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

Beware the Vacant Short Sale

Posted on 26. May, 2017 by ctlms in Blog, Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure

What to look out for with a vacant short sale.

There are things to look out for when your short sale is a vacant house.  There are processes the lender will take that the seller and agent should be aware of.

The vast majority of the short sales we negotiate are on mortgages that are no longer current on payments.  Once the loan is delinquent the mortgage servicer is going to start certain processes that they are required to do.  Collection calls and letters are obvious actions they will be taking.  Eventually they will also start "soliciting" the borrower to apply for assistance.  This means sending them an application package and encouraging them to complete it and send it back to be reviewed for a loan mod and other options.

Vacant Properties have their own concerns.

Another process the servicer is going to do is to start checking on the property.  Somewhere within the first 90 days the bank is going to send a property preservation contractor to the property to see if it looks like it is occupied, being maintained, or vacant.  If the property is occupied, you may hear from the homeowner that they saw someone walking on the property or taking photos.  They may even peek in the windows.  This contractor is looking to see if the property is abandoned and they are taking photos for the report that they have to submit.

If the property looks vacant, the contractor will usually leave a door hanger or put a stick on the door that says something like "This property is believe to be abandoned.  If this is not the case, call you lender immediately at 555-555-5555".  If the property is not vacant, the homeowner will want to call and let the bank know that is not.  If the property is vacant and the homeowner is maintaining it and checking on it, they would want to let the bank know that also.

If it is Vacant, expect it to be Secured.

If the property is vacant, even if the homeowner is maintaining it, expect that the bank will "Secure" it.  Secure it means breaking in, changing the locks on at least one door, and usually winterizing it.  Even in warm weather months, it is not uncommon for them to still winterize it.  The lender has the right to secure the asset that is collateral on the loan against damage or loss of value.  So they will do that.  Their concerns are things like burst pipes and water damage in the cold months.  But even in the warm months, vandalism and damage due to stolen copper pipes are concerns.

So do not be surprised to show up at the property to find the locks changed and either no lock box or a different lock box than the one the agent left at the property.  Typically the agent's lock box will be found inside on the floor, still attached the the door handle that was removed and replaced.  Even if there is a real estate sign in the yard, it is not common for the preservation company to call the agent to ask about the occupancy or let them know they will be securing it, though it does happen sometimes.

The bank cannot lock out the homeowner.  So we or the homeowner are able to get the new lock box code or a copy of the keys.  The main reason they changed the locks was so that the preservation contractor has access to the property for routine checkups on the property in the future, without having to break in again.

Beware the Preservation Contractor!

The companies that are hired for the property preservation work are not licensed, or regulated in CT and many other states.  Many of these companies subcontract out the inspections and actual securing of the property.  There is little to no oversight or accountability.  Due to these facts, some of the shadiest people you will meet are involved here.  I have seen many instances of theft, vandalism, and shady actions by these companies.  I have seen properties secured that were obviously occupied.  Only for the occupant to come home and not be able to get in.  I have seen MANY things stolen.  I have seen utilities turned off in the middle of winter, but no water drained from the pipes.  I have seen doors and windows left wide open, presumably for someone else to come back after dark to steal from the house.

So what to do?

For the homeowner: If the property is vacated by the homeowner and the payments are not being made, they should move out all of their belongings.  Do not consider the property to be a good place to store belongings until closing.  Things will disappear once the property is secured and if they call the Police they will be told this is a civil matter, not criminal.  The bank has no accountability or oversight over these companies and does not care about any of this.

If you see that the property has been secured, check it out.  Did they turn everything off?  Did they drain the water?  Their incompetence may have put the property at further risk of damage, rather than reduced the chances as the banks intend.

For the agent: If the agent sees a sticker on the property or gets a call from a company that says they are going to secure the property, I would either remove the lock box or try to put it somewhere other than the door handle that would be changed if they changed the locks.  No one likes losing a lock box, especially the electronic ones.

This is all something to be aware of and keep in mind when dealing with vacant properties and delinquent mortgages.

Sean Wilder

Loss Mit Services

FHA Short Sale Update May 2017

Posted on 05. May, 2017 by ctlms in Blog, Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure

FHA short sales require 15 days Active on the MLS AFTER Approval to Participate (ATP) is issued.

It' just keeps getting harder and harder to work with FHA short Sales

The FHA Preforeclosure Sale Program aka a FHA Short Sale, is already the most complicated, Red Tape Laden, program there is for short sales.  But HUD just keeps making it worse.  Over the last few years HUD has continued to add more and reason to deny struggling homeowners the ability to do a short sale, or at minimum, making it maddeningly complicated to do so.

For example, any of the following reasons can get you denied for a short sale, unless a Variance is approved to the rule; Non-Owner Occupancy, Property Rented over 18 Months, Surplus Income Above the Expenses, Mortgage Payment too Low compared to Gross Income, Approved for a Retention Option, Weak Hardship Reason, and the list goes on.

Recent Changes to the 15 day Marketing Rule.

For a couple years FHA has had a rule that the property must be Actively listed on the MLS, at the FHA appraised value, for at least 15 days, AFTER the ATP is issued, before any offer will be reviewed.  The ATP is the Approval to Participate (ATP).  This is the seller's approval into the preforeclosure sale program.  It is a "pre" approval to do a short sale.  Once that is issued the financial review of the seller is over, the appraisal amount is disclosed and the 120 day approved marketing period starts.  This is when the min 15 days of marketing starts also.  EVEN IF YOU ALREADY HAVE AN OFFER!

For the last couple years HUD has been approving variances for this rule.  A variance is when HUD approves of an exception to their rules.  The previous policy with HUD had been that so long as the property had been marketed for at least 15 days before an offer was accepted, even if that was prior to the ATP being issued, they were approving the exception.  HUD now says they will no longer approve this variance.  I have heard this from a couple larger mortgage servicers as well as directly from a HUD escalations specialist at the HUD National Servicing Center, which is where we escalate FHA short sales if the bank is not doing things correctly.

So Now What?

Being forced to list the property as ACTIVE on the MLS, if you already have an offer in place, causes some issues for the agent.  It is a violation of MLS rules to list a property as being ACTIVE if you are already under contract with a buyer.  If you wait to list the property until the ATP is issued, then you have no issues.  But that may waste a few months of potential marketing time during the pre-approval process.  So then, disclosing to the buyer that the property will need to be reactivated on the MLS is likely a good idea, should you receive an offer prior to the ATP being issued.  What you do when you put the property back on ACTIVE is up to you and speaking with your Broker may be a good idea.  The cleanest thing would likely be to terminate the contract, put it back on ACTIVE and then execute a new contract with them after the 15 days.  Then there is no gray area.  But if you have had that offer for quite some time, that may be uncomfortable for the buyer.  So each case may be different.

Just be Aware of this Policy.

Notable Exception.

As with most FHA short sale rules, there are exceptions.  There is one notable exception to the above 15 day marketing rule. That exception is on files that are already past "First Legal Action".  First Legal Action is when the file has been sent to an attorney to file foreclosure and that attorney has delivered to the state Marshal, the package to serve the homeowner with to start the foreclosure.  If the file is past this date, it is not eligible for the pre-approval or the 120 day ATP marketing period.  Since an ATP with 120 day marketing period cannot be issued, it is not possible for the property to be marketed for 15 days after the ATP is issued.  So long as the property was listed for 15 days, it can be reviewed for approval.  So files that are already in foreclosure, do not have this 15 day after the ATP issue.

One of the very first things we do with a new short sale file is determine the loan type.  This way if there are issues or concerns with the file, we can let everyone know and we can all plan accordingly for the transcation.

Sean Wilder

Loss Mit Services