenders dragging their feet and making up their own rules on how short sales will be processed and approved is over now (theoretically, at least).  Everyone will have the same process by which to abide.

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.