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I'm NOT buying the SHOCK! Lenders make more money on foreclosures than short sales!?

A great series of articles to consider......

I have to point out however that a basic tenet of a short sale is that the consumer is TYPICALLY 3 months behind, often recommended by the lender AND/OR the realtor/loan modification consultant, creating a loan that is no longer PERFORMING, which thereby accelerates countless advances, accrued interest, and a severe drain on cash flow to the lender.

Secondly, if an insurance company (MI) is covering the loss, than I do understand why a bank would choose NOT to approve a short sale. As industry professionals, while we may not like this, we must understand that each short sale transaction today is as unique as a human fingerprint.

What say you? Do you like to finance short sales? Even handle them?

I'm curious as to your feedback.....

Via Pacita Dimacali - e-PRO, SRES, CDPE, MBA East Bay, North CA real estate (Gallagher & Lindsey):

Lenders make more money on foreclosures than from short sales or loan modifications. That's what Steve Harney conveyed in a seminar. He caused an earthquake in San Francisco

When loan modifications are turned down, the next thing we attempt is a short sale. And we know that lenders turn over the short sale accounts to loan servicing companies who make our lives hell getting short sales approved. As such, we should know that these loan servicing companies make MORE money by letting the properties foreclose than to approve the short sales OR the loan modification.

RUMBLE...GRUMBLE...CRIES OF DISMAY!

Did he just confirm what we were afraid of?

So I researched this topic and found a few articles worth reviewing. How did I miss these? Was I under a rock in a desert?

CONSUMERLAW.ORG REPORt ON "Why Servicers Foreclose when They Should Modify And Other Puzzles of Servicer Behavior"

DAILY PRESS headline. Oct, 30 2009. Do Mortgage Lenders Make More Money when a Loan Goes iInto Foreclosure?

HUFFINGTON POST. Oct. 21, 2009, Foreclosures Are More Profitable Than Loan Modifications, According To New Report

Washington Post. July 28, 2009. Foreclosures Are Often In Lenders' Best Interest. Numbers Work Against Government Efforts to Help Homeowners.

ThinkGlink. October 21, 2009. Loan Modification Help: Why Lenders Are Slow To Provide Loan Modifications

Dayton Daily News. Oct. 17, 2009. Drop in foreclosures called "very scary". Lender's actions show they think properties are not worth pursuing.

Mortgage101.com. October 23, 2009. Mortgage Companies Make More on Foreclosures Than They Do Modifying Existing Loans. (This blog refers to the news article on Huffington Post)

FLASHBACK: Huffington Post, June 8, 2009. Short Sales: Banks Blocking Way Out of Foreclosure Crisis

FLASHBACK: Huffington Post, May 15, 2009. Short Sales Stories. Lenders tend to stick with more familiar foreclosure process, losing money for everybody.

UPDATE: Huffington Post, November 2, 2009. Homeowners: "Hey Congress, Get Off Your A**"

KNOCKING OURSELVES OUT TRYING TO HELP

So are we engaging in self-flagellation helping our distressed clients with their short sales and loan modification?

Are lenders really more likely to foreclose?

Are the short sale servicing companies really trying to help?

Or are they stalling and withholding their help because they know their leaders would rather have the property burn into foreclosure?

Is there no resolution in signt?

There oughta be a law!

Posted by Bill Nazur on 11/07/2009 11:10 PM

Comments (6)

Foreclosure vs Short Sale in the Mortgage / Finance Channel

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6 Comments on I'm NOT buying the SHOCK! Lenders make more money on foreclosures than short sales!?

NOV

I do a lot of work with Short Sales and REO's and have been told directly that the banks make more on the REO's (foreclosures)

While I hate to harp, I must harp. For two years now, I'm been harping, yes, I do harp about the fact that it is often in the lender's best interest to foreclose rather than approve a short sale.

What is so indisious is that they FIRST advise the home owner to default. Yes, even if the loan is current, the home owner may often have to default, ruin their credit and then wait for 6 months only to have a short sale rejected and find themselves in foreclosure ANYWAY.

Doug

Often times they do make more money on the foreclosure, due to the insurance payout. It all depends on whether lender paid (or pooled MI) coverage exists. I don't fault them for this. It is kind of like gap insurance on a vehicle.

Lenn

You are allowed to harp....:) I'm just happy to be back.

It is true that many advise the homeowner to default because the end investor requires this. This is a common misunderstanding, and actually not a requirement.....let's call it common practice, but not a requirement except to show some genuine need. I've reviewed many short sale scenarios where the clients had a legitimate cause, 780 FICO scores, that just wanted to do everything in their power to preserve their individual credit while working with their lender to eliminate (or mitigate) their liability to the bank.

NOV

Well, you know my take, that if the price is high enough, the lender is likely to approve the short sale. I'm getting short sales approved with MI as well. It just adds another layer to the process, that's all.

Elizabeth

Exactly....the extra layer doesn't mean the deal won't happen, you just have to go into it with an understanding of the facts.

Hope you are well.

DEC

In my experience lenders are far more inclined to agree to a short sale with higher priced homes... in my area banks were willing to consider short sale on new construction and upper level priced homes. In most cases they would get back to you with de3cisions fairly quickly. On the other hand homes at the lower end of the price scale are often turned down after months of negotiation.

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