Lender

The Truth About Loan Modification

When applying for a loan modification, be prepared to disclose your entire financial life to whomever is negotiating your modification.  If you try to do it, you will fail, unless you are persistent, or insane.  Some attorneys require $3000 up front retainers to even begin negotiating with the bank.  There is no guarantee that it will work.

How Can I Qualify?

More than 60% of you do not qualify because a simple modification of your loan will not bring your financial position in line with the bank’s requirements.  So what are those requirements?  The lenders are simply looking at your finances to determine if your mortgage payment exceeds roughly 31% of your net take-home pay.  This is an estimate, and every case is different, but it’s typical.

That means that if you have bad spending habits, or you’re paying bills that should be considered secondary to your mortgage before you pay your mortgage, your lender will call you out on it during the loan modification process.  You may need to prioritize your spending.

So, regardless of your monthly mortgage payment, if it’s less than 31% of your net take-home pay, you will probably be denied.  So don’t waste your time.

Loan modification typically results in a lowered interest rate, 10 years of additional payments on your home, payment deferral, or some other manipulation that will usually not help you anyway.

The real problem is that you owe money on a house that will not recover its value in enough time for you to break even on the future appreciation of your house, and therefore, you’re stuck in that house.  If it comes time to move, you’re still stuck in a situation where you may have to do a Short Sale to sell the home.

The real truth about loan modification is that it’s possible, but it pacifies the homeowner long enough for the bank to continue to make money off of your financial hardship.  Think about it.  The bank wants you to be enslaved to their madness for as long as possible.  At the same time, the banks are out of money and are going bankrupt, so your best option at this point in time may be to do a Short Sale.

Lender

Beating the BPO on a Short Sale

The BPO is the Broker Price Opinion.  It’s an opinion of the value of a home by a licensed real estate agent, not by a certified appraiser.  Before any home goes on the market, your real estate agent will conduct a Market Analysis of your home, neighborhood and neighboring sub-divisions.  He or she will recommend a price range.  You, the “seller” will determine the final asking price.  The home will then be listed for sale and the marketing will begin.

Short Sales are similar, but since the seller will not be receiving any of the proceeds of the sale, and the lender will be paying the commission on the sale, there is no reason for the seller to be concerned with the initial price of the home, and subsequent price reductions, provided his or her agent can show that the initial price is not off base and is in fact in line with fair market value.

Investors want as much as they can get out of the home, but for the sake of time, to avoid foreclosure, they will typically take less than fair market value.  The difference in cost to the investor (the one who purchased the loan) between a foreclosure and a short sale is in the tens of thousands of dollar.  It is typically better for the investor to take a discount off of fair market value than it is to let the home go into foreclosure.

When an offer is received on a short sale property, it is submitted to the lender along with all of the seller’s required documentation, which is similar, but not exactly the same for each lender.  As soon as the lender catches wind of a pending sale, they will order an independent internal BPO from an authorized broker.

The Problem

BPO agents don’t make very much money on each property they assess.  They also aren’t always familiar with the market where the subject property sits.  This can typically lead to a very inaccurate and lazy BPO reports.  When this happens, the investor will usually formulate a bottom line net proceeds dollar amount that they will be required to be paid at closing that’s too high.

If everyone does their job correctly, the listing agent, the buyer’s agent, and the BPO agent should all find a reasonably close comparison in price.  When this happens, the lender will usually approve the sale.

When we learn of a bad BPO, in other words, if the bank expects more than is reasonable for the market, we typically have to head out on our own to do an exhaustive analysis of the market area to illustrate the error.  By doing so, the lender will typically order a 2nd BPO.

It is assumed, however, that the listing agent did his job well and came up with the right price from the get go.  Not always possible in this changing market.

Beating a BPO takes time and tedious number crunching, but it can be done.  I recently showed the loan servicing company on one of my listings that they were severely off base on their price opinion and as a result, because I know the market in that area, and they don’t because they are in a different state, they approved the sale.

Don’t take the lender’s BPO as the final authority.  Your realtor should be the expert in the market area.  That’s why you hired them.   Although, the term expert is used quite loosely, he or she really should be in touch with what’s going on.

Lender

We Don’t Own the Data

Arizona Regional Multiple Listing Service made a recent change to their policies and their data.  There were, on the records, about 4750 active listings that had been entered with a checked field.  That field was labeled Lender/Corp Approval which was thought by many to be the best option when entering a short sale into the system.  Seems logical to me.

Short Sale

If a property is being listed at an asking price less than what the owner owes on the mortgage, the bank needs to approve any future offers prior to closing escrow.

Now, there is a field that is designed specifically for Short Sale Approvals, and the field that was previously Lender/Corp Approval has been changed to Relo/Corp Approval for corporate relocations.  This is a good thing.

I’m not a big fan of calling a listing a short sale unless the bank has pre-approved a sale price that is short of what is owed on the note.  After all, a sale is a sale, and a listing is a listing, and if it’s being sold for less and the bank hasn’t approved, it should be property marked and stated that short sale approval is required.

Potential Problem

Regarding the recent change, there are probably going to be some problems with the unexpected data modifications.  ARMLS has opted to sweep the records to change all listings that weren’t Relocation/Corporate Approval Required so that they weren’t using that field.  They updated the listings to show the Short Sale Approval Required field to be marked.  In some cases where this is incorrect, you’ll need to ask your Realtor if they have checked into this.  Of course, if they’re on top of things, they’ll be calling you to explain what has happened .  This outlines another internet issue that we all have to face, and that’s that the data we enter into ARMLS isn’t our data, so they can do whatever they want with it.  Granted, an uprising would be few and far between, albeit possible, but I don’t think that ARMLS is going to do anything to hurt their relationships with the techy geeky data guys like myself.  I’m fine with positive changes that have slightly adverse short term effects.  Bring’em on.