Eugene home buyers encounter short sale frustration as a " Good Deal" is killed by an insurance co.

Frustrating at best, impossible at worst:   " For months I've been beating my head against a brick wall"

J.J. MCallister, a Pacific North West  Real Estate Broker  that specializes in representing buyers in short sale transactions went on to say: " I've found short sale transactions to be difficult at best, impossible at worst" .  Many transactions drag on for months only for critical contingency deadlines to expire, effectively killing the deal. In the mean time ? " My client is put on hold by the bank's loss mitigation specialist".

" The public is being mislead"   What's being touted as an immediate, viable remedy for the homeowner that must move, as well as a screaming financial opportunity for the first time as well as investment property buyer, rarely translates into a " Closed Sale". J.J. Went on to say .. " The banks are willing to agree in most cases to an 18% gross adjustment of mortgage; in a market that hasn't hit bottom"  Most buyers  are looking for a much deeper discount.

According to J.J., due to time restraints, as well as uncertainty inherent to the process.. Many buyers are now shying away from short sales in many regions of the nation"

Irvine California based Realty Trac, Zillo, as well as countless brokerage houses list and promote the possible benefit of short sale, only to be shut down by the bank.

Many prospective sellers as well as buyers, frustrated by the endless stall of negotiation; simply walk away from the table, for lack of response from the investor.

Federal incentives now promote mortgage modification, as Banks enter the loan modification business:

Mortgage servicers/banks are now paid $850 to review a file and an additional $1500 to successfully adjust the mortgages they service for investors.

This incentive financed through T.A.R.P funds; translate into billions of dollars paid to financial institutions that enabled the questionable lending practices of 2004-2007; eventually leading to a collapse of the residential real estate market.

Cause and effect, or effective stall ?

My online research indicates that 2008/ 2009 saw countless "For Pay" mortgage modification firms bite the dust, as major banks fine turned their own mortgage modification, "Short Sale" mitigation departments. According to Martin Andelman, founder of consumer advocacy group Mandalman's March, 90% of all private For Pay mortgage modification firms have closed shop.

Banks to the rescue.. With a new found spirit of cooperation, driven by federal stimulus dollars, the banks now happily pick up the phone, sending the consumer on a path to a problem solving "short sale" or "Mortgage modification"solution, often pre- solicited by the bank to the home owner that is behind on his or her mortgage payment.

In a recent interview with Joseph Ellsworth of Eugene Oregon, It was reported that Wells Fargo had solicited Joe with a possible solution to his mortgage woes. The bank suggested the " short Sale " process in a letter.

The letter stated that after Joe or his Realtor had secured an offer from a pre- qualified buyer for his home, Joe could then submit the offer to the bank for consideration of short sale proposal. Joe excitedly presented this solution for liquidating the no longer affordable home to his Realtor for listing.

Problem was... according to industry experts; less than 30% of all short sale negotiations result in a closed transaction. While waiting for a response from the bank, Joe's credit score eroded, as months of missed mortgage payments mounted.

Quoting Eric Nichols; a mortgage broker from Eugene Oregon: " Many of these short sale proposals revert back to the banks after months of negotiations". In the mean time, too many home owners enter default resulting in foreclosure".

Another federal hand out to the financial sector :  Reading the hand writing on the wall is something that big business does very well, With billions of stimulus dollars ear marked for mortgage modification, the " Banks" jumped into the mortgage modification business.

How did the banks gain the upper hand in the mortgage modification game?  President Obama.

"Don't pay just walk away"  Simple really.. Without firing a shot, the Obama administration had won the war staged against private mortgage adjustment firms by the major players in the banking industry. Within a year of president Obama's televised warning; stating that the consumer had access to not for profit credit counselors as well as a toll free government help line that would guide you through the very doable process of mortgage loan modification,most private mortgage modification firms went out of business.

Its been reported by N.A.R.  the National Assoc. Of Realtors,  that no fewer than 3,000,000 home owners in 2009 attempted to negotiate a mortgage modification with the lien holder. Less than 2% were successful in securing a permanent loan modification. In 2009  Wells Fargo temporarily adjusted 800,000 mortgages.. 1.2 million home owners enter a stage of  foreclosure.

In a recent Email exchange with Wells Fargo Bank, short sale mitigator N. Washington, it was made very clear to this reporter that Wells Fargo ; while negotiating the first position note on behalf of the investor must receive approval of the short sale from the Mortgage insurance company prior to the review of the short sale proposal by the investor. In the case of an F.H.A insured loan, the investor will not review the file prior to approval of the mortgage insurance company.

Mr Washington, a Wells Fargo employee, inferred that the bank had no influence over the mortgage insurance company in it's negotiations on behalf of the seller..

It turned out that the seller's representative, was simply negotiating with the wrong company, the should have gone directly to the M.I.

In an attempt to streamline the submitted process, the institutions have created there own preferred forms for mortgage modification, as well as short sale proposal. Rather your proposal is accepted or declined, the bank comes out with it's federal modification fee in hand..

What is a short sale, and how does it work?  In a nut shell  short sale is a process where the mortgagor/ Home Owner secures a written offer on their property below the gross dollar amount owed the lender on the mortgage. The offer is then submitted to the lender for negotiated short sale of the lien holders note. In hopes that the lender will declare the debt satisfied, and release the property, as well as hold the seller harmless to a deficiency law suite..

This has become so prevalent in the market today that banks are now proposing the possibility of short sale in Lu of foreclosure to the home owner.

Bottom line?  The A.I.G's of the world.. still have the consumer by the short ones. The majority of home owners that find themselves in arrears at time of purchase were required to secure mortgage insurance on their loans. Any F.H.A. , Fanny, Freddy, with less than a 20% down payment requires mortgage insurance. millions of home mortgages in the U.S. are covered by mortgage insurance

Mortgage insurance guarantees the investor that they will be paid 20 to 25% of the outstanding mortgage in the case of default or negotiated short sale..

Nothing for nothing:  Today it's becoming common for the M.I. Company to demand that the consumer sign a promissory note for 75-80% of the " Short" covered by the M.I. , effectively limiting the insurance providers exposure to premiums paid.. 

Not willing to sign a promissory note? 

To be continued..