LINK to Sheila Bair’s book: www.amazon.com/Bull-by-the-Horns-ebook/dp/B0061Q688A
Hey very interesting blog!
The banks with their “FREE MODIFICATIONS” that made the brokers look like thieves, to the steeple, who want to be sold by the salesperson that will tell them what they want to here…then the banks persuade people to be late on their mortgages (which ruins credit), then they turn them down & then they must short sale (which is better for the banks). Oh how shocking!!! The banks deceive the steeple once again…
We will eventually see easing of credit or the banks won’t be able to enough business…
The cycle of life…
What you dont understand is a lot of sellers dont want to jump through the hoops to do a short sale. They want it to be easy and its not. We do a fair number of Reo’s and short sales and many people are just done and dont care. Its twice as hard to do a short sale as it is to get a loan. The seller knows it may not go through and many of them kind of like the idea of sticking it to the bank. The sad part is they are hurting themselves more than the bank. We market to short sales to the tune of about $$1500 a month to pre NOD’s. I send 4 letters we call them and get a 1-1.5% response rate. Its not the message because I have tried it multiple ways. We have tweaked and tested the message. SELLERS IN TROUBLE ARE EMBARRASED AND THEY DONT WANT TO LIFT A FREAKING FINGER TO help themselves! It p.o.’s me! I want to help them, I’m trying to help them, they wont get off their ass and put together a short sale packet with paystubs, tax returns, hardship letter, etc. Its to much work and they dont care. I sell 120 homes a year and LOVE short sales. The sellers are sick of dealing with the house and will stay and wait on cash for keys at foreclosure time. Unless they make it fog a mirror and we’ll approve your foreclosure its going to remain like it is.
Yes, you are missing something. For most people, a short sale is better than a foreclosure. A foreclosure DOES destroy your credit. A short sale does not. Or at least it doesn’t have to. What hurts the credit the most in a short sale is all the missed payments. If you don’t miss any payments, your credit is completely intact and unharmed. This is because there is no \code\, no distinction that credit reporting agencies can make for a short sale like they can for a foreclosure. A short sale shows up as \paid for less than amount owed\ or \settled\ or some other ambiguous phrasing.
And sure, you are asking: if the homeowner doesn’t miss a payment is he truly \distressed\? Yes, in some cases. Perhaps he is being transferred due to his job. Or has a medical issue that necessitates a different climate, or being closer to services. Distressed does not always mean financial distress.
In credit terms, a foreclosure is like falling on a grenade. A short sale is more like a flesh wound. Still hurts, and maybe you have trouble using your arm now, but you aren’t picking up your intestines off the ground like you would be with a foreclosure.
I have had clients do a short sale and turn around and IMMEDIATELY buy a house with a FHA loan. (Results not typical, I agree, but still can anyone say their foreclosure clients have done this? I think not.)
Also, sellers are getting $3,500 to $20,000 to move out after a successful short sale. I’ve never heard of anyone getting 20k with CFK.
In my opinion, the only people who would be better off not doing a short sale are those with assets to hide. Those who if they submitted their financial records to the bank wouldn’t get a short sale approval anyway because they could afford to pay and are obviously doing a strategic default.
Any Realtor advising their clients to let their house go to foreclosure instead of pursuing a short sale is probably doing their client a disservice.
One flaw in that theory, the 2007 Mortgage Debt relief act includes foreclosures too. Whether a s/sale or a foreclosure the borrower and prior owner got a 1099 for the trustee sale difference from what was borrowed. Your theory would tell consumers to mess up their credit for an additional 5-7 years in addition to getting that 1099 for the amount forgiven.
Principal reductions for all! Late, current, underwater… If principal refutation vouchers had been given out instead of bail out direct to bank we’d be out of this. We’d have a move up market. Those said vouchers would only be able to pay day the pribcal, sent to the investor, investor forwards to Fed Gov and voila… Banks get their money, people get a principal reduction, and have money in their pocket.
I’ve got a $478,000 mortgage at 7% that I can’t do a thing ant because me house isobly worth $250,000. What would YOU DO?
It is a complicated issue and each person’s situation is different due to age, income, circumstances, etc… i’m guessing you could afford your mortgage and made a reasonable buying decision at the time. So live-in and enjoy your home. If you bought stocks the lost 50% of their value would you expect a govt bailout? I think not! I agree the bailout was handled poorly and if given to and for the people then we would be out of this but then the politicians couldn’t of gotten all their pork project trailer bills attached! It was politically popular to so call “help the people” that we all acted like sheep and let them do what they wanted. Now we are paying the price But ENOUGH with blaming other people and things! Noboby forced us to buy a house, Let’s own up to it. There is an election coming up if you didn’t like the way it was handled. Not much will change but it’s all we have. Everybody acts like it’s the goverment’s money. Well, it’s OUR money and the taxpayer’s are not responsible to bailout 25% of the borrower’s that can’t or won’t pay!
As an appraiser and realtor i’ve seen alot over 25 years. The amount of people just staying in their upside homes to keep from paying rent is crazy. You can’t live rent free if you short sale and move! Taking 2-3 years to foreclose is the main problem. If the government would of stayed out of it we would be through this process by now! 5 years later and this is where we are? Really?? If we would stick to the your 60 days late, you get a notice of default and another 90 days you get the notice of trustee sale, then your out! We either would not have as many late house payments or been through most of the true hardship foreclosures.
Two problems with that solution, probably more.
1. The market would be flooded with homes and the prices would drop substantially causing an even bigger equity loss. Say, destabilized values.
2. Banks and investors would take bigger losses which means an even bigger bailout would be needed. Thank God we have taxpayers to pick up the tab.
In reality the problem is probably bigger than the smoke and mirrors media sources are telling us.
I disagree. It is NOT the banks fault that your friend is upside down. Let’s take responsibility for our own actions instead of blaming others. If we start handing out principle reductions to everyone, then you better be ready to give them to EVERYONE! I am 150k+ upside on my home. I have never missed a payment. However if they are going to start handing out free money then I guess I want mine too. In fact lets take it s step further let’s make everyone live in the same type of home and let’s have everyone make the same amount of money and give everyone the same clothes. Then we can call ourselves the United Communists of America!
well said! Buyers weren’t going to share the profits but now want someone to share their losses! How about the banks doing a modification that sets the payment to the current rent value. Then if they can’t pay, they can’t afford the home and NEED to move.
Short Sales may not be as attractive if the Mortgage Debt Relief is not extended past the December 31, 2012 deadline. Homeowners may be left with a huge tax bill for the short sale after that date if not extended. Will definitely make a foreclosure more appealing to the homeowner who in a non-judicial state as they will not be left owing a cent to the IRS. Both hurt credit but owing a big hunk of money to the IRS makes it a double whammy!
In response to Leisa’s comment ~ I am under the impression (per the quote below from the IRS website) that if the Mortgage Debt Relief Act is not extended, then starting Jan. 1st the homeowner WILL have tax liability in the event of a foreclosure…is that not the case?
“The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.”
Edward DeMarco MUST go. Principal reductions are the only way to fix the issue of underwater mortgages.
I have a friend who go a loan mod cutting his rate from 6% to 4%, great right? He owes around 400k against a house worth 260k. The lower rate does nothing but lower the payment, and the amount of dollars going towards principal each month. So, what is the point? He saves a few bucks each month on a property that it will take an eternity to realize any sort of recovery. The bank has resecuritized the loan at current rates so this has cost them nothing but aren’t they nice for doing this loan modificiation? Thhhppptttt.
Yes, DeMarco and his policies should be shown the door.
The value is moot, unless they’re selling. It’s like allowing everyone who bought Facebook stock at $38 get a refund to the current market value.
The Banks had the ability, resources, (a sweetheart change to the mark to market accounting methods that made them profitable overnight!) and support framework, and man power to modify out of adjustable loans, perform principal reductions to market pricing and they chose no to. Their behavior is deplorable in that they don’t have to disclose, be transparent or tell the truth for that matter with impunity. To date Making Home Affordable in 2012 has had 2,334,000.00 applications for loan mods of which a little over 19,000 loans were modified, or .08% succesfully completed loan mods.
If someone offered me bascically a get out of jail free card to short pay my house based on qualifying criteria, be forgiven the debt, and become eligible to do it all over again in as little as 2 years, who wouldn’t take it, I for one would jump on it. However, these houses are their homes and we’re taught to protect our house and home. It needs to be conveyed to homeowners in distress to detach from the debt and that where ever they go they’ll have their home with them. A house does not make a home, the people do.
Most all of the people attempting to modify are in such bad straights because of the recession, loss of employment, etc. etc. I have a client who wants to try a loan mod with a $460K balance at 5.25 int. and she’s 78 on SS and the co-borrower is on state disability after having a toe amputated because of diabetes, and quadruple heart by pass surgery. Almost forgot, she also goes to dialysis 3 times a week for kidney disease. They make $2200/month gross, no TV, no phone, and they eat at the church, and they want to try and keep their house. I said I’d try by helping them fill out the modification paperwork to submit to the lender who is a Non-GSE. What are their chances, and they got a notice of default already, and were turned down once for a loan mod.
There is nobody trying to help these people, and it’s part in parcel to the notion that a lot of people just aren’t up to speed with the way finance is done and run in this country. If they did or enough people were effected there would be riots in the streets. I usually spend the first 30-40 minutes just listening to them and at some point they all break down. I’m going to need a therapist soon with all these stories.
If you have done a short sale or even attempted one it is absolutely frustrating beyond measure and they’re not all like that, (Wachovia, before Wells spooled up with them was a good one to slam ‘em shut.)The s/sale pkg to Wachovia was, Listing Agreement, Purchase contract, Buyer’s lender approval letter and the estimated HUD-1. (Portfolio Loans is all Wachovia did.)
It’s our job as Realtor’s, since the homeowner’s saga started with us and it should be us and the private sector to remedy the situation. Gov’t always will muck it up and generate this huge money sucking entity in the process. I wonder how much of that $26Bil sell out will actually make it to any consumer now that it’s ear marked to go to 48 cash strapped states?
Things will change when enough people will want it to change and right now not enough people want it to change or are willing to seek out change. Apathy and the staus quo rein supreme and of course Monday night football. Return to sanity and turn off your TV. (Maynard James Keenan, TOOL)
I just finished a two day class covering this exact topic. Changing my direction to get the word out about Short Sales and helping people understand their options. Word is on the street that next year banks will be aggressively moving people out of their distressed homes and not allowing long stays with no payment. Big banks are gearing up for short sales vs REO. It’s going to be a wild ride.
This is easy! I want you to do 2 – 3 or 4 loans but only get paid 75% of ONE normal deal. That is what a Realtor gets to do a short. Step right up! Get in line! You can work much more and make less with a lot more legal exposure. Don’t miss this opportunity to get sued!
Perhaps I’m missing something, but why would any truly distressed homeowner prefer a short sale to foreclosure on their Primary residence? You have to move out early in anticipation of a short sale. As long a time as foreclosures are taking,why move early?
Both scenarios destroy your credit and as far as shortfall due after foreclosure, not all states have that. And for the ones that do, file Chapter 7. Too many assets to hide? Plenty of time to make that a non-issue. Call me cynical but the short sale option is preferable only for those who have so much assets to protect that they could have satisfied the loan in the first place…just chose not to.
It goes further than the lack of general common sense on the part of banks and extends to the investors in the mortgage. None of whom are real estate agents, none of whom understand the local market and none of whom have commons sense. Well, almost none. Geeez. When an investor tells a bank to issue a PFS (Preforeclosure Short Sale Approval) and the bank sends an email and says “request denied” and forecloses and said bank has a claim block put on the loan and is told “you will” rescind foreclosure and issue PFS — What kind of logic is that. We are nearly a year into this short sale and 2 months getting the rescission. Wow!!! If you go to ShortSale Superstars and read the help agents are asking for and some of the down right picky idiotic responses from loan servicers, you can see first hand. It is not one servicer it is all of them. Banks are not too big to fail and the Securites Act of 1933 that was changed under the Clinton administration needs to be repealed and let banks be banks, insurance companies be insurance companies, and security companies be sercurity companies. Banks even tried to own real estate companies calling them financial services as well. Wouldn’t that be a fine mess to have that added on top of this mess!
The banks better wise up and streamline their short sale process fast. These low, Fed subsidized mortgage rates are a gift to the banks. It’s giving them a chance to get their REO and soon to be REO off of their books at the highest possible price.
I hear that there are 11,000,000 homes that are 90 days or more late. How could we artificially inflate homes values? One way would be to control the supply of homes, let’s keep those homes off the market, and only slowly release them to the market for sale, or we could do massive sales to investors that promise to rent and not sell. Another way to inflate homes values would be to have artificially low interest rates, QE1, 2, and especially 3.
Buying a home is all about the monthly payment to a buyer, and most buyers buy the most expensive home that they can afford.
A $500,000 home purchased today, with an 80%, $400,000, 30 year fixed rate loan at 3.5% has a monthly P&I payment of $1,796.18.
When rates go back to ONLY 6%, that same P&I payment of $1,796.18 will service a loan of only $299,587.77. Affordability wise, a $500,000 home at 3.5% is only a $375,000 home at 6%.
Artificially low interest rates maybe inflating home prices by as much as 25% or so, and add to that the inflation caused by the banks massive control of the supply. Good time to buy?
Shows are “great”, as usual. I was noticing that you went back to the previous background. What happened? Couldn’t handle the conservative vibe? Just kidding and just wondering. Keep up the great relevant videos and staying on top of info food chain!
Yeah it just didn’t feel right. I love the boys room! Stay tuned because we’re going to start having fun with it!
Short sales were supposed to be streamlined for timeframes which is not happening. I have had cash buyers with provided full proof of funds and No inspections waiting for 7 months to have Bank of America make up their mind. House needs work and price is same as other foreclosures sold within the last 6 months which were in better condition. Only reason we can figure the big run around by Bank of America is because the owner is still continuing to make his mortgage payments. He lost his wife and is entirely struggling to make those mortgage payments, but wants to do the right thing. Bank of America keeps picking apart minor things, now after 7 months it’s the top page of #10 is unreadable by BOA so have everyone sign the page again, total bs the page is fine. This has happened 4 times prior with unprofessional deadlines by BOA, on Labor Day a demand at 10 pm holiday night to have forms BOA never supplied signed by the buyers and returned by 9 15 am the following day or BOA says we will turn down the file. As long as this owner keeps paying BOA who knows if it will ever be approved. This complex has very few sales which is the only reason the buyers have been hanging in. I told them months ago to bail and walk.
Short sales are easy! Just work the system and dont try and fight it. I have 100% success ratio of closing on my short sales. I have completed over 100 of them. For those who say short sale are difficult it means either you give up too easy or you dont know what you are doing. I agree if you fit into one of these categories then you should not do short sales. You need to leave them for the experts. Out of 100+ short sales I have completed I have received full balance write off on 99%. The biggest problem with short sales is not the bank but uneducated agents! Any time the bank forecloses on a property with an approved short sale, it is the agents fault! The bank does not know what they are doing any more then a young child. So it is our job to guide them through the process. If there is a foreclosure date it is our job as agents to make sure that the auction is stopped. To just assume that the bank knows to stop the auction is our ignorance. Again they are the young child and we are the parents, not the other way around. I love short sales. For those who don’t get this, please don’t do a disservice to the sellers by “helping” them. Please leave the short sales to someone who knows what they are doing.
This comes on a day where I patiently wait for a SS Lender to approve a final HUD so the new lender can fund so the deal will close no later than tomorrow. The SS Lender will not extend their Approval letter which expires on the 30th (Sun). While managing the emotions of all parties involved, getting verbally abused, and if you looked at the hrs logged making less than I’m legally allowed to pay someone in the great state of California.
Until there are very clear guidelines AND SS Lender professionalism that rivals those of us working the streets. Foreclosures will outpace Short Sales.
Thanks for the show guys !! I appreciate the insight each day.
We would love to market for short sales, however communicating with the lenders is virtually impossible and agents around here avoid it because of the experiences they have had with them.
As a 30 year Realtor that started out in the early 80′s and has a reputation for putting together the difficult transations, I am to the point that i don’t know that I wnat to work with a short sale from either the buyer or seller side. I’ve successfully negotiated short sales with 4 secondary liens in the past, but it seems with all the regulations and when dealing with the “big banks” all common sense is thrown out the window. Disheartening to work diligently with sellers and/or buyers in the short sale process and be stonewalled by the lenders. Having to resubmit the same paperwork over and over and over sure comes off as a delay tactic. Months go by and properties end up at the foreclosure acution selling for nearly 1/3 of the negotiated short sale price….personal experience fact on a short sale over a year of work and no payday. Our office had and “approved” short sale after 6+ months of work that the big bank lender permitted to sell at the foreclosure auction for less than the negotiated sales price. Needless to say, two Realtors, buyers and even the seller were upset not to mention other potential buyers that were told the property was “SOLD”. Lenders getting BPO’s from out of the area agents that come in “over market” and turning down not one but two offers that are good values for a short sale property for condition within the first month or two on the open market, weekly “followup” calls indicating documented reasons the pricing is too high (accepted short sale value) and continued marketing for 90 days before another BPO can be ordered…..need we go on?
Two comments. First, there is still a lot of confusion regarding the different impacts/ benefits to the home owner of doing a short sale as compared to going through foreclosure. The last piece I read suggested that the difference was minimal. Why bother if that is the case? Second, the “nanny state” has led many to believe that government will eventually take care of the troubled home owner. I do not list many short sales properties but have recently “fired” a couple of clients because they just didn’t seem to care. I understand that they may have been overwhelmed and frustrated but the fact is that banks need to sell their clients on doing short sales and, as with life in general, home owners need to accept some responsibility and help themselves.
[...] FHFA says that foreclosures still outweigh short sales. Check out this video from the TBWS Daily Show! [...]
I whole heartedly agree that collectively as Realtors, we have not done enough to market the benefits of a short sale to underwater homeowners. The State of Illinois led the country in foreclosures for the month of August, many of which could have been prevented with a short sale. With the Mortgage Debt Relief Act set to expire at the end of this year, NOW is the time to reach out to homeowners and explain the benefits and consequences of a short sale versus a foreclosure. Keep up the great work guys!
I will place a large wager on the table that short sales will increase tenfold after Nov. 1st, 2012, when FHFA allow short sellers to proceed with a short sale and be current on the mortgage through the process. To date, 3.7 million short sellers are fighting to continue to make payments through the process, and it has finally gotten through that given the choice, underwater homeowners want to keep paying to keep credit intact, versus the myth that most of them are strategic defaulters… on their own accord. Banks have been recommending short sellers be delinquent to get help of any kind,and they are still recommending it. This one FHFA guide, along with the use of all HAMP hardships for HAFA short sales effective 11/1/12, will open the way for more short sellers to proceed without wrecking credit, and keeping whatever dignity they have left.
Absolutely agree. Have also noticed that gas prices are ticking down. Hmmm! Bet they go up after the election! Banks and Oil companies do not want to be the topic of the election so they are creating an artificial environment. Talk about stupid on stupid! Was at Five Star Institute in Dallas and that was all you heard from “vendors” that homes are being held off the market until after the election.
One of the main reason, that I have experienced, why people let their home go into Foreclosure is because the homeowner is scared. Scared because when trying to do a short sale – the bank does not put in writing that the Seller’s Deficiency will be cleared and they, the Bank, will not go after them in the future. This is all on the Banks – once they get their act together perhaps things will get better. Also the lack of short sale information on TV via NAR is very dishartening as well. If there are 1 million realtors in the Nation each paying $115 to NAR – then they have plenty of money for advertising campaigns – NAR’s fault….
Fannie Mae and Freddie Mac will waive the right to pursue deficiency judgments in exchange for a financial contribution when a borrower has
sufficient income or assets to make cash contributions or sign promissory
notes: Servicers will evaluate borrowers for additional capacity to cover the shortfall
between the outstanding loan balance and the property sales price as part of approving
the short sale.
Read the FHFA News Release from 8/21/12:
Yes Pam. But then you have a second mortgage that says “I ain’t gonna waive no stink’n deficiency”. They will not get the up to $6,000 to be shared among junior lien holders and they say we don’t care. If we don’t get our $xx,000 then we will take nothing.
Modifications will not assist homeowners who have low interest rates of 4% or less. In addition to that the bank informs the borrower not to pay their mortgage during a modification which takes up to 1 year to complete for them to become more delinquent on their mortgage. When those delinquent payments are rolled in, the modified loan payments are higher than their original payment. The process for a “Short Sale” and “Loan Modifications” can go up to 2 years or more. Depending on the state the foreclosure process is complete in 3 months.
What was the stunt from a couple years ago?
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