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.