Big Banks Work To Streamline Short Sales

With a glut of distressed properties on its books, Bank of America says it is stepping up efforts to increase the number of short sales it completes.

Bank of America senior vice president and mortgage servicing executive Bob Hora discussed the bank’s plan Wednesday in a web-cast from the Austin, Texas, headquarters of the Charfen Institute, which trains and networks real estate agents that specialize in short sales.

A bank-owned home in Encinitas, Calif. (Creative Commons)
A bank-owned home in Encinitas, Calif. (Creative Commons)

 Short sales occur when a borrower owes more on a mortgage than the house is worth and negotiates with the lender to sell the house for less than what is owed. Short sales were extremely rare before the housing crash—accounting for less than 1 percent of all sales—because home prices were rising and transactions could take months with mountains of paperwork. Now they take up 12 percent of the market, according to Realty Trac.

Bank of America is on track to complete 100,000 in 2011, up from about 42,000 a couple years ago, said Hora. Bank of America wants to increase its volume by 60 percent in 2012, Hora said.

Other large banks, such as JP Morgan Chase, have also recently taken on such efforts. With short sales’ percentage of the market rising since the housing crash, banks were left without the staff to deal with the changing landscape. To keep up, the banks have ramped up their short-sale staffs and are streamlining the process.

“If we can shave three weeks off the timeline, that’s better for everyone,” said Hora in the webinar.

This reflects a growing trend among big mortgage servicers actively encouraging borrowers who aren’t paying their mortgages to pursue short sales. Foreclosures inflict huge costs on banks. According to Realty Trac, the average loss on a foreclosed home was 40 percent in August, while the loss on short sales was 20 percent.

“As recently as a few years ago, banks were reluctant to negotiate short sales, but with the current glut of foreclosed properties dragging down the recovery of the real estate market and straining bank profits, banks are now actively encouraging short sales,” Charfen Institute founder Alex Charfen wrote in an email.

Bank of America now has 3,000 people on its short-sale account, Hora said. In the housing depression’s early years it had 200 to 250. The bank is also starting to mail out packets of materials to delinquent homeowners encouraging them to try to short-sell.

The bank two weeks ago began a pilot program in parts of foreclosure-ridden Florida that offers borrowers incentives as high as $20,000 to short-sell.

The program is similar to ones adopted by banks such as Chase, which has a nationwide program that offers borrowers as much as $30,000 to short-sell and relocate.

“With a combination of incentives, staffing up and of people being more aware of short sales, it creates a better and faster process for the homeowner, investor and the neighborhood,” said Thomas Kelly, a spokesman for Chase.

Kelly said JP Morgan Chase has doubled its short-sale staff and has completed 120,000 short sales since 2009.

Stacey Valnes, a Los Angeles realtor, says he recently had a client who received the $30,000 lump sum from JP Morgan Chase. The married couple had lost a business in the recession and the husband’s contractor business took a 50 percent nosedive.

“They were upside down about a half-million, they hadn’t made their mortgage payments in over two years, and they would have stayed there another 20 years if the bank had left them alone,” Valnes said.

The payout convinced them it was time to move on. The bank ate about $600,000, said Valnes.

“Most of the people doing a short sale are out of money and a lot of them sit in the property for three years without paying the mortgage or paying the property tax bill, so anything to get the people motivated to do the short sale and move on with their life is a positive thing,” said Valnes.

Not everyone is convinced that the banks are doing what they need to in order to clear the mass of distressed properties that are dragging the U.S. economy. Eric Sussman, a real estate professor at the University of California, Los Angeles, says the banks’ human capital is not where it needs to be to deal with the coming flood of short sales.

On top of that, many agents don’t understand short sales and many of those who do are uncertain of where the banks stand, he said. “Those are the people who are on the front lines with buyers and sellers day in and day out, and they don’t know what the banks’ attitudes are,” Sussman said.

Maggie Dokic, a realtor who specializes in short sales in Miami, Fla., says one of her clients is at the beginning stages of one of the short sales participating in Bank of America’s pilot program. The sale is in an early stage, so whether or not the seller is offered an incentive remains to be seen.

“I was just happy to see [Bank of America] being proactive,” she wrote in an email after the webcast. “They were not known amongst us realtors for being the easiest bank to work short sales with.”

via Ryan Faughnder via 


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