Paul's blog

Less than 13,000 HAFA Transactions Started Since Program Inception

The Home Affordable Foreclosure Alternatives (HAFA) program does not seem like it’s off to very impressive beginnings. Last month marked the one-year anniversary of the Treasury launching HAFA and less than 13,000 agreements have been started. Of these less than half—5,447 transactions—have been completed.

Now, the March 2011 stats have been released and just under 2,100 short sales and deeds-in-lieu of foreclosure were started for the month. The HAFA program does, at least, seem to be trying to pick up steam, with servicers completed over 1,000 transactions in March.

The skeptic in me says that, because it’s a government-related program, these things take forever to get off the ground. Just look at the HAMP program. We’ve only started seeing halfway decent monthly numbers on it in the last few months and it was created long before HAFA.

Credit Union Organization Suing JPMorgan and RBS

The National Credit Union Administration (NCUA), which serves as the liquidator for failed credit unions, is suing JPMorgan Securities and RBS Securities. NCUA is attempting to recover billions that were lost with the failure of five wholesale credit unions.

It is alleging there were violations of federal and state securities law along with gross misrepresentation in the sale of hundreds of residential mortgage-backed securities. The sellers and underwriters of these securities were JPMorgan and RBS and NCUA is accusing the two of underestimating the risk involved.

As a result, the credit unions that bought the securities had “unprecedented” declines in value. So NCUA wants $800 million. Word is this is just the first of many lawsuits NCUA is planning against the Wall Street types in its efforts to recoup $1 billion.

Debbie Matz, chairman of the NCUA Board said, “Those who caused the problems in the wholesale credit unions should pay for the losses now being paid by retail credit unions.”

Bank of America Shareholders Suing Bank CEO

How bad do things have to get that your own shareholders are now suing you? I suspect Bank of America CEO Brian Moynihan might be able to answer that as he now finds himself in that situation. Moynihan is not alone, however, as the lawsuit also names the board of directors and other bank executives.

Shareholders are claiming BofA leaders failed to disclose billions (yes, with a B) of dollars in hidden debt as well improperly recorded mortgages. The lawsuit was filed in a New York state court this week and covers the bank’s actions from January 20-October 19, 2010. Among other things, shareholders experienced a major decline in the value of the bank’s stocks. Plaintiffs are contending BofA stock lost nearly 42% of its value in 2010.

In typical, we-don’t-get-how-to-handle-crisis-PR fashion, Bank of America had no comment when asked about the lawsuit. Or maybe, like Charlie Sheen, they can’t get a PR firm to stick with them. Hard to know but one thing is certain, BofA has had more bad press coverage than just about any of the other mega banks.

Another accusation in the shareholder suit is that BofA did not “have adequate personnel to process the large numbers of foreclosed loans in its portfolio.” Well, gee, that shouldn’t be too hard to prove! Just ask any real estate agent who deals with short sales or REOs! Even their loan modification department won’t be winning any customer service awards.

I know someone who went through the trial loan modification process, apparently passed with flying colors, and was told final paperwork would be coming to make it official. She ended up making two more monthly payments in trial phase before the Fed Ex envelope with the papers arrived. Then, she was only given a week to review the papers and have a BofA notary witness her signature and overnight them back. BofA was then supposed to finalize them, return a copy of the papers to her and permanently change the payment in their system. That was in early January and she is STILL waiting at the end of March! Pathetic!

Examples like this abound and shareholders shouldn’t have a lot of difficulty at least proving that accusation. I can’t speak for the others, but like I said before, it’s pretty sad when your own shareholders want to haul you into court!

Long Story Short.... SALE

Short Sale Hell

Did I Miss the Freddie Mac Bake Sale?

Hold on to your seats, my agent friends, because I’m about to give you some extraordinary news. Government-run Freddie Mac, which is only a year removed from a staggering $6.6 billion operating loss, actually turned a profit in the 2011 first quarter! And an impressive profit—$676 million—at that! Did Freddie Mac have a bake sale or sell candy bars or something to finally get in the green?

It’s the first time Freddie Mac has not had to request a draw from the Treasury Department since 2008! Since 2008, Freddie has reportedly received a mind-boggling $64.7 billion from the government.

Freddie Mac funded approximately one out of four home loans originated in the first quarter.

“We made further progress on our company-wide efficiency initiatives this quarter, continuing the solid trend of cost savings that began early last year,” said Freddie Mac CEO Charles “Ed” Haldeman.

Come on, Ed. Wouldn’t it be better or at least more entertaining to say you had a Freddie Mac car wash? Because very few people in the know in the real estate industry are going to find it believable that you trimmed the fat, identified and eliminated the waste, etc. You are, after all, a GOVERNMENT agency!

Why Is JPMorgan Chase Paying Up to $30,000 for Short Sales?

Apparently Chase has been aggressively pursuing homeowners to enroll in their Short Sale Outreach Program. They are sending letters to certain mortgagors, offering up to $30,000 to people who are behind on their mortgages, to try to short sell the property, rather than letting it go to foreclosure. They promise to give approval within a short period of time, and to forgive any deficiency. There is one catch, the mortgage has to be owned by Chase (not merely serviced by Chase).

Why would they do this? Because they understand the math involved in a foreclosure. The mortgagee (holder of the mortgage) usually loses a huge amount of money if the property goes to foreclosure. In Florida, the average time from beginning to end of a foreclosure is over 600 days! [Editor’s note: nationally, the average is over 500 days.] That's almost two years worth of interest lost, real estate taxes and legal fees that have to be paid and association dues owed.

When you include the deterioration to the property, the loss in value overall, lenders are lucky to recoup 50% of the money owed on any foreclosure. The average price discount on a short sale is 12%, while on an REO it is 25%. It is much cheaper to pay the delinquent homeowner to get out, than to go through the entire foreclosure process.

The real question is why are they not being as aggressive on the loans which they service? Again, they understand the math involved. Since it is not their money being lost in the process (they already sold the loan to an investor, who is taking the loss), there is little incentive to stop the bleeding. And, the financial remuneration involved in servicing the loans actually goes up once a loan becomes delinquent.

As the servicer of a loan, a bank gets paid a small percentage (usually about 0.25%) of the principal balance of the loan, to take in the monthly payments, and distribute the money (taxes, insurance, interest, principal). But, when a loan becomes delinquent, they raise the percentage (to over 0.5% - doubling their income), charge late fees and make money on force-placing insurance. This means that if they encouraged modifications or short sales of these loans, servicing income would decrease dramatically (since the principal balance of the loans they service would decrease). Instead, the longer a property remains delinquent, the more money they earn.

But wait, how can they be making money when no payments are coming in? Because their servicing agreements state that they are entitled to be paid first out of any proceeds from the sale of the property. So, when the property is finally foreclosed, all of their fees (together with interest on any money they had to front) gets paid to them first, with anything left over going to the investors.

Chase's program only underscores what many inside the industry have always known. If borrowers and investors could directly deal with each other to modify or allow a short sale, the real estate industry would recover much faster. However, it would mean that banks would not be able to make as much profit, so they do everything possible to keep the communication lines cut. [Bank of America, alone, reported a profit of $2 billion in the 2011 first quarter.]

U.S. Treasury Updates HAFA Guidelines

The U.S. Treasury Department has updated its Home Affordable Foreclosure Alternatives (HAFA) program guidelines. The changes take effect June 1, 2011. New policies include a new acknowledgment requirement. The servicer must send written confirmation to the borrower within 10 business days following the receipt of a request for either a short sale or deed-in-lieu to acknowledge the request.

This timeline is now no more than 45 calendar days (not business days) from the date of the borrower’s request. Within that 45 days, servicers have to give the borrower a written approval, denial or alternative offer as well as a copy of the executed sales contract and any supporting documents dealing with subordinate liens. If the mortgage loan servicer fails to do this, it must at least send the borrower a written status notice within that same time period, along with written updates every 15 calendar days until the final decision is made.

In addition, servicers will now be able to approve short sales to non-profit organizations with the stated purpose that the property will be resold or rented to the borrower. This was previously prohibited by the program’s “arm’s length” requirement.

So agents, what do you think of these changes? Will it help make HAFA more effective? Or are these new guidelines just words on paper? AGAIN

Short Sale Rules of the Road: Picking the Best Offer

I constantly hear from agents that the hardest part of a short sale is getting lender approval. Fortunately, I don’t share this problem. Our approval ratio is well over 97%. Does that mean we close 97% of our short sales? No it does not, because in today’s market, the hardest part of closing a short sale is getting the buyer to the closing table. Our closing ratio is around 95% due to our new escalation procedures on foreclosure sale date postponements that I will get into next week.

Start at the beginning
A successful short sale closing actually starts at the time you accept an offer. Let’s assume that the property is priced correctly. How do we know this? Because we have received multiple offers. You heard right. Even in this market, a correctly priced property should receive multiple offers. We do not have the seller execute an offer until we are certain that there are no additional offers coming in within a set period of time, such as 5 or 10 days. Once we have a few offers to review, we can start the screening process.

What to look for

1.The first thing I look for is the Closing Date. The buyer must allow adequate time for us to negotiate the short sale. I require the following verbiage on the contract: “Closing within 30 days of lender/seller approval or 90 days from seller acceptance.” Why closing within 30 days? Because most short sale approvals are only good for 30 days. This puts the buyer on alert that they must not wait until lender approval to start their financing process. This is a HUGE deal killer. This leads to the mortgage contingency, which must state that the buyer will obtain a conditional loan approval within 45 days of seller acceptance.

2.Contract Commitment. This means earnest money due upon seller acceptance. All inspections and attorney review upon seller acceptance. This is important, because if you agree to accept a contract with these contingencies due upon lender acceptance, as so many agents do, you basically have no contract. Why? Because there is no commitment. The buyer can walk away at any time, there is nothing holding them to the deal.

3.As-Is. Buyers will be responsible for all inspections or repairs at their cost.

4.For those of you who will say that buyers won’t possibly agree to these terms, I can tell you that you are wrong. ALL off my buyers agree, or we will reject their contract. Gone is the time for real estate “order takers.” You have to be a salesperson now. How do we give the buyer an incentive to cooperate with these terms? LOWER THE OFFER!

Offer Structure:
If we receive an offer for $200,000, my first step is to determine how much more the buyer is willing to pay. This is where you need to be a salesperson and communicate the strategy to the buyer’s agent. This is critical because we never want to submit a buyer’s best and final offer to a lender to start. Why? Because then you have no negotiating room. So, if I determine that the buyer’s offer of $200,000 is as high as they will go, then I will ask for the offer to be lowered to $190,000, with the understanding that there may be counter offers that can raise the price. This is critical because buyer flexibility is necessary when dealing with lender counter offers.

If the seller has a second lien, particularly a HELOC, I will require the buyer to agree to bring extra cash to close to buy out any deficiency for the seller. Typically, you can buy out deficiency for 1%-10% of the HELOC balance. If the buyer hesitates, again, tell them to lower their offer to compensate. This is an important step for you to fulfill your Fiduciary Duty to the seller.

Fiduciary Duty
Now, I know that many of you are shaking your heads at my suggestion to withhold highest and best offers or consider lower offers, but remember, you do not work for the lender and you owe them no duty. Your duty is to the seller only. The goal for you is to put the seller in the best possible financial outcome, not get the lender more money. Therefore, a lower offer that settles deficiency for the seller is a better deal for the seller. A short sale is not an “us against them” transaction. Both sides, seller and buyer, have to work together to make the transaction a success, so open and honest communication with the buyer’s side is a must.

Conclusion
By following this strategy, you will greatly increase your closing percentage by accepting contracts only from buyers who are willing to commit to the deal. This reduces the chance that they will walk away when the going gets tough, because they have some “skin in the game,” and they are getting a great deal. In the end, closing the deal for your seller and hopefully putting them in a better financial position means a successful short sale transaction.

Greenspan (of Central Casting) Says Government Housing and Stimulus Programs Delayed Recovery

Say what you want about former Federal Reserve Chairman Alan Greenspan, but at least someone with clout is finally saying what I have believed for many months. Greenspan publicly proclaimed this week that the government intervention that was supposed to save the economy is actually to blame for the recovery delay we’re experiencing.

While attending a forum at the Council of Foreign Relations, Alan Greenspan said, What we need to do now is to calm down; let things move by themselves.”

Specifically, Greenspan mentioned the deficits created by the $787 billion Recovery Act of 2009 as being the primary reason behind the lagging recovery. These deficits are bad because the U.S. Treasury Department is essentially borrowing money. This borrowing leaves less room for companies to get similar interest rates when trying to fund capital investments on equipment, new plants, plant expansions, etc. Greenspan mentioned this isn’t affecting mega companies like Microsoft, but rather the small and new businesses.

He went on to specifically criticize the government’s housing programs for delaying and prolonging the influx of foreclosure properties on the housing market. Greenspan said this only delayed the housing market hitting rock bottom and caused uncertainty about when this would happen. Obviously, investors want to go in when they can buy low and sell high.

Thank you, Mr. Greenspan! I still believe your from Central Casting but let's give credit where it's due.