Don't be Short Sighted on Short Sales
The short sale process will change radically as we proceed into 2010. The change will create a surge in short sales. Let me give you evidence from which I draw that conclusion.
1) Short Sales are already increasing rapidly.
Though, according to the Office of the Controller of Currency, there were only 35,428 short sales completed in the first half of 2009, there were 30,766 completed in the third quarter alone which represents a 22.4% increase over the previous quarter. The fourth quarter numbers are not yet in, but they will show another major increase.
2) The government has determined that short sales are the answer.
The administration announced new short sale guidelines (HAFA) that will go into effect on April 5, 2010. These guidelines address the major challenges to the process which negatively impacted close ratios.
The Inspector General of TARP, in his most recent report to Congress, said:
HAFA creates financial incentives for borrowers, servicers, and investors to avoid a foreclosure by utilizing a short sale or a deed-in-lieu of foreclosure. According to Treasury, these options generally provide borrowers, investors, and communities with a better outcome than a typical foreclosure sale.
In an article in Housing Wire this week, it was reported that Seth Wheeler, senior adviser to the US Treasury Department, while at the American Securitization Forum 2010 conference in Washington DC, said the focus of the Administration is shifting somewhat away from modifications:
"Short sale, deeds in lieu are other ways to prevent foreclosures to help achieve (housing) stability," he said. "Modifications are only for a certain subset of distressed homeowners."
3) Banks are realizing that they lose less money on a short sale than they do on a foreclosure.
In an article in the Las Vegas Sun titled: Short Sales Soar While Foreclosure Sales Slacken it was reported:
In Las Vegas, banks make $80 per square foot on foreclosures but $130 per square foot on average in short sales, said Steve Bottfeld, executive vice president of Marketing Solutions.
"I think the bottom line is that short sales ultimately replace foreclosures because of the financial impact on the financial institutions," Bottfeld said. "The banks are going to look at it differently and opt for more short sales."
From the same article:
Dennis Smith, president of Home Builders Research, said short sales will be the "story of the year" because of the effect they will have on the housing market.
"It should cause prices to increase a little," Smith said. "We have seen prices flatten the last five to seven months, and one reason is because we haven't been flooded with all these foreclosures. They are doing more short sales."
4) Companies are gearing up for the surge in short sales:
Wilshire Credit Corp., the mortgage servicer bought by IBM in October, is getting set to receive a substantial servicing portfolio (short sale possibilities) from the mortgage giant Fannie Mae according to industry sources. In the article announcing this, Housing Wire said:
Any mortgage servicing put with Big Blue and Wilshire Credit, however, would not include management of bank-owned properties within the portfolio. REO Insider, a sister publication, broke the news Wednesday morning that Wilshire Credit would shed its REO operations by March 1 - seemingly to gear up for the weight of the Fannie portfolio.
Even the banks are getting ready. According to an article in DS News:
Major banks are preparing for an influx of short sales. Many claim to have hired extra staff to handle short sales, and some have purchased new software to assist in the process. JP Morgan, with one of the highest default rates in the industry, says it has hired 5,000 new employees to handle distressed sales.
Bank of America services about 14 million mortgages, including millions of troubled loans it acquired in the purchase of failed Countrywide Home Loans. The lender says it has also taken steps to prepare for an increase in short sales by upgrading its system to handle these types of transactions.
For these four reasons, I believe short sales will have a major impact on the housing sector in 2010. If you are a homeowner who finds themselves underwater on their mortgage, it is a much better alternative to foreclosure.
Comments(0)