National Closing Center

Posts Tagged ‘short sale’

The woman in Sarasota, FL, thought she’s being scammed… and then she felt like she won in a lottery. We haven’t encountered anything this big lately, but the tendency on the part of banks to be more generous and act fast(er) is definitely there.

Read the story below.

The bank spent the last two years denying Deborah Johnson’s efforts to save her Sarasota home from foreclosure, and then out of nowhere, last month, sent her an unbelievable offer.

If Johnson can find someone to buy the property for half of what is owed on the mortgage, JP Morgan Chase bank will not only forgive the remaining $100,000 or so of debt, but also send her away with $35,000 in her pocket.

The proposal was far better than a foreclosure, which would punish her credit score more severely, strand her without money for a new place to live, and expose her to collection efforts for the unpaid balance for the rest of her life.

Read more

According to Mortgage Servicing News, after three consecutive years of declining remodeling activity, a key indicator of future spending on new kitchens, remodeled baths and other home improvement projects is finally pointing upward.

Substantive growth in remodeling spending seems likely next year, according to the Leading Indicator of Remodeling Activity, which is published quarterly by the Joint Center for Housing Studies at Harvard University. The model is calling for spending to pick-up to a double-digit pace through the first half of 2011.

It’s very tempting to attribute this growths to increase in short sales. Home buyers have been exclusively looking for bargain properties, short sales being their primary choice. Considering low interest rates and bargain prices of short sales, qualified buyers after the closing must have some cash to spare, which they are spending on remodeling.

Also, short sale properties do need much more remodeling than so called regular sales, which leads to our conclusion that short sales are fueling remodeling indeed. The latter leads to the second conclusion, that overall short sale is the best option to fuel activity in the market.

Of course, low prices and super low interest rates are not great, but short sale still is the best option that saves home owner underwater from foreclosure and further embarrassment, gives lenders a little bit better slice of the pie than selling the same house as REO and, hopefully, gets the property into the hands of people who are ready to be homeowners and who will invest their money in the property.

I’ve seen this article that talks about real estate situation in Nevada. It suggests that short sales are hurting economic recovery, because it takes so long to process them.

According to the article, short sales are starting to act more like foreclosures, and it is just delaying what will inevitably happen.

This is what housing market analyst Dennis Smith had to say:

If there are going to be foreclosures, then why are they letting them lag for 12 months to only deny the short sale,” Smith said. “If we need to correct the system, why not take the hit and move on or do you want this housing recession for another five years or it to take three years.

Well, Mr. Smith has a point. However, the matter is much more complex and system will not correct itself. First of all, a tsunami of foreclosures does not mean that banks are going to release all these REOs instantly. Actually, during the past year banks have been holding back their inventory. So even if a considerable amount of potential short sales become foreclosures, there are no guarantees they will speed up the clean-up process.

Secondly, the problem is not short sales, but the way they are processed. Banks are understaffed and many employees are not properly trained. On the other hand, many real estate agents are not prepared or simply lack time and resources to deal with short closures efficiently.

It is debatable, what is easier and more feasible: fixing the way short sales are handled or forcing homeowners underwater into a foreclosure.

From a recent column published in New York Post:

Just like homeowners, banks have taken a beating on the housing market. So if they think someone is foolish (or, we could say, “daring”) enough to invest in a pool of negative equity left in peoples’ houses, then why wouldn’t banks try to dump this sludge on these fools?
Investors buy the unpaid receivables from credit cards all the time.

I’m sure a lot of people are surprised and even outraged, but this is how the financial sector functions. As soon as the biggest storm is over, they’re back to business as usual. And, yes, as disappointing as it looks to a layperson, there’s no better way to do it.

Read the entire article here >>>

National Public Radio (NPR), which is usually not on top of real estate issues, published a significant article on their website regarding short sales.

On one hand, there is no new information here, and even the title of the article is just a jaded statement that everyone in the industry know very well. “A Way out for Homeowners in Trouble Hits the Snag”, says the title. Big news? No news. Short sale is the best option for many homeowners, but because of inefficiency and inexperience of banks often it does not go as planned.

On the other hand, NPR neatly recaps the situation, and hopefully more people outside the industry will be able to understand why sometimes short sales are not getting approved as fast as we’d like. At the same time, it does not mean that short sales is not the best option available for homeowners under water.

It is nice to see an article on national media that instead of trying to demonize short sales actually shows that it’s a great option, but often times is not working because of poor performance of banks. See the quote below:

JPMorgan spokesman Tom Kelly says, “We have staffed up and improved our processes in the past year to get answers faster, but we have a fiduciary responsibility to get the best price for sale.”

Still, both bank spokesmen acknowledge that a short sale is a better outcome than foreclosure for everyone involved.

If liberal, not very much business-minded NPR acknowledges that short sale is a better option for everyone, who could doubt that it is so?

Mia Saini of Forbes recently expressed her (quite controversial) opinion basically stating that the government should encourage foreclosures and short sales:

My solution is that the government should encourage banks, borrowers, and underwater homeowners to quickly foreclose their homes. Banks will be reluctant to do this because they will be taking a loss when the home sells at a lower price, but in the long term the housing market cannot move forward until all the foreclosures have been cleaned up. Foreclosures are a perfectly appropriate exit tactic given our budget deficit and the previous round of lackluster tax credits. (Read more.)

This has been sort of a tabu in a real estate world, however, this particular opinion is being expressed more and more often. Yes, the stimulus worked to a certain extent, but do we really need to spend more money on tax credits? It’s a trillion dollar question, but probably less and less people are comfortable answering it with a firm “yes.”

A massive industry cleanup might be exactly what we all need. Yes, there are going to be significant losses; but they just might be less painful in the long term as opposed  to a huge debt we are getting ourselves and our children into.

Ms. Saini did not mention short sales as part of the cleanup. I do, however, think that short sales might, in many cases,  be as beneficial as a tool invigorating the market, as foreclosures. Maybe even more so. There is only one condition: they got to be closed in a lightning speed.

Properly orchestrated short sales would be an incentive for near-underwater sellers to sell and bargain-hungry buyers to buy. There is no question that almost an short sale is in better condition that REO. If we could get short sales moving faster, we might not need any kind of credits and other incentives. Banks would get more of their money and sellers in trouble would recover faster to enter the market again, hopefully, as more responsible buyers.

LPS, Nation’s leading provider of mortgage processing services, has organized a fantastic conference, called “LPS Default Servicing Conference” that took place in Denver on August 18-2o, 2010. The action packed conference touted big names and influential sponsors and was overall very well organized.

What was really interesting to observe is the direction the entire industry is taking. LPS is talking about the “default servicing.” Participants, especially real estate agents, were talking all about short sales. The latter are mentioned in the Welcome word by LPS leaders, printed in the conference’s booklet.

Finally, all the players of the real estate and lending industry acknowledge that all of us, in one way or another, will be in some sort of “default servicing” for the next few years, if not a half dozen years. It’s a stark contrast from 2008 or even 2009, when mainstream organizations where crying wolf about hard times, but still in disbelief that short sales will last.

At the same time, real estate agents were avoiding short sale, deeming them as troublesome transactions that will not be a significant long-term presence. Now everybody seem to agree short sales cannot and should not be avoided. \

Here were NCC comes into play. Just a little plug…

Reading my daily dose of news on real estate and short sales, I came accross this opus:

Arizona Real Estate Commissioner Judy Lowe says, “There is a dramatic trend toward this [kind of mortgage fraud]” in the Valley. Lowe points out that the low-ball price in the first sale of the home makes a larger deficiency in paying the mortgage balance—and therefore may mean the seller owes a larger tax burden for the deficiency. The low price also hurts home values for everyone in the neighborhood.

You can read more here >>

This is, of course, quite a random rant. On the other hand, it’s on local TV channel’s website. And it bears exactly the same message that pops up more and more often. It boils down to something like that: These new things like short sales must be taken with a grain of salt or even shunned. All these bad people who invented bad loans now are praying on broke homeowners trying to strip them of their last pennies. And so on and so forth; you get the gist.

There is no doubt mortgage fraud exists. Although I would say more on the side of irresponsible wannabe homeowners, who used to provide numbers off the top of head and loan originators, who would not only accept these numbers, but would encourage that kind of fraud.

Event top people behind the programs like HAMP acknowledge there is no way to tell for sure, at least not in all cases, who engaged in fraud, and who were irresponsible, ill-informed or plainly financially illiterate. Now we all are left to deal with the mess. So if scape goats are needed badly, we can go back to the originators and lenders. But this is not going to help anybody.

Short sales are completely different beasts and yet I have to see a person who sincerely cannot afford his or her mortgage and who would not benefit from a short sale. If (and only if) the transaction is done properly. So, yes, there are some unprofessional and plainly incompetent people who have no clue about actually helping distressed home owners to get out of the mess.

However, their number are nothing compared to the amount of lenders who were ready to give loans to anybody with an ability to breath. So trying to scare people and discredit one of the best solutions available for homeowners in trouble is not going to help anybody.

Majority of those considering short sales without taking a proper action are going to end up dealing with a foreclosure, bankruptcy or both. Now who we are going to blame for that? Fraudsters and real estate agents?

Market will have to clean itself, and short sales are a better evil. So stop scaring people and start educating them, so we all can move on to the better future economy.

While success rate for HAMP hasn’t been what the government or servicers hoped, changes that made along the way will help improve it, but the continuous changes are also part of the frustration in trying to manage the program, said Mark D. Spangler, assistant vice president, section manager, with Huntington Home Savers Group. The group is part of Huntington National Bank.

Longterm, HAMP “wasn’t meant to be an end-all, be-all” and there are many other programs out there to assist borrowers, Brewer said.

It’s clear that HAMP is something servicers are stuck with and they are reluctant to call it a failure as there is very unlikely anything better is going to emerge any time soon. However, the biggest problem is the conspicuous fact that many borrowers even after the loan modification canno afford their loans.

In many cases loan modification only delays the real solution for the problem, that is a short sale or even a foreclosure. Even if short sale still quite often gets a bad rap in the press, it obviously is a better solution than foreclosure.