Below is an interesting article I read in the North County Times and I wanted to make sure you all had an opportunity to read this to prepare for the possibilities of this happening with your current transactions. Please feel free to give me a call if you would like to discuss further. Happy Thanks Giving to you all!!!
Add this to the long list of things that could derail a short sale.
A growing number of short sellers in San Diego County are seeing their deals suddenly fall apart and cash bonuses disappear because the companies that accept and manage borrowers’ mortgage payments every month — like Citi, Chase and mainly Bank of America — are selling off the servicing rights to those loans to smaller companies for financial reasons.
“You’re wasting your time; you’re wasting everyone’s time,” said Brian Ruhl, a San Diego Realtor who has had to handle a handful of these cases during the past six weeks. “We’re asking on every (client) file now.”
Short sales are deals that let overextended borrowers sell their homes for less than what they still owe as long as the banks say yes. Short sales, once rare deals before the recession, now make up an estimated 29 percent of total home resales in San Diego County, based on October numbers from local real estate tracker DataQuick.
Servicing transfers or releases, which don’t affect the investors who own those mortgages, are nothing new. Realtors say they’ve always been around, spiked during the housing boom and have been occurring infrequently in more recent years.
They’ve suddenly spiked again, not surprisingly because servicing transfers can be a lucrative, cash-driven business for big-name lenders as well as for the small firms that buy up those rights.
How it works: Mortgage servicers are companies to which you send your mortgage payments and call if you have questions on your loan. When your loan is originated, they get a small interest of that for monitoring whether borrowers are in fact paying on time. Mortgage companies typically get 25 basis points for each home loan, which translates to $500 a year on a $200,000 mortgage, based on details from top investment publication Seeking Alpha.
Servicing rights can either be retained or they can be sold to other companies for cash.
In Bank of America’s case, they’ve been focused on selling, especially “delinquent loans needing extra attention, largely to smaller companies who specialize in that type of high-touch servicing,” said bank spokesman Richard Simon, who acknowledged that selling has increased since the start of the year.
Service releases have made sense for Bank of America, which was dethroned by J.P. Morgan Chase as the nation’s biggest bank last year, for two key reasons. One, they want to offload “legacy mortgage issues” from the acquisition of loans from the now-defunct Countrywide, and two, the demand for buying servicing rights has become “robust,” Simon added.
Who decides what’s released and when?
“Market factors and strategies of the servicers and/or investors,” wrote Simon, in an email to the U-T San Diego.
The gains realized by companies like Bank of America with such sales have meant potential losses in time, effort and money for those involved in the short sale process.
Some consumers who had just begun or were in the middle of short sales and had their servicers change are now having to start from scratch with the new company if they want to get the deal done, real estate pros say. How this typically unfolds: The short sale is in full swing, a borrower suddenly gets a letter stating the servicer is set to change in a couple of weeks, and all the borrower can do is wait until the change occurs.
The change, which can tack on an extra four to six weeks to an already lengthy short sale, can jeopardize deals with prospective buyers because short sale agreements can expire and patience from buyers tend to wear.
“Who do you complain to?” said San Diego real estate broker Vincent Scuncio, who’s also dealt with about a handful in the last six weeks. “You can rage against the machine, but then what?”
Such changes also have mucked up cash incentives promised to homeowners who agree to complete short sales. When the servicer changes, it’s more likely than not that the new servicer will not carry through with awarding the incentive, which can mean the loss of thousands to tens of thousands of dollars that could help struggling homeowners, Ruhl said.
“The $15,000 to $20,000 pushes them over the fence” of doing a short sale, said Ruhl, who added that some potential short sellers still hold out hope for a loan modification. “They’re a month into it and then they find out it’s being service released ... They don’t get it (cash incentive.)”
How can a borrower protect themselves from a service release jeopardizing their short sale?
Ask lenders if there are plans for a service release. They’re required to tell you, Ruhl said. Also, this way, you’ll know how much time you may have to close the deal.
Bank of America, which appears to be doing more service releases than other lenders, has heard similar complaints from real estate agents from other parts of the country, so much that they issued an FAQ on this issue to those who deal with short sales earlier this month.
“The fact is, there are many potential obstacles to the completion of a short sale throughout the complex process,” said Simon, of Bank of America. “The release of servicing is just one and several others occur more commonly.”
REALTORS, what is in your business plan this year? What are you doing to create a system that will allow you to build your short sale business? How often are you out there prospecting and how do you know if you are taking the listings that are going to be successful and not a waste of your time?
Call us today and let us show you a system that works to help you expand your business and effectively and efficiently close short sale transactions.
LOTUS REALTY GROUP
PROFESSIONAL SHORT SALE NEGOTIATORS
At Lotus Realty GROUP, helping people ethically succeed is at the forefront of who we are...
Call today to find out how Lotus Realty Group can assist you in closing your short sale transactions: 858-764-7300
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