Short Sale Rush.
by Marian Anthony
Published by Grassroots Publishing Group (USA), Encinitas, CA, 2010, 128 pages
The current crises in the U.S. housing and mortgage markets have prompted dozens of books by authors with wide-ranging expertise and very different perspectives on industry problems and solutions. In order to improve my own understanding of the problems and proposed fixes, I recently read several books on the subject, including Short Sale Rush, the subject of this review. From my small sampling of the current literature, I came away with greater appreciation for the complexity of the situation, interrelationships between housing markets, the impact of Wall Street and mortgage securitization, and respect for the authors' very different personal perspectives on the problem and proposed mitigation.
My initial read on this topic, Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash, by Charles R. Morris (2008), presented a comprehensive technical overview of how pools of mortgages, collateralized as securities, offered enhanced returns by blending high-risk and low-risk mortgage portfolios into complex financial instruments that evaded accurate valuation and risk assessment by the traditional rating services.
Morris demonstrates how hyper-leveraged securitized mortgage pools with high-risk components encouraged reliance on even more exotic derivative instruments to provide a limited degree of theoretical diversification and risk mitigation against systemic failure. Because of the hyperleverage, however, higher-than-expected default rates in the high-risk portfolio components took down the securities, derivative instruments, insurance safeguards, many institutions, and had a profound impact on the entire U.S. economy. In 2010, Morris revised his original book as the Two Trillion Dollar Meltdown.
A second book, The Cul-de-Sac Syndrome, Turning around the Unsustainable American Dream, by John F. Wasik (2009) is written from a different perspective. Wasik, a respected finance columnist for Bloomberg News, documents how the historical real estate aspirations of U.S. households have fostered urban development patterns and growth policies, which have contributed to the obsolescence of our residential and commercial neighborhoods.
As a solution, he proposes smart growth and sustainable green infill development instead of sprawling suburban development of energy-in-efficient tract housing. Although somewhat overbearing in its liberal orientation and assignment of blame to past Republican administrations, the book makes a compelling case for sustainable development and preservation of traditional neighborhoods.
My third read in this series and the subject of this review, is Short Sale Rush by Marian Anthony. Unlike The Trillion Dollar Meltdown, which views the housing bubble from a financial perspective, or The Cul-de-Sac Syndrome, which focuses on the lack of long-term sustainability in the physical character of our communities, Short Sale Rush is all about the author's approach to preventing foreclosure by facilitating possession of preforeclosure properties by qualified buyers, and his short sale rush system to help liquidate the nation's inventory of short sale and real estate owned (REO) homes.
Of primary interest to real estate agents, lenders, asset managers, and to a lesser extent, appraisers involved with short sale properties, Short Sale Rush provides a practical guide to sales techniques, checklists, forms, and procedures designed to improve the marketability of short sale and REO properties. While it is doubtful that Short Sale Rush will win any awards for academic or journalistic excellence, its practical mapping of the short sale minefield should be very helpful to professionals working with the special challenges of short sale transactions.
Marian Anthony describes himself as an ex-Marine officer who has applied a rigorous, innovative, and systematic approach to becoming a real estate leader in the San Diego market. His short sale rush system evolved from his personal hands-on experience in residential sales, mortgage lending, and property management, augmented by psychological, motivational, and practical techniques refined from his military leadership.
Although Short Sale Rush includes significant content promoting the author's website, software, forms, procedural checklists, and marketing for the author's real estate services, other content is of a more general interest to those involved in real estate, including homeowners who may be facing foreclosure. Some of the most valuable information dispensed by the author is advice on how to avoid foreclosure in the first place.
The author operates the Default Mortgage Hotline to help homeowners facing foreclosure. The hotline provides free telephone consultations from volunteer mortgage and real estate experts who do not have conflicts of interest with the affected properties or homeowners. The Default Mortgage Hotline is a nationwide consumer advocate agency for public benefit, specializing in providing alternatives to foreclosure for homeowners.
For real estate practitioners, the book's most interesting content may be the author's observations and strategies designed to coalesce the interests of parties in the short sale transaction towards a streamlined and definitive closing. To real estate agents and potential buyers, the most frustrating aspect of marketing or buying a short sale home is getting the holder of the note to approve a transaction. Faced with a known deficiency between the market value of the property and outstanding loan obligation, the potential deficiency can be dramatically exacerbated by the significant transaction costs and complexity resulting from a foreclosure.
As most defaulting mortgages have separate originators, servicers and investors, and are fractionally securitized, short sale approval is much more complex than mortgages held by the originator. Because of this complexity and the sheer volume of defaulting loans, institutions have become overwhelmed by the scale of the problem. Compared with the certainty of contract acceptance and closing in an undistressed sale, short sale approvals can take months just to get an answer from the holder of the note.
As a result, short sale properties are often avoided by many buyers and real estate agents. The author's short sale rush system for expediting short sale transactions derives from his hands-on experience as a real estate agent and mortgage executive and leveraging the psychology and interests of the parties involved in the transaction.
An interesting strategy the author suggests for preforeclosure and other short sale properties is the concept of a substitute mortgage. In this strategy, a qualified buyer presents an offer and occupies a short sale property as a renter while short sale approval is pending. The buyer pays a rental deposit and monthly rent that accumulates in an escrow account while the bank moves through the approval/ foreclosure process.
The escrowed funds are protected from seller accessibility and can accumulate to a substantial sum during the approval process. As they do so, they become a ready source of cash that can help offset any deficiency faced by the note holder in the short sale.
My reservations with the book include promotional hooks touting the author's website, software, and checklists; weak subject transitions and topic organization; overuse of industry jargon, which might be familiar to those intimately involved with the mechanics and nuances of real estate closings but not to the layperson; portions of the book resembling field notes with seemingly disconnected and unexplored nodes; and low resolution graphics that appear to be imported screenshots of computer icons, PowerPoint slides, and exhibits. As an appraiser, it also concerns me that the author relegates participation of professional appraisers in the short sale process to only where absolutely required by law, that is, in association with the origination of a new loan. Instead, the author advocates use of broker price opinions as an alternative to traditional appraisal.
Although not specifically addressed in the book, the author's website claims that "buying nonperforming assets in bulk amounts of $15 million or more provides an opportunity to existing homeowners to have their notes rewritten at fair market value with a principal reduction that helps keep them in their homes." To the extent that Anthony can mobilize the capital to back up his short sale rush system, perhaps this can provide significant impetus towards relieving markets glutted with foreclosure properties.
My reservations notwithstanding, the theme of Short Sale Rush is important. Holders of mortgages in default need a realistic perspective and streamlined approach to address short sale and REO properties if the housing crisis is to be resolved. It can be argued that lenders and investors should have been more realistic in assessing the default consequences of certain loan portfolios. However, the expectation of investor bail out in housing market recovery is exactly what will not happen if the foreclosure process results in significant components of the community housing supply being abandoned. Any course of action that results in qualified buyers gaining occupancy is preferable to the cancer of abandoned deteriorating housing.
(Reviewed by Brian L. Goodheim, MAI, SRA, President, RealSoft Systems, Inc., Boulder, Colorado)
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|Author:||Goodheim, Brian L.|
|Article Type:||Book review|
|Date:||Sep 22, 2010|
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