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Posted by:
Lance Churchill on 03/25/2010.
A few weeks ago I posted an article on this blog in which I expressed concern about deductions that could occur from real estate agent commissions because of the language in the new HAFA short sale guidelines that are about to go into effect. That language states that agent commissions are protected up to six percent of the transaction unless the servicer chooses to retain “a vendor to assist the listing broker with the sale” and if a vendor is retained, “this vendor must be paid ___% (or $___) from the commission.”
In essence, I predicted that a new industry of short sale vendors would spring up, not really to assist the broker, but to do the servicer’s job at the real estate agent’s expense, resulting in smaller commissions than were being paid even a few years ago when servicers were routinely reducing commissions as a condition of short sale approval. I noted at the time that some agents were already running into some of these vendors in their short sale transactions.
With the effective date of HAFA only ten days away, these short sale vendor companies are starting to appear like weeds. Here are excerpts from three press releases I have seen in just the last few days:
March 16, 2010 — Lender Processing Services, Inc. (LPS), a leading provider of integrated technology and services to the mortgage and real estate industries, is pleased to announce the launch of its professional short-sale service. Offered through LPS Asset Managements Solutions, LPS short-sale solution helps servicers respond more quickly to short sale offers and close more transactions. http://www.lpsvcs.com/NewsRoom/Pages/20100316.aspx
March 18, 2010 — Scottsdale, Ariz.-based Loan Resolution Corp., a provider of short sale services, plans to add 100 positions this month to meet demand for the government’s new Home Affordable Foreclosure Alternaltives program. http://www.mortgageorb.com/e107_plugins/content/content.php?content.5487
March 25, 2010 — Lenders Asset Management Corporation (LAMCO), a full service, nationwide default asset management company offering comprehensive REO services, announced its company’s approach to help mortgage servicers fully comply with the federal government’s Home Affordable Foreclosure Alternatives (HAFA) program. http://www.earthtimes.org/articles/show/lamco-ramps-up-short-sale-services-in-conjunction-with-hafa-program,1217095.shtml
Notice how the press releases proclaim these companies are creating these divisions to help the servicers comply with HAFA. I guess they didn’t read that it was supposed be the agents they were assisting. I hope that they do make the short sale process easier, but the drafters of the HAFA program (with recommendations from the servicers) shouldn’t have tried to be cute with their wording in HAFA by guaranteeing a 6% commission unless a vendor is hired to assist the broker.
The implication is that the vendors will make an agent’s job so much easier, that the agent doesn’t really deserve a full commission on the transaction. After all, now all the agent will have to do is work with the seller, list the property, qualify the seller for HAFA, market the property, deal with buyers with low ball offers, negotiate with unrepresented buyers, negotiate with selling agents, get a contract signed, send it to the servicer or vendor for approval, guide it through closing, appear at closing and deal with all the other usual issues in a transaction.
In other words, HAFA listing agents will not only be doing everything they would do in any other transaction, but will also now have to deal with the HAFA process. HAFA’s drafters should have just honestly stated in the guidelies that: Real estate agents are going to give up one quarter of their commission so that the servicers can hire somebody to do the servicer’s job.
All the complaining aside, the HAFA program is what it is unless NAR can lobby the Treasury Department and get this provision changed. Hopefully, when Freddie and Fannie come out with their own HAFA compliant guidelines in the near future, they will strike this provision. After all, both Fannie and Freddie within the past year changed their loss mitigation policies to protect 6% commissions for agents.
I think a real effect of this provision is that it will result in many selling agents avoiding HAFA short sales which will ultimately affect the success of the HAFA program. One of the primary reasons that the investors/owners of loans listed as short sales started paying 6% commissions, was they realized that in today’s difficult real estate market, some selling agents with solid buyers were avoiding short sale properties that only paid a two or two and one half percent commission to the selling agent. With all the short sales on the market, there were plenty of properties to show their buyers that paid a full commission. If this happens, the lenders and servicers greed will have caused them to once again shoot themselves in the foot.
In the next installment on the new HAFA program taking effect on April 5, 2010, I will discuss some of the pros and cons of participating in the HAFA program along with some of HAFA’s flaws that may cause it a lot of problems as it is implemented. In the meantime, for more education on the HAFA program, check out our free video series at www.hafaprogram.com or our in depth course at www.2010shortsaleplaybook.com.