How much do lenders save by approving short sales?

Reblogger Kevin B. Tolbert PA Team
Real Estate Agent with Keller Williams Realty of Port Saint Lucie BK3059813
http://actvra.in/jRj

Finally, a statistical blog worthy of reblogging.

Thank you so much for doing the legwork to research this and supplying the link to share with our customers to show just another factual reason why lenders are more apt to approve the short sale rather than foreclose.

 

Original content by Steve Mun Cal BRE# 01358433

Why would banks agree to a short sale when they know they are going to be losing money?  This is the question I get posed to me frequently.  My answer: it costs them less money than to foreclose on a property; lenders’ primary responsibility is to mitigate their losses. Once we understand that, then the concept of a short sale is really not a mystery.

When you speak with short sale negotiators and other people in the industry, it is common knowledge that banks make more money when the sale is completed through a short sale, rather than permitting a property to go into foreclosure.  This was the unspoken truth that everyone acknowledged but no lender published any data to support or deny these truths.  Not having published data can be problematic for bloggers, as  postings are much more credible when there is data to support your contentions, rather than anecdotal evidence.

Today, for the first time, I discovered published data which sheds light into the true disparity between homes that are disposed as short sales vs. those disposed as REOs after returning to the lenders after foreclosures.    Short Sales net the banks between 13-26% more than REO sales according to Clayton Holdings after conducting a 6 month survey conducted between October 2009 – March 2010. (I've heard higher percentages).

13-26% is a nice tidy bag of cash for the lender holding those underwater mortgages; fantastic job of mitigating their loss.   And people still wonder why short sales are approved.

http://www.housingwire.com/2010/06/10/clayton-finds-short-sales-cut-loss-severity-compared-to-reo

 

 

 

Steve Mun, e-PRO®, QSC®, CDPE®, CHS® 
www.stevemungroup.com

www.sanjoseshortsaleagent.com
650-605-3188

Cal Dre#: 01358433

 

Ask me about my Foreclosure Prevention Program

CDPE - Short Sale and Foreclosure Education

 

QSC

 


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Rainmaker
1,036,560
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

Short sales do seem to make more sense for the banks.  The REO's often have so much damage that the average buyer can't take on all the repairs.

 

September 17, 2011 10:43 PM #1
Rainmaker
133,587
Marcia Kramarz
Re/Max Executive Realty - Medway, MA
CDPE,LMC,CBR

It's as simple as that - Mitigating Risk - Maybe if banks are proactive when they know a seller is ready to foreclose - that they try to get them into th eshort sale process - Rather than waiting for the short sale process to begin... just a thought

September 17, 2011 10:46 PM #2
Rainmaker
444,129
Chandler Real Estate Liz Harris, MBA
Liz Harris Realty - Chandler, AZ
#ChandlerRealEstateAgent

Doesn't this have something to do with the MI companies who ONLY pay out in the event of a foreclosure and not in the event of a short sale?

September 17, 2011 10:53 PM #3
Ambassador
1,328,942
Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Selling Daytona paradise for heavenly good prices

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

September 17, 2011 11:00 PM #4
Rainmaker
63,131
Amy Shair
Cary Durham NC Referrals - RE/MAX United - Search Durham Homes - Duke University, NC
Award Winning Agent 20+ Years

If a buyer waits for a property to be foreclosed and come back on the market it can take weeks or months. Meanwhile the houses sometimes are not winterized and secured properly. The banks are willing to do accept a short sale rather than a foreclosure for different reasons. The investor is one reason and another is the mortgage insurance company involved.

September 17, 2011 11:08 PM #5
Rainmaker
1,329,682
Charles Stallions
Charles Stallions Real Estate Services - Pensacola, FL
800-309-3414 - Pensacola, Pace or Gulf Breeze, Fl.

Good post, the cost of lawyers and their fees alone should make a bank consider a short sale as well.

September 17, 2011 11:20 PM #6
Rainer
201,577
Mary Macy
Top Agents Atlanta Metro - Roswell, GA
Top Agents Atlanta Metro

It is interesting how the banks figure it, our experience has been that many short sales are selling for less than foreclosures all things being equal, amazing.

September 17, 2011 11:56 PM #7
Rainmaker
969,751
Kevin B. Tolbert PA Team
Keller Williams Realty of Port Saint Lucie - Saint Lucie West, FL
New Home Construction and Luxury Specialist!

Joan,

You are so right.  It has become our experience that SHORT SALES are a better value than foreclosures as the owners take better care than the foreclosures.

 

September 21, 2011 04:28 PM #8
Rainmaker
969,751
Kevin B. Tolbert PA Team
Keller Williams Realty of Port Saint Lucie - Saint Lucie West, FL
New Home Construction and Luxury Specialist!

marcia,

The lenders have heard our cries.  Short sales closing in under 30 days recently are a great improvement and proof of the changes.

September 21, 2011 04:29 PM #9
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Rainmaker
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