This is a topic near and dear to my heart. I do a lot of loss mitigation work. This is where banks ask me to meet with a homeowner and look for ways to work things out to keep the homeowner in the home (translation: see if the loan can be saved). This sounds somewhat mercenary, the way I just described it. it isn't in reality.
First the homeowner through some event or chain of events has fallen behind. The payments are missed, and both the homeowner and the bank are worried. One is worried that they will lose the roof over their head, and the other is worried that the investors will be angry. The bottom line is that neither party wants to see the home foreclosed on.
so often, I seee people ducking behind the curtains, dousing the lights, and trying their level best to pretend they aren't home. They are scared out of their wits when I come to call on them. They shouldn't be. I am really there to help them take an honest look at their financial household, and to see if there is a way things could work out. If it is possible, that is always a great feeling.
What happens when it isn't possible to help them stay in tehir homes? I have to be blatantly honest with them, when the numbers don't work out. sometimes they won't. Then, i have to do two very serious things: work with them to help them sell their home (sometimes via a short sale), and find a place for them to live which they can afford. This is difficult and emotional for them, and yet, it is necessary to keep people from having to go through the damage inflicted by a foreclosure.
There are a number of foreclosure prevention companies out there. Few of them are for real. I work directly with the banks to do what I do, and they pay me a fixed fee per home. The homeowner pays me nothing. the only other time I make money is if i sell a home, or if I help them buy another home, where possible. hey are already in financial straits and i won't want to see them go any deeper.
Short sales are fun... *Riiiight*. And so is hacksawing your arm off. They take inordinate amounts of time and energy, and sometimes are just rabbit trails. I still pursue them. Why? I am trying to stop foreclosures from happening. Foreclosures hurt home values, and depress neighborhoods. So how do short sales help? By preserving more of the value of the home, they prevent further declines that foreclosures inevitably bring with them. They help a buyer get some equity with their purchase, and get a seller out of a tight spot.
Banks, contracry to thier performance in this area, don't want to foreclose. They want things to work out, too. Sometimes it does. Loan modifications can help homeowners keep their homes, but sometimes the money just isn't there to work with. then, a short sale is necessary.
getting approvals isn't easy. the banks are understaffed, and often have under trained staffs trying to achieve a herculean task. they get screamed at a lot, by real estate agents, homeowners, and who knows who. They are people, and need to be treated more as valuable partners than incompetent boobs. Each person representing the bank in the process has a narrowly defined tunnel they must operate in, and the walls aren't very flexible. Iknow... it stinks, but that is the way things work.
Here is the chain of events that leads to this unfortunate process. In outline:
- The broker writes a loan
- which is packaged with other similar loans by a commercial bank;
- And the Packages are sold to Institutional banks, which package them for;
- Institutional Investors, who fund the loans.
Now the process gets really involved, because the packages are sold and resold, and the investors dance around the pole looking a their discount spreads, which determine their profits, until they arrive at the volume of loans of a type they want to hold, long-term.
whe the loan defaults the proess takes an equally convoluted path, which doesn't necessarily end up with the broker...
- Payments are missed, which leads too
- Collections activities (stop here, if they are successfully);
- Filing of notices of election to cure default of the borrower
- Starting the Foreclosure process
- other collection activities (including loss mitigation)
- filing legal papers
- posting notices in newspapers
- eviction
- possession
- REO sales.
- Homeowner loses their equity
- etc.
This process ends up with both the homeowner and the bank losing money. Lots of it.The investor does not realize earnings from the investment, and may lose part of their investment. the Institutional lender loses their spread. the commercial bank shows a loss, and the borrower is out on the street.
The attorney always wins, whether the homeowner stays or goes. But, what happened to the loan broker? generally, nothing. Many states have been enacting new laws to stop this, though. That is why fewer loans applications are being processed, and many mortgage brokers are out of business.
Loss mitigators who are doing an honest job do the following to stop foreclosures:
- Interview the homeowner and,
- find out why they are in trouble
- look for a recurrent cause of trouble being possible
- examine what the homeowner has tried to solve the problem.
- suggest things that could help
- look at the homoeowne's current financial position
- make recommendations to the homeowner based on the facts.
- help the homeowner come to logical conclusions about their finances
- work through the best possible course of action on the homeowner's behalf.
- Gather Financial Data
- Analyze the data with the homeowner
- point out the alternatives
- Act in the Homeowner's best interest.
This is tough work. It isn't for the get-rich-quick artist. It isn't for the greedy or cold-hearted, either. It takes a special diligence to help someone out of a bad situation. It takes a lot of patience.
People get frustrated with short sales. It is easy to understand why. They take a lot of time and energy. They take a lot of time and energy. Finally, they take a lot of time and energy. The bank representatives are overloaded. I know one guy who alone makes over 2700+ calls a week to homeowners, Realtors,, and lenders to work things through. I personally know lender employees who have 800 files a week to resolve, and who receive 200 new cases a week. Approvals come form management and investors, and take time to be reviewed and calculated out to see if they can be worked out. It is a very time-consuming process, and is very frustrating most of the time. most people just aren't cut out to work with short sales, because they are too impatient.
Still, they are becoming a defacto part of th ereal estate landscape. we better geet used to them sooner than later. Let's just not sell people into one. I have more than enough work.
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