Lender declining a short sale

[gn]

winterpapa1,

Thanks for sharing the info. Another question:

In the case where the loan has been securitized into MBS, how does short sale approval work ?

[SD Realtor]

winterpapa1 please post more!

Thanks for that information as it does explain alot. Just to clarify, once a trustee sale does happen, all other notes held in lower positions are wiped out correct? So I assume if the property becomes REO then the lender must only pay the property taxes and of course any existing default on property taxes owed.

SD Realtor

[Anonymous]

no problem gn,
We are a servicer so all of the loans we deal with are already securitized. There are however different levels of delegated authority within each of our assigned portfolios. For example if I have been assigned all of our Alt-A or Subprime loans, there may be more scrutiny placed on the the original HUD1 to see if there was cash taken out or going over the borrowers bank statements to see if there was a true “hardship” or simply negligence. If it were an A paper portfolio we may simply look at their recent payment history to show that the borrower was maintaining the payments and then simply refer to the latest appraisals that dictate the current market values. You have to keep in mind that short sales usually fall under some type of hardship classification for a servicer. Bottom line is that each investor has their own authority thresholds. Some investors like to be more hands on, while some investors let the servicer make the decisions.

[TemekuT]

What about the HOA fees in arrears in the event of a default and foreclosure? I assume if a short sale is allowed the lender would have to bring the HOA current, but in case of foreclosure, what happens? Thanks for anything you can post to educate me.

[gn]

“If it were an A paper portfolio we may simply look at their recent payment history to show that the borrower was maintaining the payments and then simply refer to the latest appraisals that dictate the current market values.”

I am assuming you are talking about “prime loans”. Are the lenders treating borrowers of prime loans differently b/c they are less likely to take advantage of the system ?

I recently read some articles about lenders/servicers agreeing to “restructuring” an ARM instead of letting it reset. Is this process similar to short-sale approval ?

[Anonymous]

any time sdRealtor… you are correct. after the foreclosure sale we are still going to pay out any delnq taxes to avoid the risk of losing our asset to their tax sale. To answer TemekuT’s question: delinq HOA fees that were assesed before the foreclosure sale date are no longer the responsibility of the bank once the sale occurs and the lien is wiped out (assuming the property reverts to the beneficiary at the auction). The HOA may or may not go after the borrower specifically for the past due amounts. Any HOA payments going forward are the bank’s responsibility. delinq HOA fees during a shortsale are handled like any other lien. They would be paid out before or at the closing table to ensure that title is clear. The decision as to who pays what liens are decided during the negotiation process between the bank, the borrower and the buyer.

[PerryChase]

I’m wondering how servicers can restructure a mortgage. There would have to be some kind of addendum to the note signed by both the borrower and lender. You can’t just verbally tell the borrower to keep on making the lower payments.

I also wonder how Realtors negotiate short sales. Do they just market the property then when they get an offer present it to the lender almost as a fait-accompli?

For you guys who have had done short sales, what is the process of getting one approved? I’m thinking that if short sales were easy to get approved, then everyone who is underwater would want one.

[SD Realtor]

To be honest Perry no I have not listed a short sale yet. Perhaps sdr or Jim has though.

My guess is that the lender pretty much makes the call and instructs the realtor 100%. I have represented buyers for REOs. In that process the lender had a broker that handled the negotiation but the portfolio manager for the lender called the shots. We tried negotiating and they played hardball. We got a good deal but only because they priced the home to sell very aggressively. I do know that the short sale process is more involved and it “appears” to me that the hardest part about it is proving the hardship case to the lender from the sellers standpoint.

That is a speculative statement by me.

SD Realtor

[waiting hawk]

What I am wondering is how long these banks hold on to them before they pitch them for investors (not speculators). Will these banks drop them 10-20k each month for 2 years or drop them more till they sell?

[Anonymous]

“I am assuming you are talking about “prime loans”. Are the lenders treating borrowers of prime loans differently b/c they are less likely to take advantage of the system ?”

Not necessarily, we just know what flags to look for depending on what type of loan product we are dealing with.

“I recently read some articles about lenders/servicers agreeing to “restructuring” an ARM instead of letting it reset. Is this process similar to short-sale approval ?”

What you’re referring to is a modification of the orginal loan or a MOD. We do those as well. Basically we restructure the loan to make it affordable for the borrower. Typically we will structure the loan to have the interest rate stay the same for 2 years until the borrower is back on their feet or if the borrower was severely behind, we will forgive the debt or recap the deliq amount into the loan. Sometimes we may use a combination of all these tools together. When reviewing for a modification we look at our risk position (is the asset already upside down, what is the borrower’s capacity and commitment to pay, what are the investor guidlines, etc.) If the value is already upside down, yet the borrower has a history of making payments it may be in the best interest for the bank to modify the loan and maintain positive cash flow.

[gn]

winterpapa1,

You mentioned that “each investor has their own authority thresholds”. Roughly speaking:

– What percentage of investors give the servicer full autonomy in approving short sales/loan modifications ? i.e. 50% ?
– In the cases where the servicer does not have full autonomy, how complicated is the process of getting approval from the investors ?

Thanks.

[Anonymous]

gn,
the servicer has full autonomy in the sense that we can decline/accept a MOD or shortssale within the investor’s set guidelines. If the MOD or shortsale does not meet the set standards, we would simply decline the deal and take a property to sale. We would not be able to go back to the investor specifically and ask them to change their standards.

[gn]

winterpapa1,

Since you have seen a large number of short sale/loan modification requests come across your desk, I was wondering:

1. Are most of them for primary residences or investment properties ?
2. How bad do you think this wave of foreclosures will be ?

[Anonymous]

winterpapa1,

i have been dooing short sales for about 5 years here in arizona. and i have an 85% success rate. i have recently come accross 2 separate investors who each have 20 homes that are all upside down. they are all investment properties. i have only processed short sales on primary properties due to the homestead act. and the deficiency laws here in AZ. however these are all investment homes. what can i do to get these short sales pushed through? i really want to help these guys. they just made bad investments and now they are screwed. will a lender even concider an investment short sale without a valid hard ship? get back to me asap! thanx. -chris

[Bugs]

There’s a difference between giving a break to a borrower for their domicile vs. giving an investor a break. They always break out the widows and orphans and the poor when they want to out a human face on the downsides of east credit. That’s not so east to do with flippers.

Of course, Donald Trump is a flipper, too, and he doesn’t seem to have much trouble getting sympathy from his lenders.

[Author]

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