It is widely recognized throughout the industry that short sale completions are increasing—even surpassing foreclosures in many areas of the country. However, according to RealtyTrac data, short sales overall make up just 20% of the foreclosure market; REOs still dominate 49%.
Despite the fact that short sales may carry dramatic benefits for all parties involved, servicers today are not offering as many as they should.
Instead of letting these properties become REOs, servicers should shift their focus and allocate additional attention and resources to either initiating short sale programs or enlisting a third party to manage this key loss mitigation strategy.
Many borrowers are jumping at the opportunity to alleviate their mortgage debt and the long lasting burden of a foreclosure through a short sale. And, this option doesn’t just lessen financial concerns for homeowners. Typically, borrowers unable to pay their mortgages also fall behind on other expenses, such as taxes and insurance—costs that fall directly on servicers.
Short sales remove the responsibility of this growing business expenditure, ultimately improving a servicer’s bottom line. For the cost associated with holding delinquent assets on their books, it is well worth servicers’ investment of time and resources to establish a short sale program.
It’s hard to remember a time when short sales were more often initiated by borrowers, when today many homeowners are not even aware of the option. Now, servicers must commit to short sale success, proactively pursuing this alternative as a tool to keep delinquencies off the balance sheets while helping serve the borrowers’ needs.
With the amount of time, effort and skill that goes into short sales, the reason many servicers still avoid them is clear. Often, the most difficult stage of a short sale is the first one—getting in contact with the borrower.
Previous methods of reaching out included letters, phone calls and emails. However, today these methods oftentimes no longer work for initiating contact with financially troubled homeowners.
The method that currently does work is door-knocking: sending knowledgeable, compassionate FDCPA trained and tested local agents, or neighborhood home consultants, directly to homes to speak with borrowers and help them understand their options.
Servicers can no longer afford to forfeit the ability to save 20% to 25% in losses that come with offering a short sale compared to an REO.
One way they can easily and quickly avoid losses is by engaging a business partner with short sale expertise and a network of highly educated and trained agents.
Servicers can leverage the widespread advantages of short sales and save both time and money by enlisting an expert provider to administer every aspect of a short sale, from door-knocking to negotiations.
As servicers concentrate on modifying their processes amidst new regulations, they cannot continue to place short sales on the back burner. Servicers must make a commitment to short sales for themselves, their clients, the industry and the homeowners they serve.
Brent Taggart is senior vice president, business development and client relations, Green River Capital.