REO - R.I.P?

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Our servicing department sent out a global email to the troops saying that their focus has turned from REO to Short Sale structuring as a way to mitigate losses. I'm guessing that other servicers are doing the same.



The Treasury is now doling $$ incentives for SS completion to servicers and discouraging (by talk mostly) banks from taking the foreclosure route. With mods rising and SS's being the norm, this may mean a slow end to REO's in the numbers we've seen this year.



SS's will rise but a coming wave of REO's? I'm having second thoughts. What are yours?



Soylent Green Is People
 
[quote author="Soylent Green Is People" date=1254967301]Our servicing department sent out a global email to the troops saying that their focus has turned from REO to Short Sale structuring as a way to mitigate losses. I'm guessing that other servicers are doing the same.



The Treasury is now doling $$ incentives for SS completion to servicers and discouraging (by talk mostly) banks from taking the foreclosure route. With mods rising and SS's being the norm, this may mean a slow end to REO's in the numbers we've seen this year.



SS's will rise but a coming wave of REO's? I'm having second thoughts. What are yours?



Soylent Green Is People</blockquote>


I think this is good news. Unless you are an auction buyer differentiating between the classification of a distressed unit is immaterial. I would hope that the net effect will be to shorten the timeline of ultimate resale by cutting out the the additional steps required for foreclosure.
 
Most servicers are nearly fully staffed to work through the SS volume. I'd expect turn times and acceptance to shorten from 6 months to 60 days.



My 02c



Soylent Green Is People.
 
Short sales have the same effect as foreclosures on prices. The entity deciding on the final price is the bank in either case and the bank is motivated to get rid of the property for as much as it can get. The bank has no fantasy interest in waiting for the "right buyer" to come along. The bank will lower the price of each property to market level no matter if it is a short sale of foreclosure.



Viva lo rojo!
 
[quote author="Soylent Green Is People" date=1254967301]Our servicing department <strong>sent out a global email to the troops </strong>saying that their focus has turned from REO to Short Sale structuring as a way to mitigate losses. I'm guessing that other servicers are doing the same.



The Treasury is now doling $$ incentives for SS completion to servicers and discouraging (by talk mostly) banks from taking the foreclosure route. With mods rising and SS's being the norm, this may mean a slow end to REO's in the numbers we've seen this year.



SS's will rise but a coming wave of REO's? I'm having second thoughts. What are yours?



Soylent Green Is People</blockquote>


SGIP,



Any chance you could share an excerpt from the email? Would like to see the wording used...



Thank you,

-SG
 
[quote author="Soylent Green Is People" date=1254967301]The Treasury is now doling $$ incentives for SS completion to servicers and discouraging (by talk mostly) banks from taking the foreclosure route.</blockquote>


What are the $$ incentives?
 
But will this really affect the market?



A bank can foreclose on a house and force the owner out, but can they force a short sale on an owner? And in short sale, doesn't the owner suffer the tax implications of the short while in a non-recourse foreclosure they can just walk away?
 
The bank can't force a short sale but if the home debtor can get out from under a mortgage they can't afford and lesson the credit implications they may very well move on.



There was an iteresting article about walking away from their mortgage....

<a href="http://articles.moneycentral.msn.com/Banking/YourCreditRating/the-rich-bail-faster-on-mortgages.aspx">The rich bail faster on mortgages</a>



I think if these people were given the choice of a short sale instead of walking away they would have chosen that.



I could look it up but I think in one of the mortgage bills that passed through congress they were the IRS was not going to collect on the foregiven debt.



I could be wrong and to be honest I am too lazy to look it up today.
 
I've talked with 2 CPAs who've told me that as long as the debt is non-recourse, there are no tax implications with a short sale here in California. I think federally the mortgage forgiveness act protects everyone, but there are state tax implications for those with recourse debt.
 
I still think there is a human factor here that will make the prospect of short sale substitution difficult.



1. It's harder to sell a home with a the owner who is losing said home still living in it.

2. Can the owner stop paying his mortgage just like those who are going through foreclosure?

3. With a foreclosure, there is always hope that the owner can renegotiate with the bank or some miracle that will allow them to keep it before the deadline (or the deadline keeps getting kicked down the road)... but once a home goes through escrow... the take-backsies aren't as available.



While a novel idea... I think this will fall into the success rate of loan mods/refis.
 
Agreed. This will not stem the gushing. Only significant principal forgiveness will work.



Principal forgiveness, payment restructuring, and equity sharing to keep prices stable is the only way to rebalance the market.



My .02c



Soylent Green Is People.
 
[quote author="Soylent Green Is People" date=1254983818]Agreed. This will not stem the gushing. Only significant principal forgiveness will work.



Principal forgiveness, payment restructuring, and equity sharing to keep prices stable is the only way to rebalance the market.



My .02c



Soylent Green Is People.</blockquote>
Principal forgiveness will only encourage non-payment of mortgage by those who can afford to pay and those who are borderline. The unintended consequences of principal forgiveness are a multiplication of mortgage default.



The only cure is principal write down showing as loss in capital accounts, in other words, foreclosures and short sales.
 
[quote author="bubblebuyer" date=1254980014]I've talked with 2 CPAs who've told me that as long as the debt is non-recourse, there are no tax implications with a short sale here in California. I think federally the mortgage forgiveness act protects everyone, but there are state tax implications for those with recourse debt.</blockquote>
the seller is going to receive a 1099 from the mortgage co. no matter what. the portion of the debt that was used to purchase the home (purchase money) is non recourse. thanks to the mortgage forgiveness act a simple form filled out by your tax preparer will take care of that this. however, if cash was taken out; this portion is recourse debt and is taxable. once the debt (the cashed out portion) is no longer tied to an asset (the house) it is then recognized as income and is taxable.
 
Awgee - if a credible solution isn't offered to all, then revolution could follow. People are getting tired of bailouts for those who should either be in jail or forced into BK. A tipping point is approaching if we stay on our current path.



Assuming that you had a means test for a pricipal reduction option, you can weed out many of the people who are A-OK on their ability to pay their loans. Those on the bubble are better off having their loans reduced with an equity share option than being pushed into foreclosure/shortsale.



My .02c



Soylent Green Is People.
 
[quote author="Soylent Green Is People" date=1255053471]Awgee - if a credible solution isn't offered to all, then revolution could follow. People are getting tired of bailouts for those who should either be in jail or forced into BK. A tipping point is approaching if we stay on our current path.



Assuming that you had a means test for a pricipal reduction option, you can weed out many of the people who are A-OK on their ability to pay their loans. Those on the bubble are better off having their loans reduced with an equity share option than being pushed into foreclosure/shortsale.



My .02c



Soylent Green Is People.</blockquote>


Who will pay for the principal reductions?
 
So how will this work... if I'm behind on my payments is the bank going to say "short sale or I'll foreclose on you"?



Also, who sets the price? What's to stop me from listing my house at a high price in order to squeak out another year's worth of rent free living?





Delroy
 
We will pay for the principal reductions. Aren't we now paying for everything else....?



In an ideal world those investors in mortgage backed securities will have to take it all in the shorts. These investments had risk which is now be realized. Let's assume you have a 300k loan with a $50k haircut. Payments are now based on that $250k balance. The homeowner will now stay in the house paying the remaining $250k back. That investor was going to take a $50k shave any way in a short sale or a foreclosure for the most part if we also assume that the homedebtor was going tits up anyway.



The MBS investor will get a bond/guarantee of some sort that if the homedebtor sells at $275k, the $25k over the $250k reduced principal balance will be returned. They get a return of principal that they were going to lose outright in a SS. If a borrower refinanced out of the original MBS, the equity share would still be in place. This then keeps the home debtor able to refinance if rates improve. It leaves the MBS investor with a zero rate of return on money that was more likely than not going to be lost anyway.



The "pay for it" part needs to be re-thought. Investors are not guaranteed a return. So far the Government has chosen to make whole as many investors (banks, in this case) so as to keep the status quo. This IMHO must end. They took the risk. They are not guaranteed the reward unless this cycle of support ends.



My .02c



Soylent Green Is People
 
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