Ready for change? Here it comes...or is it?
Through these articles, or blog posts, I have been attempting to educate agents concerning the many, many issues of misinformation that have provided in short sale books, courses, and training seminars. Since I really have more of a warm heart of a teacher than a lawyer, I want to be of service to those of you who appreciate it.
So, I have helped bring clarity to who owns the note, the secondary market investor (SMI), and who approves short sales, the SMI, not usually the servicing lender the proposal is submitted to. I have also attempted to help you understand that the old method of analyzing a short sale which merely compared the amount of loss if the short sale is approved has been replaced by most SMIs to the new net-to-lender minimum threshold percentage of the fair market value. This change started late summer of last year and became widespread by the end of the year.
Now, bloggers are spreading the word about a new system under the new Making Home Affordable 
legislation. They are sounding the alarm that there massive change taking place that is replacing the current system.
My response? Whoaaaa, just a moment! Stop. Breathe. What is taking place is not a major change. There are a few changes but let's put them into perspective.
First, the real change is the current political environment. It does not take a political activist, extremist, or alarmist to see that the current administration and the liberal democrat majority in congress are attempting to change our way of life away from capitalism and substantially closer to the European models of socialism. This is not a criticism but the reality. Whether you are democrat or republican, liberal or conservative, progressive or traditionalist, the reality is that from the last election democrats believe they have a mandate to move us away from what they believe are the ills of capitalism. The vast majority of lawyers are liberal/progressive, and I have my foot in both sides depending upon the issue.
How is this important? Because there is war being waged between many of the financial institutions and the 
treasury department. Treasury now owns both Fannie Mae and Freddie Mac, and a growing number of other institutions, both SMIs and servicing lenders. Treasury is putting the squeeze on financial institutions with the stated purpose to vastly reduce the number of financial institutions. That is their speak for pushing them to the brink of bankruptcy, then rescuing them (bail-out) and taking ownership. One of the objectives of socialism is to take over employers, and financial institutions are one of the major 5 critical industries required to make socialism effective.
The MHA legislation was passed to help accomplish this. Wait, it's real purpose was to do something to help slow down the massive numbers of foreclosures. However, the method was chosen to also assist in this societal change. The main bloggers triggering alarms are stating that Fannie and Freddie own 85% of the mortgage loans. Well, the government claims this, but it is actually not much more than 65%, but growing. 85% is their objective, a very important objective to meet their goals.
Under the new system, you will hear about the net present value formula that servicers will use to determine the list price and the price the property can be sold for. This is nothing more than a new label for the current net-to-lender minimum threshold percentage of the fair market value. The SMIs will provide instructions to their servicers to approve these short sales up front rather than submitting the short sales to the SMI each time for approval. The SMIs will have their own trained representatives in the loss mitigation of the servicer to oversee the same system we have now. The only real change will be that they will be able to use that to guide the agents as to the price reduction strategy to use in listing.
In my blog articles, I have made references to current experimental programs between Fannie, Freddie, 
Treasury and a number of servicing lenders. Well, it is this that I was referring to. It will likely continue to widen as they experience success and train everyone. It is merely the moving of the current short sale system to having the lenders work more up front to help agents meet the current requirements.
I will provide more information about this in the future. However, I encourage you all to not panic, not react hastily, and not become overly concerned about its affect on short sales. Yes, there will be new forms and communication with servicers before listing the short sale, but it is not as big of a change as many fear.
The political pendulum continues to swing back and forth between a capitalistic society and a socialist society. We do not yet know if the current swing will become entrenched, but if it does not, the new changes in short sales will likely remain. It is a sensible approach to try to solve the short sale problems. However, even with these changes there will be unplease consequences. Government always seems to create as many problems as they solve. Sometimes the cure is worse than the disease, but sometimes it brings relief.
Best wishes,
Ken Lawson, JD
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