C.A.R.’s Open Letter on Short Sales – No Surprises and No Solutions

Today the California Association of Realtors (C.A.R) published a full page open letter advertisement in seven of the state’s most widely circulated newspapers to address the short sale crisis faced by homeowners throughout the nation and in the state.  The letter can be found on the C.A.R. site, although it’s not  the exact version as it appeared in the LA Times, it’s essentially the same message.

No Surprises Here

When I wrote about the upcoming letter yesterday I wondered about the purpose of this outreach given the fact that the difficulties processing short sales are already widely known to those called out in the letter including, ‘regulators, elected officials, nonprofits, business organizations, companies…’ and any individual who has been a party to a short sale transaction since 2006.

Much of the letter paints the well known picture of the crisis, and none of this is new information.

What’s the problem?  For one, no two mortgage agreements are the same, so it can be difficult to standardize short sale processes and procedures.  Many homeowners have second mortgages, which further complicate matters.  Then there’s the challenge of convincing multiple parties to take a financial loss or, in the case of loan servicers, to forego fees they otherwise might earn during the course of the foreclosure process.  Poor and slow service by many banks and servicers has only exacerbated the problem.  Horror stories abound from potential homebuyers and REALTORS® forced to wait 90 or more days for a response to a purchase offer or being required to fax short sale applications or other paperwork as many as 50 times.   These delays discourage potential homebuyers from considering a short sale purchase and undermine the process for those who short sales are intended to benefit – the hundreds of thousands of families facing foreclosure.

We Know the Problems, What’s the Solution?

Yesterday, without knowing what the letter contained, I found it interesting that C.A.R. would need to resort to this course of action to effect change.  Clearly, earlier methods have not created significant impact on the problem since the early stages of this crisis in 2007, so what is the goal of this campaign?  And how are we justifying the use of member dollars?

Many of the loans in question are no longer owned by the original lender.  Many loans when through the securitization process and became a part of residential mortage-backed securities making it incredibly difficult to negotiate.  Servicers, with little vested interest, are left to deal with the processing of payments, collections, and act as the primary points of contact for short sale negotiations.  There is no question that it has become a nightmare for all parties.  So what is the solution?

Given the expenditure by C.A.R. for this campaign, I would have liked to see something significantly less ambiguous than the following that appeared in the closing paragraph of the LA Times:

Increasing the number of closed short sales by speeding up and streamlining the short sale process is one important way we can help California families avoid foreclosure and move our economy closer to recovery. That’s why the California Association of REALTORS® is taking steps to enable more families to arrange a short sale.  Recently, we advocated for improvements to short sale guidelines established under the federal Home Affordable Foreclosure Alternative (HAFA) program.  We’re meeting with major banks, U.S. Treasury officials, government-sponsored entities (including Fannie Mae and Freddie Mac), and others to urge them to standardize processes, comply with federal guidelines, improve communication with other stakeholders and increase staffing with the goal of eliminating service issues.  We’ve also offered our members training in every aspect of the short sale process so they can assist their clients.

So What Was The Real Purpose?

None of those suggestions are particularly new and after 4 years with little improvement, it might be time for some more aggressive suggestions if we are really intent on creating some significant impact.  Given that we didn’t see that here, I’m left wondering what the real intent was for the campaign.  Was it PR for C.A.R. to say, ‘hey, we’re doing all we can and it’s not working’?  Is it to call more attention to the crisis and put pressure on those that have influence?  But without some real concrete suggestions, I’m at a loss as to see how this sheds any new light on this long-standing problem that is certainly at the center of the national housing crisis.

 

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5 Responses to “C.A.R.’s Open Letter on Short Sales – No Surprises and No Solutions”

  1. On at Vicki Lloyd responded with... #

    I wondered about the same thing. Without making specific recommendations for improvement, I think this “ad campaign” was just a waste of our member dues!

  2. On at Linsey Planeta responded with... #

    We’ll see how this impacts things Vicki, if it does at all. There’s no denying the problems but this seems like a desperate attempt because recent efforts haven’t had much of an impact. Or maybe it’s simply an attempt from CAR to absolve themselves in the eyes of the consumer.

  3. On at Beth Peerce responded with... #

    Thank you for taking the time to write about our open letter on your blog. I’d like to address some of the points you make in your blog posting about our open letter ad.

    While the many issues that plague short sales cited in the letter may not be new information to REALTORS®, it is not commonly known to the general consumer who may be in a short sale situation. The home buyer or seller deserves to know why their transaction is being held up.

    We also want to keep the spotlight on the issue and put pressure on lenders and servicers to work with C.A.R. and NAR to improve the process. The open letter has caught the attention of some members of Congress who can also put pressure on lenders and servicers.

    As to your point of being too vague in offering solutions, we submitted specific recommendations in a letter to the U.S. Treasury, Federal Housing Finance Agency, Fannie Mae and Freddie Mac late December. Among the recommendations we made to regulators:

    • Requiring servicers to comply with HAFA guidelines – instead of the ten business days HAFA provides for servicers to respond to a Request for Approval of a Short Sale (RASS) or the 45 days to close a transaction, homeowners are still experiencing 60- or sometimes 90-day response times.

    • Increasing monetary incentives to servicers, investors, and subordinate lien holders – subordinate lien holders refuse to accept the HAFA-approved payoff amount of $6,000, not to exceed 6% of the unpaid principal balance, even when their loan is worthless because of the lack of security for the loan and the devaluation of the property.

    We believe that increasing the monetary incentive for both senior and subordinate liens should be increased and the percentage cap for subordinate liens be removed.

    • Asking regulators to enforce other HAFA rules – we’re constantly hearing from REALTORS® about HAFA violations, but it appears that no punitive action has been taken against a servicer or lender due to its disregard for HAFA guidelines.

    • Providing uniform guidelines for all HAFA programs – using three different sets of guidelines is counterproductive and does nothing to help the White House Administration’s goal for HAFA to standardize the short sale transaction.

    We’ve also been meeting with lenders asking them to work with us constructively to achieve a more streamlined short sale process. Among our requests:

    • A 30-day response time to an application for a short sale.
    • Notice of what constitutes an acceptable amount of return to the lender if a transaction is rejected because the sales price or net return to the lender is deemed insufficient.
    • Uniform application of the same HAFA rules or other universal rule to all similar transactions.

    So while on the surface, it may seem that C.A.R. was vague and ambiguous in our open letter. However, I can assure you that we are working behind the scenes diligently on your, our members’, and consumers behalf to ensure that horror stories like those noted in the letter don’t happen anymore.

    Sincerely,
    Beth

  4. On at Linsey Planeta responded with... #

    Beth,

    I greatly appreciate the fact that you took the time to comment on my post, as well as your willingness to elaborate on some of the specifics of C.A.R.’s plan to influence and improve the painful short sale process.

    I guess I’m left wondering about a couple of things. While I would love to see the guideline compliance when it comes to these HAFA timelines, as you know, these loans have often been securitized and sold as mortgage backed securities. I find it very unlikely that any amount of pressure can force compliance with these timelines given those complexities.

    Additionally, even if we were able to see improvement in compliance for those covered under HAFA, this still leaves a large number of homeowners out in the cold in improving the short sale process. Any subprime, reduced documentation, or Alt-A loan will fall outside these protections or guidelines. In Orange County, there are so many homeowners faced with little or no alternatives or protections. Without addressing these short sales owners, the long-term, continued downward pressure on the housing market will be unavoidable.

  5. On at Scott Schang responded with... #

    I am going to have to agree with you emphatically here Linsey. The challenge here is that this entire debacle was created by the people put in charge to unravel it – Watch “Inside Job” for more on that.

    Without getting all conspiracy theorist about this topic, the simple fact of the matter is that HAFA was nothing more than a mild scolding by a inattentive mother followed by a nicely asked request to play nice.

    There is no incentive for lenders/incentives to work with consumers other than to avoid public scrutiny and the accusation of destroying American families.

    Lenders/investors know that time heals all wounds….well, they’re waiting this one out.

    Much of the sub-prime, reduced doc, neg-am and Alt-A paper was bundled up and sold off for pennies on the dollar when the lenders collapsed.

    These investors are quietly sitting on the sidelines waiting for prices to increase, controlling the trickle of foreclosure inventory to maximize profits.

    Listen, homes and families do not translate on Wall St. This is a numbers game being run by economists and financial mathematicians to maximize profits.

    Investors are simply doing just enough to humor flawed and failing Government programs waiting for the day they can cash in their chips.

    Ok, nuff said on that……Great conversation here Linsey!

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