Lenders, it's time to clean house
Letters From the Home Front
By Kris Berg, Wednesday, August 6, 2008.
In what is being applauded as the most decisive response yet by federal officials to end the housing crisis, President Bush signed yet another mortgage relief measure today to help homeowners avoid foreclosure. This one, which according to an undisclosed source "should pretty much nail it," authorizes a few more billion dollars in government-backed relief.
Specifically, it reads: "Make check payable to Merry Maids."
OK, I made that up, but my fantasy relief act is brilliant in its simplicity and cuts directly to the heart of the problem. According to my informal survey (margin of error equals 100 percent), the biggest single cause of people losing their homes to foreclosure today is lost paperwork.
In my latest personal installment of "Lenders Gone Wild," we have been trying to get bank approval of a short sale for a selling client. We have been doing this for two months now. This is reality television at its worst, and it is so incredible it simply couldn't have been scripted. First, allow me to set the scene. The seller has a first and a second loan, both with the same lender. The first is good, only the second is short. As any diligent agents would have done, we called the lender before the ink had dried on the listing agreement to get the lender's particular playbook for short-sale submittal and approval. We did this because we have learned that each lender has different procedures. The really fun part is that the same lender often has different procedures -- different depending on the person you talk to, the time of day you happen to reach them, and the relative position of Venus to the sun on the date of the last mortgage relief measure's signing.
So when we received the buyer's offer -- a very solid offer, one close to list price, one any sane traditional seller would have been bronzing for his trophy room -- we packaged it. I don't want to lose you here, so know that "packaging" is a technical term in short-sale land. It means to complete and submit approximately 50-to-the-eighth-power pages of forms, written in Sanskrit, and to include a "hardship" letter along the lines of "I can no longer afford my loan since the interest rate reset to 28 (or, as you like to say in Sanskrit, navavi.nshati) percent." The latter is just an example, of course. We all know this hardship letter would be rejected because the writer failed to provide certified copies of immunization records and a short essay comparing and contrasting the U.S. space program to Ethel Merman.
More on point, we were so very proud of our "package." It was beautifully prepared. It had a happy cover letter. It had a table of contents. It included playful graphics. It got lost -- four times. Each time we learned this only through our daily phone calls -- phone calls in which we were transferred and rerouted through an infinite loop of chipper "your call is important to us" messages. And, once, we even learned our package had been destroyed entirely. They needed an estimate of proceeds; then they needed a HUD-1 form; and then they didn't need a HUD-1 but just an estimate of proceeds (the one that had been sent to the shredder the previous day). Then, they needed the approval of the first trust deed holder, even though the first was not short. "But, you are the first trust deed holder!" we screamed. "Please hold. Your call is very important to us." Over the past week alone, we couldn't have been transferred more if we had chosen careers in the military, and the most recent transfer resulted in a mailbox that was full and could not accept our message. Then, they lost the package -- again. We are currently one lost package away from a lost buyer.
Oh, I know the lenders are very busy right now. I know this because every time we hit pay dirt and get a pulse at the other end of the line, they tell us they are very busy. One day they have 400 files, the next 1,000, and the following day files totaling another randomly generated number intended to impress me. I'm busy, too. In fact, I am so busy, I work (brace yourself) weekends! Despite this, I don't lose my clients' files.
I don't know about lenders, but in my house there are two reasons you can't find something. Husband Steve can't find things because he doesn't want to look for them. "I've got a buck for anyone who can find my sunglasses!" My children never needed an allowance. They financed their formative years mostly through their finder's fees. These same children, on the other hand, can't find things because they never clean their rooms. While I think I have only two daughters, I might have several others I have forgotten about who simply got buried in the teenage landfills where my two known holdover tenants currently reside. I need a stepladder to cross the thresholds of their respective shipwrecks, and yet they wonder why they can't find a missing earring -- or each other.
I can't believe that lenders don't want to find their stuff. I can't fathom how they would want to delay the process or even foreclose on my client, as this would make no sense. It would be both fiscally and socially irresponsible. So, I have to believe that their rooms are a mess. It's time to clean house, and if the president can help them do that, then we may finally start seeing some real mortgage relief.
Kris Berg is a real estate broker associate for Prudential California Realty in San Diego. She also writes a consumer-focused real estate blog, The San Diego Home Blog.
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Submitted by Lenn Harley on August 6, 2008 - 4:58am.
I have come to believe that lenders are in a perpetual state of procrastination while secretely awaiting some unknown "devine hand" to reach out and make all home owners rich and all payments current.
Mortgage companies do two things well; they loan money and they collect repayments. They cannot handle anything that doesn't follow that script.
Lenn Harley
Broker
Homefinders.com
http://www.homefinders.com
Submitted by Diane Cipa on August 6, 2008 - 6:06am.
I spent almost half of my career as a lender and let me be an advocate for them here. Walking in the shoes of the back offices of mortgage lending employees - those in servicing, REO, collection and underwriting during a crisis is like nothing you can imagine.
For balance, I also sold real estate for a couple of years and my mother is a retired broker so I have a feel for those shoes, too.
Can you imagine piles of files, boxes of files, way too many files for staff to handle and fedex packages and boxes arriving and not having time to open them and people calling and yelling at you so much so that you don't have time to do any work and you start to get a feel for what these folks are facing each day when they arrive at work.
They don't have the option of working extra hours unless the employer authorizes overtime because federal law does not permit an employee to work for free.
I'm not saying it's right or that management can't make better decisions but the lending industry is faced with a disaster. A hurricane blew through and with it went large segments of staff and lots of money and lots of hope.
You are left with tired, frightened, haggard folks who could use a kind word or two.
Submitted by Peter J. Pike on August 6, 2008 - 6:09am.
I too believe that it is time for lenders to come to grips with the reality of the current situation. My theory is that it is due to the severity and speed with which everything occured that "house cleaning" is in order, rather than some conspiracy.
A big part of the problem with short sales has been the number of "low ball" offers that have been clogging the system. There are only so many people who are trained to be able to review a file and determine whether it is in the lender's best interest to accept a short sale, or go forward with a foreclosure. They can only review so many files each day.
Countrywide appears to be leading the pack, with trying to get its house in order. Based upon what I have seen and heard over the last couple of weeks (this is pure speculation), I think that Countrywide is implementing a scoring system on short sale offers. They are assigning scores to various aspects of an offer, then, based upon the the score, the offer is either rejected outright, or it goes to a negotiator. Their scoring seems to be based upon a generic "value" of the property. They can look back a couple of years, to find out what the property appraised for, when the loan was made. Based upon past history trends, they can then determine how much that local market, as a whole has fallen since the time of the appraisal, and assign their initial "value" to the property. Looking at the offer to value ratio, the offer to loan outstanding ratio, time the property has been on the market and whether it is a cash offer or financed, they then can decide whether this is an offer to spend their time on.
Other banks, such as Wachovia, have avoided this problem altogether by deciding that they will not (other than in states where they cannot obtain a deficiency judgment) release the seller from their obligations under the Note. This makes short sales a lot easier to vet. You don't have to look at the Seller's financial situation to determine whether there is a reasonable expectation of getting the deficiency that they promised to pay. For this reason, I have advised my clients who are seeking to do a short sale (which is in the best interests of everyone involved, the lenders included, since their costs of foreclosure, managing and selling an REO will usually far exceed the loss they will take on a short sale), involving a Wachovia loan not to bother. The time and effort in putting together a package for them (they want all financial disclosures from the Seller, even though it does not play into their decision), knowing that they will not work with someone who truly has no way to pay back even a part of the deficiency, means that it is not worth my time, nor the Sellers, to try to help Wachovia.
Hopefully, all lenders will wake up, realize that the problems they are facing are very real, and can be overcome in a very real way. Everyone involved has to work together to make things happen (isn't that the theory behind real estate - a Seller wants to sell, a Buyer whats to buy and a Lender wants to make loans - everyone has to work together to see it all happen). A step in the right direction would be for all lenders to have an initial vetting process (and allow real estate professionals to know what those standards are, so that they can reject offers that will obviously not make it throught the first round of review); a process to determine whether to allow the Seller relief from all or part of the deficiency (and again, allowing real estate professionals to know those standards, so that they can properly explain to Sellers what their potential liability will be after the short sale); and a method of communication about each file to allow all to know what is happening.
I know it sounds easy on paper, and I would be glad to explain it to any lender who wants to get through this mess.
Submitted by Jeff Corbett on August 6, 2008 - 6:27am.
Thank you for making me laugh first thing this morning Kris (not an easy thing to do) :)
Submitted by David Johnston on August 6, 2008 - 6:37am.
Thank you for writing an article that so precisely describes the short-sale "process." I don't have a better theory for why so many banks are resisting short sales in favor of foreclosures, but they clearly are, and to everyone's detriment.
Submitted by Bruce Hahn on August 6, 2008 - 7:08am.
American Homeowners Grassroots Alliance
Best laugh I've had in a long time and, unfortunately, a sad commentary on the current state of affairs.
Congress just passed a law that can help mitigate the problems. The new law's potential to help out may be seriously limited by these current lender processing bottlenecks. Whether the cause of the bottlenecks is economic circumstances and/or management incompetence, the outcome is still the same.
For the law to work, Congress may again have to step in and find a way to fix the bottleneck so that market forces can prevail.
Submitted by Jean Powers on August 6, 2008 - 7:41am.
I have had an accepted offer by the sellers on a short sale going on 5 months now! We offered a little more than asking price. There are 2 loans both with Countrywide. the listing agent has now informed me that they assigned a new negotiator. This is ridiculous and there are no good reasons for this to happen. The prices in that area are going down and our offer may be too high at this point! I do know that there were a panel of CEO's at NAR and the directors tried to help them see the problems in how their companies handle these short sales. Bottom line is that they do not care!
Submitted by Scott Cheffer on August 6, 2008 - 7:48am.
I loved the column. It really hits the mark. Actually what the lenders should do is re-hire those 'expensive' (experienced) employees who could be trusted to make decisions. Even if their salaries were 50 percent more, and health insurance was double, the lenders would be ahead. Of course, that would require planning beyond the end of the quarter.
Submitted by Lenore & Alex Wilkas on August 6, 2008 - 11:57am.
Kris, great humor about a miserable situation for you and your clients. What I can't figure out is why these lenders don't hire more people. There are a lot of experienced people, currently out of work, from the many dead financial institutions that went out of business over the past year. Hire them for pete sake and get on with it!
I am lucky that our market doesn't have a ton of short sales so I can tell my clients horror stories and then they don't want to get involved with that short sale. Who wants to wait and wait and wait only to find out it was for naught? No one except an investor, who perhaps might be willing to wait it out and take the gamble of getting a "deal".
The lenders are their own worst enemies. I am only a lonely Realtor working in the trenches and don't really know the lender side, which I appreciate is bad, but it still doesn't make the entire process any better for everyone including themselves, when they won't hire enough people to move the process along. How stupid are these people running these lending institutions? I think they might be ,the village idiots and belong in an institution, of another kind!
Peter Pike and Diane Cipa really gave some good explainations of the lender side for me. I do understand the problems they have, I just don't appreaciate that they are unable to correct them.
~~~~~~~~~~~~~~~
Lenore Wilkas
Prudential CA Fine Homes International
www.SanMateoRealEstateNews.com
Submitted by Rosio Vogueras on August 6, 2008 - 12:21pm.
I am a loan officer/investor, and it is ridiculous how lenders rather pay to many fees for a foreclosure procedure instead of making a short sale happen; now I do not agree with those low offers on short sales but I do believe there are plenty of underwriters as well qualified underwriters with out a job at this time. By hiring better underwriters it will provide better process to lenders and will cost them less fees rather than paying to many fees for a foreclosure process, like; appraisers, lawyer, and all other junk fess incur on the process.
Bottom line is if we continue in this declining market a lot has to do with lenders not providing the service necessary for any agent to close transaction we have plenty of investors as well as 1st time buyers with transactions in process but no answers for the listing nor lenders or negotiator end so why not help all these employees unemployed and stop the high % of unemployment.
On another hand I understand your point Diana and I also was an underwriter, but 90% of those underwriters are not even qualified as a underwriter nor have any skills, I also remember those boxes next to me, I got awards for efficiency per lender/bank and from mine team, so lets face lots of them just kick back so lets get rid of those employees and hire the one that are ready to work on our files, lets get operators handling calls and complaints so underwriter do their job, provide a system where just by logging in you can check on status, provide e-mails from negotiator, it’s a better efficient and faster service.
You spend 1 month talking to Bill you follow up now bill is not more longer working now it is John, so here we go again start all over the process, Leaders and Managers need better skills to provide to their team a charming environment, everyone right now needs to provide a better attitude at work and Leaders are not providing a loud clap every morning, have a wonderful day everyone!!!!! It just takes 30 sec. to cheer anyone up lets stop the drama and suggest solutions instead of pointing fingers.
Submitted by Jeff Manson on August 6, 2008 - 1:01pm.
Kris – your experience is just too common these days. I have many Realtor friends that have been running into the same problems. One of the lenders even approved the short sale and he found out after hounding them for weeks that it hade been approved for three weeks. Well nobody ever told agent when he was calling every day to get the short-sale approval. They had lost the approval. What is going with these lenders? No wonder why so many of them are in trouble. Hopefully this nightmare will end soon.
Jeff Manson
American Dream Realty
Personal: Hawaii real estate search
Company: Oahu real estate company
Submitted by Michael Espiritu on August 6, 2008 - 4:30pm.
I find short sales to be a complete waste of valuable time. I have clients who see a "great deal" that 9 times out of 10 is a short sale. The price is at $300,000 and the owners owe $800,000. Not gonna happen!
The lenders are overwhelmed (hire more help). The packages the lenders want of course are 40+ pages and account numbers have to be on the bottom of every page. (too much time!)Oh, don't you like the fax is busy for 6hours straight or your 40 page package stops at page 22???
I had a lender that would take 2 weeks to respond to my calls and when I did speak w/ them they would say "we need the seller's most current pay stub" (the one I submitted 2 weeks ago that is no longer the most recent) It goes on forever like that.
Too much work and nothing in return. We have represnted quite a few short sales on both sides and it just is not worth the time, hassle and 99% chance of either no response or very lame response.
I have been working w/ a client since February 2008 w/ full package submitted to the bank and I just received a call (when I'm in a meeting) from the lender I can never get a hold of stating that he's reviewed the file and there is nothing they can do??? 6 months to give me an answer is inexcusable.
I really have no sympathy for the lenders in this position. They chose to prey on people who probably weren't savvy enough to understand the loan they were getting and this is what happens.
We still have the 3-year ARM's, 5-year ARM's and the people who will walk away because they owe 70% more than their house is worth.
We are just at the tip.
Obviously the banks are doing a terrible job at servicing their loans and turn around time is out of control.
My advice...Forget about short sales unless the seller is within $50,000 of the amount owed. wait until it becomes an REO and you will get the same house w/ less hassle and probably for a better price.
Michael Espiritu
Broker
Copeland Wealth Management / CWM Real Estate
SoCal
Submitted by Nathanson Brothers - Dan and Michael on August 9, 2008 - 7:45am.
I can understand the frustration and challenge that many of you are feeling. I have felt that way too. Once I earned my Certified Distressed Property Expert (CDPE) designation, that all changed.
This INTENSE 2-day course leaves you COMPLETELY prepared to EFFECTIVELY list, sell, and CLOSE short sale transactions. That's why the average CDPE is closing about 90% of their short sales, vs. 10 to 12% for other agents.
This disaster has hit all of us: the public, the banks, and the real estate community. NOBODY was prepared for this.
The consumers don't know what to do. They don't realize that THERE IS HELP...THERE IS HOPE. Over 70% of people go into foreclosure without ANY visible help. They simply get foreclosed on.
Banks don't have the manpower to handle the influx of calls, faxes, packages, etc., and the staff of the loss mitigation departments have only been employed there for a very short time. They don't have adequate training, and they're trying to deal with calls, faxes, and packages sent by Realtors who don't know what they're doing.
The real estate community doesn't know what they're doing, either. All of a sudden, we've been put in this position of selling a home AND trying to negotiate with a bank...or 2...or 3...or even 4! If we don't get the education necessary to effectively help our clients, then WE ALL SUFFER!
Unfortunately, there are people out there trying to take advantage...OF EVERYONE! There are consumers perpetuating the fraud they committed when they purchased, by trying to fake a hardship, and sell at a loss. There are investors out there trying to take advantage of consumers, AND the banks. There are trainers out there, who haven't really taken the time to learn the details of this problem, and how to solve it, and are teaching Realtors incomplete and/or misinformation. Some of what is being taught is even ILLEGAL! There are Attornies out there charging "Foreclosure Prevention Fees," in order to "help keep homeowners out of foreclosure."
We have taken SEVERAL short sale classes. Some taught by local title agencies, mortgage agencies, investment clubs, even from some of the real estate coaching "gurus." None of them has compared to what we learned in the Certified Distressed Property Expert designation course. It is a very consumer-centric course. We're trying to help keep people from a credit-destroying and emotionally-damaging foreclosure.
This course teaches how to help the public. It DEFINITELY takes into account what is going on at the lending institutions too, because we need their cooperation in order to help save these people. Anyone calling the bank, and trying to bully them, or act in an adversarial manner doesn't have a clue as to what they're doing.
Can you tell that we're slightly passionate about this subject?
If you have any questions, please don't hesitate to contact us: www.ForeclosureAvoidanceHotline.com
To find out more information about the Certified Distressed Property Expert designation course, just visit: www.cdpenow.com
Submitted by Elizabeth Cooper-Garcia on August 9, 2008 - 4:24pm.
Kris, your comments are right on target. One of the reasons many properties here in South Florida aren't selling is precisely because they are short sales. Even if an agent has experienced only one short sale in his/her life, it is enough to cure the need to get involved in another one. I am currently stuck in 4 short sales, all of which are either in their 4th-6th-or even 8th month. By the time banks finally get around to getting you an answer, the buyer has usually tired and walked away, the property price is now too expensive when compared to other similar properties, the buyer's financing has expired, or the borrower's information is now outdated.
My recommendation is to forget them. Until banks weigh the benefit of hiring more QUALIFIED people to handle the short sale packages (yes 80+pages) efficiently against the cost of going through with a foreclosure, maintaining it, having it on their books, and then having to dispose of it via a sale, we are all just spinning our wheels. Emails, calls, and faxes will continue to get us nowhere. If you've experienced what I have with Amtrust, GMAC, Chase and Homecomings, short sales are not win-wins, they are nightmares for everyone involved.
Even those so-called experts are finding it hard to negotiate them within a reasonable amount of time.
I say that as Realtors(R), we all need to band together to put pressure on the banks to answer within a two-month period. Currently, there are no legal deadlines for banks to meet, so we are at their mercy.