LA Times Discusses Short Sales as Favorable Alternative to Foreclosure
Lenders, which can withhold approval of a short sale if they don't like the price, have resisted such sales because they are difficult to execute, particularly when multiple creditors and other parties are involved. And short sales lock in losses that might be reduced if the sale is delayed until the market improves.
Of course, a foreclosure also locks in losses, unless the bank wants to hold properties for undetermined years in the hope that markets appreciate - hardly a smart move for a lender to make! There are also some very interesting data points, and the numbers don't lie! Looking at some historical context from 2009, the growth in short sales is just mind boggling, particularly with Fannie and Freddie:
Short sales approved by Fannie Mae and Freddie Mac, which own 57% of U.S. mortgages, nearly quadrupled in the first nine months of 2009 compared with the same period in 2008. At the nation's largest mortgage servicers, short sales soared 165% to 74,513 in the first nine months of 2009 from the year-earlier period.
The article continues on to talk about the Obama administration's incentives for Short Sales under HAMP / HAFA which kick off in just a few short weeks (April 1st). Heck, even economists are mostly agreeing on the value short sales bring to the banks, the real estate market, and the economy:
Many economists view short sales as a way to address a problem that mortgage relief hasn't fixed: properties that are "under water," carrying more debt than the home is worth. "Making short sales easier would go a long way to freeing up the market," said Richard Green, director of the Lusk Center for Real Estate. "Right now, if people are under water on their house, they are really stuck."
And, none the less, the process remains difficult for investors and agents because of understaffed loss mitigation departments at banks. (Although, Bank of America is supposedly doing something about it!)
"I wouldn't call it overwhelmed," said Matt Vernon, the executive in charge of short sales and bank-owned properties for Bank of America Home Loans. "But the volume has certainly stressed our current process."
Here is one of my favorite quotes from the article, stating that banks can reduce their losses by an average of 10% by accepting a short sale:
One factor motivating banks to go along with short sales is that foreclosures typically cost more. Foreclosed properties often sit vacant, susceptible to damage from neglect or vandals. A study by Amherst Securities Group found that prime loans took an average loss of 45% in a foreclosure as opposed to 35% in a short sale. "The bank or the investor is going to lose money on a short sale or a foreclosure," said J.K. Huey, senior vice president of Wells Fargo Home Mortgage. "You don't lose as much if you sell the property when it is occupied."
It also delves into the tricky situation caused by 2nd mortgages / lienholders:
Of the 1.2 million U.S. properties in foreclosure, about 34%, or 403,670, have a second loan, according to RealtyTrac. In California, with 280,023 properties in foreclosure, about 46%, or 128,800, have a second loan. "Those junior liens make short sales much more difficult and they make modification much more difficult," said Michael LaCour-Little, a finance professor at Cal State Fullerton who has studied the issue. The different banks "often have no incentive to cooperate."
All in all, definitely one of the better articles I've seen summarizing all the current news about short sales. I think the article could also have mentioned some of the recent fraud with 2nd lienholders as well as the importance of investors to the short sale process as well.
What are your thoughts? We'd love to hear from you in the comments!
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