Short Sales a Win-Win Solution?
Houston-Industry experts find that while short sales involve some loss and are time consuming, they represent a win-win loss mitigation tool servicers should embrace and streamline rather than avoid.
Cheryl Lang, president of Integrated Mortgage Solutions, a collateral protection resource for the mortgage servicing industry, happens to be a believer in short sales as a loss mitigation tool, which among other things are a way to finally get house values right and help preserve neighborhoods.
"We'll have the market back only if the prices stabilize. This is a different type of crisis we're in. We got to do things smarter and faster," she told MSN. "A short sale is a win-win solution for everyone involved. It's a way to find the true value of the home and keep those values, or what's perceived as true value, since that is ambiguous itself."
The Obama housing plan, Fannie Mae and Freddie Mac cannot assist defaulted borrowers when they also face job loss. A deed-in-lieu is not a good option because it involves potential fines. So she finds it surprising that while a short sale preserves the borrower's credit and the property, it is not favored by large players like Fannie and Freddie. Although Fannie and Freddie posted a 76% increase in loan modifications in 2008, she said, the Federal Housing Finance Agency reported it engaged in just 16,718 short sales and took ownership of 145,183 homes.
Yet, Ms. Lang is a realist. "There are a lot of roadblocks involved in the process, like loss and risk tolerance. A short sale cannot go through unless all parties accept some level of loss. And a loss is a loss. In this case everyone should be flexible and realistic about it." There are first- and second-lien holders, private insurers, servicers and other parties. Some people choose to take a no-loss hard line, other times someone's ego gets in the way of closing a deal. She recognizes that every situation is different, but at the end of the day someone will have to deal with the defaulted property.
Ms. Lang finds the concept of using pre-approved short-sale opportunities is an efficient way to improve the process. "Maybe the MBA should spearhead it."
Prakash Kondepudi, president and CEO of DepotPoint Inc., Bellevue, Wash., told MSN that while there is enough interest in the market for short sales, there also are problems related to the very long time it takes to process, the fact that banks involved may not respond, or that there may be multiple liens serviced by different lenders.
The good thing is that once this realization happened the industry is more interested in having a consistent process that would make servicers consider a short sale, or a pre-foreclosure sale, he said. For example, Fannie Mae is now trying to come up with a formalized way of how to pursue a short sale. As to standards, he would rather not see a Realtor-homeowner initiate the transaction. "It can shift to the supply side because then it has a better chance," he said, since the seller is already determined.
"You cannot expect the buyer to hang around for months."