The Treasury Department
set a new standard for short sales in 2010 when it launched the Home Affordable Foreclosure Alternatives program. But short sales were lower than expected last year with HAFA generating fewer than 700
But the Treasury recently revamped
HAFA guidelines, and the industry is starting to ramp up operations. John Vella, the chief operating officer at technology provider Equator,
sat down for this edition of In This Corner to explain just why he thinks 2011 will be the year of the short sale.
HousingWire: With so many initiated transactions on the platform, will 2011 be the year of the short sale?
With one in five borrowers underwater on their home and an estimated 1.5 million foreclosures scheduled for 2011, the opportunity for short sales will be better than ever. Investors usually see a 20% to 30% better execution on a short sale versus an REO sale when it comes to loss severity. With the foreclosure volume, current and pending REO inventories, servicers will be pressed to do more short sales in 2011.
Servicers are more equipped and skilled than ever in the short sale process which will allow them to convert failed loan modifications and potential failures into short sales. The short sale process, real estate agents’ capabilities and technology have evolved, making for a more mature relationship between the borrower, lender and agent. If the servicers are properly staffed and using proven short sales technology, in 2011 they could see an increase of at least 25% over 2010 in completed short sales.
HW: Do lenders prefer to do a short sale through their own guidelines or HAFA's?
When HAFA was established in April 2010, the purpose was to set guidelines for consistency and process. Over time, it was found that the program did not serve as a “catch-all” but did serve a purpose in laying out ground rules in a very complicated process. Servicers will continue to run short sales through the HAFA waterfall. As soon as they see the HAFA program is not working for a particular property, they will redirect the loan to their internal program. This can be done seamlessly with the proper, proven technology without impacting timelines, compliance or borrower satisfaction.
HW: What is proving to be the weakest link in the chain of short sale decision making?
Short sales can be difficult to execute due to a combination of factors. In order for a transaction to move forward the investor must agree to a realistic list price and net proceeds amount. The timely establishment and reaction to offers is critical, especially when a second lien and mortgage insurance is involved.
The agents must do their homework and ensure they are providing the proper documentation and pre-qualifying buyers to expedite the process. The servicer must act as a well-organized conduit between the agent, borrower, investor, mortgage insurance company and the various vendors involved. To say there is one common weakest link is very difficult, since no two short sales are alike. When there is uncertainty and so many parties involved in a transaction, the proper technology can make all the difference.
HW: Where are the most short sales occurring?
Short sale volumes are tied to the states and locations which have had declines in values and increases in foreclosure volumes. These markets include: Nevada, California, Arizona, Florida, Georgia, Michigan and Mississippi. Short sale buyers are looking for markets that will eventually come back around and also offer investment/rental opportunities.
The key in 2011 will be the ability to obtain financing. With unemployment rising, credit card debt increasing and savings depleting, the potential buyer population will decrease while inventories increase. Without subsidies and the proper programs, the timelines and holding costs of short sales and REO sales will go up.
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