Short sales are a great idea whose time is here, but can the industry handle them? This is the question on the minds of real estate, lending and servicing professionals, as well as many in the Obama administration. The short sale is a strategy with the capability of having broad impact on the nation’s housing and credit crisis, but it is burdened with administrative issues that threaten its potential to be of real help. As the industry wrestles with finding ways to make short sales work in a big way, one fact is rapidly becoming clear: it is a strategy that needs technology to achieve success on a large scale.
On November 30th, a new program was announced by the Obama Administration to help control the rise of foreclosures by standardizing a process providing options for defaulting borrowers. Called the Home Affordable Foreclosure Alternatives program (HAFA), the program is aimed at those who don’t qualify for HAMP modifications or who have fallen out of the mod process along the line. It provides new financial incentives and sets a time limit for completing short sales and deed-in-lieu transactions, with the intention of simplifying the entire process for all involved. I was pleased to be involved in the development phase with the Treasury Department in my role as chairman of HOPE NOW’s MHA Short Sale Committee.
Under HAFA, servicers must offer short sale and deed-in-lieu alternatives before initiating foreclosure, and have 10 days to approve or deny short sale requests. If the request is approved, the former mortgagor must be released fully from the debt, and in a move designed to keep Realtors interested, servicers are no longer permitted to reduce their commission rates on short sale transactions. Servicers are, however, allowed to engage a short sale outsource provider who can participate in the Realtor’s commission, which adds flexibility. The financial incentives include a $1,000 payment to servicers for their efforts, as well as clear economic contributions for subordinate lien holders. In addition, borrowers may receive a relocation expense reimbursement of up to $1,500 if the property is left in good condition. Full details can be viewed here.
It is a great step in the right direction. Once again, however, the problem that has plagued short sale efforts all along — the manual process — is an inhibiting factor. Servicers are still bogged down with huge volumes of cases needing attention, and lacking the helping hand of technology, even the most HAFA-supportive servicer is facing an uphill battle. With traditional paper processes, servicers are left to deal with phone calls, voicemails, e-mails and faxes pouring into banks of fax machines as short sale documents enter the shop. Pages are lost or misplaced, and stacks of papers pile up in in-baskets on manager’s desks around the country. Without technology, workflow is stymied and response time is impacted — while borrowers and their transactions hang in the balance.
With technology, a great many things change. The fax machines no longer overflow with traffic, cases are kept separate and distinct, short sale offers are managed and centralized, and Realtors and borrowers are not inundating the servicer with status requests. Short sale technology platforms provide Web-based solutions that bring workflow and required documents together in a single location for all stakeholders in the transaction. Buyers, Realtors, sellers, lenders, servicers, investors, mortgage insurers and others involved in the short sale have a secure website that shows the real time status of each short sale, the documents still needed and their individual deliverables spelled out. Documents are uploaded, e-mailed or faxed into the electronic case files for viewing and approvals as needed, completely replacing the vertically besieged in-basket with a dashboard that is immediately workable. Work queues are activated, closed and monitored to execute deals quickly – typically in a week or two, as opposed to the six to ten weeks short sales currently take for answers. Under the current paradigm, buyers are generally long gone and properties are in foreclosure well before the answer comes back from the loan’s owner. With the technology, answers can be virtually automatic by pre-loading investor requirements and parameters into the offer management rules engines on the platform.
Time is the enemy, particularly with the new opportunities afforded by HAFA. Servicers have 10 days to respond when presented with a short sale offer, and when left to manual processes, ten days goes by very quickly. Short sale technology platforms condense timeframes in several ways. Information from servicers flows directly from their systems into the technology, eliminating re-keying delays. Decisions are accelerated by rules automation, and with investor parameters already set with the platform, approvals can happen with great speed. Third party requirements such as title and valuations are ordered and received automatically, and notifications are sent regarding next steps and due dates. In short, by eliminating the waiting times and centralizing the documents, nothing is delayed by a lack of organization and nothing is misplaced among towering stacks of waiting files.
Short sale technology is extremely cost effective. The platforms are available via the Web, and as such, represent little or no impact on the existing technology resources of the typical lending or servicing enterprise. It is another bookmark on the web browser, offering great accessibility for service providers and stakeholders alike. Software as a Service means no servers to maintain, no software packages to keep updated and no upfront costs to put the technology to work. Servicers can monitor all of their cases from a single dashboard, as can lenders, investors and MI companies.
As a concept, short sales are working. A year ago, they represented only about 12% of the sales activity in the national market, and today they are about 20%. With the arrival of the HAFA rules, we can expect to see a lot more short sale opportunities to arise for sellers and buyers, with significant financial benefits to those who help them succeed. Incentives to servicers and investors might well run over a billion dollars in 2010, with technology’s help.
Employing short sale technology is the simplest and best way to make sure that short sales succeed on the large scale – which is precisely the scale required to have the positive effect on the national recovery that the government is looking for. Thousands have already been helped, and millions more await.
Jim Satterwhite is executive vice president and chief operating officer of Infusion Technologies, the parent company of National Quick Sale, a short sale technology platform provider and component servicer. He has over 20 years in the mortgage servicing and default industry, holding senior executive positions with several top-tier servicing operations, the Resolution Trust Corp, and JP Morgan Chase. He continues to serve on multiple industry advisory committees, as well as regular involvement with the MBA, HOPE NOW and industry-related governmental policy.
