Even though the short sale market was slow to develop in 2011, there are many people within the mortgage industry that think 2012 could be the year of the short sale as delinquencies and foreclosures continue to be a major problem throughout the country.
Brent Taggart, executive vice president of business development at the West Valley, Utah-based asset management company Green River Capital, has seen an uptick in the number of servicers and private equity groups turning to short sales because this strategy has resulted in positive liquidation for them.
Chris Saitta, CEO of Equator, believes short sales will increase in 2012 because it is the most volatile way to resolve the backlog of cases from the elongated default foreclosure process.
If short sales do become more prevalent this year, technology can play a major role in helping servicers negotiate and accelerate this process with a distressed borrower.
Technology allows clients, Realtors and sellers to submit their cases online and employees of the short sale company can easily access and work those cases using the application's case management, workflow tracking, and document management. Sellers and agents can keep up-to-date on their submissions and get the deals done quicker because there is greater communication and quicker decision-making throughout the short sale process.
“As long as we can communicate with the borrowers and be very thorough with them in explaining what all of their options are, the better,” Taggart said in an interview. “The communication between the servicer, the asset manager and the client is paramount. That's something that always has to happen in terms of making sure that we're all on the same page and have the same goal in mind of really helping preserve homeownership.”
Proactively looking through portfolios and identifying who may be the best candidates for a short sale is currently a better execution strategy than being reactive during this process, Saitta said. By finding a borrower proactively, there is a greater likelihood for success rates and the volume of inflow to increase.
According to Taggart, door knocking is one of the “best tools” in order to contact borrowers who are not paying their mortgages. In the third quarter of 2011, GRC had a right party contact rate of 57% by going directly to a borrower's home and having face-to-face communication. Of that 57%, GRC was able to get slightly more than 14% of these distressed borrowers to do a short sale, 17.5% said they wanted to pursue a repayment or a modification and 1.5% wanted to do a deed-in-lieu. Additionally, there was 7% who said they wanted to file a bankruptcy and a large portion that were contacted but wanted the foreclosure to go forward.
“We're getting good contact which is good because we can send this information back to the servicer,” Taggart said. “Obtaining this information from borrowers is significant for the overall housing industry because knowing who wants to pursue a short sale, a modification helps reduce the future inventory of homes going to foreclosure and sitting vacant for an extended period of time.”
A short sale is a very complicated transaction, said Karun Khanna, COO of Columbia, Md.-based IndiSoft, because of the amount of stakeholders that are involved in the process. A normal real estate transaction includes a buyer, seller, real estate agent, lender and a closing company. However, a short sale includes all of these people and also deals with first and second liens and MI companies.
“The only way to manage a process that becomes so complicated like that, especially when your dealing with a scale of business that's going through the industry, is your going to need transparency and accountability,” Khanna told this publication. “Technology gives you the ability to become transparent because you can define the role of the homeowner, define the role of the real estate agent and the role of the specialized servicer to make sure the right packages are being sent to the servicer.”
Khanna said short sales could take anywhere from four to six months to close, which is not an adequate amount of time if these properties make up approximately 20% of the housing market.
To increase overall movement of short sales, he added that it is important for servicers and the government-sponsored enterprises to know what specific documents are required to make a decision and technology platforms allows this to happen.
“Once you build the rules for each servicer, GSE or investor that's out there dealing with short sales as a liquidation option, then the set of players that are putting together these packages knows exactly what needs to be delivered,” Khanna said. “That's a great aspect of technology because it's a way for people to collaborate in a transparent and accountable real-time manner, which creates optimism for 2012.”
Saitta said his Irvine, Calif.-based company has seen a 20% improvement in timelines and transition rates through their technology platforms, thus making everyone involved in this process happier because it allows for more successful short sales, lowers the cost, reduces advances and improves close rates.
According to Saitta, better decision-making and improved compliance are two factors that any technology company or servicer should be looking for when selecting a platform to handle short sales. A technology platform that allows parties to remain compliant with industry regulations by making sure everything within the short sale process is done properly every time helps to streamline this type of execution strategy, Saitta said.
“Everyone can make a good decision if they had only one thing to do,” Saitta said. “If everyone had one short sale, that is easy. But if they had 100,000, it is hard to do the same thing every time and make the right decision every time. But that is what technology allows you to do.”
