An awareness of the short sale offer from the bank's view is a substantial edge in negotiating these deals. It will help you very much in communicating with loss mitigators and other short sale decision-makers. The better you understand these people the more likely they will be to agree to your short sale offer. There are 12 factors a bank or lending institution will take into consideration for a short sale deal.
1. The amount of non-performing loans currently on their books.
Banks consider loans to be assets. They continue to be listed as assets as long as payments are being collected. If the monthly payments stop, that loan is thought to be a non-performing asset. If a bank or lending institution has too many non-performing mortgages on its books it runs the unfavorable option of getting in hot water with federal regulators and investors. You can anticipate that as the real estate market cools banks will experience an increase in their number of non-performing loans. Your short sale offer gives the bank an option to get a non-performing assets off the books.
2. The lender's overall financial condition
Federal regulators give mortgagers a set amount of time to change a non-performing asset into a performing asset before requiring them to list it in their financial statement as a liability. This grace period is usually 180 days. Shifting what was an asset over to a liability is a bad thing for a bank. If the bank can do a short sale on a non-performing loans before the grace period ends it doesn't have to record it as a liability. This is a useful piece of information to
keep in mind as you negotiate this deal with the bank decision-makers.
3. The financial circumstances of third-party investors
Most banks work in what's known as the secondary mortgage market. This means that when they loan money they can "sell the paper" (the actual mortgage agreement) and get their money back, which they can then re-loan. The mortgage is of course now owned by the third-party investor. The Federal National Mortgage Association (known as Fannie Mae) and the Federal Home Loan Mortgage Corporation (known as Freddie Mac) are two examples of third-party investors. They are both stockholder owned corporations, created by Congress to aid homeownership and rental housing. If these third-party investors are enduring high rates of foreclosure on non-performing loans, they become motivated to do short sales, and often use the original bank to service the transaction.
4. The third-party investors' loss mitigation department
Once a foreclosure has started on a loan backed by a third-party investor, their loss mitigators can and will act quickly to finish a short sale. For example, Freddie Mac will often allow short sale offers of 90% of the brokers price opinion, and take just two to three weeks to get processed.
5. Servicing lenders that work for third-party investors
Servicing lenders are organizations that collect payments for the third-party investor organizations. Though the servicing lender won't make a decision on the short sale, you must deal with them in presenting your short sale offer. Find out if a service lender is handling your mortgage, and who the contact person is.
6. The borrower's finances
The lending institution may ask for additional information on the borrower's finances. You must be the go-to person to get this information, collect it in the proper documents, and get back to the bank in a timely manner. Just keep in mind the rule that your job is to be persistent and to make a short sale happen.
7. Mortgage insurance
Because of the intricacy arising of third-party investor participation, the issue of mortgage insurance should be handled through the service lender. Just anticipate that there may be issues related to the mortgage insurance that will need to be handled by you. Your service lender is the contact person for having those questions answered.
8. The as-is value of the home
The as-is value of the home is considered to be the current value of the home with no repairs or deferred maintenance done. Typically two broker price opinions are ordered and compared against the initial appraisal to see if there has been any degredation in the value of the property. Broker price opinions are usually used in the place of a formal appraisal. The lender relies on these appraisals heavily. When dealing with the service lender for third-party investor, the service lender requests the broker price opinions.
9. The expense of repairing the property for resale
Real estate contracts on houses needing repairs require an explanation if the owner is unable to take care of the work. Two written bids for the repairs must accompany the short sale package. These repairs may be presented to and negotiated with the mortgager.
10. The After Repaired Value (ARV)
In a short sale offer, the "after repaired value" (ARV) of the home gives the mortgager some idea of what the house would be worth if they foreclosed, repaired the house and put it back out on the market themselves. Banks would do this if they thought they could recoup the defaulted loan balance, all the back payments, foreclosure costs, and repair costs.
11. Securing and maintaining the property
Securing and maintaining a house includes protecting it from vandals, fixing broken windows and doors, and paying the water and utilities. It also includes such things as removing trash and debris, yard care and keeping all the mechanicals of the house in good working order.
12. Holding costs and expenses related to selling the property
A mortgager must approximate the cost of taking back a foreclosed home and maintaining it until a qualified buyer can be contracted. In a short sale offer, this is known as holding costs. Holding costs can include making repairs, painting, replacing damaged or broken appliances, water heaters, air conditioners, furnaces, floors and carpet, insurance and property taxes. This can get very expensive. In addition to that, finding a buyer through a common real estate professional can take up to six months and sometimes longer. Always keep in mind: banks are not in the housing business, they are in the paper business. These holding costs and other expenses are a terrible inconvenience to banks, and in most cases they will take substantial discounts to keep from dealing with the hassle.
