New study shows increase in pre-foreclosure and short salesMortgagePress.commortgage servicer loss mitigation practices and performance
The mortgage industry's ongoing attempts to reduce mortgage
defaults and losses in the current depressed housing market have
produced a big jump in the number of pre-foreclosure and short
sales now taking place. Nevertheless, problems ranging from delays
in servicer action to home inspection issues continue to result in
many failed pre-foreclosure and short sales transactions.
These are among the many revelations coming from a major new
study of mortgage servicer loss mitigation practices and
performance. The new study was sponsored by Inside Mortgage Finance, a
mortgage industry newsletter.
The new research is based on a nationwide survey of real estate
agents conducted by Campbell Communications
in March that produced more than 3,000 validated responses. In
addition to tracking important trends in how mortgage servicers
deal with pre-foreclosure, short sales, foreclosures and real
estate owned (REO), the study rates all major firms on their loss
mitigation performance in various categories.
One of the most significant findings in the new research is that
pre-foreclosure and short sales now account for about one-fifth of
completed home sale transactions nationwide. Pre-foreclosure sales
are home sales that are initiated to avoid foreclosures, while
short sales are pre-foreclosure sales where the sale price is below
the mortgage debt owed.
According to survey respondents, about two-thirds of
pre-foreclosure and short sales are homeowner-initiated, while the
balance, one-third, is mortgage servicer-initiated. For homeowners
initiating short sales, the most common reason given was the
inability to make mortgage payments. However, one-quarter of
respondents also cited a decline in property value as the primary
factor behind a short sale.
Despite the growth in pre-foreclosure and short sales activity,
real estate agents reported encountering a lot of problems in
successfully completing pre-foreclosure or short sales. In fact,
survey respondents said, on average, one-third of these
transactions fail, even though there is a signed purchase and sale
agreement. According to the study titled "Mortgage Loss Mitigation
in 2008" by Campbell Communications, the significant reasons for
these failures are:
•Home inspection/damage to property;
•The seller would not sign deficiency note on short of
mortgage balance;
•The seller cannot pay real estate commission and/or HUD-1
closing costs;
•The mortgage servicer attempted to reduce real estate
commission; and
•Appraisal for the buyer's lender is lower than the contract
price.
One of the biggest obstacles cited by real estate agents in
completing short sales is the delay in hearing back from mortgage
servicers regarding a potential short sale. On average, home
listing agents reported that it takes servicers just over four
weeks to provide an answer on a potential short sale, resulting in
many potential buyers simply walking away while awaiting a response
to their offer. In contrast, mortgage servicers are much faster in
providing a yes or no on REO sale offers, as survey respondents
reported a response time of less than two weeks on average. Some of
the delay in approving short sales appears to stem from a general
reluctance by mortgage servicers to accept an upfront loss on a
loan.
The survey also asked real estate agents to rate mortgage
servicers on a number of pre-foreclosure and short sales issues. In
the section of the survey regarding how promptly offers are
responded to, which is a major obstacle to successfully completing
short sales, respondents gave the highest marks to National City Corporation,
HSBC Mortgage
Services and Wells Fargo
Home Mortgage. The lowest grades were given to Washington Mutual, American Home Mortgage and Aurora Loan Services.
Mortgage servicers were also rated individually by real estate
listing agents in 15 separate categories related to their
performance in handling pre-foreclosure and short-sales. In these
company report cards, Wachovia scored the best, posting above
average ratings in 11 categories. Countrywide Financial scored
the worst, receiving above average grades in only two
categories.
When asked about which incentive to the homeowner would most
increase completed pre-foreclosure and/or short sales, survey
respondents most frequently chose no adverse report to a credit
bureau.
For more information, visit www.campbellsurveys.com.
