As a mortgage broker in Southern California I have, of course been hired to do short sale financing. There are certain hot spots for this activity. Like the Inland Empire for instance. They built alot of new homes, the prices climbed, the flippers flipped, and the buyers bought, using no income qualifying and 100% loans to value. Well we all know how that house of cards came tumbling down.
But are we aware of what has been left in its wake? The loan modifications are failing a high percentage of the time, because the borrower still isn't making the money that he or his broker put down on that loan application to buy the house. Foreclosures that have been going on for 2 years, with the borrowers still living in the house for free rent because the banks can't follow through on the volume of foreclosures. And then there are the short sales!
Opportunity raised its ugly head on short sales. Companies such as One West have taken over the assets of lenders such as IndyMac. Well this raises a big disconnect in the system. Whereas the lenders that originally made loans or serviced a loan would be familiar enough with the loan process so as to understand the timing of today's loan process. With regard to the short sale process, ultimately a negotiator from the current holder of the mortgage note will say yes or no to the short offer. Getting the paperwork to the right negotiator in this process can take months.
But, alas, we have a negotiator's approval to proceed. It took 4 months and yay, its approved. Now you can truly start your loan process. By the way, you only have 24 days to close. Nevermind that the borrower's information is 4 months old. Update the loan package, which by the way is the same as starting over. Here's why I say there's a disconnect in the system; there have been times when a loan could be completed in 24 days, but so many layers have been added to this process. A non-lender has a tough time understanding the added time elements. The companies that have bought these non-performing (and by the way, can't lose) assets are not traditional lenders. They are the Pirhana that swim around waiting for these opportunities. (more on this later)
So from the beginning of the loan process, once the negotiator says yes, there is unnecessary pressure from the listing agent and the selling agent and the escrow company and supposedly the selling bank (the New Pirhana Bank of the US). The broker or lender faced with the a "short" time frame is under pressure for what reason? Do any of the above believe that the lender wouldn't want to work as quickly as possible?
So here's the point, if the same lenders that made the loans in the first place agree to a short sale price, then that lender should understand the loan process, if they are still doing loans. They would quite normally give a short sale purchase contract enough time to complete the deal. On every short sale I've financed, I have heard the agent and then escrow say "it has to close by this date or the deal's dead." Rarely, there is a per diem but this makes more sense if the selling bank wants the transaction closed by a certain date. If a per diem is charged, it simply makes more sense then cancelling and starting over again.
The bottom line is, who needs the pressure? If the transaction is completed successfully and it takes a comfortable 45 days, that's a good thing. Set the selling bank straight from the beginning of the transaction on realistic timing. I just had a new deal open and the selling lender has given 21 days to close or there is a per diem charge. Nevermind that it took more then 5 months to get a yes answer. They're looney.
Now for the other side of the coin. Suppose Pirhanna Bank of the US just purchased a portfolio of non-performing loans. They're foreclosing on these homes and they've been oferred a short sale arrangement on some of these properties. Actually, this is what they prefer because they aren't going to incur the cost of the foreclosure. The Pirhannas can't lose. Here's why. They buy the asset for $.30 on the $1. Thirty percent. Say they pay $60K for a property whose note is $200K. They short sale the proerty for $120K. They have now doubled their money, but they're not done. They are then going to collect the other $80K write down (the loss difference between $200K and $120K) from the Government. This accounts against the entire $200K, which means they just pocketed a total of $140K. Ahhh, the American dream. The guys with the money just walked in, bought a property for $60 and walked away with $140K, including $80K paid for by the taxpayers.
Folks, this is whats happening out there. Not to mention short sale fraud by realtors that write low ball offers with assignee clauses to lock down a price and then bring in a real buyer. These are just remnants of the wasteland that was once the driving force of the US economy.
The lending industry needs a change. New Generation Lending, upon proper capitalization will take positive steps to stabilize the mortgage industry once again.
IndyMac Fiasco
No comments:
Post a Comment