Tracey Baron's Blog

What does an Equator (formally REOtrans.com) account really mean?

Tracey Baron (Turning Leaf Advisors California) — Fri, 26 Feb 2010 14:37:18 -0800

A recent discussion with a high ranking bank official recently shed a lot of light on what exactly is Equator and what is it designed to accomplish. What to expect going forward when you find yourself with Equator files, and what the bank’s reasoning is behind implementing the Equator system for their short sales. Equator is now being used by more and more banks to negotiate short sales without having any phone calls or human interaction between the bank and the prospective buyer and seller.

It is important to note that banks are using the Equator system to facilitate their short sales but will only assign certain loans to the system. The majority of loans assigned to the Equator platform are the lower dollar amount files that the borrower’s credit is completely exhausted and the chance of investment recovery beyond the BPO through seller contributions is negligible. With that said, the Equator platform is designed to approve or deny short sales based on formulas and not take into account unique factors and individual circumstances. This is done in an effort to economize processing costs and allocate real negotiators to short sale files with a greater chance of recovery.

Additionally, when uploading documents into Equator the buyers are now required to enter in the first 5 digits of their social security number and birth date. Equator files will be linked with all lenders and servicers who are using the system. The rationale behind this is so that servicers can see if a buyer is submitting multiple offers within the system on different properties and filter offers that may be potential investor flip transactions that may or may be misinterpreting and exploiting the distressed property marketplace. Buyers who have multiple offers that are tracked within the Equator system may have a harder time negotiating discounts below the BPO value of the property. It was also mentioned that offers from Corporations or Partnerships are given greater scrutiny to ensure that the “potential investor” is not practicing unethical business and defrauding the bank out of any potential recovery efforts.

So what are we at Turning Leaf Advisors doing as a negotiation company for realtor files that are transferred to Equator? We are giving the files back to the realtors that submitted them to us in the first place; as ethically we do not feel that there is any negotiation fee earned, since we do not talk to the bank at anytime during negotiations and all that you need to do is upload the documents. A majority of our realtor negotiation files are above $300,000 so we aren’t running into a lot of Equator files to negotiate. However, the files that we have experienced have all been unsuccessful to date. For example, it is very frustrating to get a 2nd loan in Equator closed for insufficient offer and then not being able to even have a counter offer or a voice to talk to find out how far we are off from making the short sale work and go to closing.

At the end of the day, the message was pretty clear by this bank official, we are facing a very serious problem, much bigger than Equator, there is really nothing available to homeowners today to stop this foreclosure issue, it is way too big for anybody (or system) to stop at this point in time. Equator just frees up the banks time to focus on maximizing the recovery on the files that they have targeted as higher percentage files for recovery. If you look really deep into this situation you will see that we are facing a very serious issue. I have included interesting data and insight from our friend Jay Goldinger. Please read as his article will open your eyes to a very serious problem that we may be facing:

1/25/2010 Nightly Update: Federal Reserve Statistical Release

Loans and leases in bank credit fell $12.1 billion last week let by another decline ($9.2 billion) in commercial and industrial loans. This is credit used by businesses to operate during seasonal inventory cycles. Where is the $$$ going from payoffs in loans? It has been moving into Treasury and agency securities but this category fell $8.7 billion last week. The most stunning part of the report (subject to revision) was a $139.2 billion increase in bank cash assets and it represents a 12.5% in just one week. Banks have a record amount of cash assets ($1.246.7 trillion) as they appear to be hiding and not willing to take any interest rate risk. At this pace the Fed will have to build new and bigger vaults to hold cash for banks but the important issue is how to push them in the direction of credit expansion. An expression used by Fed Chairman Eccles in 1935 might soon apply to US credit problems. When asked by Congressman Goldsborough about increasing the money supply to help end the depression the Fed head responded there was little that could be done by the Fed. The Congressman then responded: "You mean you cannot push on a string." The Fed has extended credit that banks seem not to want for fear of declining asset values and the public believes the Fed needs to begin raising interest rates out of a fear of inflation. The velocity of money is falling faster than the Fed is increasing the money supply making it nearly impossible for inflation to grow and if the Fed continues to pull back on the monetary base as they have for the past month it will remove liquidity from the economy at a time the private sector needs it the most. This scenario would drive interest rates much lower than anyone could ever imagine and produce billions in losses for the majority of investors/traders that have bet big on higher interest rates.

If you want to subscribe to Jay’s nightly economic update, please take the time to complete our subscription form. 100% of the subscription proceeds go to foodonfoot.org which provides food, clothing and job opportunities for the homeless and poor of Los Angeles.

Tracey S. Baron, CDPE
Managing Director, Turning Leaf Advisors
503-805-3230

Turning Leaf Advisors
Short Sale Builder
Strongbridge Funding

Strategic (Short Sale) Default

Tracey Baron (Turning Leaf Advisors California) — Fri, 26 Feb 2010 14:28:00 -0800

The topic of a strategic default is a hot one, no doubt about it. What happens when a strategic default takes on a form of a short sale? I do not intend to make this an in-depth discussion of all aspects of strategic defaults. Neither do I wish to debate the moral issues surrounding a home owner voluntarily walking away from their mortgage while they can still afford to make the payment. For all who are interested in the detail please read Understanding Strategic Defaults by Alan Glass of Los Angeles based ASG Real Estate. For a more general overview check out the wikipedia entry here.

Strategic defaults are typically described in black and white: either you pay your mortgage or you foreclose on the property. Now with a short sale thrown in the mix things get a bit more complicated, particularly when it comes to proving hardship. This issue separates the ones who default strategically in an absolute sense, a borrower who has ample assets, yet makes a business decision to default on the mortgage because it is no longer a good investment and it is time to cut their losses. On the other hand, there are borrowers whose income is barely sufficient to cover the mortgage of an underwater property and with no significant assets. This is the most common type of borrower facing this decision. Phoenix realtor Bob Stahl weighs the moral and economic aspects in this blog post “Strategic Mortgage Defaults: Is It a Financial Issue? Is It a Moral Issue? Or Is It Both?”.

So at what point does a home owner decide to walk away from their home and their mortgage payment? In other words just how much negative equity can a home owner live with? While the numbers vary, the range in between 10% and 25%. The Wall Street Journal article “Debtor's Dilemma: Pay the Mortgage or Walk Away” is full of stats that answer these questions for us.

Turning Leaf Advisors position today is that we do not negotiate strategic default files. That is if the clients sole reason for doing a short sale is to avoid having to utilize current assets to make a mortgage payment on a property that is currently under water. We decided not to jeopardize the integrity of all of our short sale negotiations by refusing to negotiate strategic default files. What typically occurs in these situations is that the seller tries to hide assets and our company as a whole does not want associate with fraudulent activities that would jeopardize our ability to help millions of homeowners that really need our services. Although strategic defaults seem to be a very hot topic these days; there is only a small fraction (less than 1.00%) of our current $60,000,000 of short sales in our pipeline, even attempt to do this. I am sure that there have been some sophisticated sellers who have disguised their assets prior to sending us a short sale package; but if we get any suspicion of this behavior we immediately bring it up with the seller.

Tracey S. Baron, CDPE
Managing Director, Turning Leaf Advisors
503-805-3230

Turning Leaf Advisors
Short Sale Builder
Strongbridge Funding

Top 10 most important items for successful short sale negotiation

Tracey Baron (Turning Leaf Advisors California) — Fri, 26 Feb 2010 14:23:14 -0800

Below is a list of best practices used by most successful professionals handling short sale negotiations. These are essential items everyone involved in negotiating short sales must practice and observe.

1. Transparency of all negotiation related activities – with all parties having access to the details. Active involvement creates a self-policing environment when both sellers and buyers can follow the transaction. It helps build a team approach to the transaction and instills confidence to all parties that the right things are being done to secure short sale approval. This is important if additional funds are required to secure a short sale approval. For this very reason we developed and refined our software, Short Sale Builder (www.shortsalebuilder.com) to facilitate transparent communication and streamline the process.

2. Know the laws in your state in regards to short sales and creditor collection rights. Accurate legal information helps negotiators determine when a bank is asking for more than they could recover if the property went to foreclosure. This is a key negotiation strategy.

3. Stay in the loop, know what your successful peer groups are doing as well as keep up with the current trends in short sales. The latest information will give you and edge you need in establishing yourself as a successful short sale negotiator.

4. Set realistic expectations with everyone involved in the process, do not over promise anything, you will lose the transaction when the short sale does not transpire the way you expected. Under promise and over deliver.

5. Do not take files that belong to investors who are low balling offers. You will only jeopardize your reputation as well as your other transactions by increasing scrutiny on your retail files you’ve worked hard to get approved.

6. Do not submit a file without having verified all liens and judgments. You will lose these files at closing when there is no money to pay them. Always have escrow pull a title report prior to submitting short sale packages. It will save you a lot of headaches.

7. Incorporate a call center to make your initial calls on a systematic basis. The call center will get the file set up with the lender and then pass it over to your negotiator once the bank representative has been assigned. This will allow your negotiators to fully focus on closing the file and not get burned out with the mundane aspects of negotiation, such as submitting missing documents. This will also allow you to recruit and retain the highest level of negotiators.

8. Inform all brokers and agents you work with that 6.00% commission will not be paid on every single transaction. Some banks and servicers simply do not allow for 6.00% commissions and there is nothing that you can do to change this. No matter what you read, there is nothing out there that mandates that’s investors have to pay 6.00% commissions on short sales. There are guidelines that urge investors to pay realtor’s commissions, but nothing that mandates this.

9. What if your clients are real estate brokers and they do not want to pay your fee out of their commissions? We had success having the buyer request the seller to cover the negotiation fee as part of their closing cost. This is an effective tactic that will save buyer or the broker any part of the negotiation fee. The key is to You just need to fully disclose this information in the purchase agreement.

10. Do not alienate the bank by being confrontational or mislead them with false statements, it will only hurt your future negotiations. If you are respectful, and have all of your negotiations conversations documented – you will be able to escalate the file to a supervisor if your short sale is stalled or not going they way you had intended. Ensure that you have the facts correct when making a case with the negotiator. If your facts are incorrect and you are acting on emotion, you will effectively ruin all chances of getting any kind of escalation approved.

Tracey S. Baron, CDPE
Managing Director, Turning Leaf Advisors
503-805-3230

Turning Leaf Advisors
Short Sale Builder
Strongbridge Funding

Done For You Short Sale Negotiations

Tracey Baron (Turning Leaf Advisors California) — Fri, 26 Feb 2010 14:19:50 -0800

Turning Leaf Advisors, LLC (TLA), a loss mitigation firm that provides help for individuals and families facing foreclosure has created the “Done for You Negotiations”® program. This exciting new model is available for real estate brokers and agents that have Short Sale listings that need to be negotiated with the bank. TLA and its “Done for You” model will comply with all individual state regulations and licensing requirements pertaining to negotiating short sales. TLA has increased its capacity to negotiate short sales as 2010 is going to bring an unprecedented amount of new short sale listings for real estate professionals.

The process is very simple:

TLA will work with all parties of the transaction to gather the information needed; build and submit the package to the bank using its proprietary submission software Short Sale Builder, http://shortsalebuilder.com. TLA will then make all of the phone calls and negotiate with the lender to obtain the short sale approval for the seller. All parties will be able to access information from one central access point with individual log-ins to provide transparency to the transaction 24 hours a day.

To increase the effectiveness of the negotiation process, TLA utilize The ValueSure™ AVM from Valuation Solutions http://hanqual.com, to derive the most comprehensive and precise residential property valuations available today and to determine the actual costs of a property becoming an REO. This allows TLA to submit offers that will be within range of the servicers requirements and allow for faster approval times.

Most importantly “Done for You Negotiations” allow brokers and agents to continue to gather listings and continue to focus on their normal business activities without having to allocate large blocks of time learning the lengthy negotiation process that took TLA years to perfect. By outsourcing short sale files to TLA, brokers and agents are able to run their business more efficiently and make more money.

The cost for “Done For You Negotiations” is very straight forward: 1.00% of the value of the property value at closing. This fee can be paid as a referral fee or the buyer can pay the fee so as not to reduce commissions. The seller is not responsible for any fees in the transaction and the agreement can be canceled at any time prior to approval.

Turning Leaf Advisors is one of the largest and most successful Short Sale negotiation firms in the country. They have closed hundreds of millions of dollars of loss mitigation transactions contributed in part to its dedicated and experienced staff and a streamlined business model. TLA anticipates closing over 200 short sales in 2009 valued at over $65,000,000. Please see our website for more information, http://turn-leaf.net. References are available upon request.

Tracey S. Baron, CDPE
Managing Director, Turning Leaf Advisors
503-805-3230

Turning Leaf Advisors
Short Sale Builder
Strongbridge Funding