The Short Sale Solution??

Short sales may seem like the quick answer to resolving the housing market crisis, but it takes more than a willing seller to play ball.

Recently DSNews.com published an article on how we can best stabilize neighborhoods: short sales. I couldn’t agree more. Foreclosures, short sales and hard economic times all don’t seem to be going anywhere anytime soon. Remember, the government refinance program brainchild HARP has already been extended twice, so even they know this situation isn’t rectifying itself in the ways they had assumed when government modification and refinance programs were first unleashed.

I’d love to say that short sales are going to instantly solve the housing market nightmare. It’s nice to feel all warm and fuzzy about homeowners holding hands with their lenders and investors, singing Kumbaya while quickly working out the short sale process to an amicable end that benefits all. Unfortunately, as short sale real estate agents and homeowners know all too well, this is not the way it works. The lenders, investors and MI companies are still all about the bottom line. They are not concerned with helping homeowners or stabilizing the market or about how many REOs they have.

The proof is in the behavior by lenders and investors. The past couple years, Bank of America imposed a holiday moratorium of several weeks so that no one would lose their home before or after Christmas. This year, they allowed a much less generous five days around Christmas, including Saturday and Sunday -- which we all know homes never go to foreclosure on a Saturday or Sunday. This means they only gave up selling homes at auction for three days, making the pre-enlightened Grinch seem like Santa Claus.

Freddie Mac and Fannie Mae are selling more homes at auction than ever, with “internal policies” that all homes without an approved modification or short sale automatically going to auction – even if it is the first sale date on the property and they are under active short sale review.

Lenders and investors are still turning to BPO agents unfamiliar with areas to do a simple drive-by value. We recently had a short sale where the comps used by the BPO agent were all remodeled and across an interstate near a luxurious golf course. When we provided a list of $50k in necessary repairs and six comps from the immediate neighborhood showing the true value, the investor said they would rather rely on their drive-by BPO with comps far away from the subject and in much better condition. It’s ironic how over-inflated values were partially to blame for this mess we are in, yet lenders and investors still think over-inflating values is the way to continue doing business.

And here in what used to be sunny California, we are living in the midst of a storm with clouds darkened with second mortgage lenders like Greentree who took a strong dislike to Senate Bill 458. These lenders are punishing the homeowners with short sale payoffs between 25% and 30%, when first mortgages are allowing between 6% and 10% to go to the 2nd lien.

Are short sales the answer to stabilizing the housing market? Yes. There’s no doubt about it. But until banks, investors, MI companies and second mortgage lenders start embracing change and truly start caring about helping the distressed homeowner and the housing market, we will never reach that “bulk short sale” attitude as discussed in DSNews.com’s article that is needed to see the end of the housing crisis. Quite the contrary: we’ll be doing short sales for at least another decade, one deal at a time.