As the impact of the housing crisis continues, lenders are still frequently pursuing short sales, deeds-in-lieu and other workout plans, often at the initial request of the borrowers themselves. Especially in states such as New Jersey and Florida, where foreclosure timelines are typically extended and thus, more costly for lenders, these loss mitigation strategies present a better option for all parties involved. However, while foreclosure alternatives are known for having shorter timeframes, they are no stranger to delays of their own.
When it comes to today’s non-foreclosure solutions, a lender’s overall objective is to identify and successfully execute a plan that leads to the fastest possible resolution. While undoubtedly quicker than foreclosures the vast majority of the time, loss mitigation processes are often prolonged when the strategy changes. This most commonly occurs when a short sale transaction must transition to a deed-in-lieu. This increasingly common scenario can disrupt progression and inevitably requires added resources, leading to a more difficult, lengthier process for the homeowner.
This March, Hope Now reported that, while loan modifications in January 2016 were down 10 percent from the previous month, deeds-in-lieu jumped 17 percent in the same timeframe. It is likely that many of these deed-in-lieu transactions originated as short sales. With this upward trend, lenders are beginning to realize the importance of making loss mitigation adjustments more quick and seamless, and are looking first to technology to help.
Traditionally, lenders have managed their short sale and deed-in-lieu processes separately – separate departments, different personnel. From an organizational perspective, this might work. However, should a circumstance require a change in the loss mitigation strategy, lenders are often forced to start the process over entirely. For instance, if during a short sale a borrower is unable to sell his or her home within a given timeframe, a lender must typically close out the short sale and shift the transaction to either a foreclosure or deed-in-lieu. When using disparate systems, the information housed in the short sale platform would be completely lost when the transaction converts, ultimately causing delays. Instead, lenders can benefit from a dual-path approach, which entails running courses for a short sale and deed-in-lieu simultaneously. Then, if approval on a deed-in-lieu is granted first, there is a smoother transition to REO. Or, if a short sale begins, yet must transition to a deed-in-lieu, there is no need for the lender to start the process from the beginning.
By handling multiple loss mitigation options concurrently and within a common system, any notes or documents on file, messaging communication, property valuations and title work, all remain saved and can simply transfer should the strategy change. There is no need for information to be lost or for activities to be duplicated. Based on the frequency with which loss mitigation scenarios adjust, it is more important than ever for lenders to apply the methodology and technology to avoid further postponements, interruptions and confusion. Leaning on a single system as opposed to multiple platforms inherently provides lenders greater transparency throughout their loss mitigation departments while ensuring homeowners receive consistent and ongoing communication.
As many Americans continue to struggle to fulfill a mortgage, lenders remain responsible for both helping borrowers find an optimal resolution while preventing another downturn. The industry’s enduring need for loss mitigation solutions will continue to drive foreclosure alternatives. Given this, lenders should be updating their processes to ensure the short sales and deeds-in-lieu they pursue are handled in a way that results in the best possible outcome for the homeowners they serve.