DALLAS—As servicers continue to manage the deluge of distressed homeowners and nonperforming mortgages, short sales are becoming an effective loss mitigation strategy. But there’s still room for better results in the government-backed Home Affordable Foreclosure Alternatives program and other short sale initiatives, according to panelists at SourceMedia’s Best Practices in Loss Mitigation Conference here last week.
One way to improve performance is to streamline the documentation process, said Bart Vincent, senior vice president of short sales at Wells Fargo Home Mortgage. It’s difficult because investors have to understand the scope of individual situations in order to manage their potential losses, making proper documentation critical.
In addition, there are usually multiple players involved in a short sale decision, including mortgage insurance companies and any second-lien loan holders.
David Sunlin, senior vice president and operations executive for short sales, deeds in lieu and real estate management at Bank of America, said the time to get a short sale offer approved used to be 90 days, now it’s closer to 30 to 45 days. But that’s still far greater than just a couple of days that an REO offer usually takes.
“We need to make short sales look like that,” he said, where after the servicer gets a proposed offer, the homeowner gets a prompt answer.
With a system in place to pre-approve short sales, decisions could be made in as little as five days. “That’s the nirvana we’re trying to get to,” Sunlin said.
Leo Esposito, first vice president of loss mitigation and asset disposition at ServiceLink, said the servicing industry can improve short sale pull-through rates by transitioning from a reactive to proactive approach when borrowers have a clear intent to short sale.
If a homeowner is showing signs that they truly want to short sale and aren’t merely gaming the system to prolong the time before an inevitable foreclosure, servicers should respond with an escalated response to get a deal done.
For example, if a borrower approaches a servicer and already has the home listed for sale with a real estate agent, “that’s a sign of somewhat intent that I’m looking to liquidate my home,” Esposito said.
Other times, the benefits of a short sale need to be sold to borrowers and real estate professionals, Sunlin said. Most homeowners have never been involved in a short sale and they need guidance on the process. Borrowers are doing the math and realizing they can stay in a house for free for a considerable amount of time if the property goes to foreclosure, so servicers need to help borrowers understand how a short sale can help their financial position in the longer term.
“You have to sell the value of that transaction to the homeowner,” he said. “We need people to say this is a good option for me.”
Another panelist, Jason Root, the director of foreclosure alternatives and nonperforming loan management for Freddie Mac’s residential mortgage portfolio, said HAFA performance numbers have been “less than dismal,” adding that the program has been “not as successful as we would like.”
In addition to HAFA, Freddie Mac also uses what he calls its “classic short sale” program, which has less restrictive qualification requirements and includes incentives to borrowers to help motivate them to short sell. That option is explored when a borrower can’t participate in HAFA instead of immediately pursuing a foreclosure.
Modeling and data help Freddie Mac and its servicers make better decisions on short sales, which Root called “that drive to make sure we’re doing the right thing,” to promote neighborhood stabilization and keep houses vacant for as short a time as possible.
