Thursday, April 17, 2008

How Jingle Mail Might Help Make Short Sales Easier

(Felix Salmon) Remember It was $995. Sound a bit too expensive? Well, do I have good news for you! now has a competitor,, which is only $495! And the new site quotes bloggers, to boot! Apparently, if you go by Mish, homeowners don't have a moral obligation to honor their mortgage agreements, which is good news for those websites trying to cash in on the nascent jingle-mail phenomenon.

I'm actually quite glad that these sites are popping up, if only because it might help light a fire under the rear ends of mortgage servicers who are being unconscionably slow in approving short sales. The WSJ has a good article on short sales today, which lists some of the silly reasons why short sales are so hard:

Gathering all the information needed to evaluate a short-sale offer can take time, says Patrick Carey, an executive vice president with Wells Fargo. The loan servicer must first determine whether the homeowner really can't continue meeting the loan payments, then get an appraisal or broker's opinion of the home's value.
Mortgage servicers also try to ensure that the proposed sale is an "arm's length" transaction between two parties rather than, say, a sale to a relative on sweet terms. They must also determine whether the buyer has sufficient funds or the ability to get a loan. If all those hurdles are cleared, the servicer may still need to get approval from the investor that owns the loan and provide an analysis showing that the investor will be better off with a short sale than with another solution.
There are additional complications if the borrower has a mortgage and a home-equity loan. In that case, both parties must approve the deal -- which is a challenge when the sales price may not even be enough to cover the mortgage balance.

The idea that the servicer has to confirm that the homeowner is in real financial distress is, I think, a relic from the housing-boom days which ought to be unceremoniously jettisoned. Remember that most mortgages, including pretty much all mortgages in California, are, to all intents and purposes, non-recourse. If servicers were reminded that the alternative to a short sale was jingle mail rather than continued timely payments, then they might be more inclined to help the market in short sales get a bit smoother.

I also don't see why the servicer should worry about the buyer's ability to get a loan. The worst case scenario is that the buyer loses their deposit if a loan doesn't come through -- and that deposit will just increase the amount of money available to the homeowner to pay down their mortgage.

As for the Helocs, those lenders are very likely to have written off everything, and will generally be quite happy to take some small positive sum for their trouble if asked nicely by the first lien holder.

It seems to me that mortgage lenders are just coming up with excuses, here, not to accept short sales. With any luck, as the likes of catch on, those excuses will rapidly evaporate.

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