DS News - Digital Archives

» VISIT US ONLINE @ DSNEWS.COM who keep their digits firmly on the pulse of the market at all times. With short sales no longer the ordeals that they were a few years ago, agents are in the position to drive a great many potential owner-occupant and investor clients toward short sale opportunities. They have gained expertise, understand the tools and intermediaries that can help, and are leading the growth of this important market segment. None of this is lost on real estate agents, Our Own Worst Enemy There are always obstacles to overcome, especially when as much is at stake as there is in the housing recovery. The nationwide attorney general settlement was expected to have a dramatic impact on short sale volume, and it has. But since short sales are not deemed to be worth as much in the overall scheme of things, banks do not get dollar-for-dollar credit on the short sales they approve. Bloomberg BusinessWeek reported recently the average middle-class family pays about 25 percent in taxes, approximately one-quarter of the forgiven debt—some $4,750—will have to be paid to the IRS and by those who can least afford to pay it. For some families, that could be enough to tip the scales, pushing them back to the brink of foreclosure and eviction," Levin said. that the five big banks affected by the national mortgage settlement have provided upwards of $10 billion in concessions to distressed borrowers, 80 percent of it in short sale relief. According to the Office of Mortgage Settlement Oversight, this comes out to an average of more than $76,000 per borrower. However, since the focus of the settlement is on home retention, short sales are, according to HUD Secretary Shaun Donovan, "not as valuable as getting principal reductions that keep people in their homes." The banks get full credit toward fulfilling their settlement obligations when they forgive principal and reduce interest rates in loan mods, but they only get 20 to 45 cents on the dollar for short sales, and officials put a cap on the total amount of credit under the settlement that can be gained from these transactions. The 2007 Mortgage Debt Relief Act grants tax protection for the amount forgiven by the lender or investor, but if it' sales will undoubtedly be hamstrung. The act was extended in 2007 for five years and is set to expire at the end of 2012. The tax exposure at that point for homeowners becomes onerous. As Adam Levin, former director of New Jersey' s not renewed, short Consumer Affairs said on his website, Credit.com, this is "The Most Outrageous Tax of the Year." Regarding those who receive benefits s Division of under the National Mortgage Settlement, Levin observed, "So, instead of getting the relief they need to save their houses, victimized homeowners will be forced to pay a significant portion of that savings to Uncle Sam." Breaking down the numbers, he put it into Wisconsin short sale agent for Edina Realty, is kicking in the afterburners on his short sale transactions. "I am trying to help as many people as possible get their short sales approved before the end of the year because the chances of the 2007 Mortgage Debt Relief Act getting extended this late in an election year are not very high," he said in a story that appeared on Equities.com. "There have already been three attempts to get [the act] extended, but they were all turned down, so I am trying to help people get their short sales completed now." Failure to extend the Mortgage Debt Kris Lindahl, the top Minnesota and Relief Act will, of course, be devastating to short sale sellers and make it cheaper to simply walk away than to seek the remedy that makes the most sense for everyone. We are seeing a classic political move on this necessary component for economic recovery. The Democrats are highly motivated to extend the act through 2015. The Republicans partially supported a bill that extends tax relief only through 2014, but have no motivation to do anything that makes the opposition look good were foreclosed upon. This evolved to a more sensible situation since it made no sense to anyone except the non-lending experts who concocted the algorithms and scores used by the credit bureaus. Today we see triple-digit credit score hits for short sale sellers, but it is substantially less than those reserved for those who go all the way through foreclosure. Syndicated columnist Ken Harney reported in September that Fannie Mae and Freddie Mac short sale participants will sustain substantial credit score damage, but the GSEs don't view them the same way as the credit agencies do, apparently. "A Fannie Mae spokesman, Andrew Wilson, said his company has no control over how short sales—whether of people who paid on time or those who didn't—are scored," Harney wrote. "But when borrowers do a short sale rather than force the lender to foreclose, Fannie rewards them: They are potentially eligible for a new mortgage again within two years of a short sale. People who go to foreclosure, by contrast, may not be able to get a new Fannie loan for as long as seven years." When you look objectively at all that is going on around short sales, it is difficult not to be bullish on them. They accomplish things uncommonly good and do little that is commonly perceived to be bad. As a strategy, they are here for the long haul, too. There will always be distressed borrowers even when the shadow inventory is resolved and complete The industry has been pelted with the message that distressed borrowers must be put in loan mods no matter what. It has since become clear that mods aren't for everyone, particularly in the climate of joblessness that is not improving. prior to the election. In the meantime, the consumers are left in limbo, and short sales in general are left to suffer with the buzz kill of tax impact hanging over them as time ticks down. Then there is the question of credit perspective. "Since the average homeowner will receive about $19,000 in settlement relief and report damage to short sale sellers. There has been much debate on this the years; and for a while, it seemed that anyone who accepted a loan modification or any principal forgiveness was hit as hard as those who health is restored to the housing market. The magnitude of the concessions will decrease appropriately with the free market, but the concepts of the short sale are now a permanent part of the landscape. Ed Delgado is COO of Wingspan Portfolio Advisors, which offers a wide range of strategic services to assist the mortgage industry. Delgado, also formerly an SVP with Wells Fargo, currently serves as chairman of the National Servicing Association (NSA). 53

• Cover