How much do lenders save by approving short sales?

Great post,I also just posted a video on the same subject.

http://activerain.com/blogsview/2012372/why-banks-do-short-sales-a-short-one-minute-video

Good post. It brought a lot of responses even if they did not all agree. It was nice to read differences of opinion all in one location.

Thanks for this bit of advice. I wasn't expecting or looking to handle short sales but I keep being approached by sellers in difficult situations.

Short Sales do net the investor more in most cases. It varies from state to state and per investor.

Thanks for sharing your insight!

I am baffled by the entire MI situation... I talked to a former bank negotiator and she said that the MI is often paid out in BOTH cases of short sale and foreclosure... So, what is it?  Or does it depend on the policy?  Agents/Brokers work really hard on this transactions ... unless the investors/services really want to make us irrate why not be upfront with the MI info from the first minute the offer is submitted?

I recently lost a short sale to foreclosure, the bank wanted $240,000 the buyer was willing to pay $180,000.  The bank and the buyer were so far apart that we ended up losing the deal.  What really infuriates me is that the bank is now marketing the property for sale for $180,000.  The property was distressed and even after paying a licensed appraiser, appraised at $181,000.  I'm not quite sure what the purpose of this difficulty is but is definately extremely frustrating.  One day maybe the banks will open their eyes, stop taking my hard earned money through tax dollars and do what is right for the seller, buyer, and all of the hard working people involved.

This is a very understandable concept, it goes along with a Bankers philosophy, "your first loss is your cheapest." To understand why a bank would want a short sale vs. the costs and added losses to a foreclosure makes sense. So my question is if this is true why do they try so damn hard to screw up the short sale and drive it into foreclosure?

Juli's comments (#21)...interesting. A Realtor friend sent me a link a couple years ago to a site which explained how the banks are 'making bank' on foreclosures. That link was down within a day....'they' don't want to the word to get out!

Steve, what I have found interesting is...where is the duty to shareholders in all of this??? The lenders havea  duty to their shareholders and despite the fact that they may claim to not actually hold the paper...they still have a duty to shareholders and the time and money spent on foreclosure is so needless.

It is odd that banks have had a conundrum of not know where there wealth lies. I had a bank recently turn away a short sale I submitted only to foreclose on the property and now the listing of that foreclosure is almost 1/2 of what the offer was on the property. 

I seemed to me there was a poor business decision made.

peace

An interesting dicussion .. and there certainly is a difference of opinion.  What a great topic.

Came from the reblog,

There are way more factors than just how much money they save. As Liz noted, they often do better if they foreclose for a lot of reasons, which might inslude better books, and untying the reserves

I am pretty sure we do not know the whole picture

As in sales the price is not everything, Lenders base their decision on more than just the amount of money

Saw last year(2011) stats that had SS @ 82% and REO's @ 60% of amount owed !

How does the governemt bail out money figure into all of this?

Loss Mitigation needs to post these numbers by their phone or tattoo it on their eye lids.  Short sales net more to the bank.  Great post!  Kristine

Steve:  I also came across this information:

Despite the ”professional” statisticians analyzing the distressed property markets, one independent brokerage decided to gather the facts themselves. They concluded that in 2011 bank owned foreclosure properties sold for 24% less than short sales.

McGeough Lamacchia Realty, with offices in Massachusetts and New Hampshire, apparently got fed up with all the talk about losses in the market and decided to gather their own facts. Their results are reported at http://bit.ly/A1M8XT .

They concluded that the average REO price for 2011 in five major distressed markets was 24% lower than the average short sale price, which was actually an improvement from 26% in 2010. (Southern California though was 23% in 2011, compared to 22% in 2010.)

Unfortunately, how many times have we seen a high BPO kill a deal only to watch the property sell as an REO for less than the short sale offer?

I think I will link this post to every bank negotiator that I communicate with.  Assuming they have email capabilities. 

Actually, I have seen data from CoreLogic that a short sale will generally increase the lender's bottom line.  Example, how many times have you seen a short sale purchase contract turned down only to follow the REO and find it sold for less months afterword?

You are so right.  Great Blog...Thanks for sharing.

Thanks for the data and link.