Servicers Tackle Topic of Short Sales

Short sales are certainly going to be a hot topic for the rest of 2010.

Modification is just one of the important tools in the servicer toolkit, according to Gagan Sharma, president and CEO of BSI Financial Services, a specialty servicer in Irving, Texas.

He says it makes more sense to prevent the foreclosure and give a smooth and dignified exit if the borrower does not want to stay in the house, if he/she has negative equity, or if there is a job loss and the borrower wants to move to a different state.

"There is a difference between keeping the existing borrower in the home and preventing a foreclosure. Often, people associate them to be one in the same," said Mr. Sharma. "Nobody wants to do a foreclosure if they don't have to."

While modifications were good last year, short sales may become a bigger part of the workout this year compared to 2010, said Mr. Sharma.

"REOs are slow. The coming volume hasn't shown up. If you can incent the borrowers to do a short sale or a deed-in-lieu before that, then it's probably better. In a short sale where the property is occupied, you get a few percentage points lift in the sales price as well. You are creating value in the process.

"The exact numbers can vary, but we've seen somewhere between a 5%-10% lift in the property price when you do a short sale. It's value for everybody. The borrower doesn't get a foreclosure on their credit history, our client is able to get a better value for the property and the borrower gets a smooth transition."

Vacant properties create property preservation and vandalism issues. There is also a societal impact, according to Mr. Sharma.

"At the city and local community level, short sales are beneficial because homes are occupied. People are living there and maintaining the neighborhood. I think this solution solves a lot of problems if it's done in a cooperative manner."

Jay Loeb, vice president, strategic business development, National Creditors Connection Inc., expects industry talk of short sales tto increase with different companies coming together to share valuable information.

"There will also be a lot of vendors offering services and products in short sales and fulfillment," Mr. Loeb told MSN.

"We've had the recent roll out of the new Home Affordable Foreclosure Alternatives program, which focuses on short sales and deed-in-lieus of foreclosure. Short sales will definitely be the hot topic at the conference."

Loan modifications have turned out to be not as effective as the administration thought they would be, he said, but they're still in progress and they have not been ruled out as a viable option so there's still a lot of interest there.

REO is one of the biggest hot topic right now, he added. "People are waiting for a deluge of bank-owned properties to hit the market. There's a huge 'shadow inventory' of properties that are currently in the foreclosure process but have not yet been taken over by the lender and are not in REO yet," said Mr. Loeb.

"There will also be a lot of talk about innovation. Those companies that want to survive in servicing must be innovative and efficient. I also think there will be a lot of discussion about outsourcing, specifically outsourcing distressed servicing to a capable third-party."

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