The National Association of Realtors is holding a series of meetings with major lenders over the difficulties would-be homebuyers have in obtaining loans, as well as what the trade group characterized as lenders’ problematic policies on short sales and "real estate owned" (also known as bank-owned or REO) properties.
Too often, the Realtors’ trade group complained in a report on its initial two meetings with Bank of America and Wells Fargo, decisions by lenders and loan servicers are made in a "black box" and appear to be inconsistent and sometimes irrational.
"If the lenders and (Fannie Mae and Freddie Mac) disclosed more detail about their policies for underwriting loans, valuing property, selecting brokers for REO listings, and evaluating and approving a short sale, Realtors would be able to close more deals — to the benefit of everyone involved," the report said.
FHA and the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac "have become over-focused on safety at the expense of their mission," and should return to "a reasonable center" in determining credit policies, NAR said.
Credit for condo purchases is a "special problem," the group said, as extra fees and a policy restrictions have "doomed whole buildings in many areas to long-term vacancy."
Inaccurate appraisals on all types of residential properties continue to be a concern, especially in markets that have bottomed or started to recover, and also in areas with large numbers of distressed sales, NAR said.
In the short-sale arena, the Obama administration’s Home Affordable Foreclosure Alternatives Program (HAFA) has yet to have an impact, NAR said, because lenders’ front-line loan-servicing staff know little about the program.
Realtors are also concerned about last-minute attempts to reduce their commissions on short sales, an issue HAFA attempts to address by setting commissions up front.
On non-HAFA short sales, NAR "urges lenders to make commissions policies more transparent and to treat real estate professionals fairly by agreeing not to reduce commissions at or shortly before closing."
The report also raises concerns that lenders haven’t spread their REO listings among enough brokers, leaving some brokers with "so many REO listings that they are unable to market and show the property, assess all offers, and give the best offer to the bank."
NAR said it met with the leaders of Bank of America Home Loans on July 7, and with Wells Fargo Home Mortgage on Aug. 26. A meeting with Chase Home Mortgage is planned for Oct. 26, and with CitiMortgage on a date to be determined.
"Both banks sought to assure NAR that they understand the problems our members are facing and are working hard to address them," NAR said.
When it comes to underwriting standards, lenders say that for the most part they must follow the lead of FHA, Fannie Mae, and Freddie Mac.
Wells Fargo officials outlined lending principles adopted at the beginning of the downturn that have resulted in essentially no growth in residential mortgage lending in the last three years, the report said. Those policies also laid the groundwork for future growth, the report said.
"NAR is not yet seeing improvement, and communicated that reality to the banks," NAR said in its report. "We have resolved to work more closely together on solutions."
Lenders are "well aware" of issues with appraisals, and "report they are working to address these problems," NAR said. Bank of America officials briefed NAR on a new geographic proximity policy the bank believes will help alleviate the issue of appraisers working in markets they are unfamiliar with, the report said.
Wells Fargo has published a short-sale guide for Realtors, which NAR has posted on Realtor.org for access by its members.
Bank of America offers a website that provides educational materials on short sales for real estate professionals.
Wells Fargo told NAR that about 90 percent of HAFA applicants are unable to complete a short sale because the property, the loan, or the borrower does not qualify. The most common reason a short sale does not qualify for HAFA is that the property is vacant, and that with limited exceptions for job transfers, HAFA requires owner occupancy.
NAR said lenders acknowledge that a key provision of the HAFA program — identifying the required minimum net proceeds up front — can improve their own proprietary programs.
Lenders all have their own short-sale programs, NAR noted, and Bank of America is undertaking a pilot program that includes identifying the required net proceeds up-front to facilitate both marketing the property and approval of the short sale. Under the program, Bank of America reduced the average time for processing a short sale to under 60 days, NAR said.
NAR acknowledged that lenders waste time processing short-sale offers from "straw buyers" that are not genuine offers. The fake offers are made to determine what price the bank will approve the sale at when a real offer is submitted, NAR said.
"While this behavior is understandable in light of the extreme frustration with the delays getting a decision whether to approve a sales contract, it is inappropriate. NAR urges its members not to participate in this technique," the report said.
Although NAR started meeting with lenders before the "robo signing" scandal over foreclosure procedures broke, it said the controversy only drives home the point that lenders are often better off approving short sales or entering into loan modifications with borrowers than foreclosing.
"NAR has long urged the lending industry to take every feasible action to keep families in their homes with a loan modification and, if that is not possible, to give them a ‘graceful exit’ through a short sale," the group said in a letter to federal regulators.
"These options are far better than a foreclosure, and nothing has driven this point home more clearly than the questions being raised about foreclosures. Lenders should place additional resources into processing loan modifications and short sales."
In the letter — to the Treasury Department, the Department of Housing and Urban Development, and the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac — NAR said banks need to move quickly to assure that the rights of borrowers are protected, and to remove doubt that buyers will receive clear title to their purchase.
Banks implicated in the robo-signing scandal should be allowed to finish their reviews of their internal procedures and resume foreclosures quickly in order "to return stability to families, the housing market and the economy," NAR said.
NAR said it’s receiving reports from Realtors that foreclosure moratoriums put into effect by some lenders are already creating some anxiety among purchasers as transactions are being delayed, and that some foreclosure listings are being removed from the market.