Are Short Sales The Best Alternative to Foreclosure?
The mortgage marketplace, especially the servicing arena, is being bombarded with new default management options that include new legislation, counseling, data analytics systems, technology, and other tools designed to ease the crisis. And talking about the crisis, related issues within the servicing space are subject to debate and differing opinions. Their pros and cons reflect how servicing experts see the future of their industry.
In this issue we asked for insights about short sales as a loss mitigation option that is getting traction compared to foreclosures. The Obama Administration's New Homeowner Affordability and Stability Plan promises complex loan modification opportunities to those who qualify, yet sometimes such options simply postpone the unpleasant but inevitable loss of one's home. Short sales are now seen as the best bet for many distressed homeowners whose loss mitigation options are limited.
Is it a good idea or a bad idea, and why? Cheryl Lang, president of Integrated Mortgage Solutions, Houston, TX
Pro: Short sales keep the borrower in the home and maintain the property until it is sold. They also preserve the neighborhood by not undercutting the true property value. Servicers save money on short sales by eliminating vacant property fees and code violation fees. Additionally, lenders benefit from short sales as occupied homes sell faster than vacant homes. The borrower is allowed to leave with his or her dignity still in tact and the chances of pets being left behind is greatly reduced in a short sale scenario.
Con: The amount of time it takes to process a short sale. When you have a buyer eager to buy, you cannot expect him or her to hang around for months. Typically that is what it takes to contact all the parties, get everyone's opinion, and negotiate back and forth. It definitely needs to be streamlined. Prakash Kondepudi, president and CEO of DepotPoint, Inc., Bellevue, Wash.
Con: There has been very little institutional education on short sales because the volume of short sales was very small. Now the volume and demand for standards is up.
While there is enough interest in the market for short sales, the problem with short sales is that they take a very long time to process. Plus, the banks may not respond, and there can be multiple liens serviced by different lenders.
Pro: The good thing is that once this realization happened the industry is more interested in having a consistent process that would make servicers consider first a short sale, or a pre-foreclosure sale. Fannie Mae is now trying to come up with a formalized way of how to pursue a short sale.
The amount of short sales is going to increase since it appears to be a developing market trend.