BREAKING NEWS: The Urban Team has launched a site dedicated to short sales. We have the latest news and information for those needing to know more about short sales in the Phoenix area. Just go to www.short-sale-phoenix.com.
Yesterday, attorney and mortgage mediation specialist Doug Farnam spoke with us about loan modifications and short sales. Doug is with the Mortgage and Mediation Group at Thomson Conant PLC and works in the trenches on loan mods and short sale negotiations. The theme of his talk was "Why won't the lender work with me on my short sale or loan modification?"
We felt his talk was of great interest to both investor and regular home buyers trying to purchase short sale properties as well as homeowners trying to negotiate a loan modification or short sale.
We learned a great deal during Mr. Farnam's talk, especially about the role of a little known or understood player called the mortgage or loan servicing company. Although I was familiar with the term "mortgage servicing company", I was not aware of their involvement with loan modifications or short sales.
Let's look at what a mortgage servicing company does. According to the people at the financial dictionary, a mortgage/loan servicing company does the following:
The collection of monthly payments and penalties, record keeping, payment of insurance and taxes, and possible settlement of default , involved with a mortgage loan.
Some lenders service the loans they sell themselves, however, a large number contract with an outside vendor to perform this function. This is especially true of loans sold in the secondary market.
According to Farnam, some servicing companies have little incentive to help homeowners with short sales or loan modifications. It often depends on whether the loan servicing company provides debt collection as part of their service.
The contract between lenders/investors and servicing companies generally covers fees for processing payments, paying insurance & property taxes and some or all of the foreclosure process. Thus, they may not be contracted to perform the work required for loan modifications or short sales.
This is not true of all servicing companies. Some, like Litton Loan Servicing, do offer debt collection, short sale and loan modification services. However, the logistics, infrastructure, staffing, IT and understanding of the rapidly changing regulations can make the job daunting at best.
I had a nice chat with the people at ILS, Investor Loan Services, this morning. They specialize in servicing real estate loans backed by investors rather than banks. They discussed the many hurdles their industry has faced while trying to deal with the ever rising number of loans in default. One of the problems was simply software. Each bank or investor has their own set of rules on how to handle a loan in default. This requires industry specific software developers to customize modules that drop into the accounting software a servicing company uses. In addition, the Federal Government, Fannie Mae and other involved parties constantly change the regulations creating even more havoc.
The bottom line, as I am coming to understand things, is banks and their loan servicing companies would love to help homeowners in trouble; They simply lack the resources and even control to do so.
Hope this information helps demystify a very confusing problem in our industry.
Gene Urban and Ron Urban
The Urban Team at Realty Executives
602-234-5777
