The problem of delinquent mortgage loans is having a negative impact on communities nationwide. Those in the mortgage and real estate industries are struggling to find answers before the problem grows significantly worse.
As a member of the real estate industry and as someone trying hard to work with the mortgage industry, it’s clear to me that we both need to get better at working together.
We need to replace the current environment of mistrust and acrimony with one of cooperation and common purpose. Obstacles such as unrealistic workloads for loss-mitigation specialists as well as sloppy work by agents and unethical conduct related to illegitimate short-sale files need to be addressed.
The friction between lenders and brokers as each works to find answers for delinquent loans typically occurs in the course of working through a proposed short sale. A short sale is not the answer for all borrowers, but some simply can’t make their mortgage payments and will need to use this option.
The real estate and mortgage industries each would benefit from working together more effectively on short sales when they are appropriate, but both sides need to commit to the idea that cooperation will best serve the public.
Note to real estate industry: It will be tough to make progress if we continue to submit short-sale requests on behalf of payment-capable borrowers looking to escape an unfavorable property/mortgage situation through a short sale.
Note to mortgage industry: An equally difficult obstacle is the presumption of guilt with which many loss-mitigation departments approach short-sale proposals. This approach seems to justify threats of lawsuits and auto repossessions against borrowers, and is not very productive.
If there were ever a time for bridge-building, this is it. Standards, commitment and education must be the building blocks for this bridge’s foundation if it is to carry the excessive weight of our current mortgage default problem.
The mortgage industry should set the bar high with standards and demand that real estate professionals perform honest, quality work throughout the short-sale process.
Mortgage professionals should also demand that short-sale candidates are properly screened to verify that they face a legitimate hardship. They should demand that files submitted on behalf of those short-sale candidates that pass muster are complete, well organized and constructed in a standard format.
They should decline files that don’t meet these standards, and should be harsh to those who insist on building files based on misinformation.
If real estate agents are to be expected to raise their game, there needs to be a quid pro quo — it’s pretty simple. When a lender’s loss-mitigation department receives files that meet its elevated standards, they should resolve them quickly.
Note to mortgage industry: It may sound counterintuitive, but the answer to reducing short-sale proposals from those investors who view short sales as the “next great gold rush” ( I got the phrase directly from a Web site selling investor products and coaching) is to approve more legitimate files. The approval of legitimate short sales, in numbers, will discourage those committed to lying and fighting to get you to sell at a significant discount.
Most loss mitigation specialists I have worked with are good soldiers looking to do good work, but these specialists have been operating without the support they need for many months. When mortgage companies want to get their attention, they should reduce their file load.
Another element to improving their performance is to reduce the abuse they absorb from the real estate industry. Brokers vent when things don’t go their way and they don’t understand the damage they do by being verbally abusive.
This is where education comes in.
The course of the financial carnage we are all witnessing can be altered to benefit the real estate and mortgage industries as well as troubled borrowers. It’s true, we can’t eliminate the problem, but we can mitigate the damage.
We can educate real estate agents on ethics — not so much on the core importance of ethical behavior, but on the tangible financial benefits of ethical behavior.
Agents need to know how to effectively screen potential short-sale candidates and also the benefits of taking steps and following procedures designed to cull out the payment-capable borrowers looking to abuse the system. Some will be missed, but consider the benefits if a high percentage of the illegitimate short-sale proposals that now tie up the process never saw the light of day.
Agents need to know how to prepare great short-sale files that accurately outline the circumstances of their clients. We can show them files that require little or no reorganizing by loss-mitigation specialists before they go to work on them.
We all want to see our real estate and financial markets re-stabilize. The challenges we face in the current environment make for early-morning starts and long, difficult days. If we work together to get through this, we can solve the problem, the better for it.
Scott Thompson is president of Sacramento, Calif.-based Mortgage Resolution Services, which specializes in arranging mortgage settlements on over-encumbered properties.
