Three years into a U.S. housing slump that pressed the economy into a recession and reduced resale values and Miami real estate by 30% from the peak in July 2006, more and more banks are beginning to accept increasing numbers of short sales. In the first six months of 2009 short sales almost tripled to 40,000, from the same period a year earlier. However, according to data from the Office of Thrift Supervision and the Office of the Comptroller of the Currency, for each short sale there were 25 foreclosures started or completed in the first half of this year.
This year, Wells Fargo, Bank of America Corporation and JPMorgan Chase & Company have hired and trained more staff, developed software systems for accelerating short sales and increased marketing of short sales to delinquent borrowers.
Under pressure from the Obama Administration and lawmakers who criticized them for favoring foreclosures and delaying short sales, banks are increasing such sales. Under a Treasury Department plan unveiled November 30, lenders and loan servicers also stand to receive up to $2,000 in incentives to close short sales.
HELP FOR HOME BUYERS
Some home buyers and Miami real estate brokers are benefiting from the banks agreeing to take losses on mortgages.
In March, one potential home buyer started looking for a Miami real estate property and said she felt locked out of the market until short sales in her price range became available.
Lender Countrywide Financial Corporation, now part of Bank of America, lost about $150,000 on the $406,000 loan to the previous owner, her Realtor said. Wells Fargo settled the second $47,252 mortgage on the home for less than 10 cents on the dollar, she said.
She said there were times that she looked at homes but could only afford a condo. In May, she closed on a 3 bedroom “fixer upper” for $280,000 saying and said, “By the time it ended I felt lucky.''
Lender Countrywide Financial Corporation, now part of Bank of America, lost about $150,000 with the previous owner on the $406,000 loan. On the second $47,252 mortgage on the home, Wells Fargo settled for less than 10 cents on the dollar.
According to the S&P Case- Shiller home price indexes, the price of a single family home has dropped 38% since the peak. `Things are changing and all of a sudden the banks are being more cooperative.'
Reed said she completed four short sales in the past four months and the banks agreed to as much as $400,000 in losses.
Lenders have been hesitant to do short sales because they didn't have procedures for employees to approve a financial loss for the company. Since there are not good structures in place to incentivize the losses no one wants to stick their head out and make a decision.
Because homeowner associations, mortgage insurers and second-lien holders may not agree to the terms of the deal, bankers have been slow to sign off on short sales.
BREAKING OLD TRENDS
Offering loan modifications as an alternative to foreclosure, lenders have tried to keep borrowers in their homes. According to a September 30 report by the Office of the Comptroller of the Currency, more than half of the modifications of delinquent mortgages redefaulted within a year.
According to RealtyTrac, which compiles and sells U.S. mortgage delinquency data, pressure is building to approve short sales as the number of delinquent mortgages has grown to 3.2 million and an estimated 7 million foreclosures are foreseen in the next two to three years.
Scheduled to take effect in April 2010, new Treasury Department guidelines for foreclosure alternatives will require lenders to consider borrowers for a short sale on their primary residence 30 days after missing two consecutive payments on a modified loan or after the borrower requests a short sale.
The Treasury Department will provide up to $1,500 for a homeowner to relocate, $1,000 to loan servicing companies that accept a sale and a maximum of $1,000 to help settle a second mortgage or subordinate lien. Under the Treasury plan, a lender must agree to release the borrower from all liability for repayment for the mortgage.
Short sales help a neighborhood because they get rid of older properties that may have a harmful effect on values.
Contributed by MLR Realty
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