Interesting read at CNBC last Friday about banks moving to short sales by Dianna Olick.
Earlier this week a top executive at Bank of America told an REO conference in Dallas that the lender would be focusing more on short sales than ever before.
At first hearing this, I assumed it was because of the government’s Home Affordable Foreclosure Alternative Program, which provides cash incentives to servicers and borrowers for short sales and also streamlines the process, but of course there’s way more to it than that.
Said Bank of America exec, Matt Vernon, whose official title is National REO, Short Sale and Deed in Lieu Executive (his childhood dream title I’m sure), granted me an interview this morning, and was pretty clear as to why B of A is pushing these alternatives.
Interestingly, we had posted an article about Bank of America when they hired Mr. Vernon, and posed the question as to whether we thought this new focus on short sales by Bank of America would relieve some of the pressure on the housing industry in general and more specifically some of the latent frustration investors and real estate agents have had with Bank of America specifically.
“We understand the reality; a large number of homeowners won’t meet the eligibility for the HAMP (the government’s Home Affordable Modification) program,” Vernon says. He also noted the sheer volume of borrowers now coming through the short sale process. He expects to see far more.
We all had our skepticism about HAMP and HAFA, and here is some more icing on the cake coming from the big dog himself about the reality that HAMP eligibility itself outs a large number of otherwise worthwhile short sale candidates.
The big difference, he says, is that BofA, as well as some other big banks, are changing the model from reactive to proactive. In other words, instead of waiting for a borrower or real estate agent to approach the bank with an offer for a short sale, they are using a “cooperative approach, with homeowner, Realtor and servicer on behalf of investor, working to move that property through the process. All three of the interested parties holding everything together,” Vernon explains.
So the servicer sets a minimum value for a short sale and then the borrower and Realtor go out and find a buyer. When they do, the process then moves far more quickly because it’s already approved.
Thankfully. It’s good to see Mr. Vernon continuing on the path he said he would when he took over the flailing Bank of America short sale department.
Which leads me to another report from Clayton Holdings, which finds short sales cut risk severity by 13 percent more than REO sales. And in some states where the foreclosure process is more lengthy, short sale loss severities can be as much as 26 percent lower than REO loss severities.
“I would say that’s generally accurate in what we see,” agrees Vernon. “It really comes down to time. The quicker you can facilitate the property moving.”
This is a great link to keep handy and use when making the case to the bank about your short sale. Again more validation that the short sales process does in fact save time, energy, and ultimately mitigates the bank’s risks significantly.
The good news is, that will cut down on foreclosures. The bad news is that short sales, like it or not, are comps. They sell for less, and consequently bring down the values of properties around them.
As we have said over and over; a short sale isn’t the best outcome, but is the ideal solution in the right scenario. A homeowner going into foreclosure is worse than a short sale!
What are your thoughts? Post ‘em in the comments!