Today I attended a seminar hosted by Bank of America, one of the largest bank in California. The purpose of the seminar is to educate Realtors on how to submit their listing for short saleapproval. There were about 800 Realtors from the South Bay congregated at the Computer History Museum in Mountain View. Many of us know that there are increasing numbers of short sales on the market and most banks are having difficulties to handle the volume of short sales that they have. So I applaud the effort from the BOA to trying to make the process more efficient and less time consuming.
There were several points that I took away from this meeting:
First, it is going to get tougher, not easier, to get a short sale approved. Most of the loans have already been sold to investors in the secondary market. As the economy improves, more and more investors are a lot less lenient in their approval for short sales. For example, if there is a job loss in the family, the investors would want to see if there are other assets that can satisfy the debt. The loss of income in of itself cannot qualify the borrower for a short sale. For the borrower, loss of income and decrease in market value of their home may make short sale seem like an attractive option. However, if the borrower find out that they are still on the hook for any deficiency amounts (that is, the loss that bank suffers), the short sale may not be so attractive anymore.
Second, there seems to be more short sales coming. The BOA representative told us that there are almost 6 million loans that are either 60 days or more behind on their payments. Of all these loans, many could be resolved by either a loan modification or some other means, such as deed-in-lieu of foreclosure or bankruptcy. But there are still about 25 % of the home owner will seek short sales as a way to settle their mortgage problem. And by his admission, the BOA rep told us that the BOA represents almost a third of the short sales in the market. This is a huge problem for BOA. The bank has increase its short sales negotiation team to over 1600 negotiators. It also adopts a transaction platform to increase communication and efficiency in managing all the short sales. But during the question and answers session, one can tell from many of the answers that even with increase staffs and new transaction platform, a short sale remain a complicated and confusing process that requires patience, experience, and diligent exercise of due cares to complete. Many agents are telling the speaker that it had taken them sometime 9 to 12 months to sell a short sale property. BOA rep assured us the bank is doing its best to handle the problem. But it doesn’t seem to get any easier.
Third, a stunning revelation that most short sales fails. The BOA rep told us that last year only 30% of the short sales request was successfully completed. This year the number has improved. About 50% of the short sales succeed. There were many reasons for the failure: fake offers, buyer walk away after the short sale were approved, and most often, the buyer’s offer were too low to the investor. If one consider this from the investors point of view it would make a lot of sense, since the investor’s objective is to minimize their loss. They have little, if any, incentive to approve a short sale. But consider this from agent and even BOA negotiator’s standpoint; it is such a colossal waste of time and resource. Each short sale file would require 4 to 6 weeks to compile and be ready for review. Then the sale fails for one reason or another. The process will have to be repeated again from the beginning. And from the seller’s standpoint, they had already lost their credit rating due to late payment. Once the short sale is denied, they would suffer further by having their property foreclosed by the bank. For the home owners, this is like double jeopardy.
Upon reflection, this would probably be the most troubling issue that I had to deal with: Who is really helping the distressed home owners? There are six million families that are behind on their mortgage payment. They may have lost their job or having difficulties finding a job. They are worried that the bank will take their home in foreclosure. They had lost the equity in their home, which for many Americans represents their life saving and retirement funds. Although the Government, through its TARP program, billed out the Wall Street and many of the large banks, including BOA, but no one, not the government, not the Wall Street, or the banks seem to be able to do anything to help middle class Americans to keep their homes. I, as a realtor, can only do so much but I can’t change the system or the monetary policy to fix this problem. Perhaps this is the one question missing from the Q& A that I really would like to get answers from the Bank.