REQUIRED READING: An influx of short sale activity over the past two years has stretched thin many a servicer-Realtor relationship, bringing to a fever pitch animosity over matters such as servicers' sluggish responsiveness and agents' incomplete document packages. Now, several stakeholders – including the nation's largest mortgage investor, Fannie Mae – are taking steps to improve communications, escalate disputes and reduce timelines.
Recent data from the Federal Housing Finance Agency (FHFA) and federal bank regulators show short sales are indeed on the rise. Fannie Mae and Freddie Mac processed roughly 26,000 transactions in the first quarter – more than three times the volume processed two years ago, according to the FHFA.
And the latest mortgage metrics report from the Office of the Comptroller of the Currency and the Office of Thrift Supervision shows short sales rose 2.2% in the first quarter at federally regulated banks and thrifts, accounting for approximately 30% of all home-forfeiture actions. That said, fallout from the robo-signing debacle brought many processes to a halt, and short sales were not left untouched. Borrowers often are not motivated to pursue a short sale until the reality of an approaching foreclosure sets in, vendors say, and with servicers having had to reboot many files, that realization was often delayed for consumers. The lifting of voluntary moratoria reverses that.
"The borrowers themselves don't feel like there's a big hammer coming down until they get that letter from the law firm saying a foreclosure's moving forward," says Scott Gillen, senior vice president of strategic initiatives at Stewart Lender Services. "That tends to be what triggers action [and] phone calls, and I think we'll continue to see ramped-up short sales as a result of that."
Moreover, servicing operations have devoted many of their resources to working through robo-signing issues. Now, shops may be in a better position to re-emphasize short sale strategies, says Steven Horne, president of Wingspan Portfolio Advisors.
"I think we're moving into a period when servicers' mind-sets will be more favorably disposed toward short sales," he says. "At the same time, there's a tremendous number of agents in the real estate community who have really given up on short sales because it's just taken so incredibly long to get these things through."
Realtor circles abound with horror stories of servicers' disuniform processes and long response times. Seventy-one percent of real estate agents who participated in a February survey conducted by Equi-Trax Asset Solutions said it takes between four and nine months to complete a short sale. Reinforcing the point of agents' displeasure was a March survey of California Association of Realtors (CAR) members in which 70% of those surveyed described their interaction with servicers on their most recent short sale closing as either "difficult" or "extremely difficult."
However, the finger-pointing is not directed solely at servicers. Short sale requirements can vary from investor to investor and servicer to servicer, and real estate agents are not always familiar with the idiosyncrasies that help define the options available to a borrower in distress. One of agents' main beefs revealed by the CAR survey was a lack of standardization among servicers' processes and documentation requirements. Agents do not always provide complete short sale packages, and that is a communication gap that Horne says Wingspan is trying to bridge via the firm's recently launched real estate network.
"A lot of the delay is because there are inherent deficiencies on the part of the servicers, and there's an inherent lack of familiarity with the process, plus reluctance, on the part of the real estate agent," he says. The Wingspan Real Estate Network, he adds, "speaks servicer" for real estate agents and can perform early-stage due diligence to ensure there are no major impediments to closing. "That means that the offers we're actually delivering to servicers are very strong and essentially closeable offers," he says.
Servicers have also made strides to educate their Realtor partners, holding outreach events and conducting webinars to bring agents up to speed with documentation requirements and their shops' specific workflows, Gillen explains. He says the real estate industry is transitioning out of a period when there were few true short sale experts.
"One thing that has come full circle is that nobody knew what a short sale was a year ago," he says. "There was a subset of short sale specialists, but most of the Realtor community was dipping their toe in the water and, for the most part, found short sales to be frustrating, paper-intensive, and not worth the time and effort. A lot of that has changed."
Enter Fannie
Hoping to facilitate more short sales and amend problem areas between Realtors and servicers, Fannie Mae this year rolled out its short sale assistance desk to several multiple listing services (MLSs). The Realtor-facing tool, which debuted in pilot form last year, is meant to break logjams that Realtors run into when they are trying to get a response from servicers. In announcing Fannie Mae's partnership with CAR on the initiative in April, the government-sponsored enterprise (GSE) said the help-desk staff would step in if servicers were to fail to meet certain timelines.
Those could include a servicer's failure to provide an initial response within 20 days, a final property valuation within 30 days or a final decision on a short sale within 60 days from the original offer submission date. In some cases, the desk can help resolve pricing issues; in other cases, Fannie Mae staff can assist in negotiating with subordinate lienors.
When Fannie Mae meets with Realtor associations to discuss the help desk, the GSE makes clear that agents should only escalate cases when absolutely necessary, says Marcel Bryar, Fannie Mae's vice president and deputy general counsel for corporate administration.
"Our expectation – and we're very up front about this when we communicate with Realtors and their associations about the desk – is that folks start with the servicers," says Bryar. "The servicers are the ones who manage our book, and we expect them to take ownership of driving results on that book, both for us and for homeowners."
As part of its short sale initiative, Fannie Mae has also entered into data licensing agreements with certain MLSs. As Bryar sees it, optimizing short sales is a two-pronged affair: First, the process must run smoothly, and that is where the assistance desk comes into play. Second, the values must be accurate, so as to not leave money on the table. Fannie Mae both works with appraisers and has a network of broker price opinion (BPO) providers. The MLS data, however, enables the company to internally assess the valuations it receives.
"MLS data is very useful in giving the most current and accurate view into what's happening in any particular market," he says. "You get the data visibility into both historical sales in the very near past, but also current listings and how long they've aged."
Price discrepancies, at least in the context of a "reactive" short sale (i.e., when a borrower, unbeknownst to the servicer, lists his or her property), remain a major challenge.
"There should be collaboration on the list price," says Greg Austin, senior vice president of LPS Auction Solutions, a unit of Lender Processing Services that recently launched an online auction platform designed specifically for short sales. "If that list price is just a fire-sale price that the lender wouldn't have agreed to at the outset, then you have a significant problem."
Listing agents are a critical component of the short sale process, adds Randall Brown, managing director for LPS Asset Management Solutions, because they are in tune with the local market and have a better idea of the value of a particular property.
Some agents, such as Brandy White Elk, agree. Servicers can be unrealistic in their price expectations, and the BPOs on which they base their strike prices are too often uninformed and inaccurate, says White Elk, owner of Las Vegas-based Innovative Real Estate Strategies. She estimates that upwards of 95% of servicers' BPOs come in overpriced.
"On every single property that we have and they take back [as real estate owned], they generally put it back on the market for 10 percent to sometimes 30 percent lower than what our offer was originally to close," she says.
Although servicing shops have grown more receptive to outside opinions, taking consideration of listing agents' BPOs and inspection reports, the back-and-forth that ensues can soak up time and discourage potential buyers.
Ultimately, however, the mentality among servicers' short sale processors may be changing, Wingspan's Horne says.
"Early on, I think there was a real fear that you would be the person who let the $400,000 house go for $250,000," he says. "Nowadays, you're more likely to be criticized for stopping a deal than for letting a reasonable deal go through."
