These days, the short sale market is a bit like the New York subway at rush hour -- everyone’s clamoring to get in. The problem is, achieving success with short sales in today’s environment takes a lot more than just squeezing through the turnstiles.
This market is presenting a big opportunity. Between the nearly one million borrowers that will likely not qualify for Home Affordable Modification Program (HAMP) modifications and the millions of homes with negative equity, there are an unprecedented number of borrowers that need alternative solutions.
The Treasury Department’s Home Affordable Foreclosure Alternatives (HAFA) program is enhancing the opportunity for short sale transactions by bringing standardized parameters for the short sale process, as well as monetary incentives for participating servicers and borrowers. There’s less stigma attached to short sales these days, so borrowers are willing to entertain the notion, and Realtors, frustrated with market conditions, are more receptive as well. Whether for these reasons or because short sales can significantly shorten holding times and reduce loss severities, servicers will be increasing their use of short sales within their loss mitigation playbooks.
Historically, short sales have been notoriously challenging to complete. But these days, it’s not unwillingness that’s presenting the primary barrier to successful resolution -- it’s getting them done that presents the challenge. Contrary to the popular belief that borrower financing is the single largest barrier to a short sale, at MOS Group -- or Mortgage Outreach Services -- we are actually finding the biggest challenge to be getting approval from junior lien holders and mortgage insurance companies.
In terms of borrower financing, the primary challenge is getting the appraised value needed to secure financing. Some markets are still seeing rapidly declining housing values, and it’s not uncommon for the long timeline in getting transactions completed to require additional updated approvals before the short sale to be completed, which can also potentially derail the entire transaction.
Short sales require staffs with specialized skill sets, in addition to a customizable, transparent technology platform that connects all participants together–two components not readily available to many servicers. Short sale transactions typically involve more different parties than loan modifications and other retention strategies.
A typical short sale usually involves a borrower, servicer, title company, valuation company, real estate agent, junior lien holder, mortgage insurance company and a closing or escrow company -- and that’s just on the sell side of the transaction. If a servicer doesn’t have a technology platform designed to promote collaboration and sharing of information, timelines and transaction status, there is a high probability that key tasks will not be performed and the process will get bogged down.
In order to reach any real short sale volumes and achieve any reasonable success metrics, servicers and loss mitigation vendors need to use a technology that connects all transaction participants through a single, common platform. It’s easy for borrowers to become distracted or discouraged throughout the short sale process. Keeping them actively involved and informed of their progress toward completion helps keep them motivated and committed.
Technology platforms should be customized to address these specific issues. They should also ensure consistency in documentation, communication, process and approval authority -- something that is increasingly important for the many short sales that require approvals from investors, lien holders and mortgage insurers. Short sales under the HAFA program are subject to strict timelines, so any technologies used to manage this process should help keep all participants informed and “on track” to meet all target dates and cutoff points.
There are a lot of nuanced short sale guidelines and requirements that can lead to unfulfilled transactions for the unprepared or unaware. Getting the right team and right technology is costly and time consuming–which leaves the door of opportunity wide open for outsourcers -- if they have the right solution and the right experience.
The wrong outsourcer can mean the difference between a successful short sale and a much more costly foreclosure. A loss mitigation associate’s communication skills and program knowledge can guide sellers through the short sale process with calm assurance, and the right technology can streamline the process and reduce transaction times. The alternative is borrower frustration and alienation -- and a long and costly walk toward foreclosure for all parties involved.
Now really is a great time to get into short sales. But like that crowded subway car, you need the right ticket to get to the right destination.