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.
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Tracey S. Baron, CDPE
Managing Director, Turning Leaf Advisors
503-805-3230
Turning Leaf Advisors
Short Sale Builder
Strongbridge Funding
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