The online newsletter Mortgage Servicing News carried an interesting article that Realtors® should reprint and carry around in their pocket or purse. It was titled: “Servicer-Realtor Exchanges Can Boom or Bust Short Sales” and can be found online here. The premise of the article is smart, short and simple: Servicers should work closely with good real estate agents who specialize in short sales.
To quote:
- “By most industry estimations and feedback from insider reviews, the short sales market will continue to grow in 2013 and at least an additional couple of years beyond. In many ways, Realtors are the foot soldiers of the mortgage marketplace. More often than not have the ear and the trust of current and future homeowners—hence servicers need them on their side.”
- “Realtors who really know what they’re doing during a short sale are a blessing,” Ed Fey, CEO of Fey Servicing, told this publication. “A good relationship with Realtors is very important.”
The article points out that it is the Realtor® who can encourage or discourage a short sale listing, since they are the main point of contact with the homeowner. And it underscores a point that is missed on many outside the industry; a real estate agent assumes much risk in handling a short sale – if the transaction fails, they don’t get paid.
As an aside, I have noted over the past five years, the dramatic change in the scope of work short sale brokers handle today, versus in the past. [Of course, in the past, circa, 2005-2009, there really was no such thing as a “short sale broker” since there was no such thing as a “short sale.”] Compared to today, during 2005 – 2007, Realtors® could make very good money with much less effort. Buyer demand was high and financing was easy. Almost anyone that wanted a home could buy one. [Unfortunately, in retrospect, we see that not everyone that wanted a home could actually afford one. But that was no impediment to the lenders, since they immediately sold their loans to unsuspecting investors in the secondary mortgage market. In short, an ill-conceived and poorly underwritten loan was not going to be their problem. – PCQ]
In fact, demand was so high, that some buyers, despite the warnings of their own brokers, waived their property inspection rights, simply to make their offers more attractive than competing offers. And it was a “sellers’ market”, meaning that demand exceeded supply and sellers set pricing. This pushed prices up, and encouraged many people to sell their homes in order to reap their significant equity so they could acquire a more expensive and expansive home. Appraisers cooperated in the frenzy by deeming that “fair market value” was what a qualified buyer was willing to pay. [Note: This logical non sequitor meant that there were no checks and balances! The buyer offered what the seller demanded; the appraiser concluded that if the buyer was dumb enough to pay that price, it must be the “fair market value”; so the banks, who already qualified their borrowers based upon non-existent underwriting standards, loaned the money since both the property and borrower were “qualified.” – PCQ]
New home construction was booming, and banks were making financing readily available to builders upon the assumption that demand would continue ad infinitum. Condominium development was also booming, as demonstrated by the fact that buyers were willing to pay $25,000 non-refundable deposits, for the right to buy a unit that had not even been built yet.
The upshot was that almost any listed property, whether it existed on the ground or merely on paper, was assured of one or more frenzied buyers in comparatively little time. Like lemmings, everyone willingly went over the cliff together; listing brokers had little more to do than just put out the word, then sit back and wait for offers to come in.
All that has changed since the collapse of the credit boom and the consequent housing boom. It was slow at first, since neither Realtors® nor banks quite knew what to make of the idea of a short sale. Bank protocols were – in my opinion, made on the fly – and this lack of structure and predictability led to delay, confusion, and frustration. Buyers shied away from short sales, fearing 6 to 9+ months of unpleasantness, and brokers, particularly the more seasoned ones, swore they would never handle either side of a short sale.
Today, the banks and servicers have finally realized that a short sale is the most expeditious way to close out a non-performing loan and move the property into the open market where a new buyer – rather than the bank holding it following a foreclosure – assumes the cost of maintenance, insurance, property taxes, etc.
Today there are “short sale specialists” who purport to have knowledge, skill, training, and expertise in handling short sales. There are also “third-party” negotiation companies as well as individual Realtors®, who will gladly take over the heavy lifting in the short sale, for a cut of the commission.[1]
Lastly, although I believe the article misinterprets the difficulty of short sales when there are first and second liens or Home Owner Association or (“HOA”) liens [it is not a “clouded title” problem, as the writer incorrectly describes]. Nevertheless, it is true that an experienced short sale broker will have seen homes with two mortgages [didn’t everyone have them at one time?] or a condo with HOA lien issues. Neither situation is a “death blow” to a short sale – it just takes experience to know what you’re dealing with.
What is the “Take-Away” from the Mortgage Servicing News article? It is that: (a) Short sales are going to remain a factor in the marketplace for a few more years; and (b) Servicers in charge of properties that have non-performing loans on them,[2] need to work closely with good real estate brokers who have their collective “fingers on the pulse” of the market, in order to develop effective strategies in getting them short sold into the marketplace.
[1] The use of a “specialist” does not, in my opinion, obviate the necessity of thoroughly vetting the qualifications of the person used. For example, if they are to handle a short sale with Bank of America, Wells Fargo, or GMAC, and do not know what the Equator platform is – or know what it is, but are unskilled in using it – they may not be the best fit.
[2] Servicers also service loans that are current, i.e. “performing.” But some servicers specialize in non-performing loans, i.e. those in default and headed toward a foreclosure. It is these latter servicers to whom the article is directed.
