Servicers Can Make More Money Foreclosing then Short Selling a Property

A great post by Pacita Dimacali with a collection of very valuable links for consumers (and real estate agents not familiar with the ins and outs of a short sale) to read over that will help explain some issues going on with Short Sales. I've provided a little more explanation into the difference between a "servicer" and the actual investor that owns the loan as an opening paragraph.

From Pacita's Post Below....

Pay Close Attention to:

CONSUMERLAW.ORG REPORt ON "Why Servicers Foreclose when They Should Modify And Other Puzzles of Servicer Behavior"

And read over how Servicers can jack up fees "servicing" the loans.

On Page 18 of the report:

"Servicers’ dependence on fees may also partly
explain their reluctance to enter into short
sales. In a short sale, the borrower typically
bears the cost of arranging the sale, thus depriving
the servicer and its affiliates of the fees they
could charge for default management, including
selling the property. Short sales are an example
of a divergence in interests between the servicer
and the investor: the investor saves money
if the borrower, rather than the servicer, bears
the cost of arranging the sale, since the investor
must reimburse the servicer, but not the borrower,
for the costs of the sale, even if the sale
does not generate enough money to cover the
outstanding principal balance. The servicer,
however, may lose some money and is unlikely to
profit at all from the transaction. Only if the servicer’s
financing costs outweigh the foreclosure
fees charged and a short sale is significantly
faster than a foreclosure will a servicer profit by
agreeing to a short sale over a foreclosure. This
disjoint may explain in part investors’ willingness
to pay servicers greater incentives for short
sales than for modifications. As between a
short sale and a foreclosure, the servicer’s only incentive
to favor the short sale are payments by
the investor for performing a short sale. Only if
those payments are larger than what the servicer
expects to squeeze out in fees from the borrower
and default management fees from the REO sale
proceeds will the servicer’s scales tilt towards a
short sale."

The vast majority of people automatically think that because they are sending in (or not) their mortgage payments to Big Bank that received TARP Money, that the bank owns the note. NOT always the case... they may only be servicers for the investors that actually put up the money for the mortgage.

There is one particular bank that just so happens to service a very large amount of loans that fits under the:

"the servicer’s only incentive
to favor the short sale are payments by
the investor for performing a short sale. Only if
those payments are larger than what the servicer
expects to squeeze out in fees from the borrower
and default management fees from the REO sale
proceeds will the servicer’s scales tilt towards a
short sale."

So... don't be surprised if you attempt to do a short sale and this particular servicer asks for 5 to 10% of the difference between what you owe and what the final settlement will be. On top of that... they will more then likely clearly state in their approval documents that they retain their right to pursue the deficiency judgement. (In Nevada... that can be up to six years from the settlement date for a short sale.)

Yes... it happens and one particular servicer has quite a system in place for  foreclosing on the home and putting it back up for sale in their system. Thus... allowing:

the servicer and its affiliates to charge fees for default management, including
selling the property

So... if you've come across a situation where it appears that a bone head decision was made in denying a short sale... there may be more to the story.

Original Post Below:

From Reuters reporting on a Wall St. Journal article

"Goldman Sachs is in talks to buy millions of dollars of tax credits from government-controlled mortgage giant Fannie Mae, but the deal is running into opposition from the U.S. Treasury, The Wall Street Journal reported Monday."

"Tax credits are incentives designed to bring more investment to low-income housing developments."

Ironically... Part 1 of a fascinating story is just now breaking about an extensive investigation into Goldman Sachs secretly betting against the housing market While it was Peddling Billions in Mortgage Securities.

"In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.

Goldman's sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation's premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies.

Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk."

Ummm... and then collected Billions in Taxpayer Dollars for a bailout while a major competitor was allowed to fail?

"For the past year, Goldman has been on the defensive over its Washington connections and the billions in federal bailout funds it received. Scant attention has been paid, however, to how it became the only major Wall Street player to extricate itself from the subprime securities market before the housing bubble burst."

The Bailout of AIG also enabled Goldman Sachs to collect $12.9 Billion in those hedged bets against the housing market.

So... Let's summarize this into a simple paragraph...

Pour a bunch of money into a market where the originators rubber stamp the loans through and give a home loan to anybody willing to sign some documents. The recipients turn around and buy up homes which drives up the prices for everybody. Bundle these up in securities and sell them off as Triple A rated "safe" investments to pension funds and insurance companies. Then... buy up some credit default swaps betting that these same securities you are pawning off as Triple-A rated "safe" investments will be defaulted on. Cut off the investment money for the exotic loans, Wait for the defaults and collect your insurance money.

Make Billions.

Certainly a Fascinating Investigation and Part 2 promises some more worthy reading material.

"Since the economic collapse that swept millions of Americans out of their jobs and homes, Goldman Sachs has moved aggressively to recover losses. The firm is pursuing shaky borrowers into federal bankruptcy and state courts across the country and seeking to seize their homes. McClatchy examines one family's multi-year attempt to get Goldman Sachs to admit that it had purchased their mortgages."

Part 3 - Unloading the Securities to foreign Banks in offshore Meetings

"The Cayman offering - one of perhaps dozens made through the British territory - occurred as Goldman began to ditch the subprime mortgage business before the U.S. housing market collapsed under an avalanche of homeowner defaults."

And then..

"The 2006 Cayman deal was part of a flurry of Goldman activity in the hidden, unregulated parts of the securities industry. Goldman's traders also made huge bets that those securities would lose value by buying insurancelike contracts, called credit-default swaps, with private parties. Beginning early in 2007, they bought swaps on a London-based exchange."

Part 4 - Associations with Junk Loan Originators

"Goldman has yet to explain why it risked its blue-chip reputation and financial health to buy and repackage at least $135 billion in loans mostly originated by companies that have since gone bust."

As we know... loan originators that were funded with Billions of Dollars of investment money were rubber stamping loans through... which resulted in high home prices for everybody as people were practically handed money to go out and buy homes with no money down.

"Traversing the country in private jets and zipping around Southern California in Mercedes-Benzes, Porsches and even a Lamborghini, New Century executives reveled as the firm's annual residential mortgage sales rocketed from $357 million in 1996 to nearly $60 billion a decade later."

Guess who is getting stuck with the bill?

Paul Francis, CRS
Prudential Americana Group
Las Vegas Real Estate - Summerlin Homes
702.592.3058

Weak Dollar sends Oil Skyrocketing

In case nobody has been catching the recent surge in the cost of the Barrel of Oil:

From the New York Times

"But they say the most important factor is the falling value of the dollar, which is encouraging traders, institutions and foreign countries to invest their cash in hard assets like oil and gold. Oil is priced in dollars on global markets, and a falling dollar almost always puts upward pressure on oil."

Hmmm... Cash for Clunkers, Mortgage Modifications, First Time Homebuyer Tax Credits, Federal Reserve buying Mortgage Backed Securities, Bailouts, free money for all, etc, etc, etc...

Where does the Money Come From?

Borrowed and / or Printed Money resulting in a weak dollar. Oil is traded in Dollars and since there are more dollars (less value) going around... be prepared for higher gas prices on the way.

Weak Dollar Equals Higher Gas Prices ...

It has nothing to do with supply and demand and "everything to do with the weakness of the dollar," AAA South spokesman Gregg Laskoski said.

Gas prices usually decline in the fourth quarter. After Oct. 1, refineries switch to a winter blend that requires fewer additives and is cheaper to produce. Those savings are usually passed on to motorists.

In fact, gas prices have risen in the fourth quarter only once in the past 30 years, Laskoski said.

Gas Prices Jump 18 Cents in Two Weeks...

Something to think about before supporting Subsidies funded with Borrowed/Printed Money without thinking of the consequences.

I think most Real Estate Agents can certainly remember the drag we saw last time we saw $4 a gallon gasoline. Cities such as Las Vegas that rely on tourism certainly don't need it... especially right now.

To every action there is always an equal and opposite reaction....

Paul Francis, CRS
Prudential Americana Group
Las Vegas Real Estate - Summerlin Homes
702.592.3058

Just Released Report for your Weekend Reading

Tarp Oversight Report Criticizes Administrations Loan Modifications Program

Interesting Report by the Congressional Panel that oversees the government’s financial bailout plan that was of course... released on a Friday.

Read the 168 Page Report Here

Full of great information that goes over the waves of foreclosures, future waves of foreclosures on the way.. redefaut rates for loan modifications already performed and suggestions to improve the program that will be forwarded to your Representatives.

Whether you agree with it or not... this is what your Representatives will be receiving and thinking about on any future bailout programs, lending to lenders, delaying the inevitable, dough for dumps.. or whatever.

Personally... I found it very comprehensive loaded with information and charts including the future Option Arm Resets coming soon and other various challenges such as the unemployment rates creating the next wave of foreclosures. Of course... how it is comprehended is another story and sadly, that will probably be based on what Party Card they have instead of common sense.

Regardless of how real estate professionals comprehend the report, the report does appear to suggest an even more aggressive approach to deal with the Housing Crisis including this analysis / suggestion of paying the Unemployed Homeowners Mortgages on page 107:

(Nice how they are so concerned about the Lender getting paid..)

Recently... there was an Op Ed piece in our Local Paper well worth the read about extending the pain indefinitely that basically covers the teachings of the Austrian Business Cycle. After every distorted boom, there must be a bust for the economy to return to normal.

Read the article... then consider everything in the report and you have to ask if we are just delaying the real healing and a return to a "normal" real estate market.... after a couple of trillion or so already spent.

The Definition of Insanity anybody?

Paul Francis, CRS
Prudential Americana Group
Las Vegas Real Estate
702.592.3058

Foreclosures Are Never Easy

I've had plenty of experience including personal experience of what happens when business slows, investments go sour, income declines and all of a sudden you need to re-structure your expenses. If you are like Millions of other Americans.. your mortgage may be worth far less then what the home is worth, your payments far more then renting and you may have no other expenses to cut to put your debt to income ratios at levels you can live with. Creating more debt is not the solution and only makes the problems worse. Unfortunately.. it's not as easy as just selling your home so you can get your life back on track to a more positive future.

You can either Walk Away and let the home go to foreclosure, try a loan modification or just do a short sale. If you can get a loan modification that truly puts you on a path to a better future, congratulations. If it is just putting the problem off to a later date.. it's your choice whether you want to make the sacrifice now in order to move on or put it off to a later date. A foreclosure is certainly going to delay the healing process... a short sale is going to make it shorter.

Learn about Las Vegas Short Sales

I have plenty of resources concerning the myths and misconceptions about doing a Las Vegas short sale at my Las Vegas Real Estate blog so you can become a more educated Las Vegas Real Estate seller. NOT ONLY do you need an experienced Las Vegas Short Sales Specialist but You Also Need a Las Vegas Real Estate Agent with the systems in place for ADVANCED marketing to get the highest offer possible which greatly improves your chances of getting a short sale approved in the first place. Remember... Lenders and their investors want the most money possible and if you use a Las Vegas short sale specialist with poor marketing systems in place... the chances are that you will get less money for your home.

Las Vegas Short Sale as an alternative to Foreclosure

A very smart alternative to a Foreclosure.

Las Vegas Short Sales

What is a short sale and some short sales numbers that I reported on from May of 2008.

Las Vegas Short Sale vs. a Las Vegas Foreclosure

Benefits to everybody for doing a short sale instead of just letting the home go to foreclosure.

Las Vegas Short Sale Buying Tips

Tips in buying Las Vegas short sales. Use an agent that understands them in the first place and your chances of getting the offer approved are GREATLY increased.

Las Vegas Short Sales Report

Why you need somebody with actual experience in Las Vegas Short Sales. The success numbers for the majority of Las Vegas Real Estate agents are very poor. We average over 75% for our Las Vegas Short Sales getting approved by the lender with our superior Las Vegas real estate marketing skills.

A not So Sad Las Vegas Foreclosure Story

Homeowners that have moved on in life. A new segment of stories where I have helped Las Vegas homeowners move on in life.

Myths about Las Vegas Short Sales

There are tons of myths about Las Vegas Short Sales all over the internet that are just not true.  Use the contact information below for a personal consultation to see if a short sale is the right thing for you.

Getting a short sale approved by a lender is highly dependent on the sellers situation and you need a Short Sales Agent that can review your situation / finances to help determine if you will even qualify for a short sale to begin with.

Paul Francis, CRS
Las Vegas Short Sales
702.592.3058

I went to a restaurant last week with high prices and low quality food. I heard that they just raised their prices and I'm thinking about going back...

Ok... first of all.. I'm pretty happy with our representatives in Nevada... or maybe it's just the system in place courtesy of the Nevada Constitution which makes me much happier then the last state I lived in which was bloated with Government spending with poor representation.

A little hint of where that was... it had a Governor with Big hair that got impeached and indicted for trying to sell a Senate Seat of some guy who became President.

In that State, Even when Business was booming, the cash registers ringing and tax revenues rolling in during the best of times... that state / city still had budget shortfalls and needed to raise taxes. It was interesting to say the least... I did love the high property tax bills that showed what % of all the property taxes I was paying was going to several things I never used. And for what I did use... I considered the fees a little high considering they were being subsidized by our tax dollars. Big Government at it's best...

Forget about investing in real estate there... knowing what I know in comparing it to Nevada simply makes it a bad real estate investment due to too much risk involved. Tenants that don't want to pay can pretty much live for free for several months and there is not much you can do about it as you spend a bunch of money to get them out.

I also certainly have No Idea on how people that solely rely on Social Security can have a decent standard of living there.

I know... you might be thinking that the taxes in Nevada are low because the Casinos pay for so much but the reality is that Casinos in Nevada pay some of the lowest tax rate percentages to the state of any state that has legalized gambling. And there is certainly much to debate on what legalized gambling really costs everybody.

Regardless... this post is all about this post about Higher Taxes make for Happier People by Stewart Penn in the Great City of Los Angeles in the Great might as well file for BK now state of California. It really just started out as a comment to that post that got out of hand so I just made it a blog post so I can get the extra points on ActiveRain. ;)

Anyways... make sure you read his post and the comments on there first before going forward...

Interesting post and comments to say the least...

Remember... the following started out as a comment to Stewart's blog post.

Does Denmark, Finland or the Netherlands have special interest groups influencing the representatives of the people?

As far as the Netherlands... I wonder if it's because of all that wacky weed they are legally smoking? Is that why California Cows are happier then the cows in Wisconsin? I've always just thought it was the weather but I could be wrong...

Can I just Illegally enter Denmark, Finland or the Netherlands and get all those benefits? Hmmm...

Personally... I've always found people in Oklahoma to be some of the nicest people in the country and that state is certainly not liberal or socialist in nature. Oklahomans CERTAINLY have some high moral standards...

What state within the states has the happiest people since states can be so different? Nevada is Certainly far different then California yet we are side by side... California is far more liberal in nature then Nevada and I've got quite a few clients fleeing California to move to Nevada. Out of well over a hundred listings sold in Las Vegas... I can't think of anybody I've ever relocated to California but I've certainly relocated several Californians to Nevada on the condition they don't bring big tax and spend government ideas with them. 

(I know... hard to explain this with somebody who voted for Harry Reid the last time he ran for Senate but that's for a different day somewhere in 2010.)

I don't think Californians are happy because of higher taxes... I think California is a fantastic state for other reasons then high taxes and a big might as well file for BK now state Government. Liberalism at your finest.... A fantastic study of how big Government can BK the eighth largest economy in the world last time I checked.

As far as public education.... the last time I checked.... our Public Educational System is pretty much run by our Government... spending more with less results... Oh yes... the Government is certainly the answer in healthcare for all. (Roll Eyes Here.)

Are Private Schools Better? I don't know... several of my best friends that I grew up with went to Private School while I went to Public school. We ended up as roommates while attending the same highly respected college. My daughter goes to public school.. I'm thrilled with her great teachers and fantastic Principal and she is just doing fantastic and loves school. You can't ask for much more then that... Maybe it has something to do with teaching her what my parents taught me... Discipline and Respect... Wow... the same concepts my best friends I grew up with were taught. The Same teachings I learned while living in Europe for six years. What a concept.

Go to a school in Europe and see the difference of what they allow compared to what our public schools allow and you'll immediately see what is wrong.

Yet... we still seem to have the greatest entrepreneurs that actually create new technologies right here in the United States. And since when does the happiest countries in the Universe have better Universities then the United States? Free education up to Grad School in Sweden?  Cool... but do they have anything that compares to MIT? I don't think so...

The hottest new technology under development such as cars by Tesla Motors is certainly more fascinating then Volvo... Apple is far superior to Nokia. 

You give $14 Billion to a company like Tesla Motors and who cares about the Big Three with what Tesla Motors will be able to mass produce with $14 Billion (that appears to have been flushed down the toilet) of Taxpayers money? Hmmm....

From the Original Article of Stewart's post:

"It all comes down to what you get in return"

Well... DUH... I'm always happy when I get a great meal at a great price. If I get a bad meal at a bad price... should I even go back to the restaurant? I don't think so...

So let's face it... It's quite a stupid Article about Happy People being Happy because of Higher Taxes

THERE IS NOT Much that the U.S. Government has done (except for the Military) that is not done better by the private sector. If there is... please name it. We have a speaker of the House currently lying (in my opinion) of what she did not know going on with enhanced interogation techniques... Wow... the person leading our segment of the Government in charge of making Laws we are supposed to respect and live by is looking really shady to me. If I was sitting on a Jury I would have no choice but to vote Guilty.

Yes... Tax us more to Make us Happy, Happy people.

I think I'm going to start a Real Estate Brokerage with Really High Fees to the Agents and Really High Commission cuts so I can have a Bunch of Really Happy, Happy Real Estate Agents!

But... would if Uncle Sam Realty starts up?

Uncle Sam Realty is not going to do a better job at selling real estate then me. Their agents will have all kinds of benefits and probably a salary or hourly wage just to show up... they won't work 12 hours a day, 7 days a week and shell out their own money to get results.

However... they can certainly make it difficult for me to compete with them... And geez... they seem to have an unlimited supply of cash to back them up even when they don't make a profit. They'll probably raise my taxes to run a real estate business!

I'm certainly not blaming the U.S. Government for what is going on... and I'm certainly suggesting they are not the solution to the problems that they somewhat created.

Because the original intention of the creation of the Federal Government by our great founders was to serve the people and protect our country. Something along the lines of having a strong Military and protecting our Borders... allowing States to Be States where State and Local Government has the authority to influence our day to day lives. Don't like a state with high taxes... move to one with low taxes. Don't like the services of a state with low taxes.. move to a state with more services and higher taxes.

CHOICE IS GOOD

Are we all just whining and saying everybody else has it better because times have gotten a little tough? Have we gotten that pathetic?

We need the Government to come help us because of their fantastic track record of spending more then they are bringing in? Give me a Break....

I lived in Europe for Six years and I simply loved it... but it had nothing to do with higher taxes.

It had more to do with the culture. For the most part, People in Europe don't judge others by what they have but who they are. A strong sense of community. High morals...

Something the U.S. is certainly lacking as we leveraged ourselves to death buying up everything on credit to be happy... happy because we were impressing others. Our self worth has been cleverly marketed by companies such as the Big 3 that we need SUV's we would not dare take off of a paved road. It would take me a day to spot 7 Escalades in Germany... I can count seven of them in Las Vegas in about five minutes.

We need that big McMansion with flat screens in every room... we need that big Hummer... we need, we need, we need and now we need to pay for it.

Wow... so much for sacrifice. Somewhere in one of my History Classes I learned that the U.S. was created on the foundations of sacrifice by people who escaped a country with high taxation for crappy representation.

We've certainly come a long way in the past 10 years in returning to what people gave their lives for in escaping.

I certainly can't wait to go back to that Restaurant with the Crappy food for a high price since I found out they raised their prices because they needed more money...

Paul Francis, CRS
Las Vegas Home Values
702.592.3058

Las Vegas Short Sales - Tales of Agony and Ecstasy

AGONY

I certainly love any and all offers on my properties for sale but the amount of offers incomplete and far below current market value with what is currently taking place in the Las Vegas real estate market is obviously an attempt of trying to get rich quick using agents trying to make the impossible happen. Maybe it will work with one in 30 tries... maybe.

Las Vegas Short Sale Secrets

The good news is that it appears Short Sales are FINALLY being addressed in one of the many homeowner programs which is FANTASTIC news to help avoid foreclosures in the first place.

Maybe some other short sales agents in real estate markets seeing the light at the end of the tunnel can share their same experiences that I share about the Short Sales Secrets in Las Vegas so I know I'm not the only one experiencing the number of people late to the party.

Let's face it... the current wave of buyers trying the way below market value tactics waited to hear about somebody else doing it first and then decided to jump in.

Will Las Vegas Home Values drop another 30% in value from today? From the areas I focus on, I don't think so.

Ecstasy

Several months ago when the market was far slower, we put in an offer and took a shot on a Las Vegas short sale listed below market value. Not only was the property listed below market value, we went even lower with our offering price. I was just recently notified by the listing agent of that property that it was approved. It took quite some time but it's a great deal.... especially with the way things have heated up for Las Vegas Real Estate.

There is NO WAY it would probably work today in our current Las Vegas real estate market conditions since things are a little nuts to say the least. (Make sure you read my Las Vegas Short Sale Report to get a full understanding of what I'm mentioning.)

A couple of other Las Vegas short listing I took were also recently approved as it appears Banks are now willing to help keep Las Vegas homes from going to foreclosure which will CERTAINLY be good news for everybody.

It's always been my opinion that addressing short sales and helping speed up the process can only help real estate values in distressed markets and my BIGGEST suggestion is for real estate agents to at least learn the basics of short sales.

My advice to buyers looking to purchase a short sale is to use agents that understand the process to GREATLY IMPROVE your chances of getting a Great Las Vegas Home that on average is in better shape then a Las Vegas Bank Owned Home.

HAPPY Short Selling and Buying towards a TRUE RECOVERY...

Paul Francis, CRS
Las Vegas Real Estate
702.592.3058

So.. I write up a pretty long and thoughtful blog post on Active Rain about current Las Vegas Real Estate market conditions...

Something happens while I go and look for some pictures to add to the post... my browser that has the AR post shuts down and now that post is Completely GONE!

Over an hour of work gone!!!! My Las Vegas Real Estate Wordpress blog automatically saves the post as a draft even if your computer crashes or you throw it across the room, out the window, run over it with a car, etc...

SO FRUSTRATING!!!

So... Here is a summary with some links that were part of the article...

Please help me write the rest of the blog post in the comments because I don't have the energy to re-write it all....

I'll take the best comments and insert them into this post with a link to your profile or website with your creative thoughts for helping out.

The number of Las Vegas foreclosures available for sale on the Las Vegas MLS has dropped dramatically from my last Las Vegas Foreclosure activity post and continues the decline for the second month in a row since I started tracking Las Vegas Foreclosures. Currently at 4,724.

Las Vegas Homes Currently in Contract - Huge buying Activity currently taking place.

Las Vegas Number 1 in Foreclosures - Foreclosure moratoriums delay foreclosure activity and creates a tsunami heading this way.. so be careful.

The decline of foreclosures and the increased buying activity could be a sign of the end of the free-fall in Las Vegas Home Values but due to the Help for Homeowners Program... market trackers looking at the big picture need to be very careful before making any predictions since the real estate market was tampered with.

Major cash is coming in and we were just outbidded on a Luxury Las Vegas Home by $100,000 over market value in my opinion.

C'est la vie because I did some research for my client and found out about a couple of future Bank Owned homes coming soon in the same neighborhood and in better locations within the community. I've already sent communication to the banks directly and my client has agreed to pay my commission so he can get the best deal possible. Sorry... tired of playing games with Kool-Aid drinkers who don't have a clue about the foreclosure moratoriums and want to bid up the prices like there are no other bank owned homes in Las Vegas on the way...

Perhaps the AR Gods can retrieve my post from some archives somewhere in the system and I can add some pictures to the post and finish it up..

Until then... just trying to make lemonade out of Lemons with the help of some creative AR members. ;)

Thanks!

(I'd add some pictures but then I might have to create a summary of this summary of my original blog post.)