Many parts of the nation continue to see foreclosure rates dropping. According to RealtyTrac, as of June foreclosure filings are down 23 percent from March 2012.
There are many factors impacting these market changes—the prevalence of short sales likely being the most significant one.
Banks began offering short sales more frequently a few years ago, and since then this tactic has become the most viable foreclosure alternative.
Even still, whether due to the large volume of short sales or the ever-changing regulations that accompany them, many banks and servicers have not made the infrastructure changes necessary to support them.
Short sales and foreclosures: not an identical path
Banks continue to promote short sales as a viable option for homeowners in financial distress and as a method to more quickly liquidate a property. It is less damaging to a person’s credit and avoids the stigma of a foreclosure that many have tried hard to prevent.
While foreclosures and short sales may run parallel paths, banks and servicers must have completely separate processes in place.
Short sales represent two different objectives in the market place—managing the asset in default as well as the purchaser/borrower from the retail market, who must qualify for a new loan. Banks and servicers must have systems in place, unique from their foreclosure models, to properly monitor the regulations and new lending practices.
The second part of this equation is homeownership, which continues to be difficult to achieve for many consumers across the country.
Rates, while creeping up, remain relatively low; yet, a large number of consumers do not have a FICO score that will allow them to qualify for home loans. This is driving the growing rental market and REO-to-rental initiatives of institutional investors, who continue to purchase properties in bulk.
Accommodating regulations
At RES.NET, we have a unique opportunity to have a bird’s eye view into the short sale cycle that has been created. We are seeing the investor pools and large banks running from challenges posed by highly-scrutinized fair lending practices and short sales that are difficult to move.
Many banks and servicers that for so long, focused on foreclosures and loan modifications must change their mindsets and their processes to accommodate the evolving world of short sales as it certainly seems they are here to stay.
Regulatory groups initially pushed for banks to pursue short sales, and now the burden remains on banks and servicers to manage the inflow, operational force and vendor management efforts that short sales require. Today, other parties involved in these transactions, including attorneys, title companies and real estate agents must have the tools to handle increasing legislation.
Short sale processes must evolve
Simply put, some servicers are still lacking sufficient systems to manage the short sale process, while keeping up with regulatory changes on the turn of a dime.
Instead, many are continuing to use foreclosure models that were designed to dispose of properties to remarket that do not take into account these regulations that pertain to strictly to short sales.
Short sales prove to benefit both the bank or servicer and the homeowner in many situations, which continues to drive the increasing popularity of this foreclosure alternative.
It will continue to play an important role in the industry; therefore, servicers must ensure they are operating with the utmost efficiency. By simply evolving processes, the cycle that in which the industry has been stuck can be broken.
Angela Hurst is senior vice president of business development for Lake Forest, Calif.-based USRES, Inc. and its wholly owned subsidiary, RES.NET, Inc.
