"Higher Loss Severities on Foreclosures” Sounds boring but it impacts all of us

By
Real Estate Agent with Keller Williams Realty Louisville East (502) 664-7827

Every time a bank beats up a short sale seller and their Realtor, the banks are delaying the recovery of the great United State of America.

OK, let’s simplify. The “Loss Severities on Foreclosures” is the percentage of principal the lender loses when they foreclose. Once you add legal costs, holding costs, maintenance, declining values, insurance and other expenses, the loss severity is very high.

Don't Take my word for it. Do your own Research

The “loss severity” of a foreclosure is much higher than a short sale, as reflected in a myriad of articles that can be found simply by googling Loss Severity Foreclosure vs Short Sale. Loss severity for foreclosures are 15% to 25% higher for foreclosures than short sales.

That means a foreclosure costs the banks ADDITIONAL $25,000 to $250,000 of losses ABOVE what they would have lost in a short sale, depending if it was a $100,000 or $1,000,000 house. I think those numbers are conservative and are really higher. I have tracked many denied short sales and how low they sold a year later as abandoned, mold infested, vacant dumps.

Alarm Bells Are Being Sounded. Banks Ignore.

The higher losses caused by a foreclosure compared to a short is well known both by ivory tower theoreticians and by front-line short sale Realtors. The blogosphere knows it and is sounding alarm bells.

The mainstream media will figure it out in a year or two, but they probably won’t report on it because it’s too boring and too complicated to fit into a 30 second sound bite. Academicians will write what they think are insightful Ph.d’s theses in 5 years once they filter through flawed and incomplete data, and even then they’ll pin the tail on the political party that they don’t like.

Where is the Logic?

The logical conclusion today would be for the lenders to expedite short sale processing and inject more logic, reason and speed into their decision making. Instead, they throw delays and trivial demands and major resistance at those who are trying to help them.

Faster and Better Short Sale Processing Will Help the Banks. Don't They Owe That to Their Investors and Shareholders?

  • The faster the banks cycle through these troubled mortgages, the faster the housing crisis will be over.
  • There will be less vacant and blighted houses and neighborhoods. This will help the banks, too.
  • Less borrowers will incur less devastation to their credit and get back into home ownership faster, thus reducing future inventories faster. This will help the banks, too.
  • Consumer confidence will grow. This will help the banks, too.
  • The banks will incur less losses. This will help the banks, too. There will be less bank failures and less need for bailout money. Not sure if the banks would be happy to lose that safety net.
  • There will more money spent on peripheral items related to moving into new houses:  landscaping, moving vans, painting, contracting, furniture, the whole ripple effect of costs of a new dwelling. More employment means less contractors and service providers will go into foreclosure, this will help the banks, too.

Every time, which is tens of thousands of times a day, that a bank beats up a short sale seller and their Realtor, the banks are delaying the recovery of the great United State of America.

This is important to all of us who love America.

Posted by

 

 

Dave Halpern, Realtor

The Dave Halpern Real Estate Group

Keller Williams Realty Louisville East

Website David.DavidHalpernRealtor.com

(502) 664-7827

 

 

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Rainer
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Not a real person
San Diego, CA

“Ivory tower theoreticians.” I have to remember that. I think they are a great part of the problem.

Best wishes for health, happiness, peace, and prosperity in 2011!

Dec 31, 2010 12:10 PM #2
Rainmaker
468,350
Marcy Moyer
eXp Realty of California Silicon Valley Probate, Trust, and Investment Sales - Mountain View, CA
Probate, Trust, and Investment Specialist

Not only do the banks need to understand this, which I think many of them do, but the investors who own the loans need to get it also. They are often the ones who derail the short sale.

Jan 01, 2011 03:22 AM #3
Rainmaker
525,764
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Russel,

Thanks for making it through my long post. As much as I'd like to, some of these concepts shouldn't be condensed into bite-size anecdotes. Thanks for reading and commenting.

Jan 01, 2011 03:54 PM #4
Rainmaker
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Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Marcy,

I agree with you. The servicers and some of the investors understand. But there are so many reports that lenders get reimbursed more in a full foreclosure than in a cheaper short sale. I had a lender tell me that FHA will reimburse them more than market value.

Jan 01, 2011 03:57 PM #5
Rainer
24,607
Trent Chapman
Keller Williams -New Future Team - San Marcos, CA

Well put Dave.  I do believe the banks 'wish' they could be more efficient at short sales, but in all honesty, they thrive on dragging this thing out.  They get to spread their losses as they ride a slow, soft landing.  This has made it so that the consolidation of banks has created 3-5 mega banks who all bought other bank assets at such deep discounts, that the performing assets that were picked up on the cheap offset the losses while they ride this zero cost of money that the government is currently offering.

It really comes down to 'low level employees' at the banks and their inability to take care of business.  For the most part, they have been the problem (granted, uneducated agents cause a backlog in the pipeline too) and until banks figure that out or until enough agents take it upon themselves to ensure the banks do what's best for them, good short sale deals will fail and homes will continue to foreclose.

 

Trent

www.TheShortSaleGenius.com

Jan 01, 2011 07:23 PM #6
Rainmaker
525,764
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Trent,

I think you're right. No one will know unless a bank executive writes an expose'. It is so nonsensical to the regular guys like us. There's either total chaos on the banks and the investors who hold the loans or there's a deliberate secret strategy that may come out. We may not ever know.

Jan 02, 2011 07:45 PM #7
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Rainmaker
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Dave Halpern

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