Seen on CR, this summary on Bloomberg discusses the recent developments with short sales, DILs, and loan modifications.
The article’s ending:
Short sales benefit a neighborhood because they clear out stagnant properties that may have an adverse effect on values, said Sean Shallis, a senior real estate strategist (ed. note: he’s a realtor) with Weichert Realtors in Hoboken, New Jersey. Shallis has one home with bank approval for a short sale and three others waiting approval on the same street in Jersey City with views of the Manhattan skyline.
“In every case we had multiple offers from people who had plenty of money to put down,” Shallis said. “Americans are out there still buying homes and trying to move it along.”
Short sales also help the bank, because foreclosed properties lose more value when they are vacant or a homeowner vandalizes a house on the way out, Sunlin said.
“We typically expect a 10 to 15 percent decrease of loss severity with a short sale,” Sunlin said.
Losses on prime loans going through the foreclosure process averaged 49 percent versus 34 percent for a short sale as of Oct. 1, according to a Nov. 10 report by Laurie S. Goodman, senior managing director of Amherst Securities Group LP. For subprime loans, losses averaged 73 percent for a foreclosure compared with 59 percent for a short sale.
“The loss severity of short sales is lower but it’s not low,” Goodman said.
For a borrower’s credit history, a short sale is typically reported as “settled” and considered as severe as a foreclosure, said Maxine Sweet, vice president of public education for Experian PLC, the world’s largest credit-reporting company. The impact of a short sale on a credit score is similar to that of a foreclosure. It may drop a credit score of 780 to 620, according to Minneapolis-based FICO Corp.
For sellers like Drew Schlosser, who bought 10 properties in Florida as investments during the housing bubble, getting a short sale was a relief even if the process was difficult.
Schlosser said he had to provide Wells Fargo a hardship letter, demonstrating that his financial situation merited a short sale. He also had to provide pay stubs, bank account information and past tax returns. To avoid fraud, the bank also required evidence that the transaction was an arms-length sale and not to one of his relatives, he said.
“They don’t agree to do it because you’re upside down,” Schlosser said. “If they think you can pay for it they’re not going to let you out of it.”
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The article also has a link to the government’s assistance package, which includes $1,500 moving incentive to the borrower, $1,000 to the servicer, and $1,000 to the lender for every short sale or deed-in-lieu processed successfully.
The most shocking requirement? The government is hoping to get borrowers off the hook:
With either the HAFA short sale or DIL, the servicer may not require a cash contribution or promissory note from the borrower and must forfeit the ability to pursue a deficiency judgment against the borrower.
Will lenders/servicers agree to forfeit deficiency judgements for a measy $1,000 per loan?
Is this really going to help?Everyone knows short sales are very difficult to close.As I talked about in earlier posts I think it is best to put out at least 10 offers hoping one sticks.why waste your time hoping a short sale will go through after 6 months.This is a big problem in the market right now.Inventory seems low and the only thing for sale are short sales for the most part.I think the bank should foreclose and get the inventory on the market quick.There are buyers out there right now.
“Will lenders/servicers agree to forfeit deficiency judgements for a measy $1,000 per loan?”
If it is a FNMA or FMAC loan that is delinquent, or defaulted HAMP mod, I think they will.
Interesting that this program is slated to start in April 2010. In one sense, I give the govt. credit for looking ahead on what will likely be a high recidivism rate on the HAMP mods.
Also interesting that this shows up only in the servicing guidelines without the usual big govt press release trumpeting their new programs. Not very consistant with their usual press releases emphasizing efforts to keep people in their homes.
DILs should be called by their full name, Deed-In-Lieu Defaulted Owner.
Agreed on the agency paper, but they are offering these terms to non-agency paper holders too.
A collection agency would probably be happy to offer $1,100 for every loan over $100,000 and go to work on collecting.
What an abuse of data. Foreclosures occurred more often in the worst neighborhoods with few owner occupied homes. That is why foreclosure severity is higher than short sale severity.
Due to the difficulty in closing a short sale, because processors (not banks, banks hold very few loans), need to be highly aware of fraud a short sale will sell for less than an equivalent foreclosure.
Even worse, since the real estate industry has convinced sellers a short sale prevents credit damage (something the credit score people say is untrue), more people are looking to a short sale as an escape versus making their payments (increasing time to close cause there needs to be proof the person is unable to meet their contractual obligations).
Short sales hurt the market and despite Sean Shallis’ insistence people are prepared to buy short sales. Of course finding a way to increase affordable inventory increases a realtor’s paycheck.
BTW I have used Sean as a realtor, great negotiator to have on your side, just do not believe anything he says.
Mr Sunlin even if your assertion about damage and vacancy is correct the increase in people not paying their mortgage makes the loan holders worse off.
I am blown away that in the legislation the realtor actually got it worded that the processors needed to pay the realtors their full 6% on short sales. So much for the only sellers in town being allowed to set their own price.
I agree with “buy a house”. There is too much fraud going on with short sales these days.
It really irks me to see short sales offered on multi-million dollar second and third resort homes here in country club heaven. Lots of fishy deals. The lenders should just bring down the hammer. Flakes, in any economic level, should not get a free pass.