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I'm NOT buying the SHOCK! Lenders make more money on foreclosures than short sales!?

Reblogger Bill Nazur

Mortgage and Lending with First Lending Solutions NMLS ID 1325784

November 07, 2009 07:28 AM

A great series of articles to consider......

I have to point out however that a basic tenet of a short sale is that the consumer is TYPICALLY 3 months behind, often recommended by the lender AND/OR the realtor/loan modification consultant, creating a loan that is no longer PERFORMING, which thereby accelerates countless advances, accrued interest, and a severe drain on cash flow to the lender.

Secondly, if an insurance company (MI) is covering the loss, than I do understand why a bank would choose NOT to approve a short sale. As industry professionals, while we may not like this, we must understand that each short sale transaction today is as unique as a human fingerprint.

What say you? Do you like to finance short sales? Even handle them?

I'm curious as to your feedback.....

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!

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Doug Jones

Mortgage Magic - San Jose, CA

Mortgage Broker - NMLS 286668

I do a lot of work with Short Sales and REO's and have been told directly that the banks make more on the REO's (foreclosures)

Nov 07, 2009 05:37 PM

Lenn Harley

Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA

Real Estate Broker - Virginia & Maryland

While I hate to harp, I must harp. For two years now, I'm been harping, yes, I do harp about the fact that it is often in the lender's best interest to foreclose rather than approve a short sale.

What is so indisious is that they FIRST advise the home owner to default. Yes, even if the loan is current, the home owner may often have to default, ruin their credit and then wait for 6 months only to have a short sale rejected and find themselves in foreclosure ANYWAY.

Nov 07, 2009 08:53 PM

Bill Nazur

First Lending Solutions - Riverside, CA

Doug

Often times they do make more money on the foreclosure, due to the insurance payout. It all depends on whether lender paid (or pooled MI) coverage exists. I don't fault them for this. It is kind of like gap insurance on a vehicle.

Lenn

You are allowed to harp....:) I'm just happy to be back.

It is true that many advise the homeowner to default because the end investor requires this. This is a common misunderstanding, and actually not a requirement.....let's call it common practice, but not a requirement except to show some genuine need. I've reviewed many short sale scenarios where the clients had a legitimate cause, 780 FICO scores, that just wanted to do everything in their power to preserve their individual credit while working with their lender to eliminate (or mitigate) their liability to the bank.

Nov 08, 2009 05:24 AM

Elizabeth Weintraub Sacramento Broker

Elizabeth Anne Weintraub, Broker - Sacramento, CA

Put 40 years of experience to work for you

Well, you know my take, that if the price is high enough, the lender is likely to approve the short sale. I'm getting short sales approved with MI as well. It just adds another layer to the process, that's all.

Nov 09, 2009 01:29 AM

Elizabeth

Exactly....the extra layer doesn't mean the deal won't happen, you just have to go into it with an understanding of the facts.

Hope you are well.

Nov 09, 2009 02:53 AM

Kaye Thomas

Real Estate West - Manhattan Beach, CA

e-PRO, Manhattan Beach CA

In my experience lenders are far more inclined to agree to a short sale with higher priced homes... in my area banks were willing to consider short sale on new construction and upper level priced homes. In most cases they would get back to you with de3cisions fairly quickly. On the other hand homes at the lower end of the price scale are often turned down after months of negotiation.

Dec 01, 2009 02:48 AM

Kate Bourland

Marketing with Kate - Redding, CA

Onlilne Marketing Mobile Marketing

Bill, the whole concept of this is backwards. It bothers me that we accept this as a part of life. Short Sales and foreclosures are more than just numbers on spreadsheets. They are real people, real families with mom's and dads, brothers and sisters and dogs and cats, lifes disrupted. It saddens me that Congress didn't do more to help the people of this country. Instead they bailed out banks too large to fail and allowed business as usual.

Jan 20, 2010 04:56 AM

@Kaye....its only just begun in the jumbo market. While many products are being developed to address it, we keep running into obstacles from one of the countless parties who have a vested interest in the underlying collateral.

@Kate.....yes and no. The biggest issue is simply the sheer volume of people requesting assistance in not being able to afford their homes, in the absence of having a legitimate cause for requiring this. Both Wells Fargo and Bank of America receive 35 to 40 THOUSAND calls per DAY into their loss mitigation departments requesting some form of modification to their balances, so while there are countless real families that should be assisted, there is no effective mechanism for ensuring that it happens. Now having said that, government was idiotic to think that giving the banks money would fix the situation when other conflicting policies simply exacerbated the issue. It is a far more complicated matter than we ever wish to deal with. Hope you are well....haven't seen you around in a while, or maybe that has just been me.

Feb 01, 2010 03:48 AM

James A. Browning

Browning Real Estate School/REO Institute - International, IT

MRE REOCertified(R) SSCertified

Thank you for sharing your blog; we need Real estate Professionals to share their comments and information regarding their markets and experiences. Thanks again from beautiful Colorado; Spring is here in the Rocky Mountains

Apr 28, 2012 02:20 AM

I'm NOT buying the SHOCK! Lenders make more money on foreclosures than short sales!?

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