By Tom Gordon
RISMEDIA, January 27, 2009-The national foreclosure moratorium imposed by Fannie Mae and Freddie Mac, major banks such as Citibank and Bank of America, and a host of state governments has created a “breather” for homeowners in default. By working with loan servicers, some homeowners will be able to modify their loan terms and stay in their homes. But many won’t.
Not all borrowers will qualify for modified loans. Lenders are keenly aware of this, as well as the fact that foreclosing on a home is an expensive proposition: It can cost a bank $30,000 to $50,000 to foreclose on a home, plus carrying costs that equate to 1.0% to 1.25% of the value of each home per month. There is little enthusiasm for increasing bank-owned (REO) inventory in markets already saturated with foreclosed homes and falling prices.
As an alternative, lenders have new enthusiasm to ramp up the volume of short sales.
Short sales, as most know, are when the lender allows a distressed property to be sold at a price lower than the homeowner’s mortgage indebtedness, with the difference forgiven. This relieves the homeowner of their ownership and debt burden without marring their credit report the way a foreclosure would. It also typically allows the new purchaser to buy into the neighborhood at a substantial discount … much more in line with the property’s true, current market value. In other words, short sales facilitate efficient clearing of the market.
Historically, short sales have not been very appealing to lenders. The short sale is a complex process that requires an agreement by all the lien holders to accept the lesser amount owed by the original borrower. The paperwork and number of players involved in short-sale transactions can easily overburden a servicer who is already dealing with hundreds of thousands of loan modifications, REO dispositions, etc.
But now with over four million new loans in default in this cycle and six million more expected in early 2009 due to coming interest-rate resets, lenders such as Citibank, Bank of America and Wells Fargo are fired up for short sales.
As they see it, if just 25% of current loans in default could be sold through short sales it would stave off one million foreclosures (good for homeowners) and replace one million nonperforming borrowers with one million performing borrowers (good for lenders).
The industry’s challenge to accomplish this is two-fold: Evaluating their portfolios to determine which homes are well suited for short sales, and processing the high volume of bulk sales.
So lenders are now assessing a distressed borrower’s situation early in the loan modification process, calculating the sensibility of modifying the loan versus offering the property in a short sale or letting it likely roll into foreclosure. In cases where short sales are the best route, lenders are proactively assigning loans in bulk to be put through the short-sale process. (This phenomenon is strangely new to homeowners; in the past it was incumbent on them and their agents to initiate the short-sale process, not the other way around).
The second part of the challenge is how to process the actual sales, considering legacy technology solutions weren’t built to handle either the volume or the complexity of today’s short-sale transactions.
DepotPoint’s TrackPoint, with a new short-sale module, is up to the task. TrackPoint is an online workflow platform that operates in a SaaS environment. The short-sale module can scale an outsourcer’s or an asset manager’s operation quickly to handle massive amounts of short-sale volume, reducing costs and elapsed time to complete transactions.
Already using TrackPoint featuring the new short-sale module is MMREM, Matt Martin Real Estate Management, which has facilitated more than 10,000 short sales as the nation’s largest facilitator of short sales.
“Short sales are often complex, time-consuming transactions,” said Matt Martin, President and CEO of MMREM. “In today’s high-volume environment, managing them can be even more cumbersome than usual. REO TrackPoint featuring the new short-sale module simplifies and streamlines the process. It’s the most comprehensive, efficient national online platform we’ve seen for managing and processing default properties.”
MMREM has increased its short sale through-put by more than 300% by using TrackPoint with the short-sale module.
Tom Gordon is Executive Vice President of Business Solutions for DepotPoint, Inc., which brings greater efficiencies and cost savings to mortgage lenders, loan servicers, foreclosure attorneys and REO asset management firms that use the company’s Web-based application suite, TrackPoint, to vertically process properties through foreclosure straight into REO management.
For more information, visit www.DepotPoint.com.