PERSON OF THE WEEK: ‘Take the traditional short-sale model and throw it out.’ That's the advice that Travis Hamel Olsen, Loan Resolution Corp.'s chief operating officer, tells servicers. This week, Olsen spoke to MortgageOrb about not just rethinking short sales, but also ways to improve the federal foreclosure-alternatives program recently operationalized by the Treasury.
Q: What do you think of the Treasury's Home Affordable Foreclosure Alternatives (HAFA) program that officially launched late last year? Will it make a difference or will it prove ineffective?
Travis Hamel Olsen: We say 2010 is The Year of the Short Sale, and the release of the HAFA program reinforces this belief. HAFA does a good job of streamlining the short-sale process for mortgage servicers, investors and homeowners, and provides them all incentives to complete short sales. It is already changing the industry for the better, as servicing shops are reevaluating their short-sale operations in order to comply with the quick turnaround times that HAFA demands.
HAFA will be effective if servicers can adequately staff, train and execute for HAFA. The volume is going to be tremendous, and to be successful, servicers will have to staff up much more than they are today or consider using an outsourcer. Most shops saw their volumes increase over 100% from the beginning to the end of 2009, and 2010 is going to far outpace that, especially with HAFA.
Because of this growth many servicers are already challenged by the current volume, and with HAFA coming they are realizing that it makes a lot of sense to use a specialized short-sale vendor. Some servicers are approving us as a vendor now, just in case they need us in the future.
Q: How can the industry balance out the payoff expectations of first- and second-lien holders? Do second-lien holders have too much authority in a short sale?
Olsen: A section of HAFA that I think could be improved is the piece on subordinate liens. I don't think subordinate lien holders have too much authority in a short sale, but they are the leading cause of unsuccessful short sales, and I don't think HAFA will be any different.
As it is written today, HAFA allows just 3% of each subordinate lien holder's unpaid principal balance to be paid, in order of priority, until an aggregate $3,000 is reached. This just isn't enough, and high-balance seconds are especially disregarded. Subordinate lien holders routinely get more than 3% of their balance.
It is in the best interests of the primary-lien holder to close as many short sales as possible and avoid the massive losses they take when a property becomes [a real estate owned property (REO)]. So, I propose the contributions to subordinate lien holders increase. I suggest a flat 6% of the junior-lien unpaid principal balances go to the subordinate liens, with no aggregate cap. Subordinate liens would be much more likely to agree to this, and it wouldn't ignore high-balance seconds.
On a per-deal basis, the net to the primary lien holder would decrease, but the aggregate savings to the primary lien holder would be substantial, because so many more short sales would close and avoid REO. In addition, lots more borrowers would evade foreclosure, and neighborhoods across America would benefit from the reduced blight of foreclosures and REOs. It's a win-win.
Q: What are some of the more innovative short-sale strategies that you're seeing from lenders?
Olsen: The best way for servicers to increase the amount of completed short sales is to refer all their borrowers that have been denied home retention into a short-sale strategy. This includes an outreach program, specialized short-sale agent network, pre-approved net proceeds, 24-hour decisioning and cutting-edge technology. A handful of servicers, such as PNC, Bank of America, Citi and Wells Fargo, were early adopters of the proactive approach to short sales, and I give them credit.
Q: Everyone's familiar with short-sale horror stories – borrowers waiting months for replies to offers. What recommendations can you make to servicers regarding workflow management? Does the problem lie with staff training, technology, both, neither?
Olsen: Take the traditional short-sale model and throw it out. Start from scratch, and have a roundtable discussion with internal staff and select vendors and ask, "What is the best way to close as many short sales as possible?" Nothing is out of bounds in these discussions.
I have been part of these, even when I knew they weren't going to use an outsourcer, and they have produced fantastic ideas. Once the process flow has been developed, take a look at the other pieces and determine if they will allow you to accomplish your goals. In order to show real improvement, it is often a combination of areas that need to be reworked, including staffing, training, technology, etc.