Loss Mit Services

Not all Mortgages Qualify for a Short Sale

Posted on 06. Apr, 2018 by ctlms in Blog, Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure

Not all Investors will agree to a short sale.

Things are constantly changing in the world of short sales.  These days, since the expiration of the Home Affordable Program, in 2016, change seems to be a constant theme.

One of the ever growing trends over the last few years has been Delinquent Loan Sales.  This is when the Investor that owns the mortgage, takes a large number of delinquent loans, pools them together and auctions them off to buyers of bad debts.  Usually, these are multi-million dollar pools of loans.

Fannie Mae, Freddie Mac, and even FHA are selling off delinquent loans these days.

Once that loan is sold, the rules change.  No longer are the rules for loss mitigation dictated by the prior owner of the loan.  This new Investor that owns the loan, dictates the rules. Usually, this will also result in a servicing transfer.  This is where the loan is transferred to a different company to service it on behalf of the new investor.  The buyers of these bad debts specialize in buying delinquent accounts.  They of course, pay less than the amount owed to acquire those loans.  And they often send them to be serviced by servicers that more like debt collectors, than they are like mortgage servicers.  This means reps at the bank tend to be less cooperative and rude.  This can make for a more difficult short sale transaction if one is even allowed.

Some of these new Investors are actually not allowing short sales at all.

It does not matter what the offer is.  Unless they are being paid in full, they will not accept an offer on the property.  So far we have seen them be willing to consider a loan modification, or a deed in lieu of foreclosure, but not a short sale.  This still leaves options for the homeowner to avoid foreclosure.  But if they don't know that a short sale is not possible, and market the property for several months, only to then find this out, it may be too late for one of the other options.

So determining if the current investor that owns the loan will consider a short sale, is crucial at the beginning of working on a short sale.  Though this can be a little difficult.  Some servicers will come right out and tell you that this investor will not consider a short sale.  Which is in everyone's best interest to know up front.  However, not all of these servicers are so open.  Some will refuse to tell you who the investor is and will refuse to tell you anything about what they will or will not consider for a workout option.  They want the homeowner to fill out a complete workout package first.  Then they will spend the several weeks to months it takes them to review that, and come back and let the homeowner know what options are available.  For those servicers, we have to use some legal rules to request the investor information in a format that they have no choice but to respond to so that we can determine who the investor is.  We know who is not allowing short sales.  So if we find out the loan is owned by them, we are able to tell the agent and the seller this information so they do not waste any more time thinking a short sale is possible.

We have unfortunately seen a few cases where we were contacted after there was already an offer on the property.  We then learned the investor will not consider any offer.  Obviously, no one was happy.  Best to find this information out before there is a buyer in contract.  This is the reason for this article.

I want agents to know that not every property qualifies for a short sale these days. That information needs to be determined early on to avoid going too far along on a lost cause so the homeowner can look into other options before foreclosure gets too close.

Luckily this has been a pretty low percentage of the files we see, and we see a lot of files.  But it is happening and we have seen close to a dozen of these already in 2018.  Most of which we were able to determine before an offer was received on the property, since determining the investor on the loan has always been one of our first priorities for new files anyway.

In conclusion, whoever is working on the short sale negotiations needs to determine who the investor is that owns the loan, and ask the servicer if they will consider a short sale.  This should be done at the very beginning, preferably before the property is listed for sale, or at least as soon as possible after it is listed.

Sean Wilder

Loss Mit Services

SmartMLS Commission Rules are now Easier for Short Sale Listings!

Posted on 13. Feb, 2018 by ctlms in Blog, My Blog, News, Real Estate, Short Sale

SmartMLS Rules and Regulations now allow agents to advise other agents how commission reductions would be handled.

SmartMLS rules and regulations "Section 7.1.0 Disclosure of Potential Short Sale. Participants may, but are not required to, disclose potential short sales to other participants and subscribers. When disclosed, participants may, at their discretion, advise other participants whether and how any reduction in the gross commission established in the listing contract, required by the lender as a condition of approving the sale, will be apportioned between listing and cooperating participants."

I recently reached out to MLS Compliance and confirmed that it is now allowed for agents to offer an actual % to co-broke on the MLS and describe how any reductions to commission required by the lender would be handled.

As an example;

Your listing could offer 2.5% to co-broke, check the box for Potential Short Sale and in the Short Sale Comments state something like "Any reduction in commission, required by the short sale lender, as a condition of the short sale approval, will be split 50-50".

NOTE THAT THIS IS JUST AN EXAMPLE.  Check with your broker or office manager for your company policy on this.  Also, note that I would suggest including the language in the Compensation Notes Section since it is right near the commission offered section on MLS printouts.

The update to these rules should no longer make it necessary to list short sales at $1 co-broke to protect against cuts required by the short sale lender.

Brokerages may want to review these rules and determine if updating their company policies is in order.

Sean Wilder

Loss Mit Services

Who owns your mortgage? Probably not your bank!

Posted on 02. Jun, 2017 by ctlms in Blog, Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure

Who owns your mortgage?  And Why does a Short Sale Take So Long?

Many homeowners I speak with do not understand how the mortgage industry works and the players involved.  So let's talk about it.

Let's start with a typical mortgage origination scenario.

1. A Home-buyer goes to ABC Bank and applies for a mortgage. For this example, let's say it is a conventional mortgage.

2. ABC bank is a large, regional or national bank.  They underwrite that loan so that it meets Fannie Mae or Freddie Mac standards. This makes it possible for them to sell the loan to Fannie Mae, Freddie Mac or some other Secondary Market Investor, after the loan is originated.

3. The loan is approved and closes.  ABC Bank takes their own money, or money they have borrowed, and lends it to the Home-buyer.  They charge him an Origination fee for creating the mortgage.

4. ABC Bank then turns around and sells that loan to a Secondary Market Investor, and hopes to keep the Servicing Rights.  That means, they still send the new Borrower their monthly bill and collect the payments, etc.  For this, they get paid a monthly servicing fee.

But now ABC Bank has that money back that they loaned out.  So they are able to do this same activity over and over and over collecting more and more Origination Fees and Servicing Fees.  This is how most Mortgage Companies make money on mortgages.

So now the loan is seriviced by ABC Bank, but even though they originated it, they no longer own it.  The new owner of that loan is called The Investor.  If that loan needed mortgage insurance, there is also a Mortgage Insurer involved with that mortgage.

So this leads me to the following question that I get all the time... "Why do the banks take so long to review a short sale and make a decision?  Don't they want to get this resolved asap?" The answer is that they don't necessarily want it to be resolved asap.  That is because there is a conflict of interests between the Servicer and the Investor.  The Investor is the one losing the money, and possibly the Mortgage Insurer.  So they have an interest in potentially resolving a delinquent loan sooner rather than later.  But the Mortgage Servicer is being PAID every month to service that loan.  Once that loan is closed out, that income will stop.  So the Servicer does not have an incentive to make the process fast and efficient.  So long as the Investor on the loan is not unhappy with their current timelines and servicing of the loan, then the bank has no incentive to spend money to better train their staff, streamline the process, or hire more staff to handle to volume of files they have to review.  So nothing changes for the better, even so many years after the initial downturn that caused the real estate crisis to start.

Sean Wilder

Loss Mit Services