Bank’s Change in Short Sales Policy Could Contain Foreclosures
Desperate to reduce losses the Bank of America is changing its policy towards short sales. This will help in containing the increasing number of foreclosures. Borrowers will find it easier to sell their homes and thus avoid facing foreclosure.
Till last March 2009, Bank of America (including its take over of Countrywide Financial) had stipulated that it would grant permission for a short sale only if 10% of the sale price was given towards paying home equity line of credit. Terry Francisco a spokesperson of the banks offices in Charlotte said that the bank had changed its policy from the third week of April and reduced the condition to 5% of the selling price when there is no equity to borrowers of the first and second liens.
The bank has realized that it is to the interest of all concerned parties to agree to a short sale avoiding the foreclosure route. Francisco explained, “We believed that the previous policies set an arbitrary amount that did not take into account the savings derived from proceeding with a short sale.” Bank of America is optimistic that this change in their policy will increase short sales. However it reserved rights to follow up deficiency judgments against the borrowers.
Moratoriums had been placed on foreclosures during the holiday season at the close of last year and the beginning of this year. This was extended with the lenders waiting and watching to see the lines taken by the Obama administration. Now that the moratorium has been lifted the bankers are gearing up to deal with a flood of foreclosures. They are sifting through the countless sands to find out who will be permitted modifications and who will be pressed with foreclosures.
Borrowers complain that till now they have faced difficulties with lenders refusing to agree to short sales. The prices offered are less than the loan amount and thus the lenders are reluctant to suffer losses. But now the lenders are seeing that by taking the foreclosure route their losses would be 30% more than if they permitted short sale.
The price of houses continues to fall and this is making the servicers change the stand they have so far taken. The lien issue is a sensitive matter because lenders fear that those with the primary lien will take away the lion’s share leaving nothing for the second lien holder.
