Tuesday, April 21, 2009

Bank of America adjust short sale policy

One of the biggest issues facing short sales is the complex interplay between multiple loans, mortgage insurance, servicers interest, pooling service agreements, structured finance products and CDS. As one of the largest servicers (thanks to the Countrywide acquisition) a change in Bank of America's policies regarding short sales can have a wide ranging effect on the market.

But yesterday Bank of America made it easier for a short sale to be completed, from the article:
Until a month ago, B of A and its Countrywide Financial Corp. had required that 10% of a home's sale price go toward paying off home equity lines of credit before they could agree to a short sale. But Terry Francisco, a spokesman for the Charlotte company, said Monday that it changed its policy last month, agreeing to accept 5% of the sale price when there is no equity available to holders of the first or second liens.

The new policy "is based on the assumption that it is in the best interest of all parties involved to accept a short sale, as opposed to proceeding to a foreclosure," Francisco said. "We believed that the previous policies set an arbitrary amount that did not take into account the savings derived from proceeding with a short sale."

B of A expects the change to increase the number of short sales, he said, and even though it is releasing the liens, it reserves the right to pursue deficiency judgments against borrowers.

With foreclosure moratoriums being lifted in the past month, bankers are looking for ways to deal with an anticipated flood of distressed properties and are trying to determine which borrowers will get loan modifications and which will go into foreclosure.

The whole article is excellent regarding the issues facing short sellers and why they aren't closing. I thought the banks would get on the short sale bandwagon a bit sooner because the banking system will net more and the crisis will be over sooner by short circuiting the foreclosure process.


shoppingaround said...

Let me see If I got this right. The bank is going to be more assertive in pursuing short sales--good for the market. But they are going to --perhaps-- hold the lienholder accountable for the short fall--even if they agree to release the liens.

So, let's pretend I'm a homeowner--why would I even ATTEMPT a short sale? I get kicked out of my house earlier. And I get no foreclosure protection (or do I not really have any anyway and still the bank can go after me--unless I file for bankrupcy?)

shoppingaround said...

Duh, just finished your CR post--the bank has the right to pursue either way. Sorry!

So I guess for the homeowner, one needs to look at the tradeoff between living "rent free" till the foreclosure happens and how much MORE you might possibly owe the bank down the road (post foreclosure) than you might by getting what you can for your property now.

I am so glad I am not an underwater homeowner....

Effective Demand said...

Good points shoppingaround about the calculus of the situation the homeowner needs to do. There are a lot of variables and every situation is different.

The homeowner is at the point of maximum leverage when a good offer is on the table but the lenders have recourse against them. They should use the leverage to reduce the amount owed on the recourse loans. Possibly they will accept a payment plan for less than the full amount.

They might not get it but they have a chance. If the homeowner have assets its a course they should try. In California the statute of limitations is something like 20 years for those type of loans.

Rob Dawg said...

Short sales are pit stops on the way to foreclosure. Why buy all the problems of a ss when in a few months you can get a clean REO transaction?

Anonymous said...

Why buy all the problems of a ss when in a few months you can get a clean REO transaction?Because there aren't any foreclosures in the nicer areas. You can find all you want in Oxnard and Panorama City, but try finding them in Encino, Sherman Oaks, Thousand Oaks or Westlake.

Anything listed under $600,000 in the Westlake/Thousand Oaks area sells in under a week - unless it is thrashed.

Too much equity in the decent areas so hardly any foreclosures and there is extremely low inventory (a few dozen available in zip codes that have 20,000 to 30,000 SFR's) for anything decent under $600,000 - $700,000 which is keeping demand high.

Short sales are your only hope for the foreseeable future for any area someone would want to live.

djviking said...

Bit off topic but this young woman on CNBC has a bunch of short, sweet and in my humble opinion very relevant topics/posts to what we have been discussing here.http://www.cnbc.com/id/15837671/

Anonymous said...

5/04/09 I just spent 90 days attempting to purchase a BoA short sale in IL/one mortgage. I wrote an offer of 112000.00 on a property that was built and sold for 184000.00 in 2007. There are at least 4 other similar properties on the same two blocks listed in the same price range, either short sales or bank-owned. I was through underwriting and approved by my lender before I bid. I increased my offer to 113000.00 on BoAs request and offered to pay 3000.00+ in back association fees in cash. All was good, all approved verbally and one written approval came in. PMI requested the seller sign an unsecured note for an amount of the shortfall. Seller agreed verbally to the note. Note papers came in to be signed, PMI increased the amount of their portion of the note on the paperwork without notice and BoA added in their request for shortfall payback also. Negotiations were difficult with a language barrier, from what I was told. Negotiations broke down, as of course this seller would be up to date with mortgage payments if there was any money to do that. The seller has nothing, or this property would not be in pre-foreclosure. I gave BoA 24 hours to accept my offer and figure out what they needed to do after one last 2 week extension on the contract expired. Needless to say, the seller also canceled the contract on the same day, property is off the market. Now BoA will have to wait until a future foreclosure date, as of today the property is not listed on the auction list through July 09. Nice.

I did not submit an unreasonable bid with what is selling in the neighborhood. BoA is asking bankrupt people for funds they don't have. BoA disrespects our tax funding. BoA disrespects my solid offer, I am the one with the money, I am the one with the approved loan and I am the one that was willing to buy a property that could very easily continue to fall in price.

BoA will get much less at auction. The seller will continue to live in the property as long as possible without making payments. Late association fees will continue to increase. BoA will have to cover those association fees at foreclosure, I would have paid them. BoA disrespects my offer and my ability to buy a property at this time. BoA expects notes to be signed by sellers for shortfalls that are covered by PMI, and by sellers that don't have the ability to pay back a note such as this at this time.

Why would the seller sign? Obviously their credit rating is already ruined.

Nice, BoA, nice.

I have bid on another property, there are non BoA properties selling in the area, many, many short sales on the books. I bid on a bank-owned property, as I should have the first time.