A Close Encounter of the Short Sale Kind

No doubt the short sale transaction still maintains its dominant footing in residential real estate.  As an active Realtor and short sale specialist, I still encounter the full gamut of short sale scenarios – small condos to luxury homes, single family to multi-units.  Property values range from sub $100,000 to well over $1,000,000, and the unpaid loan balances vary just the same.  Many short sale lenders have introduced a variety of short sale programs to target this diverse range of underwater situations still prevalent in their portfolios.  Lenders even continue to shell out attractive incentive packages for homeowners proactively seeking short sale assistance, seemingly to award these homeowners monetarily for taking the “high road” and helping each other cure these non-performing portfolio assets.

Bank of America, for example, continues to solicit and review their clients for their [relatively new] Cooperative Short Sale program.  A Bank of America Cooperative Short Sale can both streamline the review process and offer the homeowner financial assistance ranging from $2,500 to up to $30,000.  Many homeowners approach me with a kneejerk reaction to ask how they can quality for the maximum $30,000 award.  Although Bank of America weighs many variables to determine the offered incentives package, I’ve witnessed firsthand the homeowner’s default status as playing a major, determining factor.

All else being equal, Bank of America has offered my clients higher relocation awards when the homeowner approaches their lender earlier in default.  Homeowners who haven’t even missed a payment yet have qualified for high relocation awards.  I’ll give you two very recent examples which illustrate this point:

1. Homeowner A had an unpaid principle balance of $976,000, with an estimated home market value of $755,000.  Homeowner A approached Bank of America for their Cooperative Short Sale program 39 months into default, and was extended a relocation award of $8,700

2. Homeowner B had an unpaid principle balance of $301,000 with an estimated home market value of $219,000.   Homeowner A approached Bank of America for their Cooperative Short Sale program with 0 months of default, and was extended a relocation award incentive of nearly $13,100.

From the above, I can deduce that a borrower’s default status plays a big role in the relocation award calculation.  Homeowners who approach their lenders earlier in default seem to optimize their chances of getting the higher incentive award.  Curing a defaulted loan earlier in default saves the lender big bucks; it would seem lenders are incentivizing borrowers to take early action as opposed to waiting until the last possible minute before seeking resolution.   

The Hardship Letter – Create Your Voice & Your Bank May Just Listen

Any Loss Mitigation Professional will tell you that running an efficient short sale [or loan modification] campaign is no simple task to perfect.   It all starts with the assembling of the application, chalked full of homeowner hardship materials and real estate transaction documents.  When all said and done, the initial package submitted to open lien holder review averages out to 60 + pages of documentation, with enough stuff to keep any bank negotiator busy for weeks on end.  The sheer magnitude of each short sale application lends one reason why the short sale process tends to take 45 – 60 days to generate lender approvals for Equitable Reality & Services’ negotiators, a time frame which can grow significantly for lesser experienced, short sale agents or negotiators. 

For this present article, I want to hone in on just one item within the short sale package - The Hardship Letter.  The hardship letter can be regarded as the cover page for the entire application, and if well constructed, will establish a foundation upon which your loss mitigation case can be built.  It need not be a ten page biography, nor should it be a solitary, fragmented sentence without backbone.  A well-crafted hardship letter should fit on a single page, and concisely identify:

1. personal account info [account holder names, loan account numbers, property address]

2. the homeowner’s current financial difficulties

3. the homeowner’s intent to sell their property via shortsale [or, if applying for a loan modification, the homeowner’s request for modification consideration]

If done properly, your letter will give your bank negotiator perspective, a narrowed tunnel vision through which he or she can review your financial materials.  It’s not the letter itself that drives the decision process ; it’s the financial materials which speak up for themselves.  But it’s the hardship letter that gives this collection of pay stubs, bank statements, financial statements and tax returns a unified voice.  In an industry with so much competition, with bank departments inundated with applications, a finely-tuned voice will help you set yourself apart from the deafening crowds.

Please click on the link below for a hardship letter sample http://www.equitableres.com/samplehardshipletter.pdf

In total, six key features are identified in the sample:

1. date of letter

2. item appropriately labeled as ‘Hardship Letter’

3. personal account info identified

4. homeowner current financial difficulties identified clearly and concisely

5. request for short sale consideration clearly documented

6. signed and dated

The Fair Housing Federal Agency [FHFA] Back in the Spotlight

     The Fair Housing Finance Administration [FHFA] seems to be in the spotlight an awful lot of late.  Riding the highs generated from their August 21 press release with several welcomed short sale changes, the FHFA, seemingly in the same breathe, announced it will move forward as-planned with what is being regarded as a locally harmful initiative - their REO bulk sales plan.  The proposal calls for the immediate selling of 500 Fannie-Mae owned foreclosed [REO] homes in both Los Angeles and Inland Empire areas.  What’s not sitting well with the public is the lack of transparency with which the FHFA plans to carry out this bulk sales plan.  As C.A.R. President C.A.R. President LeFrancis Arnold noted in her August 24 newsletter, the FHFA aims to act out this plan “in a secretive manner by not disclosing any details, such as property locations, final property count, sales price, or names of winning bidders.” 

     LeFrancis’s and the C.A.R.’s disappointment with the FHFA is no secret.  In fact, the C.A.R. responded on August 22 by filing a request under the pretense of Freedom of Information Act to get specifics on the transaction details. 

     Analysts feel this plan will harm an already-delicate and uncertain recovery process.  For starters, bulk-selling REO’s will restrict an already-low inventory index.  The long-run average for unsold inventory in the Inland area is a 5- to 6-month supply, but currently stands at 3.1 months in Riverside County and 3.8 months in San Bernardino. Additionally, the FHFA’s plan will pump less than market prices into the equation at an accelerated rate.  Historically REO unloading negatively impacts market price levels, so this move is perceived to hinder the price gaining trends we’ve been experiencing of late.   

     Not to throw the FHFA entirely under the proverbial bus, as it is still only a few days out since it took strides in their attempt to provide better framework for Fannie and Free short sales.  The proposed changes are to go into effect November 1, 2012, which at least on paper are designed to better streamline the review process to enhance overall efficiency and market productivity. With regard to the most current announcements for the REO bulk sales plan, I don’t dispute that the high Fannie REO count may make it very difficult for the FHFA to know exactly what to do with them.  What gives the C.A.R. a legitimate gripe against the FHFA is the secrecy with which it plans to operate.  In an industry that dismissed the phrase caveat emptor (or buyer beware) many years ago, to instead preach “Disclose! Disclose! Disclose!”, their intentional disregard for transparency is tough to figure.