Several mortgage servicers gave impressive lip service to promoting short sales at a recent industry conference, and the recent increase in short sales may demonstrate their money is where their mouths are.
I had the privilege of moderating a panel covering the topic of short sales at the 4th Annual Best Practices in Loss Mitigation Conference, sponsored by National Mortgage News, on Friday July 20 in Dallas. Titled “Heading for the Exit — Short Sales Dominate in 2012”, the panelists included three gentleman steeped in the world of short sales from the lender and servicer perspective:
- Brad Johnson, SVP, Portfolio Management, RoundPoint Mortgage Servicing Corporation
- John Rieger, Vice President, Liquidations/Short Sales, JP Morgan Chase
- Cody Trobaugh, Short Sale Director, Wingspan Portfolio Advisors
All three of these panelists acknowledged that short sales are becoming a bigger part of the distressed loan liquidation strategy for mortgage servicers, pushed by the banks and investors who own the loans and are realizing that short sales may be a better option for them than foreclosures — on several levels.
First, short sales often allow the owners of the loan to reduce their losses. RealtyTrac data shows the average sales prices of a pre-foreclosure short sale is about $25,000 more than the average price of a bank-owned home. All else being equal, a continued shift toward short sales as a liquidation strategy could keep billions of dollars in the banks’ pockets, given that the total number of distressed property dispositions (either through REO or short sale) has averaged 1.1 million annually over the past five years.
Rieger acknowledged that a short sale could reduce losses on a non-performing loan as much as 20 percent, and as evidence that the bank he works for is seeing the light when it comes to short sales he touted its Short Sale Accelerator Program, which gives potential short sale candidates as much as $5,000 to $45,000 in cash incentives to agree to a short sale, along with a deficiency waiver — meaning the bank won’t go after the homeowner for any losses on the loan that are not covered by the sale price.
Rieger and Johnson both pointed out the flip side of motivation for banks and other note holders: fear of the uncertainty and unknown risk that come with a foreclosure. The ever-shifting ground rules for foreclosure processing mean that a loan servicer can never be absolutely certain that it’s done everything to ensure a proper foreclosure, leaving it open to litigation from the previous homeowner or a zealous attorney general.
Johnson noted that RoundPoint’s servicing operation is going so far as to pro-actively intersect a potential short sale listing by cross-referencing its loan portfolio data with data from Multiple Listing Services (MLS) so it can contact the homeowner even before the homeowner reaches out to get short sale approval.
Despite the push for more streamlined short sales, significant challenges remain, according to Trobaugh, who said the biggest challenge from the perspective of real estate agents and homeowners is the lack of a consistent process, with each lender/servicer handling short sales differently.
Trobaugh also acknowledged short sales involving second liens are more difficult to successfully close, a topic we’ll cover in a future post.
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