The buzz in the industry seems to be mostly about foreclosures in Sacramento. People are talking about the shadow inventory, wondering what happened and when we'll see it hit the market. As the Sacramento Bee reported yesterday, foreclosures are falling. But short sales in Sacramento are on the rise. Almost one in four closed sales in Sacramento is a short sale. That's not to say, however, that short sales are replacing foreclosures.
I see three things going on. First, I'm getting short sale approval on some of my really old files. Buyers who have been patiently waiting since last summer are now going into escrow. My new short sales, especially those with Bank of America, are getting approved much faster, some in fewer than 30 days from submission to Equator.
Second, banks are selling foreclosures either privately in bulk or at the courthouse steps to investors. More flipper homes are showing up in MLS. Investors are purchasing these homes at incredible discounts from the banks, fixing them up and putting them back on the market. It makes sense because the banks get them off their books, and first-time home buyers generally do not have the money nor the expertise to restore some of these homes to livable conditions.
Third, I predict we'll start to see more Alternate-A and A-Paper loans going to short sale. These are the sellers who are tired of getting the short end of the stick. They're underwater and nobody is helping them. These sellers enjoy high FICO scores, pay their bills and are not in default. But many of them don't want to continue paying for a home that is worth less than what they owe. They see that sellers with subprime mortgages received a free ride and the banks let those guys off the hook. They're gonna start saying, "What about me? What do I get?"
The problem, of course, is qualifying for a short sale. Some of these sellers have little or no hardship. But it doesn't mean they can't do a short sale. Banks approve short sales for sellers with assets and disposable income; they grant short sales by asking for a seller contribution under those circumstances. That amount is negotiated. A bank might ask for 10% of the principal balance, and we might settle somewhere around 10% of that amount. It's not the end of the world and it offers a way out.