NORTHEAST OHIO (WOIO) - With nearly 25 percent of Cuyahoga County homeowners underwater on their mortgages, U.S. Sen. Sherrod Brown (D-OH) unveiled a new plan Sunday to improve the housing market by addressing "short sale" home sales.
Short sales are real estate transactions that must be approved by the bank because the seller owes more on their mortgage than the proposed sale price. Brown's legislation, the Prompt Notification of Short Sale Act, addresses the lengthy closing process that often comes with a short sale-which can last months-by requiring banks to respond in a timely manner when prospective buyers are attempting to purchase such homes.
"For most buyers, short sales are anything but. The seemingly endless waiting game associated with short sales represents a dangerous drag on our housing market," Brown said. "If we're going to recover from the housing crisis, we need to make it easier for qualified candidates to purchase homes. This commonsense legislation helps prospective home buyers and distressed homeowners alike, while helping to rebuild our neighborhoods and to foster long-term economic growth.
"Too often during the short sale process, there is a lengthy break in communication between the loan servicer and the buyer of the short sale property. This breakdown deprives buyers notice of whether or not their offer has been accepted, rejected or countered-and that means that homes aren't being sold, even when there is a demand," Brown continued. "This lapse in communication makes it harder for families to move to Cleveland and help us build our community, and potential buyers are left waiting or even walking away in frustration. This bill is aimed at improving communication between banks and homebuyers-and keeping homes in our neighborhoods occupied. Our economic recovery depends on our housing recovery."
The goal of The Prompt Notification of Short Sale Act is to improve the process for buyers considering a "short-sale" home. Presently, it can take many months to get any kind of response from banks or other loan servicers to short sale offers. Brown's legislation requires a written response of an acceptance, rejection, counter offer, or the need for an extension of time within 75 days of a request from a homeowner-thereby providing both buyers and sellers of short sale properties with predictability during a real estate transaction.
Brown was joined by Victoria Machor, a former homeowner in Lorain County who struggled to resolve the short sale of her home with her bank for more than a year; with the assistance of Brown's office, she ultimately sold her home, albeit at a lower price than she had been originally offered by a buyer. Brown, Machor, and Cleveland-area realtor Seth Task outlined how The Prompt Notification of Short Sale Act would improve the process for both sellers and buyers involved in "short sale" transactions and bolster the housing market and our economic recovery.
There is vast speculation among many real estate analysts that short sales will be very prevalent this year as delinquencies and foreclosures continue to be a major problem throughout the country.
According to Lender Processing Services, there are over four million properties nationwide delinquent on their mortgages by 30 or more days and 1.8 million mortgages that are 90 or more days past due. Both are figures that will only entice lender-servicers to try to negotiate a short sale with a distressed borrower.
At the MBA's National Mortgage Servicing Conference, Brent Taggart, executive vice president of business development at Green River Capital, said he wants to hear more statistics about whether delinquencies are on the rise or if they will be going down in upcoming months.
Taggart told this publication he is specifically looking forward to Fannie Mae and Freddie Mac general sessions. "I want to have a broader consensus from people that short sales is a viable loss mitigation tool that they're pledging to use it going forward in 2012," Taggart said. He is curious to learn if delinquencies are happening for subprime products or somewhere else because it not only affects the mortgage business, but the general economy too.
The West Valley, Utah-based asset management company determined that 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.
"We're getting good contact which is good information to know because we can send that back to the servicer," Taggart said. "They know that we've offered the borrower all of their options to determine whether to pursue a short sale, loan modification, or continue towards foreclosure."
While at the conference, Taggart said he also wants to speak with others to know what their expectations are for the mortgage industry this year. Taggart stressed that he wants to know what his peers think servicers will be pushing for this year and if they will need help managing whatever this may be.
The conference is a great opportunity to hear from my peers and some of the larger servicers and get feedback from them on what is happening in the industry, he said. It is a chance to "brainstorm ideas" about solutions to the housing crisis.
The Senate passed an amendment offered by Senators Menendez (D-NJ) and Isakson (R-GA) that would reinstate the higher loan limits through December 31, 2013. This would raise the FHA and GSE loan limits back to 125% of local area median home price (from the current 115%) and raise the high cost cap to $729,750 (from the current $625,500). The language would also extend the VA loan limits through the same date. NAR strongly supported and worked for passage of this amendment, which cleared the Senate with a vote of 60-38.
The Senate must still vote on the overall bill, H.R. 2112, which is now the combined Appropriations bill for the Department of Agriculture and Department of Housing and Urban Development. The Senate is expected to approve that bill next week, but its future in the House is uncertain. NAR will continue to work to preserve this amendment.
On October 12, 2011, the Treasury Department, in collaboration with the National Association of REALTORS and the Arizona Association of REALTORS, held a Making Home Affordable "Help for Homeowners" outreach event in Phoenix, AZ and piloted a session for real estate agents wanting to learn more about the Treasury Department's Home Affordable Foreclosure Alternatives (HAFA) program. NAR urged the Treasury Department to engage real estate professionals at Making Home Affordable community outreach events to increase participation in the HAFA program and expedite short sales transactions. In addition to informational sessions for real estate professionals wanting to learn more about the program, agents and brokers had the opportunity to work on solutions to difficult HAFA transactions with loan servicers face-to-face. NAR continues to collaborate with the Treasury Department on HAFA improvements and promoting the development of a streamlined short sale process beyond the expiration of the program scheduled for the end of 2012.
Improving access to affordable mortgage financing for qualified home buyers and investors and committing additional resources to loan modifications and short sales will help reduce current and future inventories of real estate owned (REO) properties held by government agencies, according to the National Association of Realtors.
In a letter sent today to the U.S. Department of Housing and Urban Development, the Federal Housing Finance Agency, and the U.S. Department of the Treasury, NAR responded to the agencies' recent request for input and offered its recommendations for selling REO properties held by Fannie Mae, Freddie Mac and the Federal Housing Administration.
In its letter, NAR urged the agencies to create an advisory board as they explore new options for selling foreclosed properties to ensure that efficiently disposing of agency REO properties will minimize taxpayer losses and reduce the negative effects that distressed properties have on local real estate markets.
"As the leading advocate for housing issues, Realtors know that foreclosures affect families, communities, the housing market and our nation's economy," said NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I. "We believe the government has an opportunity to minimize the impact of distressed properties on local markets by expanding financing opportunities, bolstering loan modifications and short sales efforts, and enhancing the efficient disposition of REO properties. This will help stabilize home prices and neighborhoods and help support the broader economic recovery."
Phipps said that the lack of available and affordable mortgage financing is hurting REO sales and the entire housing market, and urged increased consumer and investor lending. While NAR supports strong underwriting standards, the lack of private capital in the mortgage market, unduly tight underwriting standards, and increasing fees have discouraged many potential home buyers from applying for mortgages. NAR believes ensuring mortgage availability for qualified home buyers and investors will help absorb the excess REO inventory.
To prevent further REO inventory increases, NAR also recommended that the agencies take more aggressive steps to modify loans and, when a family is absolutely unable keep their home, to quickly approve reasonable short sale offers that allow families to avoid foreclosure. Phipps said that while federal programs have been put into place to help keep families in their homes, many of these have fallen short of expectations, and advocated that those resources be applied toward modifying loans and expediting short sales, which are typically less costly than foreclosure.
"Loan modifications keep families in their home and reduce defaults, while short sales keep homes occupied, helping stabilize neighborhoods and home values," Phipps said. "Expanding resources and ensuring the use of already allocated funds for pre-foreclosure efforts is the best opportunity to reduce taxpayer costs and creates more positive outcomes for homeowners and their communities."
NAR's letter also outlined concerns about proposals to pool large volumes of REO properties for bulk sales. While these types of transactions may help quickly alleviate high REO inventories, taxpayers would be required to accept larger losses than are necessary. Phipps said that efforts should be made to incentivize individual versus bulk sales, except in small geographic areas that meet certain criteria, since selling in bulk to large national investors puts a large section of the housing market into the hands of fewer market participants and puts individual home buyers and sellers at a disadvantage.
He also said the success of any bulk sale programs should be determined by the stabilizing effect the program has on a locale and whether it maximizes value to taxpayers. Maximizing the recovery on the agencies' assets will depend on how property valuations are determined and that those valuations are accurate, appropriate, and reflective of market conditions, such as the valuations available through the REALTOR Property Resource, an NAR subsidiary.
NAR is also concerned about proposals that include lease-to-own elements. Phipps said that agency policies should first be focused on keeping families in their homes through loan modifications or short sales if that's a better option, and that the agencies should not expedite foreclosures so that those properties could be included in a lease-to-own program. He added that any lease-to-own programs should not be administered by the government, but instead should include the participation of local investors or nonprofits that can manage the specialized needs and challenges of the local market.
"Realtors welcome the agencies' desire to receive input and ideas to help address their REO inventory. We look forward to serving on any advisory board and working together with agency staff, real estate professionals, property managers, and others with extensive real estate industry experience to develop sound strategies and solutions to ongoing REO issues," said Phipps.
The National Association of Realtors, "The Voice for Real Estate," is America's largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.
A few months ago we heard from real estate practitioners about a short-sale contract addendum that lenders were requiring of borrowers to curb fraud, so we talked with David Sunlin, Bank of America senior vice president and operations executive for short sales, to learn more about his company's version of that form. He said it had been incorporated into the process in part because of a Freddie Mac policy requiring borrowers to vouch that their deal is an arm's-length one. "They came to us and said, 'We, as an investor, require you to do this,' said Sunlin. "And then we looked at it and thought it was a good practice, so we extended it to our entire portfolio that we service."
As a follow-up to that conversation, we spoke with Kathleen Cooke, fraud investigation manager at Freddie Mac, in mid-June, and she said her company's requirement was simply putting into formal practice what the industry had informally required all along: that parties to a short-sale transaction show there's no collusion between them.
Cooke said fraud continues to be an issue with short sales, mainly flipping arrangements, but other types of fraud are cropping up, too. The impact of her company's anti-collusion affidavit is preventative: some parties that are thinking of colluding aren't, because the affidavit takes away the legal gray area: Once you vouch for the fact that the deal's at arm's length, you have nothing to hide behind if you're shown to be colluding. Cooke thinks the affidavit is succeeding in combating fraud.