Are Lenders Outsourcing Loan Modification Work to Realtors?

Lenders have always had a preferred order of recourse on loans headed in the wrong direction.  In the last few years, they've been so understaffed in their loss mitigation departments that they haven't been able to efficiently determine their best course let along execute it.  Lately it seems, they want Realtors to do their leg work for them more and more.

The preferred order of recourse for a lender may be characterized as follows (it's no coincidence that they appear nearly in this order in the Freddie Mac seller's guide):

1.       Loan refinance

2.       Insurance claim

3.       Loan modification

4.       Workout mortgage assumption (very rare)

5.       Short payoff (short sale)

6.       Deed in lieu

7.       Foreclosure

8.       Charge off (if the property is beyond repair)

If one takes the time to read Fannie and Freddie's seller guides, the Help for Homeowners Supplemental Directive 09-09 and the Home Affordable Modification Program Guidelines, not only do they need a real hobby but it's impossible not to come to the conclusion that these lenders are looking for outside help.  Loan modification companies, housing counselors, loan officers, lawyers and Realtors have all answered the call. . . . but for who's sake?  They mean to help their clients but who are they really helping?

Having read through all of this, I can't come to any other conclusion but that the lenders are using these people to facilitate the collection of the information they (the lenders) want only so they can facilitate the recourse option that that they prefer the most; not the request submitted.  The way that HAFA will work after April 5, 2010 as it fully integrates with HAMP, it's as though it's just another piece of the puzzle for the lenders.  The guidelines for the loan modification program contain a waterfall of options for the borrower but HAMP and HAFA represent a waterfall of recourse for lenders.

That said, there's a lot of great stuff coming on April 5^th.  "Every potentially eligible borrower must be considered for HAFA before the borrower's loan is referred to foreclosure."  Here are some brief highlights:

•         Utilizes borrower financial and hardship information collected in conjunction with HAMP, eliminating the need for additional eligibility analysis.

•         Allows the borrower to receive pre-approved short sale terms prior to the property listing (Lenders agree ahead of time to a minimum net).

•         Prohibits the servicer from requiring, as a condition of approving the short sale, a reduction in the real estate commission agreed upon in the listing agreement.

•         Requires that borrowers be fully released from future liability for the debt.

•         Uses standard processes, documents and timeframes.

•         Provides financial incentives to borrowers, servicers and investors (for instance, sellers can get up to 1500 dollars in relocation funds).

For anyone who'll be involved in short sales in the next 3 years, the Help for Homeowners Supplemental Directive 09-09 is a must read as boring as it may be (https://www.hmpadmin.com/portal/docs/hamp_servicer/sd0909.pdf).  It's also advisable that one review the Home Affordable Modification Guidelines (http://www.treas.gov/press/releases/reports/modification_program_guidelines.pdf) because if the lenders see them as part of the same thing, we should look at them the same way (that doesn't mean we have to like it though).

The bottom line is this, knowing the interests of lenders serves the interests of the client because lenders will likely be considering their interests when evaluating a borrowers documentation and request.  If one wants to see their clients request approved, they need to navigate the interests of the lender as those two sets of interests may not be the same.