American Banker, By Kate Berry
April 21, 2009
Trying to cut its losses, Bank of America Corp. has changed its
policy on short sales, making it easier for borrowers to sell
their homes instead of going into foreclosure.
Until a month ago, BofA and its Countrywide Financial Corp. had
required that 10% of a home’s sale price go toward paying off
home equity lines of credit before they would agree to a short
sale. But Terry Francisco, a spokesman for the Charlotte
company, said Monday that it changed its policy last month,
agreeing to accept 5% of the sale price when there is no equity
available to holders of the first or second liens.
The new policy “is based on the assumption that it is in the
best interest of all parties involved to accept a short sale, as
opposed to proceeding to a foreclosure,” Francisco said. “We
believed that the previous policies set an arbitrary amount that
did not take into account the savings derived from proceeding
with a short sale.”
BofA expects the change to increase the number of short sales,
he said, and even though it is releasing the liens, it reserves
the right to pursue deficiency judgments against borrowers.
With foreclosure moratoriums being lifted in the past month,
bankers are looking for ways to deal with an anticipated flood
of distressed properties and are trying to determine which
borrowers will get loan modifications and which will go into
foreclosure.
Experts on short sales say they have been difficult to negotiate
with lenders that are often reluctant to accept discounted
payoffs when a home is sold for less than the balance due on the
mortgage. But losses on foreclosures can be as much as 30%
higher than on short sales, and housing20prices are still
falling, so servicers are slowly starting to change their
policies, experts said.
One critical issue is second liens, particularly home equity
lines of credit; these lenders are even more loath to permit a
short sale, knowing that the primary lien will likely receive
almost all the sale price, leaving little or nothing for holders
of secondary notes.
Raffi Tal, chief operating officer at IShortSale Inc. in
Woodland Hills, Calif., said holders of second liens are often
offered payoffs of $1,000 to $3,000 in short sales, and many
such deals are held up because the lenders refuse to accept
these payoffs.
“The banks are holding short sales hostage,” Tal said. “They
don’t care that a year from now they will have to take over the
property and sell it for 30% less when they could have sold the
property in a short sale in 30 to 90 days.”
Experts have long complained that the largest lender-servicers
— BofA, Wells Fargo & Co., JPMorgan Chase & Co. and
Citigroup Inc. — are also the largest holders of second
liens.
The four largest banking companies own 52% of residential
revolving lines of credit, or $441 billion of loans in the
second lien position, according to Laurie Goodman, senior
managing director at Amherst Holdings LLC’s Amherst Securities
Group LP. That includes $92.6 billion of second liens on their
balance sheets, she said.
Tom Kelly, a spokesman for Chase Home Finance, said it has a
“disciplined process” for handling short sales with HELOCs.
The process includes determining if the offer is at fair market
value, which may require a new appraisal, requiring that
borrowers submit hardship information to determine their ability
to contribute to the shortfall and investigating for
misrepresentations and “non-arm’s-length transactions,” Kelly
said. “This doesn’t happen overnight.”
Norm Miller, a professor of real estate at the University of San
Diego’s Burnham-Moores Center for Real Estate, said 77% of
foreclosures in California have second mortgages, most of them
HELOCs, which often scuttle short sales.
There are other factors holding up short sales, including the
commissions paid to real estate agents and mortgage insurance.
Some servicers have cut real estate commissions on short sales
from the standard 6% to 3% or less, experts said. To combat that
practice, Fannie Mae adopted a policy March 1 saying the sales
“may not be conditioned upon a reduction of the total
commission” paid to real estate agents.
Matt McCabe, the president of Loan Resolution Corp., a
Scottsdale, Ariz., company that helps lenders resolve defaulted
loans, said servicers “put themselves in a position” to get a
short sale rejected.20″Some realtors were shying away from short
sales because it takes so long and commissions were being cut,
even though it saves lenders a lot of money.”
Rich Rollins, the president and chief executive of National
Quick Sale LLC, a Jacksonville, Fla., start-up that specializes
in short sales, said mortgage insurance companies also are
holding up the process, because the insurers take the first 25%
loss on a short sale.
Experts agree that many servicers are ill-equipped to handle the
negotiations that typically involve several lenders, a defaulted
borrower and a willing buyer, who typically waits months before
a package is approved. In some cases, short sale offers are
rejected because the calculation for the property’s fair net
value does not match the buyer’s offer — even if that
offer is higher.
“Short sales have always been the last tool that servicers ever
use, because they have to coordinate with too many stakeholders
in the loan, and it takes a lot of follow-up,” said Cheryl Lang,
the president of Integrated Mortgage Solutions, a Houston
consulting firm.
Servicers typically have a small staff with knowledge of short
sales working out of the loss mitigation department, which is
separate from real-estate owned specialists with expertise
valuing properties. Many servicers “just don’t have the
technology and infrastructure to deal with short sales,” Lang
said.
Because the majority of short sales involve multiple lien
holders, a buyer often waits at least 90 days before getting a
response from a lender on an offer. In a rapidly changing
housing market where prices are falling every month, many buyers
are unwilling to wait that long and often walk away.
“The banks really need to get short sales done faster,” McCabe
said.
Some specialists said the government should not have given the
largest lender-servicers money through the Troubled Asset Relief
Program, because they were then unwilling to accept short sale
offers and are waiting for the housing market to recover.
Tony Renzi, the president of GMAC Mortgage and chief operating
officer of Residential Capital LLC, said servicers are starting
to see “more flexibility from second lien holders,” largely
because of the sheer volume of foreclosures expected. “There’s
more of a recognition, given that the second lien would rather
take something than see the property go through liquidation and
have the second lien charged off. Getting something is better
than nothing.”
Company: Treakle and Associates
Project: Realtor Short Sale Negotiation
Link: https://thereidgroupltdllc.updatelog.com/P21586727
