Banks Finally Making Progress with Short Sales

by Rodney Forbes on December 8, 2009

If 2009 will be known as the year of the bank merger, 2010 may well be known as the year of the short sale. Now that banks are emerging from the rubble of the real estate and banking meltdown, they’re finally starting to get serious about getting rid of their foreclosures and approving short sales.

‘Pick a Pay Loans’

Wells Fargo is focusing on delinquent borrowers in Florida and California homeowners with “Pick-a-Pay” loans originated by Wachovia Corp., Blume said. Wells Fargo acquired Wachovia in December 2008 and owns the “Pick-a-Pay” loans outright, said J.K. Huey, the bank’s senior vice president overseeing short sales and bank-owned properties. That allows the company to approve a short sale without consulting investors or parties that can hold up transactions.

“Pick-a-Pay” mortgages have among the highest rates of negative equity, because borrowers could select their monthly payments, often paying less than the interest, with the difference added to the principal. That formula means that total loan debt was increasing at a time property values were falling.

Wells Fargo held $87.8 billion of such loans as of Sept. 30, down $7.5 billion from the end of last year. Wells Fargo Chief Financial Officer Howard Atkins said on an Oct. 21 earnings call that the bank is reducing the number of loans with “negative amortization potential.” As of the end of the third quarter, 26 percent of the loans in that portfolio now have minimum monthly payments that fully cover the interest due so that the total principal does not grow, up from 16 percent at the end of last year.

As of Sept. 30, Wells Fargo had modified 43,500, or 22 percent, of the distressed loans to reduce borrowers’ payments, Atkins said.

Reaching Out

JPMorgan doubled the number of staff trained to handle short sales after adding 5,000 people since Jan. 1 to deal with distressed mortgages, said Thomas Kelly, a spokesman for the New York-based bank’s home lending division.

Chase services 10.3 million mortgages worth $1.4 trillion, according to Kelly. Of its portfolio, Chase reported 422,000 loans more than 60 days delinquent, about one third of which were in loan modification programs, according to a Nov. 10 Treasury Department report on the Obama administration’s Making Home Affordable Program.

“We’re reaching out to people who are struggling with the Obama loan modifications or our own,” Kelly said. “Approaching customers is a very recent phenomenon.”

Bank of America, the nation’s largest loan servicer, had one of the lowest loan modification rates, with 14 percent of problem loans in trial workout plans as of Oct. 31, according to the Obama Administration.

The Charlotte, North Carolina-based bank started a “cooperative short sales” program in October and may close its first short sale through the program this month, said Dave Sunlin, senior vice president for foreclosure and real estate management.

Pay-Option Mortgages

Many are borrowers with pay-option adjustable-rate mortgages issued by Countrywide Financial Corp., Sunlin said. BofA bought Countrywide, once the nation’s largest mortgage originator, for $4 billion in stock in 2008.

Short sales benefit a neighborhood because they clear out stagnant properties that may have an adverse effect on values, said Sean Shallis, a senior real estate strategist with Weichert Realtors in Hoboken, New Jersey. Shallis has one home with bank approval for a short sale and three others waiting approval on the same street in Jersey City with views of the Manhattan skyline.

“In every case we had multiple offers from people who had plenty of money to put down,” Shallis said. “Americans are out there still buying homes and trying to move it along.”

Cutting Losses

Short sales also help the bank, because foreclosed properties lose more value when they are vacant or a homeowner vandalizes a house on the way out, Sunlin said.

“We typically expect a 10 to 15 percent decrease of loss severity with a short sale,” Sunlin said.

Thanks to: Tim Harris

If you are interested in buying or selling a home in the Palm Beach County area, specifically Palm Beach Gardens, Jupiter and West Palm Beach, please visit my Forbes Realty website. For frequently updated information on foreclosures, short sales, real estate news and market conditions visit my South Florida Real Estate Report blog. There are many free reports as well as free access to MLS listed properties. You can also call 561-337-4810.

Rodney Forbes is a licensed Realtor®, certified short sale/REO specialist and broker for Forbes Realty of South Florida Inc. Rodney has co-authored the book “Should I Short Sale My Home?”. Get your FREE copy at www.SouthFloridaRealEstateReport.com

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