This past spring, the Treasury Department put into effect the Home Affordable Foreclosure Alternatives Program (HAFA), which provides incentives in connection with short sales or deeds-in-lieu of foreclosure in an attempt to provide a viable option for homeowners who were unable to keep their homes through the existing Home Affordable Modification Program (HAMP).
For the past two years, short sales have been on the collective minds of everyone from the government to individual brokers hoping to find a way to keep people in their residences, but the process has been difficult and lengthy. So, I’ve been keeping an eye out for servicers who have instituted programs to help make the process go smoothly, or at least can be of aid to lenders or brokers who want to go in this direction.
Recently, I’ve come across two much different types of real estate, back-office, service companies that have inserted themselves into the short-sale process: ClearMarkets LLC, a technology firm; and National Creditors Connection Inc., which offers loss mitigation services.
Basically, the short sale happens when the proceeds from the sale of a property are less than the balance owed on the loan (secured by the property being sold). The key in all of this is the lender accepting a price that is less than the amount owed on the property — and the lender would do that to avoid a foreclosure situation.
The key players in all this are obviously the lender and the homeowner, and I’ll start with NCCI of Lake Forest, Calif., first, because the company performs the most basic of services: the on-the-ground contact with homeowners who potentially can benefit from a short sale.
NCCI boasts it has successfully conducted more than 2 million field contacts for more than 600 financial institutions throughout the U.S., and the company recently unveiled a "short sales" desk.
The idea behind the new program is to help assess, on behalf of its servicer clients, whether delinquent borrowers are good candidates for HAFA programs, and it will do this by having its employees personally collect all the necessary documents from borrowers and work with Realtors in an "arm’s length transaction."
In short, the company will do the initial door-knock, document retrieval, signature gathering and the extracting of financial information.
"After we hear from our client, we go to the home, knock on the door and tell the homeowners they have not qualified for HAMP or not made payments on time, but based on the data available, they could qualify for HAFA, which would be a short sale or deed-in-lieu," explained Bart Brainard, director of strategic default management for NCCI.
"We will deliver the paperwork, mentioning to the homeowners that they have a specified time frame to respond back with yes or no."
If the answer is positive, NCCI will move to the BPO (broker price opinion) process, determine the price of the home, engage a Realtor, assess any junior liens, negotiate with the junior lien holders and help get the home through the sale process.
"It’s a natural fit for our clients right now," said Brainard. "We do a lot of loss mitigation on their behalf. To get right to HAFA is a natural. For people we were dealing with on loss mitigation, we have already collected the documentation — and if they don’t qualify for HAMP, we can go right back and re-solicit them for the HAFA short-sale initiative."
ClearMarkets LLC in New York is going more in an anti-HAFA direction. It has teamed up with LenderLive Network Inc., a provider of business process outservicing, and Keller Williams Global Property Solutions LLC to provide an end-to-end solution to address all components of the short-sale process.
LenderLive unveiled in June its LenderLive Default Solutions for short sales using ClearMarkets technology for bid management and asset sales, marketing and reporting, while Keller Williams will provide agent training, education and certification.
"We approach short sales from a non-HAFA perspective," said Robert D’Loren, ClearMarkets co-chairman. "We contact the borrower with a letter. Then the borrower is sent an opt-in package, including listing agreement with the local broker, an escrow agreement and contract of sale that has a purchase price in it. The borrower signs that contract and it sits in escrow and is only released if there is an offer above the reserve price."
In the ClearMarkets approach, all parties including the bank have signed off on the price. With a clear eye to transparency, everyone knows when an offer has come in and at what price.
ClearMarkets’ non-HAFA short-sale process goes from start to finish in 45 days, as opposed to a HAFA program that could easily run 120 days.
"All parties are locked in. We have already run a preliminary title, we know what clouds, if any, there are in the title, and we’ve run a BPO," said D’Loren.
"The problem with a lot of short sales and the reason they take so long is that no one has agreed on the price and the banks are reluctant to give a price because there is no transparency in the offer process."
The way most short sales work is that a broker identifies a house that is underwater in terms of debt. The broker first makes a deal with the seller and then tries to make a deal with the bank. Generally, there is not a lot of upfront buy-in from the lender, which makes the process iffy at best.
"That’s exactly what we don’t want to do," D’Loren stressed. "It takes too long and too many of them fall out. We would rather get into a program with a bank, Fannie Mae or Freddie Mac, agree on what a price should be, and then go hire a broker and get to the borrower to make a deal."
ClearMarkets expects to be very active in a few short weeks. As for NCCI, which had done just a limited amount of short-sale work in the past, its pipeline is growing.
The short-sale market could finally get as active as everyone has wished and predicted it would be.