SHOCK! Lenders make more money on foreclosures than short sales!?

By
Real Estate Agent with Alain Pinel BRE 01367196

Lenders make more money on foreclosures than from short sales or loan modifications. That's what Steve Harney conveyed in a seminar. He caused an earthquake in San Francisco

When loan modifications are turned down, the next thing we attempt is a short sale. And we know that lenders turn over the short sale accounts to loan servicing companies who make our lives hell getting short sales approved. As such, we should know that these loan servicing companies make MORE money by letting the properties foreclose than to approve the short sales OR the loan modification.

RUMBLE...GRUMBLE...CRIES OF DISMAY!

Did he just confirm what we were afraid of?

So I researched this topic and found a few articles worth reviewing. How did I miss these? Was I under a rock in a desert?

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

 

DAILY PRESS headline. Oct, 30 2009. Do Mortgage Lenders Make More Money when a Loan Goes iInto Foreclosure?

HUFFINGTON POST. Oct. 21, 2009, Foreclosures Are More Profitable Than Loan Modifications, According To New Report

Washington Post. July 28, 2009.  Foreclosures Are Often In Lenders' Best Interest. Numbers Work Against Government Efforts to Help Homeowners.

ThinkGlink. October 21, 2009. Loan Modification Help: Why Lenders Are Slow To Provide Loan Modifications

Dayton Daily News. Oct. 17, 2009. Drop in foreclosures called "very scary". Lender's actions show they think properties are not worth pursuing.

Mortgage101.com. October 23, 2009. Mortgage Companies Make More on Foreclosures Than They Do Modifying Existing Loans. (This blog refers to the news article on Huffington Post)

FLASHBACK: Huffington Post, June 8, 2009. Short Sales: Banks Blocking Way Out of Foreclosure Crisis

FLASHBACK: Huffington Post, May 15, 2009. Short Sales Stories. Lenders tend to stick with more familiar foreclosure process, losing money for everybody. 

UPDATE: Huffington Post, November 2, 2009. Homeowners: "Hey Congress, Get Off Your A**"

KNOCKING OURSELVES OUT TRYING TO HELP

So are we engaging in self-flagellation helping our distressed clients with their short sales and loan modification?

Are lenders really more likely to foreclose?

Are the short sale servicing companies really trying to help?

Or are they stalling and withholding their help because they know their leaders would rather have the property burn into foreclosure?

Is there no resolution in signt?

There oughta be a law!

Comments (199)

Dana Devine
Charles Rutenberg Realty - Apollo Beach, FL

here is the truth...Banks take our hard earned money ...the  taxes we pay ....the govt  calls it TARP  and pays unbelievable bonus  to bank execs and then the banks  turn around and  screw the American homeowner buy taking his home away...and the homeowner would  not be in this mess it the bank had not agreed to loan the homeowner money on a home that the bank new he could not afford...thats called no verified loans

Nov 11, 2009 11:53 PM
Jeffrey Burnham
Choice One Properties & Mgt - Las Vegas, NV
The Wizard

Wow. You stirred up quite a firestorm with this one!

Jeff Burnham, Rosen & Co. West, Las Vegas, NV

Nov 12, 2009 05:54 AM
Jeffrey Burnham
Choice One Properties & Mgt - Las Vegas, NV
The Wizard

Wow. You stirred up quite a firestorm with this one!

Jeff Burnham, Rosen & Co. West, Las Vegas, NV

Nov 12, 2009 05:54 AM
Beverly of Bev & Bob Meaux
Keller Williams Suburban Realty - West Orange, NJ
Where Buying & Selling Works

Good info and just what I thought. I would love to be a fly on the wall in some of these companies as they receive contracts from us. It's all feels like a game and they have all the right cards and already know the end play.

Nov 13, 2009 11:27 AM
Carolyn Hawkins
Allison James Estates & Homes, Inc. - Port Charlotte, FL

Wow, when will all of this mess ever end?  Pacita, thank you for the article links and a very informative blog.  Yes, there should be a law, and I so feel for home owners - this shouldn't be happening.  On a postive note, I have seen alot of short sales finally going through in my area - who knows...maybe it's different views from different lenders regarding what they think is best.

Carolyn Hawkins, Realtor Associate - Allison James Estates and Homes, Inc. Lake Suzy, Fl.

Nov 13, 2009 11:28 AM
Mark Moen
Realty Executives Experts - Elkhart, IN

#11 Norm

I like Norm see realtors using the distressed short sale to line their pockets more than to be helpful.  They are taking advantage of the person in distress.  I want to make clear I am not trying to characterize in whole all the realtors.  Here is my problem, there are so many so called short sale experts and I am qualified to state the majority of the agents that engage in short sales do not know how or are just plain lazy and sloppy to get the job done.  My experience is three fold, I am licensed as a loan officer, I have practiced lending since 1993, real estate since 1995 and in 2000 I was employed by Bank One Financial Services which is now Chase Bank.  My position was REO analyst I worked along side a the loss mitigation specialist.  The main reason the bank does not sell short is the ineptitude of the real estate professional who calls him or herself, "Short Sale Specialist."  Again here I am not trying to state all realtors are bad or greedy.  I am afterall in this profession to make money but having said that I also believe in sound economic and business principles which drive consumers to me like honesty, hard work, realistic analysis and consultation.  When I use the term professional I believe that term means trusted source not experienced, the best or biggest, but trusted.  I want the consumers trust, I want to turn the view of realtors as a bad profession as we are viewed to a good trusted profession.

I have noticed that when it comes to short sales realtors cry we need to have government regulation and I stated those realtors are greedy as they are looking to government to force the banks to sell short.  The banks are part of the economic equation and need to do what is in the best interest of the bank which has many depositors and investors whose retirements, life savings, college funds, Christmas funds... are held.  I find the call to action by the realtors as whole sale greed and counter productive to the free economy.

Yes banks make money on foreclosures but the bank selling short is usually not the one buying the defaulted paper.  The bank selling short loses the money at foreclosure and the one buying the bad asset and selling for profit is in the business of REO and most likely is not the original lender or holder of the note.  They are purchasing at a discount in order for the losing bank to receive instant funds for their bad asset.  Their is an incentive for the bank who has the bad loan to sell short again the problem is there are too many short sale experts who do not know the first thing about a short sale.  These agent can not get a normal listing so the prey on the distressed person who actually needs a real expert and professional not some cracker jack marketing specialist spending big advertising dollars to announce that they are the saviour coming.  I sell REO properties and occasionally I will get a short sale listing and to date I have sold everyone I listed.  I attribute my success not due to a designation as certified specialist, I am a knowledgeable professional in this area of real estate due to my experience as a lender first and real estate agent second.

Now validating Norm, I ask all the agents here have you ever tried to sell a short sale where you were on the selling side not the listing side?  I do not even try anymore as it is near impossible.  It is not the banks fault it is the ignorant agent specialist whose only specialty is knowing how to get the short sale listing, they do not know the first thing about getting it approved.  I have sat in many short sale consulting seminars and the main thing taught is how to get the listing, not hoEveryw to get it approved.  In this current market of distress too many agents are going after the short sale and the designation, why?  It is the path of least resistance thus the greed is disclosed by action.  Lastly, the MLS systems are requiring us to disclose short sale on MLS.  First problem it is not in the best interest of the home owner to do so as it gives up their confidentiality which we as realtors are suppose to guard as a priority of our ethics.  Second a short is not short until an offer is written, I do not care if it is listed short.  The actual sale is not short until offer is accepted short.  Disclosure of short sale should come at time of counter offer where seller states that buyer is made aware offer is short of pay off and requires third party approval.  This gives buyer the option out or come higher in price.  Also disclosure of short sale or distress sale puts seller at a disadvantage right out of the starting line in negotiations as the motive to sell is disclosed.  Is this not against the law or our ethics?

What it market short, bidding war happens and actual acceptance covers payoff and expenses?  Not short, so short does not come until offer is written short and seller is willing to accept.  To me our MLS systems are not protecting clients right to confidentiality and this I find to be paradoxical to what is the code of ethics and a deligitimzation of the realtor organization.  This is all about greed and not making money.  If we look to find the banks guilty of wrongdoing I say two wrongs do not make a right.  We are feeding the greed and we are not a solution to the crisis we are furthering it, we are aiding in the devaluation of America's assets, Real Estate.

Nov 14, 2009 02:22 AM
Jason Roberts
SellMyHouse.com Realtor Partner Program - Springfield, IL

WOW Mark! There are so many things in that 14 page post that I disagree but the most startling is the comment that "banks make money on foreclosures". What universe do you live in where a bank is actually better off financially by selling something for less (and from every single piece of data I have ever seen, a lot less) than what they lent somebody for it??

But lets start with this questions first. With your vast experience as a loan officer over these many years, do you claim any responsibility for the "reason" there are so many short sales and foreclosures on the market now? Or is it just easier to throw the blame on somebody else because you eventually plan on running for office and need the votes??

 

Nov 14, 2009 03:24 AM
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

It's offensive to read a generalization that realtors who do short sales are "greedy". The amount of work and the length of time it takes for a short sale to be approved is hardly lucrative, when we can pour that energy into other types of sales that require less work, less time, less angst.

I represent both buyers and sellers of short sales who are genuinely in need of help. Some of these short sales are condos that are worth half of what they were when the clients bought the condos. Case in point: I am helping a good friend sell his condo that is worth $199K. Do the math. Will anyone get rich with this sale?

But why do we do it?

Reasons for helping (REALLY!)

  • Sellers are in dire financial distress
  • Sellers are looking for a less disastrous effect n their credit
  • Foreclosed homes are neglected, trashed, looted, invite criminal activity and become a blight in their neighborhood, thus devaluing the market value of neighboring homes
  • As long as sellers are in their home until it is sold, they can look after the property
  • Buyers, on the other hand may have limited funds and are seeking to take advantage of this opportunity to buy while homes and interest rates favor buying a home

I am speaking for myself:

My short term objective: to help our clients through this financial quagmire

My long term objective: to be the realtor they will think of and they will refer to whenever they and their associats want to buy or sell real estate property in the future.

Nov 14, 2009 04:07 AM
Chris Mackey
www.SanDiegoHousingSolutions.com - San Diego, CA
San Diego Housing Solutions

Pacita,

Very well put, and I wholeheartedly agree with you...

How about this example:

Short sale for a client who lost husband and income on a condo that they paid $270,000 for in 2005.

BofA declined 6 offers over the period of 1 year and 5 months starting with $135,000 and going down, finally accepting a $64,000 offer.

We never gave up on this client... even though our average sales price is $450,000 and we had closed MANY many other short sales in that period of time.

Why?

According to Mark and Norm, it was GREED!

Nov 14, 2009 04:30 AM
Chris Mackey
www.SanDiegoHousingSolutions.com - San Diego, CA
San Diego Housing Solutions

P.S. In all the years of doing short sales almost exclusively, we only lost 3 of them. One because the client's attorney insisted they let it go to foreclosure, the other was due to the bank's unwillingness to do anything other than foreclose, and the third because the client gave up and simply disappeared...

Nov 14, 2009 04:34 AM
David Monroe
Keller Williams Realty - Kirkland, WA
Short Sale Real Estate Agent

Pacita, well said in your last comment.  I agree.

Mark, you seem to be giving a lot of credit to someone who calls Realtors that specialize in short sales "sleaze-balls", but has his own website promoting his short sales services as a Realtor.  I don't think that referring back to Norm's post in agreement did much for your own credibility.

Nov 14, 2009 06:55 AM
Mark Moen
Realty Executives Experts - Elkhart, IN

I see some passion and if you read my e-mail I stated that in general but not towards all realtors.  YOu maybe the exceptions.  Yes I do advertise them, no I do not get many but do not turn them down when I get them.  I have an inside knowledge of the banks inner working from experience in that field and I know what the bank is trying to achieve in total from end to finish of the default process.  My contention that realtors are greedy is that they call for legislation of the short sale process, this will cause more harm than good.  The realtors main reason for legislation is to make the transactions happen.  The bank has a criteria by which it makes happen.  I have much compassion for those in trouble.  I have done more to keep people in the property than short sell.  I will post a letter from one who I saved from sheriff sale the day before it happened as his and his wife's testimony.  To further this I helped the husband get involved in church, drove him from the mission center in Milwaukee to Lake Geneva where he received counseling for his addiction.  That is an hour drive one way.  The problem is what I say is taken personal because of pride and protection.  Most agents tell me that this business is all about perception, mine is all about reality.  My word is backed by action.  Again I am not going to state not all agents are this way but the current market agents are financially suffering and I am seeing more cut throat actions.  As for me advertising short sales I do because I can you will not I do not place expert in that ad but compared to seminar school trained agents I am an expert as I was on the decision making side working in the bank.

As for the specialty of short sale I have been to a few seminars on this and the main focus is how to identify the candidate and how to get the listing, not how to make the transaction work.  The banks they need us, but they need a qualified us.  Selling someone elses short sale listing is a nightmare.  You put an offer in most do not repsond, you ask the agent who does respond if they have sent off the loss mitigation package and most do not even know what is in it.  This is most and not all.  Yes  short sales take a lot of time but that is because someone on our end does not have the process down. 

The original article here is about banks making more money by foreclosing at that is not true.  The servicers make more money by foreclosing, if you get to the lender not the one holding paper you will get to the true decision maker who is ulitmately taking the loss and will be willing to short sell.  As for those who have fallen to tragedy because of the foreclosure, lost husband, job, disabled...  Yes I feel bad for them.  The banking system is made up of investors, maybe you, maybe your parents, sisters and brothers or the family members of those losing the home.  The bank has a duty to keep the ship afloat and we should not ask government to regulate more than necessary.  The more regulation, the more taxation.  The more legistlation the lower the profit if any left and you, your parents, family members and friends, who are the investors, depositors and so forth will lose.  Why because the realtors are calling for legislation of a process they are not knowledgeable. 

Again, show me you are the expert, stop looking to blame the banks. 

Nov 16, 2009 05:16 AM
Mark Moen
Realty Executives Experts - Elkhart, IN

What Norm has stated I have seen where the distressed is taken advantage of.  Why not do the short sales for free?  I help the distressed maintain their homes for free, it takes as much work to do a re-write, a forebearance.  Since I have been in this business both as loan officer and realtor I have given away a lot of free advice.  I do so to my benefit as I receive many referrals and I gain trust.  I can not count on the referrals but the golden rule must work.  No I do not think you should do the short sale for free.  I stand by my statement of greed as when I sat as a loan officer I had many agents ask me to do things that I did not believe is ethical to get a loan through.  This is what caused me to become and agent.  I am going to give blame to the agents for aiding the foreclosure crisis as willing accomplices.  I am tired of hearing agents blame someone else, the appraiser, the lender... 

We have a duty to push the sales price but we also have a duty to safe guard the public trust so there has to be a balance and this past heated market was not just the banks, the blame can be spread all around.  The realtors want the tax incetive pushed to purchase, they want the banks regulated, they also cheered when the 0 down, non verification loans were happening.  Now they cry when the out of balance market has led to distress and the lending programs have disappeared.  Shoot the lending guidelines today are not as strict as when I started back in 1993.  Also I am not calling the agents sleazy are as fewer the than the best. 

Greed is not bad for an economy to work but greed unchecked is allowing those to operate out of norms and my belief from experience is many going into the short sale field are looking for the easy way to shore up their income loss due to current market conditions.  They are doing so without the quality needed.  Greed unchecked got us here in this current distressed market.  When I was an asset manager for the bank I attended the REO conferences having the name tag on my short made me that of celebrity status with every agent at the conference wanting my attention, every agent offering a kngdom in return for their services.  Nothing short of bribery, gifts, and such.  I felt like a politician in front of the lobbyists.  Pure disgust, pure greed.  Short sales are for those who can not get the work directly from the bank so they go to the distressed seller as saviour.  Sorry if I offend, this is my challenge to my profession and my fellow professionals.  If you are one who does the job required then great.  This is good news for me as a real estate agent as you are bringing credibility to our profession.

Nov 16, 2009 05:43 AM
Mark Moen
Realty Executives Experts - Elkhart, IN

Jason,

My specialty was VA and FHA I had no room for lending irresponsibly.  In the nine years I activey originated loans I only originated 5 FNMA loans, that was before the flex programs, the pay option arms...  I put my focus on real estate with free giving free financial planning to set first time buyers on the path to home ownership.  My practice speciatly at that time was first time home buyers, it was 7 years before I had my first listing.  I am a conservative and I believe in responsibility.  No I am not running for office I feel I can do more service on the outside.  Lastly, I stated banks do not make more by foreclosing.  The author of this artlicle I believe has it wrong, I did not read the links she has placed but the servicers make the money off foreclosures not short sales.  The actual lender loses, the serviers have no incentive to sell short, they just service as trustee.

Nov 16, 2009 06:02 AM
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Mark --- perhaps you should post a blog about your thoughts on this subject matter.

Re what you said, "The author of this artlicle I believe has it wrong, I did not read the links she has placed but the servicers make the money off foreclosures not short sales..."

If you will please re-read my blog, you will see that I didn't STATE or make claims but rather posted a lot of questions asking if this is true, if we are working for naught, etc.

And I still think generalizations are dangerous as you are sure to offend hard-working, honest realtors who should not be lumped in with some you perceive as anything but.

Nov 16, 2009 06:33 AM
Mark Moen
Realty Executives Experts - Elkhart, IN

Pacita,

Right off the start in my comments I stated I am not trying to characterize as a whole.  What more can be said.  Your post started with servicers which is correct it is not in their best interest to represent their clients the lenders.  They profit by servicing through the foreclosure.  The articles you posted links to which I did not read because they are mostly about banks and lenders.  The banks those with the money lose when foreclosure happens.  Your last statement there oughta be a law is the crux of my point.  There ought not be a law but the lenders oughta do what is in their best interest.  Do you have a bank account?  Do you have 401k, IRA, Mutual funds?  A law means more regulation which requires more taxation on our end and on the end of those who have these accounts with banks will see less revenue for their deposits and investments. 

I know there are good hard working, honest and ethical agents but why is that the real estate industry as a profession is ranked in the low part of consumer confidence?

Nov 16, 2009 09:20 AM
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Mark

Ever hear of colloquial expressions? "There oughta be a law!" is one such expression. If you had clicked on that linked expression, it would have taken you to writing.com's site, and specifically to this link http://www.writing.com/main/handler/item_id/1061132-There-Ought-To-Be-A-Law

Please click on the links and then you will know or see the rest of the story....

I look forward to your post inviting others to comment.

 

 

Nov 16, 2009 10:40 AM
Debbie Durkee
RE/MAX T-town - Tulsa, OK
ALC, CRS -- Land & Country Estates near Tulsa

This fact became obviously a year ago when I watched several homes in my farm go through the foreclosure process.  We stillti need to try to do short sales, but every party has to really be interested in participating.  If the buyer is not fully informed by their realtor through their signatures on explanatory documents, then I recommend to my sellers to wait for a buyer who will be more likely to hang with us through the process.

Feb 09, 2010 12:13 PM
Debbie Durkee
RE/MAX T-town - Tulsa, OK
ALC, CRS -- Land & Country Estates near Tulsa

This fact became obviously a year ago when I watched several homes in my farm go through the foreclosure process.  We stillti need to try to do short sales, but every party has to really be interested in participating.  If the buyer is not fully informed by their realtor through their signatures on explanatory documents, then I recommend to my sellers to wait for a buyer who will be more likely to hang with us through the process.

Feb 09, 2010 12:14 PM
Debbie Durkee
RE/MAX T-town - Tulsa, OK
ALC, CRS -- Land & Country Estates near Tulsa

This fact became obviously a year ago when I watched several homes in my farm go through the foreclosure process.  We stillti need to try to do short sales, but every party has to really be interested in participating.  If the buyer is not fully informed by their realtor through their signatures on explanatory documents, then I recommend to my sellers to wait for a buyer who will be more likely to hang with us through the process.

Feb 09, 2010 12:14 PM