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…if neglected, are the results REALLY that bad?

Growing up, my dentist basically said that if I don’t floss, my teeth may fall out. Today, my creditors tell me that missing payments or doing a short sale may ruin my credit. Well, my teeth are all still here, and my credit score is in the mid-700s after missing eight months of payments and closing my own short sale about a year ago! What am I missing??

Two weeks ago, a new client came through our website with a home in Texas. Noting his email, I see ******@equifax.com. I immediately called his cell, thank him for his interest, and asked some obvious questions. In a nut shell he said, “short sales really aren’t that bad on your credit, and I’ve seen that first hand. I’d like to do one myself.” That got me to thinking – are short sales really that bad? How important is credit score, and is the adverse effects of short sale, foreclosure, and even bankruptcy REALLY that bad on ones credit score?

The answer is yes and no. Can the results be bad? Absolutely. But, recent evidence has shown that much of the potentially detrimental effects are only hype.

Before my short sale (investment home, one loan), my credit score was 729. After missing eight months of payments and short selling over $200k short of what I owed, my credit score dipped to 679. Now exactly a year and four months later, my credit score is back to 728. No deficiency has been pursued either, and not a single collection call.

I have a good buddy who went through a BK only a few years back, and his story is even better! Post BK, he’s structured a successful loan mod, has provided a great lifestyle for his family, and was just approved for a $40k car! What am I missing here?

I know I should floss more, and I plan to. But I’m also being told that I should worry about my credit sore, and I’m not! With over 25% of consumers showing a 599 credit score or less, I just don’t see credit score meaning as much as it used to. So, please let this be an encouragement to you. If you are in a pinch (we all are!), keep your spirits up. Once you go through what you are, many times it’s not as bad as ‘they’ say it will be!

*Smile*
- Jeff Grant, President, ShhortSale.com

Disclaimer: I am not a Dentist, Creditor, or Zoo Keeper. Rather, just an attentive and passionate Short Sale Guru.

Picture a life raft made of sponge. Though a bit extreme, it’s a good illustration of how I view HAMP (Gov. loan-mod program) and HAFA (Gov. short sale program). Though they were designed to help us consumers and protect the overall housing market, evidence has shown that they haven’t done nearly as much as initially designed to do. According to Obama, the HAMP program was designed to “offer help” to keep 4 million borrowers in their homes. As of June 30th, 753,275 loans have been modified on a permanent or trail basis. As for HAFA, it’s still too early for official results. But as President of a company who helps up to a hundred short-sellers a month, I can confidently say that the results seem to be no different than HAMP.

- Jeff Grant, President, ShhortSale.com

If you have experienced it first-hand, let me tell you that the short sale climate changes weekly. Sitting over my morning coffee, I thought I’d share a bit of info that I’ve learned and already seen reinforced this week – as it’s a pivotal change. In the past, lenders typically pushed back foreclosure dates if we have a short sale offer or other work-out option on the table. Well, that’s changing. The Investors/Trustors behind many of these delinquent notes are starting to ‘tighten’ their standards, and are deciding to not accommodate our efforts of loss mitigation in certain circumstances.

According to my executive-level inside source at BofA, many of their investors will no longer delay a foreclosure if they see:

- the borrower has a sale date in less than 30 days
- the borrower has made no attempt for a loan mod or short sale in the past
- the borrower has not made a payment in many months
- the incoming buyer is using an FHA or VA loan to buy the home because they are harder to close

I was speaking with my inside-source in regards to a particular deal that we were trying to delay the sale on. It was a home going to auction for a price of $188,400, and we had an offer on the table – about to close – for $250,000! Puzzled at the lack of common sense (and logic) of our bank negotiator for not delaying the foreclosure date, I called my inside source for her help and clarity. That is when she shared this new, tragic news that they’ll no longer be helping sellers who fit the criteria listed above. They said they’ll be enforcing this moving forward, and that it’s a trend we will see become much more prevalent with other investors (note owners). Their intent is to week out fake buyers, those homeowners looking to only extend the time in their homes, and to get a non-performing asset off their books using any means necessary.

Interestingly, data released on Thursday shows that Chase is now delaying foreclosure sales more than ever (up 30% just last month). My opinion is that they’re so far behind the short sale processing curve (see previous blog posts), that this is the only way for them to slow the growth of their distressed asset portfolio. They’ll come around eventually, also.

As you’ve seen in my previous blog posts, these lenders vary tremendously in their loss mitigation efforts. As you’ll also see, it’s been my experience that BofA is leading the way though, and truly blazing the trail that many of these other lenders are and will-continue following.

As always, we’ll be there paying close attention, and passing on all of info and ‘inside-secrets’ that we can to run the best short sale business possible!

My coffee is cold. Until next time…

- Jeff Grant, President, ShhortSale.com

Who caused this housing mess? Greedy lenders? Ignorant appraisers? Slick RE agents? Many blame it on lenders after they lowered their lending standards to accommodate an unhealthy share of subprime borrowers. (Note: As long as we have self-employment, shallow credit history, lawsuits, divorce and more, we’ll need subprime loans!) Well believe it or not, we found out today that more of us than ever are now subprime borrowers, and we need these now non-exhistant subprime loans more than ever.

New data released today by FICO Inc. show that a whopping 25.5 percent of consumers now have a credit score of 599 or below. That’s a market of more than 43 million people, and growing every day, too—thanks to unemployment levels that remain painfully high and not receding anytime soon. Subprime mortgages represented between 8 and 15 percent of total origination volume between 1995 and 2003. You can do the math – today’s announcement revealed a 200%+ increase since then.

Now that a quarter of us fit in the ’subprime box’, this all underscores a unique irony to the financial mess we’re now in: much of the growth in demand for mortgages in recent history came out of the subprime sector, which is now exactly what 25.5% of us need. We need it, but can’t get it.

So, what happens now? There’ll be a handful of private lenders that make a bunch of money, and there’ll be many landlords that with inboxes full of applications from subprime borrowers looking to rent because they can’t buy. One could also argue that default rates on residential loans will continue increasing, as there’s a reason these borrowers were initially classified as ’sub (below) prime (first)’.

One last thought to end it on – I’ve suggested to many of our clients that one’s credit score will mater less and less each day that passes. I think the news announced today supports this more than anything so far…

- Jeff Grant, President, ShhortSale.com

Freddie Mac CEO Ed Haldeman said the company has seen the number of its short sales increase 600% from 2008 as lenders look to dampen the impact of foreclosures hitting the marketplace.

In a statement put out this week, Haldeman said Freddie Mac is doing everything it can to prevent more foreclosures, and that short sales are becoming an ever-popular tool, particularly in situations where foreclosure is imminent and modifications have failed. I don’t think this is a surprise to anyone, as we’ve all seen this trend growing exponentially over these past 12-24 months.

That number could increase as the Home Affordable Foreclosure Alternatives (HAFA) program takes hold. The Treasury Department launched it in April to provide cash incentives to servicers for conducting short sales and deeds-in-lieu of foreclosure. Though I personally have yet to see this program really take hold, I remain optimistic and hopeful that it will. For more information, please visit our HAFA section.

RealtyTrac, an online foreclosure marketplace, is even preparing a short sale report to go along with its usual foreclosure report every month. It won’t be available until the end of 2010, however.

“Foreclosure alternatives like short sales and deeds-in-lieu help borrowers to avoid the stigma of foreclosure, shorten the waiting period before they can buy a new home, and may inflict less damage on their credit reports,” Haldeman said.

He added that these alternatives are also helpful to lenders and insurers. Citing several independent studies, Haldeman said banks lose more than $50,000 per foreclosed home or as much as 30-to-60% of the outstanding mortgage.

While short sales still add to the housing supply and can put pressure on local home values, they often avoid the lack of maintenance or damage foreclosed homes often display.

Overall, it’s a much-better alternative to foreclosure in most circumstances. We’ve been supporting this thought for years and through hundreds of deals. It’s just nice that the ‘press’ is starting to publicize it, as these times will be more-difficult for more people tomorrow than today.

ShhortSale.com has been here to help all along, and will continue to be.

- Jeff Grant, President, ShhortSale.com

I often use ‘dog years’ in reference to the short sale climate, as the SS processes, effectiveness, and headaches have adapted so dramatically in only two years. No more are the days where I must wake up at 2am to successfully send a fax to the bank, expect multiple hang-ups and lost faxes from the lenders, or have to explain what a short sale even is. No, now we are transmitting faxes at 10am on Tuesdays, (some) banks are getting us approvals within 30 days, and those of us that have been doing this for years have actually built friendships with many lender Negotiators!

The Good

To point out the most-extreme change, I’d like to call out Mathew Vernon’s operation at Bank of America. A year ago, ‘BofA’ was a literal and figurative four-letter word. Borrowers, servicers, and professionals cringed at the thought of calling them for their infamous hang-ups, lost faxes, 30 day response times, lack of internal communication, and talking out of both sides of their mouth. Now, BofA deals are the pick of the litter! Since Matt’s hiring as VP of REOs and Short Sales on a few months ago, he has hired a whole slew of employees, has stood square in front of 50,000+ RE professionals to hear their frustrations, and implemented third party management software (Equator) – which makes my life as a Negotiator worth living.

GMAC, Wells Fargo, and OneWest (IndyMac) are not far behind them in their improvements. Smaller banks that have improved dramatically are Aurora, ETrade, First Horizon, HomEq, and Ocwen. Of course, problems are certainly still prevalent, and these ‘improvements’ have brought about some of their own problems. These problems include loooooooong hold times, uneducated negotiators, BPO Agents that submit faulty values, and lenders not understanding how One-Action and Anti-Deficiency Laws protect some of their borrowers in the case of a foreclosure. Also, does anyone really qualify for this HAFA program?? After countless denials, I feel that it would be easier to find a job in this market as an unemployed RE professional.

The Bad

The Ugly

With the improvement of SS process, the market has now become flooded with self-proclaimed ’short sale experts’. Every ex-loan/mod shop is now some sort of short sale operation, in the same way that every American is now an avid soccer fan! My advice: SEEK EXPERIENCE. It doesn’t matter how many designations I have behind my name – nothing is as valuable as dirty fingernails in this ever-changing short sale market. Let us a ShhortSale.com tell about our experience, and share how we can help you.

Enjoy these dog-days of summer, and cheers to progress in the short sale world continuing to adapt at a canine-pace!

- Jeff Grant, President, ShhortSale.com

Attorney General Warns of Short Sale Scams

Though this Press Release below pertains to the State of California, I think the information is applicable to the other 48 states that our short sale efforts serve as well…

FROM CALIFORNIA ATTORNEY GENERAL BROWN re: short sales

LOS ANGELES – Attorney General Edmund G. Brown Jr. today joined the California Department of Real Estate and the State Bar of California to warn homeowners about an alarming rise in short sale fraud across California in a field “rife with scam artists”.

A short sale is an arrangement in which a homeowner sells his or her home for less than the outstanding mortgage, with the consent of the lender.

“While short sales can provide homeowners with a last-ditch alternative to foreclosure, this market is rife with scam artists,” Brown said. “Homeowners and buyers, agents, and lenders should beware of short sale negotiators who operate without licenses, use straw buyers or charge illegal fees.”

With so many homeowners now considering short sales, an entire industry of so-called short sale negotiators has emerged. These individuals solicit homeowners by promising to expedite the process and help coax lenders into taking part in the transaction.

The Department of Real Estate is investigating more than 40 complaints of short sale fraud, up from “virtually zero” cases only three months ago, a spokesman said.

In April, the Obama administration launched a new initiative called the Home Affordable Foreclosure Alternatives Program, which encourages homeowners in financial distress — especially those who have failed to complete a trial modification or qualify for a loan modification — to consider a short sale as an alternative to foreclosure.

Before working with — or paying — any short sale negotiator, homeowners should consider the following red flags:

No license
With limited exceptions, only licensed real estate agents or attorneys can engage in short sale negotiations with a homeowner’s lender.

Up-front fees
Licensed real estate agents wishing to collect up-front fees from homeowners for short sale transactions must first submit an advance fee contract to the Department of Real Estate and receive a no-objection letter.

Surcharges
With many distressed properties listed well below market value, negotiators and agents are charging potential buyers thousands of dollars in surcharges and hidden fees just to place an offer on a home. These illegal fees are frequently not disclosed and are paid outside escrow.

Straw buyers and house flipping
In this scheme, short sale negotiators misrepresent the market value of a property to a homeowner’s lender by only submitting offers on the property from an affiliated straw buyer. After the home is purchased below market value, the fraudsters immediately flip it and pocket the difference.

Short sale negotiators and agents use a number of titles including debt negotiator, debt resolution expert, loss mitigation practitioner, foreclosure rescue negotiator, short sale processor, short sale coordinator and short sale expeditor.

If you are a homeowner who has been scammed, contact Brown’s office at 1-800-952-5225 or file a complaint online at: http://www.ag.ca.gov/consumers/general.php

- Homeowners can also learn more about avoiding mortgage and real estate fraud by visiting the Department of Real Estate website at: http://www.dre.ca.gov/cons_alerts.html

- “Short sale fraud appears to be the fraud of the moment, and it is proliferating statewide,” according to Real Estate Commissioner Jeff Davi. “Consumers, licensees and lenders must all arm themselves with the tools necessary to avoid such scams.”

- Jeff Grant, President, ShhortSale.com

Loss Mitigation: Housing’s Pink Elephant

(An article that I wrote for Dream Homes Magazine…) When we call the bank to invest in one of their products or to open a new account, we are welcomed like an fine Bordeaux at a wine party. Yet when we call these same lending institutions seeking assistance for our depreciating real estate investments, we are treated like we just walked into that same party with 40oz. in a brown bag. These frustrations are felt nationwide, and are no longer exclusive to certain borrower-profiles or geographic locations. On their most-fundamental level, banks pool (some of) our money, lend to qualified borrowers with interest, then take their fees while that borrower pays on the debt. In a sense, they work for us. So why is the Government having to step in with programs like HAMP and HAFA to get them to cooperate? Shouldn’t the banks be wanting to help us? Not only are we customers, but we are the mortgagors! Au contraire. If you have not had the pleasure of calling your lending institution in a loss mitigation capacity, just imagine calling BP with a request to stop the oil leak. As a seasoned Broker and short sale Negotiator, I’ve heard some good lines from the banks. They’ll say things like, “we cannot help you short sell unless you make a payment” which is not true; “We never received the fax” when I have multiple confirmations; and “we cannot adjust the acceptance letter” when the negotiator on the file I was previously working on did indeed. Understanding why many people call bankers difficult and manipulative is certainly not a challenge. Common sense leads us to think things like, ‘why wouldn’t the bank just accept our offer to get it off their hands?’, or ‘wouldn’t the lender rather sell my home instead of go through the hassle and costs of a foreclosure, regardless of my financial circumstances?’ My friends, here is one of the secrets to my success as a short sale Negotiator: rid yourself of that logic when calling the banks. If you don’t, your foot-tapping and moodiness will drive those around you crazy. On another level, we real estate professionals that do this full-time have dung slung at us by these guys all day. Some of it is rudely obvious with bad language (I have indeed been cursed), and some of it is indirect via ‘lost faxes’, being hung-up on, and transferred so many times that you’ve made up your own lyrics to the hold music. The Million Dollar Question: Why are these lenders being so uncooperative in their efforts to “help us”? Since I am not an attorney nor accountant nor fly on the wall at JP Morgan Chase HQ, I will leave that speculation to the bloggers. Despite all of my experience and all the research, webcasts, seminars, and conference calls I participate in daily, I have yet to hear a sufficient (or even consistent) answer from these banks or lending institutions. As my father always says, “eventually, two plus two always makes four”. The real answers WILL come with time. It is unsettling to end an article with a question and not a solution, but I don’t think I’ll get much resistance from anyone when I say that this real estate mess is not over yet, or even close to it. The veil is still in place, cooperation and transparency are desperately needed. Until then, people like me will continue ‘fighting for the little guys’. If you find yourself in the position of needing to sell, make sure you work with a knowledgeable, experienced professional who knows the ins and outs of the market and intricacies of your specific lender. Believe it or not, some of us actually ENJOY trying to solve this riddle. Like many fine wines, we Negotiators get better with time.

- Jeff Grant, President, ShhortSale.com

Freddie Mac: Flipping a Short Sale is FRAUDULENT

In their latest press release, Freddie Mac is now recognizing short sale ‘flips’ as fraudulent. As you may know, some short sale companies today find a willing short seller, submit a ‘low-ball’ offer to the bank on their behalf, have another buyer willing to pay what it’s really worth, and then utilizing a Trust or all-cash to flip the home to them once approved for a discount by the original lender. As of last month, this is now illegal. Utilizing a Trust permits them to navigate around potential seasoning issues, as it does not require Recording with the initial ‘low-ball’ acceptance. Whether you are an interested seller or RE professional, I would encourage you to read the official Freddie Mac statement about this, as this is not uncommon in other short sale operations out there today. On a side note, I’ve discouraged this behavior all along because it increases the deficiency that the original seller may be responsible for!

When companies that utilize this tactic market to a borrower/seller, they typically say things like “we will get you an immediate offer” and “we have investors that buy short sales.” When they market to RE Agents, that usually say “we’ll do all negotiating for free”, “you get to keep your entire commission and do not charge any money”, and “we’ll get you an immediate offer.” Please let me make it clear that not everyone that says these statements are fraudulent, rather they’re just potential indicators of a fraudulent operation.

While these companies and other have been chasing the quick-buck, we’ve continually stayed the course for years here at ShhortSale.com by always acting in the sellers best interest. We give each of our deals the intimate attention that it needs, and have always collected our compensation legally through what the lender pays and permits through RE commissions at closing.

- Jeff Grant, President, ShhortSale.com

What does the VP of BofA Short Sales & REOs have to say?

I listened to him live on May 22nd in Phoenix at a CDPE conference. His name is Matthew Vernon, and didn’t dodge our lemons. Believe it or not, he acknowledges this mess. He acknowledged their processing short-falls and customer-service failures. He is well-aware that his team is not sufficiently addressing the needs and demands of his clients, or of us RE professionals. He also made it clear that he cannot change the past.

Moving forward, I was comforted that he is changing things around. In his first 120 days on the job he has implemented Equator, an online loss mitigation software to manage their short sales and REOs (which I have Platinum Certification with). He has grown his Loss Mitigation staff exponentially, and implemented Saturday  trainings for them. He has been traveling the country to face groups like ours – angry and frustrated professionals on behalf of our clients. He made it clear that within 30 days, we’ll see even more positive change. In 90, they’ll be rev’d up and scaled to what is truly required for them to handle this mess. Time will tell.

Matthew ended his time with us fielding a Q & A session. These questions were tough and honest, and he answered them quite firm and with honesty. During this time he said “If we lose you to a competitor, we’ve failed.” Sounds like someone over there is starting to ‘get it’…

- Jeff Grant, President, ShhortSale.com