Servicer-Realtor Exchanges Can Boom or Bust Short Sales
Mortgage servicers may not be in the habit of courting real estate brokers when working on a short sale, but it may be worth their time to do so.
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 Fay, CEO of Fay Servicing, told this publication. “A good relationship with Realtors is very important.”
In regards to short sales, says Todd Mobraten, COO and president of USRES/RES.NET, besides regulation the most important factor in 2013 and beyond will be acceptance by the real estate agent. “This single professional is the eyes and ears of the industry and has the biggest influence on the delinquent borrower who makes the choice to move forward with a short sale or not.”
What mortgage lenders, servicers and other parties in the in the world of defaulted practices often tend to forget, he says, is that Realtors sign up to sell property, to make money.
Mobraten argues that still, to this day, the short sale “brings uncertainty to the agent with big risks of completing a lot of work for no income.”
Going forward, he says, it will be “extremely important that servicers continue to work and enhance the processes between themselves and the real estate agent,” because Realtors “still strive for better communication, clear objectives, and certainty that the servicer is behind the deal.”
So much so that the process often turns into a very frustrating experience, says Fay, and the reason why some of the best Realtors in the country simply avoid it. According to Fay, it is not uncommon to see them post “Short Sales Not Accepted!” signs at the door.
But while it is very difficult for Realtors to work with most servicers out there, he adds, the other side of it is that others who see it “as a sticky business” choose to specialize in short sales, “even though they know it is harder.”
“There are several variables” that can make a short sale an easy process or a difficult process, explains Fay, an industry veteran whose special servicing company works closely with Realtors.
Who owns the mortgage title makes all the difference.
“When the title is clean, when there is only one mortgage on the title,” he says, the process is very easy and quick because all the servicer needs is to validate the property price listed by the Realtor, work with the Realtor to record price fluctuations and create a marketing plan. The Realtor’s role is important but it is an easy situation. “Pretty much any Realtor is able to move the property out quickly in that position.”
Servicers can use a good Realtor during a short sale because they need “to step into the position of the client in a lot of ways. It’s about cut in value and price decisions.”
But it becomes complicated when servicers have to deal with a so-called clouded mortgage title, which is when, according to Fay, many first mortgage companies “really disengage with the Realtors and don’t give them the information and the feedback they need.”
A “clouded title” is when the first mortgage is tied to a second mortgage, foreclosure judgments, HELOCs, HOA liens, he says. “It becomes very complicated and the servicer needs a really good Realtor who can manage how to get payoffs, work out settlements on those subordinate liens,” someone who can have those done effectively to avoid getting the loan into the foreclosure process.
“We typically make our first call to a real estate agent once they receive authorization from the borrower,” says Fay Servicing vice president of loss mitigation, Holly Cunningham, who works with Realtors on a daily basis. “It has worked very well for us in the long run because agents are more motivated to work with us rather than call into a big servicing shop and try to find out who they can speak with.”
From the initial conversation and all the way through to a short sale, she says, it is always better to keep that line of communication open “through clouded title, junior liens, anything that can create a property marketing issue,” or figuring out how to maximize asset value and complete the sale efficiently.
It is an issue for many in the loss mitigation space. Sometimes it is difficult for special servicers dealing with complicated loans to contact the servicer, she says. It means the servicer that has more boots on the ground is in a better position to resolve the loan. These situations also put the Realtor in a tough spot, she adds, because they need to know what price and value cuts the first mortgage holder would accept, what is acceptable to the second mortgage holder, the customer, and the servicer, making it “a very difficult process” for the Realtor.
“We hear from Realtors we talk to on a regular basis that there are certain organizations they don’t like working with,” says Fay.
If one thinks about the profit for the Realtor when processing short sales on properties with first and second mortgages, or cases where the house is devaluated, “the numbers at play are basic arithmetic: You should be willing to pay the second mortgage, foreclosure expenses, paying customers cash-for-keys and other costs, so what makes it worthwhile for Realtors to get it done quickly?”
Servicers are known to channel large amount for cash-for-keys alone, he says, so unless it is a simple loan, the Realtor has a lot of work to do for almost the same pay.
For example, he says, what will the second mortgage sell for? The bank may agree to sell it for $5,000. But just to get that answer takes staying on the phone for an hour on hold, 20 minutes to talk to someone, two days for the bank to come up with the decision. Than the response for the second mortgage comes back saying they cannot take less than $6,000. It means the whole communication exchange has to start again from the beginning until all parties agree to a price.
Than it may take another two months to get financing for the customer. Meanwhile the second mortgage may have been sold to someone else and the new owner asks for a higher amount so the realtor has to go back and forth again. “It is very frustrating for realtors and I don’t blame them.”
What seems to matter the most in building healthier servicer-Realtor relationships, says Cunningham, is bringing the realtor, the servicer, the investor of the loan and the homeowner to agree on the property value, as soon as possible, preferably by reviewing the loan and by providing more information upfront. “More due diligence in the front end helps align the short sale strategy.”