Shocking fact: Most banks don't own the loans they are handling. In fact, one of the biggest four US banks only owns 20% of the loans they hold. This makes them extremely vulnerable to lawsuits if an owner of a loan thinks they lost money on their loan. They are handling the other 80% as a servicer. This means they act as a trustee for the actual investor. The actual owner might be Fannie Mae, Freddie Mac, a Wall Street Trust, or a pension fund.
Acting as a servicer puts them close to the legal equivalent of a trustee. This means they can do whatever they want to, right? No. Let me explain. See, a trustee has a fiduciary duty to whoever they represent. They are required to act in their client's best interest. If they do not do this, then they can be legally liable for any losses their investor incurs as a result of the trustee's negligence. Just as agents are required to act in their client's best interest, these servicers are also required to act in their client's best interest.
Let's say you listed a house and double sided it to a buyer for 200k. A 225k offer came in earlier, but you never presented it to the seller. Do you think the seller would be angry? Of course they would be. Or, let's say you managed an apartment community. You only had a leasing person on site one day a week. You did this to save money. As a result the apartment complex only leased half of their apartments for the next year. You lost them half of their rents for an entire year. Would that apartment manager be unhappy? You bet they would be. The servicers are doing the same thing.
Most agents don't realize that these servicers are skating on thin ice. We all know that these servicers are not doing a good job for their investors. Here are a few examples of them breaching their fiduciary duty to their clients.
Example #1: Not giving buyers and answer on a short sale within one week. Servicers should help their investors recoup as much money as possible from short sales. To do this, they should order 3 BPOs and then list the property. They should then drop the price 5% a month. When a buyer steps up to the plate, that buyer should get an answer on their offer within 5 business days.
Example #2: Turning down loan mods that amortize at a higher value than what is netted on a short sale or thru REO. Let me explain a little better. A servicer negotiates a loan mod with a borrower with a new monthly payment of $1,000. The borrower has a stable income and agrees to pay $1,000 a month for the next 30 years. $1,000 a month for 30 years, at a 6.5% interest rate will repay a $158,210 mortgage. The servicer turns down the loan mod and forecloses. The house sells for $125,000 as an REO and the servicer nets $115,000. Did their investor lose money? I think most people would agree. Obviously there are other factors involved, but I think on an actuarial basis they will do better with the mod.
Example #3: Not following up on foreclosures properly. I have seen countless examples of servicers hiring an attorney to foreclose on a house. The attorney files the paperwork. Then, the foreclosure case goes into purgatory. Nothing happen for 6 months, 12 months, 18 months, and even up to 2 years. I have seen this happen on more than one property. And no, there are not other factors involved. In fact, on two short sales I've handled, the sellers had moved out of the house before the foreclosure was filed.
Example #4: Not listing REO properties quickly enough. I have witnessed several examples of banks foreclosing on a house and then taking 6 months to a year to list it for sale. As an example, there was a house foreclosed on in Gainesville, FL on September 9th, 2009. It still hasn't been listed for sale. Say what you want, but waiting 5 months is pathetic. If the mortgage holder had been a wealthy individual who lived in town, do you think they would have listed the house by now?
Help me make these bank failures more public. These servicers are not being held accountable because nobody knows about it. It's almost like that philosophical saying, "If a tree falls in the forest and no one is there to hear it does it make a sound?" I don't have time to discuss philosophy. But, I do know that trees are falling all over the servicing forest. The problem is that the investors believe that the housing market is lousy. Because of that belief, they just accept the servicer's losses. They don't know that they are losing as much money from negligence as they are from the bad market. This is why we need to expose the banks. Here is how you can help.
I'm putting together good examples of servicer's losing their investors money. It will all be posted on http://www.BankFailBlog.com . Please send me your examples. Submit your failure examples by e-mailing me at bankfailblog@gmail.com
Submit your Bank Failure Examples by e-mailing me at bankfailblog@gmail.com.
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Ben Curry The Short Sale Agent's Advocate
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