In the past year, many lenders and servicers have shifted toward offering viable alternatives to foreclosure. These alternatives include:
– Bank of America and Chase Home Finance each unveiled a type of cooperative short sale program. Tenets of the program include offering money, in some cases up to $25,000 to $30,000, to delinquent borrowers to cooperate with performing a short sale. Furthermore, the cooperative short sale programs ask for very little paperwork from the borrower or the real estate agents involved, thus cutting down on red tape.
– Bank of America offered a program to some borrowers to deed their house back to the bank, and the bank would allow them to rent the house.
– Many servicers offered to streamline their short sale evaluation process to increase the time it takes to grant an approval.
– Fannie Mae and Freddie Mac unveiled a new, standardized short sale program on November 1, 2012 that will allow people who are current on their payments to be considered for a short sale. The program also pays $3,000 to short sale sellers at the settlement. It allows military service members on active duty to receive consideration for a short sale when they change duty stations. The program also promises a 30-60 day response if a signed real estate contract is submitted, provided that the seller has turned in all the paperwork requested.
– Some lenders offered a relocation incentive to help the seller move after a short sale. These payments generally range from $750 to $3,000.
– Some banks, like Bank of America and GMAC Mortgage, started offering principal extinguishment on secondary liens. They mailed letters to selected borrowers who were delinquent, stating that the entire debt on the second mortgage was forgiven. In short sales, essentially the secondary lien holders receive nothing because there is absolutely no equity nor are housing values expected to rise enough in the near future. Collection efforts were futile, so in many cases it makes sense to simply write off the entire loan.
– Some lenders are proactively offering cash-for-keys, which essentially means that the delinquent borrower gives the deed and the house keys to the lender in exchange for a check. The typical payment may be around $2,000 to $3,000. In some cases, the lender offers to forgive the remaining debt and part ways with the borrower.
– Many lenders are now offering short sale pre-approvals under certain programs. They are evaluating people for short sales even when there is no offer on the table. They are sometimes telling agents and sellers what price they would accept.
– Some lenders are offering a particular customer service representative to help a particular borrower. Instead of a seller and their agent talking to a different person at the bank every time they call, some lenders are assigning a specific individual. That increases the likelihood of a successful sale.
– Bank of America started hiring third party companies to represent them and attempt to negotiate a short sale or deed-in-lieu of foreclosure with delinquent borrowers. These subcontractors work for the bank and can often move more quickly than the bank could. Also, some borrowers are so frustrated with their bank that a third party can reduce the potential for confrontation and increase the possibility of collaboration.
– Lenders have improved their short sale software and online interfaces with agents and sellers. More lenders now use the Equator.com interface, which encourages communication and helps to hold banks more accountable. Other banks have developed their own software or systems, which increase efficiency.
The actions of the lenders, servicers, and entities like Fannie Mae and Freddie Mac indicate a shift away from foreclosure and toward other alternatives, particularly the short sale. The banks now realize that in most cases, a short sale produces more money for the bank than a foreclosure. The banks do not have the ability to handle property management and the responsibilities of owning houses. It is better for the lenders to help the borrower avoid foreclosure. Foreclosure also hurts the community and taxpayers.