Beefing Up Short Sales Bids With Expertise And Effort

Unlike with Uber and the ride-sharing revolution happening, there is no easily downloadable short sale management “app” that is going to instantly save you a lot of money and dramatically simplify your default servicing operation.  If someone creates one, they will be rewarded much like the founders of Uber because the problems plaguing servicers across the country are still widespread and increasingly complex. Servicers are more eager to avoid foreclosures than ever given extended timelines and high severities. So short sales are clearly an attractive alternative in many situations, but one of the biggest problems we see with short sales today is that original marketing plans start out way too low.  This occurs for a variety of reasons that evolve over time. However, the most effective strategies for elevating those marketing plan levels comes back to applying two old-fashioned solutions; expertise and effort.

The first challenge in avoiding under-valuing your property is understanding when a short sale should really be a deed-in-lieu of foreclosure so that you can make valuable repairs. The initial step is doing internal BPOs on every potential short sale opportunity so that you can begin to understand what, if anything, the house needs to make it eligible for FHA financing or to otherwise maximize value in a specific neighborhood. The servicer can then leverage the experience of the REO management team to assess the optimal strategy for the property. This is a point in the process where many property owners leave a lot of money on the table. We often spend tens of thousands of dollars when it makes sense from an ROI perspective. REO managers have become too focused on inventory management and too accustomed to sell “as-is” due to the priorities associated with the housing crisis. They need to re-discover the art of making impactful property improvements. It isn’t easy and it will usually take a few months, but the right servicer-REO manager combo can identify and execute on market-savvy rehab work that adds meaningful lift to the tail end of a disposition.

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Effectively managing remediations can also keep you from listing properties too low. Many multi-unit properties in default are occupied by tenants and the landlord/owner (borrower) is uncooperative or absent. If the property has been identified as an at-risk property the owner can incur code violations for allowing the property to show signs of physical distress. Certain municipalities will fine the owner for providing services to the tenant for maintenance issues as minor as unclogging toilets or sending a locksmith to let a locked out tenant in the building. Often mortgagors can’t afford the upkeep or ignore remediating the complaints so the code violations can add up quickly. In these situations the servicer can save the note owner a lot of money by spending the time and using their expertise to carefully evaluate a prospective buyer’s remediation plan. Typically it is investors looking to rent or flip the property who are the natural buyers of homes requiring remediation plans given the added complexity and capital involved in the transaction. This makes sense and these buyers should be pursued if the plan is fair to the seller. But if the investor is asking for too much the servicer should be able to recognize it and step in. The servicer would then remediate the violations on its own to clear the items and likely end up selling the property at a better overall execution level.

Another pervasive challenge is the idea that a discount is always warranted simply because it is a short sale and the buyer will have to endure the pain of working with a large bank. But smaller and more nimble special servicers and their agent networks have developed skill sets doing short sales and even more specifically in 2nd lien negotiations and HAFA payouts given the volumes they have processed in recent years. They know who to call and how to facilitate a deal quickly at with the 2nd lien holders since those loans are highly concentrated among a few lenders. It just is not as slow and painful as many agents and borrowers assume with more counterparties today and it is servicer’s job to convincingly educate borrowers and on the under-appreciated efficiencies in the market.

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The last challenge to short sale marketing plans (which I have room for in this column) is an ugly one; fraud. It is frighteningly common to see fraud where the borrower is in cahoots with an agent and a buyer (sometimes the borrower is actually also the new buyer) and they manage a short sale at a deep discount to market and then end up flipping the property three to six months later a much higher level. They will do “pocket listings” where they claim to have private showings and keep the property off the MLS. Others will flat out just ignore calls from the legitimate buying agents. The best way to fight this is to establish and use a trusted agent network. Another path is to demand that your properties are listed on the MLS. The MLS automatically feeds sites like and Zillow in many areas which gives you an easy check. Lastly, whenever possible have someone local be sure there is a for sale sign on the property.

So you may not get all the way to an uber-esque valuation, but with some industry knowledge and attention, higher short sale executions are on the horizon.

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Market Analysis: Being Automated Does Pay Off

*Being Automated Does Pay Off*
**By Tony Garritano**

***Who says technology doesn’t pay off? Well, it does. Just take servicing for example. It’s a tough space, but for those that automate, they’re doing well. To this point, Wingspan Portfolio Advisors, a Dallas-based diversified servicing company, is leveraging technology and servicing know-how to track ahead of the industry averages in speeding short sales to successful conclusions. The secret to accelerating the short sale process is in keeping the objectives of all parties aligned and the communications clear, finds Robert Shiller, senior vice president of Wingspan’s Enhanced Servicing Solutions, the company’s unit focusing on foreclosure alternatives. While the industry as a whole still takes up to six months to complete a short sale, Wingspan’s average is four to six weeks. Here’s how they do it:

****Even with recent improvements, only 30% of short sales tend to complete nationally, according to some published estimates, while Wingspan is experiencing an 80% success rate. Starting this June, loans held or insured by government-sponsored enterprises must receive responses to offers within 30 days, but this does not ensure improvements in success rates.

****Wingspan Portfolio Advisors speeds up short sales for servicers, real estate professionals and attorneys. It uses its short sale acceleration program for its component and special servicing clients, and offers it for real estate professionals through the Wingspan Real Estate Network (WREN). Attorney-involved short sales benefit through American Home Remedy, a partnership Wingspan recently announced with Jacksonville, Florida-based Realty Legal Service and Home Counsel Group.

****Working closely with primary servicers struggling to handle large volumes of loans on the brink of foreclosure, Wingspan presents short sale offers that have been pre-screened for errors and other issues that traditionally stall the process. Wingspan specialists present offers to servicers, work out junior lien problems and keep track of all required processes using Wingspan’s technology platform. The Web-based platform is used by servicers, investors, mortgage insurers and other stakeholders to understand what is required of them and stay updated on each short sale’s progress via online dashboards.

****“The technology is a great advantage as it keeps everyone on the same page and on track,” says Shiller. “Paper files sitting on desks waiting for decisions largely disappear, replaced with paperless offers that we have vetted, made error-free, and that fall within the economic realities that servicers have shared with us. At the same time, we are able to screen for fraud, get accurate values and condition reports, and eliminate the usual delays.” As a result, the Wingspan short sale can take up to 70 percent less time to complete.

****Ed Delgado, chief operating officer of Wingspan Portfolio Advisors, believes with short sale volumes on the increase, speed to decision and execution are becoming increasingly vital to any successful liquidation strategy. “Real estate agents and brokers have motivated buyers looking for good deals on homes, many of them first-timers. The more we can ease their path to ownership while providing a foreclosure alternative for distressed borrowers, the fewer the neighborhoods that will suffer from extended vacancies and blight,” he says. “At the same time, distressed borrowers are able to reenter the ranks of homeowners much sooner than if foreclosure devastates their credit, and this potentially means millions more home sales over the next three to five years. Short sales benefit everyone, including servicers and investors, with reduced loss severity.”

****Lenders and investors improve sales amounts by 24% using short sales, according to a recent study by McGeough Lamacchia Realty of compiled MLS data for short sale and lender owned (foreclosure) homes sold in 2010 and 2011 in five major markets around the country.

****“We’re demonstrating that short sales can be much faster and far more successful than in times past,” says Shiller. “It is a viable strategy that gets the market moving, finds good borrowers for the existing inventory out there, and minimizes the collateral damage of foreclosure.”

Market Analysis: What Do We Really Know About Shadow Inventory?

*What Do We Really Know About Shadow Inventory?*
**By Tony Garritano**

***Estimates about how large the shadow inventory is and how long it will take to dispose of vary. What we know for sure is that the inventory is huge and it will put a crimp in industry recovery for some time. PROGRESS in Lending has learned that according to CoreLogic, the current residential shadow inventory as of October 2011 remained at 1.6 million units, representing a supply of 5 months. This was down from October 2010, when shadow inventory stood at 1.9 million units, or 7-months’ supply, but approximately the same level as reported in July 2011.  Currently, the flow of new seriously delinquent loans into the shadow inventory has been offset by the roughly equal flow of distressed (short and real estate owned) sales. Here’s what else the CoreLogic research revealed:

****CoreLogic estimates the current stock of properties in the shadow inventory, also known as pending supply, by calculating the number of distressed properties not currently listed on multiple listing services (MLSs) that are seriously delinquent (90 days or more), in foreclosure and real estate owned (REO) by lenders. Transition rates of “delinquency to foreclosure” and “foreclosure to REO” are used to identify the currently distressed non-listed properties most likely to become REO properties. Properties that are not yet delinquent but may become delinquent in the future are not included in the estimate of the current shadow inventory. Shadow inventory is typically not included in the official metrics of unsold inventory.

****Data Highlights:

****>> As of October 2011, shadow inventory remained at 1.6 million units, or 5-months’ supply and represented half of the 3 million properties currently seriously delinquent, in foreclosure or in REO.

****>> Of the 1.6 million properties currently in the shadow inventory (Figures 1 and 2), 770,000 units are seriously delinquent (2.5-months’ supply), 430,000 are in some stage of foreclosure (1.4-months’ supply) and 370,000 are already in REO (1.2-months’ supply).

****>> Florida, California and Illinois account for more than a third of the shadow inventory. The top six states, which would also include New York, Texas and New Jersey, account for half of the shadow inventory.

****>> The shadow inventory is approximately four times higher than its low point (380,000 properties) at the peak of the housing bubble in mid-2006.  A healthy housing market should have less than one-month’s supply of shadow inventory, which would be an easily absorbed stock of distressed assets with little or no discernable impact on house prices, unless the inventory was geographically concentrated.

****>> Despite 3 million distressed sales since January 2009, a period when home prices were declining at their fastest rate, the shadow inventory in October 2011 is at the same level as January 2009.

****>> Because shadow inventory is often concentrated in suburban and exurban submarkets, where distressed sales compete with new construction sales, it is one of the reasons why new home sales continue to be weak. In normal times, new home sales account for 12 percent of all sales, but they are currently running at 7 percent of all sales.

****>> Based on current estimates of the visible inventory (both distressed and non-distressed), the shadow inventory is approximately half of all visible inventory listings. For every two homes available for sale, there is one home in the “shadows” (Figure 3).

****“The shadow inventory overhang is a large impediment to the improvement in the housing market because it puts downward pressure on home prices, which hurts home sales and building activity while encouraging strategic defaults,” said Mark Fleming, chief economist for CoreLogic.