NEW YORK (Reuters)

“Short sales,” or sales of homes for less than the balance on existing mortgages, are seen as a key way to supplement other efforts such as loan modifications to steady housing. 

 Unlike most modifications, “short sales” eliminate the problem of negative equity that has become a big reason for defaults as home prices have plunged.

The incentives, first announced in May, would expand the government’s Home Affordable Modification Program that has seen limited success in lowering payments for hundreds of thousands of homeowners deemed eligible.

Just 12 percent of homeowners eligible have had their loans reworked, leaving millions more foreclosures to come, the Treasury said on September 9.

More short sales may alleviate fears that a raft of “shadow supply,” or foreclosures in the pipeline, will flood the market and deal a blow to the nascent rebound in housing seen over the U.S. summer months, analysts said.

The overhang of supply is currently about 7 million units, or 135 percent of a year’s of existing home sales, according to Amherst Securities Group.

“What they are trying to do is move some of these foreclosures in the pipeline, and bring them to a resolution before (foreclosure) happens,” said Lisa Marquis Jackson, a vice-president at Irvine, California-based John Burns Real Estate Consulting. “12 percent of these being modified isn’t enough to clean these up.”

Realtors express frustrations with banks when trying to negotiate a short sale, which can take four to five months to complete, according to John Burns consultants.

Buyers often walk away from sales because banks are slow to respond, or balk at the offer.

The Treasury will use up to $10 billion from a previously announced $50 billion pool of mortgage modification funds for payments to address lender concerns that home prices will continue falling in high-cost areas.

Incentives will be calculated on recent declines of local home prices and average home prices in these markets, the Treasury said in May. They would add to other incentives that servicers can receive for reducing loan payments.

In May, the Treasury proposed lenders would receive a $1,000 payment for allowing the owner to sell the house for less than the amount owed on the mortgage, and accepting the proceeds as full repayment.

They can also receive $1,000 for accepting a similar deed-in-lieu transaction, in which the deed is simply transferred to the lender instead of going through a costly foreclosure.

Borrowers who agree to short sales or deed-in-lieu deals can received up to $1,500 in closing costs.

Treasury also said it will pay second lien holders up to $1,000 to relinquish their claims in such transactions.

“Presumably, the Treasury is trying to help facilitate a transaction that will result in less loss to the lender than in the case of a foreclosure,” John Burns consultants said in a research note dated Oct 1 alerting clients of an impending Treasury announcement.

By Austin Kilgore

Jacksonville, Fla.-based National Infusion Technology’s (NIT) executive vice president Jim Satterwhite is a 20-plus year veteran of the default servicing world. During his tenure at JP Morgan Chase, one of his key responsibilities was running the lender’s outreach services division.

Now Satterwhite’s on the tech side of the default servicing industry, overseeing operations for National Quick Sale, NIT’s Web-based short sale software. But that hasn’t stopped his philanthropic work.

He was the chair of the HOPE Now Alliance subcommittee on short sales, working in Washington DC to facilitate short sales when other loss mitigations efforts are unsuccessful. Three months ago, the firm launched the Home Equity Lease Program (HELP), a non-profit initiative that’s keeping distressed borrowers in their homes. Working with its servicer clients and a network of real estate investors, NIT contacts eligible distressed borrowers and in exchange for short selling their home to an investor, the investor then leases the property back to the former borrower. The investor makes a commitment to not sell the property for a certain period of time. In some cases, if a borrower’s financial situation improves, the investor will sell the property back.

In an exclusive sit-down with HousingWire during the Five Star Default Servicing Conference, Satterwhite said the program’s benefits are two-fold. For borrowers, it minimizes the disruption to families, avoids a foreclosure on their credit records and keeps a roof over their heads. Investors know they have a tenant with a greater stake in the home’s well-being and the program eliminates the time it takes to find a tenant when they purchase a property. Mortgage servicers look at delinquency cases as fitting in one of two categories, retention, which are resolved with loan modifications or payment plans, and non-retention — exit strategies like short sales and deeds-in-lieu of foreclosure. But the HELP initiative makes the non-retention strategy (short sale) a retention strategy by keeping people in their homes.

NIT’s National Quick Sale software helps real estate agents process short sales faster by streamlining the application process. The Web-based software has lender requirements in place and through automated quality control systems, lets agents know when a required document is missing via e-mail, phone call and text message.

Satterwhite said the biggest inaccurate or missing document in short sale applications in pay stubs. They’re usually not the most current or not included at all. National Quick Sale’s quality control mechanisms will red flag the application before it goes to the servicer to keep the application from being denied.

BOCA RATON, Fla., Sept. 21 /PRNewswire/ — Foreclosure.com Founder, President and CEO, Brad Geisen, announced today that he has built the first-ever short sales offer management system that handles marketing, processing, negotiating and closing services all in one central location.

 QuickSale(SM) (www.QuickSale.com) is an easy-to-use platform that simplifies an often long and complicated process, bringing together all parties — distressed homeowners, lenders, investors, buyers and agents — who all share one common interest: Moving real estate inventory as fast as possible under the best terms.

 ”Short sales are the ultimate solution when it comes to solving the national foreclosure crisis now and in the future,” said Geisen.

 In short sales situations, banks or mortgage lenders agree to discount home loan balances prior to selling because of economic (local home values have plummeted) or financial (unemployment) hardship on the part of homeowners.

 Geisen states that QuickSale.com helps cash-strapped homeowners avoid foreclosure and minimize the negative impact on their personal credit, allowing them to pursue alternative housing options worry-free when the time is right.

 On the lender side, banks ensure instant liquidity for the defaulted loans on their books, maximizing the amount (often 80 to 90 percent of market value) that they can get out of distressed properties in a much shorter timeframe (30 to 90 days).

 QuickSale.com closes the loop by bringing in agents and buyers located throughout the United States and beyond who purchase the distressed properties at negotiated prices before the banks repossess them. Agents who coordinate short sales from start to finish through the QuickSale(SM) system earn commissions.

 ”Banks lend money, they’re not in the business of marketing and selling real estate — certainly not on today’s current scale,” said Geisen. “And their loss mitigation departments are just too overwhelmed at this point. QuickSale.com is a structured tool that provides much-needed support and relief. It short circuits the entire foreclosure process to ensure the best possible outcome for all parties involved . . . quickly.”

 Distressed homeowners, lenders, investors, buyers and agents who are interested in learning more about participating in the QuickSale(SM)( )program are encouraged to visit www.QuickSale.com or call (866) 202-8200 to learn more and/or request a demonstration.

 About Brad Geisen and Foreclosure.com

More than 10 years ago, Brad Geisen founded Foreclosure.com and built it over time to a company with more than 1.8 million foreclosure, preforeclosure, bankruptcy, FSBO and tax lien listings in one place. Foreclosure.com delivers America’s largest and most accurate searchable database of foreclosed homes and distressed property information to its customers and business partners. Based in Boca Raton, Florida, Brad Geisen and Foreclosure.com work with hundreds of top lending institutions and government agencies to list diverse property types on its Web site, including Real Estate Owned (REO); Department of Housing and Urban Development (HUD); Department of Veterans Affairs (VA); Fannie Mae; and other government agency and financial institution properties; as well as listings from an extensive network of corporate sellers.

 www.QuickSale.com

As we all know, there is currently a 90 day moratorium on foreclosures here in California. Also worth noting, the Attorney General’s office has demanded all  foreclosure rescue and loan modification consultant firms register with the AG by July 1st and post a $100,000 bond. Keep in mind, attorneys are exempt from this action. So why is it that an attorney who did personal injury cases 3 months ago is suddenly more qualified for the task than a legitimate loss mitigation company? Is this the kind of person you want working on your file? What exactly does this measure accomplish? At this time, it is estimated that there will be roughly $500 Billion in mortgage resets in the Alt A, Prime and Option ARM arenas between the last quarter of 2009 through 2012. About 58% of those mortgages are here in California. You can read more about that here. There are a growing number of short sales, and yes, it is spreading to the Westside of Los Angeles. The question many people have is : can we qualify for a loan modification.? We have all heard the TV and radio spots for these companies- What most of these loan mod “consultants”, and even the attorneys will not tell you is that many people will not qualify. For instance, even if the lender is satisfied the homeowner has documented hardship and verified income, whomever is holding the note will ultimately take the action which is in their best interest, which in many cases is to let the property go into foreclosure. Furthermore, more than 50% of loan mods currently are re-defaulting, which just adds more to what is already a hot mess. The truth is, unless the homeowners qualify for a government backed loan mod program, in most cases the best case scenario is that the modification will be good for about 5 years. You can see for yourself who can qualify for Obama’s loan modification program here . Currently, most non-realtor opinions have home values on the westside declining for at least another year. This means even more homeowners will be eventually be underwater, along with more loan mod re-defaults, which inevitably increases housing inventory, which puts downward pressure on prices. In the present climate, with the aforementioned massive defaults looming, for a homeowner who owes more than what the property is worth, it makes more sense in this case to do a short sale and cut your losses. Why? because if you don’t you are potentially chasing bad money with more bad money, or in other words, investing in a non-performing asset, like buying stock in a declining market with no real basis for upside potential. I realize there are no easy solutions here to avoiding foreclosure, but for the homeowner who owes more than what the property is worth, a short sale is a much better alternative than waiting for a bailout, which in many cases is like Waiting For Godot.