RISMEDIA, December 7, 2009—Last month, we discussed some of the problems associated with short sales: too many properties for lenders to handle; too much uncertainty about valuation; too many second loans; and accounting mechanisms that encourage financial institutions to delay sales in order to defer losses.
While those challenges make the outlook for short sales cloudy, most observers still believe that short sales will grow significantly over the next year, and will become an extremely important part of the path to recovery in the housing market.
This is due, in part, to the looming tsunami of option ARM and ALT-A loans due to begin resetting—and defaulting—in large numbers in the second quarter of 2010 and the growing number of unemployment-related foreclosures. In both cases, current loan modification programs will have virtually no effect on slowing foreclosure activity—in the former case because most of these loans will be outside the 125% loan-to-value ratio limit in HAMP, and in the latter case, because the homeowner will have no source of income.
So the government is motivated to promote short sales as a better alternative to even higher levels of foreclosures, distressed housing stock and vacant properties across the country.
By the time you read this article, HUD will likely have released new short sale guidelines. These guidelines will be intended to streamline the process by creating standard paperwork for more efficient processing and developing a more universal set of protocol for short sales activity. The guidelines will also very likely include cash payments—both for the servicer and for the borrower—to incent the parties to move forward with short sale transactions.
This will help somewhat, but what can you do today to improve your odds for short sale success?
Here are a few ideas gleaned from conversations with agents who are successfully executing short sales today:
-Be selective: Not all borrowers—or loans—are good short sales candidates. If your prospective seller has a second mortgage, a home equity line, multiple liens or other financial complications, steer clear. While it’s possible to satisfy all parties in these types of deals, it’s not likely, and you’ll wind up wasting a lot of time and energy.
-Be thorough: When you submit an offer, or are delivering the materials the lender requires, include everything. Nothing is more frustrating for a loss mitigation manager than reviewing incomplete documentation and having to start over again. You and your client will be equally frustrated by the ensuing delays.
-Be persuasive: Make the hardship letter compelling. Why should the borrower qualify for a short sale? Job loss? An exploding ARM? And why isn’t the home worth as much as what’s owed on the mortgage? Include all the relevant information—comps, foreclosure activity, days on market, current listings, property condition, etc. Is the offer realistic? Prove it. And make sure that you have a qualified, preapproved buyer in tow.
-Be persistent: While there’s a fine line between being persistent and being annoying, call and/or e-mail regularly—but respectfully—and ask if there’s anything you can do to help expedite the process.
Rick Sharga is senior vice president at RealtyTrac.
For more information, visit www.realtytrac.com.